<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
----------------------------------------------
Commission File Number 0-16595
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SUBURBAN BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant's as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 54-1319411
- -----------------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
7505 Greenway Center Drive Greenbelt, Maryland 20770
- -----------------------------------------------------------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
</TABLE>
(301) 474-6694
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(Registrant's telephone number, including area code)
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(Former address if changed since last report)
Common Stock, Par Value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class)
Name of each Exchange on which registered: N/A
--------------------------------------
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
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the Company's voting stock held by non-affiliates
on March 2, 1998, based on the average of the closing bid and asked prices of
such stock on that date: Approximately $40,040,391
-----------------------------
<TABLE>
<S> <C>
Common Stock $0.01 Par Value Outstanding at March 2, 1998
------------------------------ ----------------------------
(class) 10,951,218
</TABLE>
<PAGE> 2
Documents Incorporated by Reference
Portions of the Corporation's 1997 Annual Report to Shareholders are
incorporated by reference in Part II to the extent provided in Items 5, 6, 7
and 8 hereof.
Portions of the Corporation's definitive proxy statement relating to the 1998
annual meeting of shareholders are incorporated by reference in Part III to the
extent provided in Items 10, 11, 12 and 13 hereof.
PART I
ITEM 1. Business
GENERAL
SUBURBAN BANCSHARES, INC. (the "Company" or "Bancshares"), which is
headquartered in Greenbelt, Maryland, was formed under the general corporation
laws of the State of Delaware in 1985 and is registered as a bank holding
company. The Company formed two national banking associations in Northern
Virginia: Bank 2000, N.A. and BankStar, N.A., which were merged into a single
bank in March 1991 under the name of Suburban Bank of Virginia, N.A. ("Suburban
Virginia"). In April 1990, the Company acquired Jefferson Bank and Trust
Company, a state-chartered bank with four offices serving the Maryland suburbs
of Washington, D.C. In March 1991, Jefferson's name was changed to Suburban
Bank of Maryland ("Suburban Maryland").
On February 19, 1993, the Company entered into an Agreement and Plan
of Reorganization and Recapitalization (the "Plan") with Winfield M. Kelly,
Jr., which provided for a restructure of the Company's Board of Directors and
management, a centralization of operational functions, and the commencement of
a public offering to raise between $4 and $7 million in new capital. The
offering was concluded on September 27, 1993, with the sale of 5,756,294 shares
with total proceeds to the Company totaling $5,613,237. Warrants which
accompanied the new shares and which were exercisable in 1994 and in 1995,
raised another $1,949,849 in new capital.
On May 12, 1995, the Company completed the disposition of most of the
assets and all of the deposit liabilities of Suburban Virginia to Tysons
Financial Corporation and its subsidiary, Tysons National Bank in McLean,
Virginia. In August 1995, the remaining assets and liabilities of Suburban
Virginia were merged into Suburban Maryland (the "Bank") in a transaction
accounted for as a pooling of interests.
In October 1996, William R. Johnson announced that he would step down
as President at the beginning of 1997, and on January 2, 1997, Stephen A.
Horvath was named President and Chief Operating Officer of Suburban Bancshares,
Inc. and President and Chief Executive Officer of Suburban Bank of Maryland.
Mr. Horvath also serves as a Director on the Boards of Directors of the Company
and the Bank.
Currently the Company has a total of seven offices located in the
Maryland suburbs of Washington, D.C. in the communities of Greenbelt, Capitol
Heights, Clinton, Oxon Hill, Rockville, Bethesda and White Flint. The counties
of Prince George's and Montgomery are the Company's primary markets, but also
served are the surrounding counties in Maryland and the District of Columbia.
The Bank provides a variety of general commercial and retail banking
services, which include lending, depository, cash management and related
financial services to business and professional customers, as well as retail
customers, on a personalized basis. The primary focus of the Bank is toward
the small businesses and professionals and their employees in their market
service areas, providing such services as SBA (Small Business Administration)
loans, commercial loans, asset-based and government contract loans, commercial
and residential real estate loans, and consumer-type loans such as home equity,
vehicle, home improvement, mortgage and personal loans. The Bank also offers
ATM access, credit cards and other financial services.
The Company is not dependent upon a single customer, or a few
customers, the loss of one or more of which would have a material adverse
effect on its operations. The operations and earnings of the Company are not
materially affected by seasonal changes or by Federal, state or local
environmental laws or regulations.
COMPETITION
The Bank operates in a highly competitive environment in which it must
share its market with large regional banks as well as institutions not subject
to the regulatory restrictions of banks and bank holding companies, such as
money market and other mutual funds.
2
<PAGE> 3
ITEM 1. Business (continued)
The Bank encounters competition from diversified financial institutions,
ranging in size from small banks to the mega-banks operating in the
Mid-Atlantic region, and include commercial banks, savings and loan
associations, credit unions and other lending institutions.
The principal competitive factors among the Company's competitors can
be classified into two categories: pricing and services. Interest rates on
deposits, especially time deposits, and interest rates and fees charged to
customers on loans are very competitive. From a service perspective, financial
institutions compete against each other in convenience of location, types of
services, service costs and banking hours. The Company is generally
competitive with institutions in its primary service areas with respect to
interest rates paid on deposit accounts, charges for services provided, and
interest rates and fees charged on loans.
EMPLOYEES
As of March 2, 1998, the Company employed 73 full-time equivalent
employees. The employees of the Company are not represented by any collective
bargaining group. Management of the Company considers relations with its
employees to be satisfactory.
SUPERVISION AND REGULATION
OVERVIEW
The Company and the Bank are subject to governmental supervision,
regulation and control and, as such, may be susceptible to future adjustments
and legislative or policy changes.
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended, and, as such, is subject to regulation
and supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board" or "FRB"). The Company is required to file quarterly
reports of its operations with the FRB.
Suburban Bank of Maryland is a state-chartered non-member bank and is
subject primarily to regulation and examination by the Commissioner of
Financial Regulation for the State of Maryland (the "Commissioner") and by the
Federal Deposit Insurance Corporation (the "FDIC"), which insures Bank's
deposits to the maximum extent permitted by law.
BANK HOLDING COMPANY REGULATIONS
As a bank holding company, the Company can engage in banking-related
activities as permitted by the Federal Reserve Board, directly or through
newly-formed subsidiaries or by acquiring companies already established in such
activities subject to the FRB regulations relating to those activities.
However, except for activities related to its operation as the holding company
of the Bank, the Company does not anticipate engaging in any other
banking-related activity in the foreseeable future.
CAPITAL ADEQUACY
The Bank and the Company are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank and the Company to maintain amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1997, that the Bank and the Company meet all capital adequacy requirements
to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank must maintain
3
<PAGE> 4
ITEM 1. Business (continued)
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are
presented in the table below:
<TABLE>
<CAPTION>
FOR CAPITAL TO BE WELL
ACTUAL ADEQUACY PURPOSES CAPITALIZED
(in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets):
Company $18,959 18.74% $8,094 8.00% $10,118 10.00%
Suburban Bank of Maryland 14,415 14.48 7,966 8.00 9,958 10.00
Tier 1 capital (to risk-weighted assets):
Company 17,692 17.49 4,047 4.00 6,071 6.00
Suburban Bank of Maryland 13,168 13.22 3,983 4.00 5,975 6.00
Tier 1 capital (to average assets):
Company 17,692 10.82 6,542 4.00 8,178 5.00
Suburban Bank of Maryland 13,168 8.25 6,383 4.00 7,979 5.00
As of December 31, 1996:
Total capital (to risk-weighted assets):
Company $16,689 20.45% $6,530 8.00% $8,162 10.00%
Suburban Bank of Maryland 12,292 15.36 6,403 8.00 8,003 10.00
Tier 1 capital (to risk-weighted assets):
Company 15,663 19.19 3,265 4.00 4,897 6.00
Suburban Bank of Maryland 11,286 14.10 3,201 4.00 4,802 6.00
Tier 1 capital (to average assets):
Company 15,663 12.75 4,913 4.00 6,141 5.00
Suburban Bank of Maryland 11,286 9.47 4,766 4.00 5,958 5.00
</TABLE>
4
<PAGE> 5
ITEM 1. Business (continued)
STATISTICAL INFORMATION
The following tables present statistical information relating to
Suburban Bancshares, Inc. and its subsidiaries on a consolidated basis.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
The table presented below shows average balances, net interest income
and net interest margin:
AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
Assets Average Interest Average Average Interest Average Average Interest Average
Balance Yield or Balance Yield or Balance Yield or
Rate Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 92,200 $8,752 9.49% $74,014 $7,409 10.01% $64,616 $6,525 10.10%
Investment securities 27,471 1,746 6.35% 17,325 1,080 6.23% 20,235 1,229 6.07%
Federal funds sold and other
deposits 15,730 865 5.50% 13,017 687 5.28% 10,377 604 5.82%
Total interest-earning assets 135,401 11,363 8.39% 104,356 9,176 8.79% 95,228 8,358 8.78%
Noninterest-earning assets:
Cash and due from banks 7,517 7,073 6,322
Premises and equipment 1,591 1,213 1,045
Other assets 5,302 2,155 3,124
Less: Allowance for loan
losses (1,530) (1,525) (2,342)
Total noninterest-earning
assets 12,880 8,916 8,149
TOTAL ASSETS $148,281 $113,272 $103,377
Liabilities and shareholders'
equity
Interest-bearing liabilities:
Checking, money market &
savings $ 76,276 $3,030 3.97% $56,186 $2,030 3.61% $50,455 $1,816 3.60%
Time deposits 27,111 1,490 5.50% 23,499 1,332 5.67% 23,416 1,290 5.51%
Securities sold under
repurchase agreements 1,220 50 4.08% -- -- -- 261 13 4.83%
Total interest-bearing
liabilities 104,607 4,570 4.37% 79,685 3,362 4.22% 74,132 3,119 4.21%
Noninterest-bearing
liabilities:
Noninterest-bearing deposits 24,442 19,332 18,612
Total funding sources 129,049 4,570 3.54% 99,017 3,362 3.39% 92,744 3,119 3.36%
Other liabilities 820 495 553
TOTAL LIABILITIES 129,869 99,512 93,297
Shareholders' equity 18,412 13,760 10,080
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $148,281 $113,272 $103,377
Net interest income $6,793 $5,814 $5,239
Net interest spread 4.85% 5.40% 5.42%
Net interest margin 5.02% 5.57% 5.50%
</TABLE>
Basis of preparation: Amounts are in thousands; balances are presented as
annualized daily averages; nonaccrual loans are included in the loan category
as earning assets.
5
<PAGE> 6
ITEM 1. Business (continued)
The following table presents the dollar amount of change in interest
income and expense and the corresponding amounts attributable to changes in
rate and to changes in volume:
NET INTEREST INCOME ANALYSIS
<TABLE>
<CAPTION>
1997 OVER 1996 1996 OVER 1995
---------------------------------------------------------------------------------
(in thousands) INCREASE CHANGE DUE TO INCREASE CHANGE DUE TO
----------------------- ----------------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $1,343 $(400) $1,743 $885 $(56) $941
Taxable investment securities 666 104 562 (150) 31 (181)
Money market investments 178 (38) 216 83 (60) 143
---------------------------------------------------------------------------------
Total Interest-Earning Assets 2,187 (334) 2,521 818 (85) 903
Interest-Bearing Liabilities:
Checking, savings & money markets 1,000 218 782 214 7 207
Time deposits 158 (42) 200 42 37 5
Fed funds purchased/repurchase agreements 50 -- 50 (13) -- (13)
---------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 1,208 176 1,032 243 44 199
=================================================================================
NET INTEREST INCOME $979 $(510) $1,489 $575 $(129) $704
=================================================================================
</TABLE>
NOTE: The rate/volume change is allocated between volume change and rate
change using the ratio each of the components bears to the absolute
value of their total.
II. INVESTMENT PORTFOLIO
The following table shows the estimated fair value of the investment
portfolio of the Company by category at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury $ 4,404 $ 7,379 $ 9,638
Federal Agencies 24,976 12,921 7,079
Mortgage-back obligations ("MBO") 91 166 311
Collateralized mortgage obligations -- 34 44
Other 889 790 995
------------ ----------- ----------
TOTAL $30,360 $ 21,290 $18,067
============ =========== ==========
</TABLE>
All securities are classified as available for sale.
6
<PAGE> 7
ITEM 1. Business (continued)
The table presented below sets forth by type and contractual maturity
the Company's investment securities as of December 31, 1997 (dollars in
thousands). Expected maturities may differ from contracted maturities because
borrowers may have the right to call or prepay certain obligations with or
without call premiums or prepayment penalties.
<TABLE>
<CAPTION>
Maturity - estimated U.S. Federal
fair value Treasuries Agencies MBO's Other Total Yield
- -------------------------- -------------- ------------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 Year or less $2,945 $ 1,197 $ -- $ 291 $ 4,433 6.20%
> 1 to 5 Years 1,459 19,270 13 598 21,340 6.21%
> 5 to 10 Years -- 4,509 -- -- 4,509 6.86%
Over 10 Years -- -- 78 -- 78 7.25%
-------------- ------------- ---------- --------- ----------- ------------
Total estimated
fair value $4,404 $24,976 $91 $889 $30,360 6.32%
============== ============= ========== ========= =========== ============
Yield 6.17% 6.35% 7.04% 6.08% 6.32%
Weighted Average
Maturity in Years 1.03 3.17 14.49 1.45 2.84
</TABLE>
None of the Company's securities holdings by individual issuers (excluding the
United States government or its agencies) exceeded 10% of total shareholders'
equity at December 31, 1997.
III. LOAN PORTFOLIO
The following table presents the major categories of the Company's
loan portfolio at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Construction $ 12,071 $ 9,944 $ 4,461
Real Estate 44,181 35,157 32,098
Commercial 49,644 21,941 20,030
Individual 5,069 5,046 4,622
Other 2,578 1,360 1,811
-------------- -------------- -------------
$113,543 $73,448 $63,022
Less: Allowance for loan losses (1,473) (1,508) (1,467)
-------------- -------------- -------------
Total loans, net $112,070 $71,940 $61,555
============== ============== =============
</TABLE>
The following table presents the contractual maturity distribution and
interest-rate sensitivity of the Company's commercial and real estate loans at
December 31, 1997 (in thousands). The Company's experience indicates that
certain loans, on an individual basis, will be renewed, rescheduled or repaid
prior to scheduled maturity. Accordingly, the table should not be regarded as
a forecast of future cash collections.
7
<PAGE> 8
ITEM 1. Business (continued)
<TABLE>
<CAPTION>
REMAINING MATURITIES
-------------------------------------------------------------------------------------
1 YEAR OR LESS 1 TO 5 YEARS DUE AFTER 5 YEARS TOTALS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSTRUCTION $ 490 $ 6,097 $ 5,484 $ 12,071
REAL ESTATE 1,487 18,990 23,704 44,181
COMMERCIAL 551 21,180 27,913 49,644
-------------------------------------------------------------------------------------
TOTAL $2,528 $46,267 $57,101 $105,896
=====================================================================================
INTEREST RATE SENSITIVITY
VARIABLE RATE $1,619 $33,040 $44,119 $ 78,778
FIXED RATE 909 13,227 12,982 27,118
-------------------------------------------------------------------------------------
TOTAL $2,528 $46,267 $57,101 $105,896
=====================================================================================
</TABLE>
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.
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 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 of interest 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.
Foreclosed real estate is recorded at the lower of cost or fair value
at acquisition date. Subsequent to acquisition, foreclosed real estate is
carried at lower of cost or fair value less estimated selling costs, based upon
periodic evaluation by management. Costs relating to property improvements are
capitalized to the extent that they are recoverable, and costs relating to
holding property are expensed when incurred. Gains or losses on the sale of
foreclosed real estate are recognized upon disposition of the property.
The Company has no obligation to make further extensions of credit
under loans classified as troubled debt restructurings or nonaccrual at
December 31, 1997, 1996 or 1995. Nonaccrual and restructured loans are
classified as loans in the accompanying schedules and the Consolidated Balance
Sheets.
8
<PAGE> 9
ITEM 1. Business (continued)
The table below shows nonperforming assets and troubled debt
restructurings (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $1,763 $ 771 $1,592
Foreclosed real estate 349 212 1,152
----- ----- -----
Total nonperforming assets $2,112 $ 983 $2,744
- ----------------------------------------------------------------------------------------------------------------------
Loans classified as nonaccrual but contractually current $126 $ 1 $105
- ----------------------------------------------------------------------------------------------------------------------
Restructured loans classified as nonaccrual above 824 -- 88
Restructured loans accruing 44 1,088 1,173
---- ----- -----
Total restructured loans $868 $1,088 $1,261
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
There was one loan of $160,000 past due 90 days and still accruing at December
31, 1997. There were two loans past due 90 days or more and still accruing at
December 31, 1996 totaling $35,000 and none, in 1995.
The gross interest income that would have been received during the
year ended December 31, 1997 on nonaccrual and accruing restructured loans had
such loans been current in accordance with their original terms throughout the
year was approximately $260,000 and $2,000, respectively. Recorded interest
income was approximately $1,700 on troubled debt restructurings. No interest
income was recorded on loans classified as nonaccrual in 1997.
The following schedule presents a breakdown by type of property of
foreclosed real estate (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial land $ -- $ -- $ 546
Residential land -- -- 254
Commercial property 402 265 567
1-4 family residential -- -- 147
------------------------------------------------------------------------------------------------
Total 402 265 1,514
Allowance for losses (53) (53) (362)
------------------------------------------------------------------------------------------------
Total estimated fair value $349 $ 212 $1,152
================================================================================================
</TABLE>
Activity in the allowance for losses on foreclosed real estate is as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 53 $ 362 $ 748
Provision for losses -- -- 231
Dispositions, net -- (309) (597)
Charge-offs, net of recoveries -- -- (20)
---------------------------------------------------------------------------------------------------
Balance at end of year $ 53 $ 53 $ 362
---------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
ITEM 1. Business (continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is an estimate of uncollectible loans
and reduces the gross amount of loans outstanding. Each loan deemed to involve
significant risk of loss is considered individually to determine the possible
amount of such loss and the remaining loans are evaluated in the aggregate.
The allowance for loan losses is increased through charges to
operations in the form of a provision for loan losses and is reduced by
reversals of previous years' provisions. Charge-offs are made against the
allowance and subsequent recoveries, if any, are credited to the allowance.
The allowance is maintained at a level that management believes will be
adequate to absorb losses on existing loans that may become uncollectible.
Management's periodic evaluation of the adequacy of the allowance is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change.
Management believes that the allowances for losses on loans and
foreclosed real estate are adequate given current circumstances and conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in economic conditions, the situations of specific borrowers,
or other factors.
The following table shows activity affecting the allowance for
possible loan losses for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $1,508 $1,467 $2,750
Provision for loan losses 254 (227) (260)
Loans charged off:
Construction 0 0 0
Real Estate 377 228 657
Commercial 0 168 639
Individual 41 48 44
Other 0 0 0
------- ------- -------
Total loans charged off $418 $444 $1,340
Recoveries:
Construction 0 0 0
Real Estate 58 182 38
Commercial 60 517 243
Individual 11 13 36
Other 0 0 0
------ ------ -----
Total recoveries $129 $712 $317
Total allowance at end of period $1,473 $1,508 $1,467
============ =========== ==========
Net loans charged off as a % of
average loans outstanding 0.36% -0.36% 1.58%
============ =========== ==========
</TABLE>
The following is a breakdown of the allowance for loan losses by loan
category (in thousands). This breakdown represents management's best judgment
as to the allocation of the allowance based on the risk characteristics
associated with each category of loans. The allowance is allocated to specific
categories of loans for analysis purposes only.
10
<PAGE> 11
ITEM 1. Business (continued)
<TABLE>
<CAPTION>
12/31/97 12/31/96 12/31/95
-------------------------------------------------------------------------------------------------------
Allowance Distribution Allowance Distribution Allowance Distribution
Allocation of Loans Allocation of Loans Allocation of Loans
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Construction $ 134 10.63% $ 150 13.54% $ 62 7.08%
Real Estate 764 38.91% 828 47.87% 884 50.93%
Commercial 489 43.72% 427 29.87% 432 31.78%
Individual 57 4.47% 81 6.87% 64 7.34%
Other 29 2.27% 22 1.85% 25 2.87%
-------------------------------------------------------------------------------------------------------
$1,473 100.00% $1,508 100.00% $1,467 100.00%
=======================================================================================================
</TABLE>
V. DEPOSITS
The following table provides a breakdown by category of deposits of
the Company on a daily average basis at the dates indicated (dollars in
thousands):
<TABLE>
<CAPTION>
Year ending December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $24,442 0.00% $19,332 0.00% $18,612 0.00%
Money market, savings, and interest
checking 76,276 3.97% 56,186 3.61% 50,455 3.60%
Time deposits 27,111 5.50% 23,499 5.67% 23,416 5.51%
-------------- -------------- --------------
TOTAL DEPOSITS $127,829 $99,017 $92,483
============== ============== ==============
</TABLE>
Maturities of certificates of deposit and other time deposits greater
than $100,000 outstanding at December 31, 1997 are presented below (dollars in
thousands):
<TABLE>
<CAPTION>
Certificates of Deposit Other Time Deposits
---------------------------- -----------------------------
<S> <C> <C>
Three months or less $ 228 $ 0
Over 3 through 6 months 206 105
Over 6 through 12 months 2,011 0
Over 12 months 6,814 906
---------------------------- -----------------------------
TOTAL $9,259 $1,011
============================ =============================
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income to average total assets and average
shareholders' equity, and certain other ratios for the periods indicated
follow:
11
<PAGE> 12
ITEM 1. Business (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Return on Average Assets 0.76% 4.42% 1.49%
Return on Average Equity 6.14% 36.35% 15.29%
Average Equity to Average Assets 12.42% 12.15% 9.75%
Dividend Payout Ratio - - -
</TABLE>
VII. SHORT-TERM BORROWINGS
The table below shows balances and rates paid on short-term
borrowings:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands) Amount Rate Amount Rate Amount Rate
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
At year end:
Securities sold under repurchase agreements $3,049 4.15% $ - - $ - -
- -----------------------------------------------------------------------------------------------------------------------------------
Average for the year:
Securities sold under repurchase agreements $1,220 4.08% $ - - $261 4.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum month-end balance:
Securities sold under repurchase agreements $4,259 $1,321
===================================================================================================================================
</TABLE>
ITEM 2. Properties
Suburban Maryland owns and occupies a one-story building located in
Capitol Heights, Maryland and occupies leased office and banking space in its
other six Maryland locations (Greenbelt, Oxon Hill, Clinton, Bethesda,
Rockville and White Flint). The Greenbelt lease had a five-year initial term
which expired May 31, 1991, and is currently in the first of three five-year
renewal option terms. The Oxon Hill lease also had a five-year initial term
which expired June 30, 1992 and the first five-year renewal term expired June
30, 1997, at which time the second of three five-year renewal options was
exercised (see "Item 13. Certain Relationships and Related Transactions"). The
Rockville lease is currently in its ten-year initial term which expires April
12, 2000 and contains two five-year renewal options, and the Clinton lease is
currently in its initial term of seven years, expiring January 1, 2003, and has
one five-year renewal option. The Bethesda lease is currently in its initial
term of six years which expires September 30, 2002 and includes one five-year
renewal option, and the White Flint lease, which commenced January 1, 1998,
expires December 31, 2003 and includes an option to extend the lease for one
period of five years.
ITEM 3. Legal Proceedings
As of March 2, 1998, there were no material legal proceedings against
Suburban Bancshares, Inc. or its subsidiary.
ITEM 4. Submission of Matters to Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report through the
solicitation of proxies or otherwise.
12
<PAGE> 13
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The information contained under the heading "Market for Common Stock"
in the Company's 1997 Annual Report to Shareholders is incorporated herein by
reference thereto.
ITEM 6. Selected Financial Data
The information contained under the heading "Summary Financial
Information" in the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference thereto.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information contained under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
1997 Annual Report to Shareholders is incorporated herein by reference thereto.
ITEM 8. Financial Statements and Supplementary Data
The Company's Consolidated Financial Statements together with the
report of Stegman and Company thereon appearing in the Company's 1997 Annual
Report to Shareholders are incorporated herein by reference thereto. See ITEM
14 for a list of financial statements and notes thereto so incorporated.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on matters
of accounting principles or practices or financial statement disclosures in
1997.
PART III
ITEM 10. Directors and Executive Officers
The information contained under the heading "Directors and Executive
Officers" in the Company's definitive proxy statement relating to the Company's
1998 meeting of shareholders is incorporated herein by reference thereto.
ITEM 11. Compensation of Executive Officers and Directors
The information contained under the heading "Executive Compensation"
in the Company's definitive proxy statement relating to the Company's 1998
meeting of shareholders is incorporated herein by reference thereto.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Beneficial Ownership of
Common Stock" in the Company's definitive proxy statement relating to the
Company's 1998 meeting of shareholders is incorporated herein by reference
thereto.
ITEM 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement relating to
the Company's 1998 meeting of shareholders is incorporated herein by reference
thereto.
13
<PAGE> 14
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
As listed in the index to financial statements on
page 21 hereof.
2. Financial Statement Schedules
Schedule I Indebtedness of and to Related
Parties - included in Note L to the
Consolidated Financial Statements.
Schedule II Guaranties of Securities and Other
Issuers has been omitted because the
required information is not
applicable.
3. Exhibits
As listed in the Index to Exhibits on pages 21 and 22
hereof.
(b) No reports on Form 8-K were filed during the fourth quarter of
1997.
(c) See Item 14.(a)3. above
(d) See Item 14.(a)2. above
14
<PAGE> 15
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUBURBAN BANCSHARES, INC.
By: Winfield M. Kelly, Jr.
-----------------------------
Winfield M. Kelly, Jr.
Chairman of the Board/CEO
Date: March 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: Winfield M. Kelly, Jr.
-----------------------------
Winfield M. Kelly, Jr.
Chairman of the Board/CEO
(Principal Executive Officer and Director)
Date: March 18, 1998
By: Marlin K. Husted
-----------------------------
Marlin K. Husted
Vice Chairman of the Board
Date: March 18, 1998
By: Stephen A. Horvath
-----------------------------
Stephen A. Horvath
President, Chief Operating Officer, and Director
Date: March 18, 1998
By: Sibyl S. Malatras
-----------------------------
Sibyl S. Malatras
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 18, 1998
By: Raymond G. LaPlaca
-----------------------------
Raymond G. LaPlaca, Director
Date: March 18, 1998
By: Barbara M. DiNenna-Corboy
-----------------------------
Barbara M. DiNenna-Corboy, Director
Date: March 18, 1998
By: Vincent D. Palumbo
-----------------------------
Vincent D. Palumbo, Director
Date: March 18, 1998
20
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report on 1997 Consolidated Financial Statements *
Consolidated Balance Sheets at December 31, 1997 and 1996 *
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 *
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 *
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
</TABLE>
- -----------------------
* Incorporated by reference to the Company's 1997 Annual Report to
Shareholders. See ITEM 8 of this report on Form 10-K.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization between Bancshares 2000, Inc. and Jefferson Bank and Trust Company dated
February 21, 1989 (Incorporated by reference to Exhibit 2.1 of the 1988 Annual Report on Form 10-K)
2.2 Agreement and Plan of Reorganization and Recapitalization between Suburban Bancshares, Inc. and Winfield M. Kelly,
Jr. dated February 19, 1993 (Incorporated by reference to Exhibit 2.2 to Registration Statement No. 33-63286)
2.3 Amendment to Agreement and Plan of Reorganization and Recapitalization between Suburban Bancshares, Inc. and
Winfield M. Kelly, Jr. dated March 31, 1993 (Incorporated by reference to Exhibit 2.3 to Registration Statement No.
33-63286)
2.4 Amendment to Agreement and Plan of Reorganization and Recapitalization between Suburban Bancshares, Inc. and
Winfield M. Kelly, Jr., dated November 17, 1993 (Incorporated by reference to Exhibit 2.4 of the 1993 Annual Report
on Form 10-K)
3.0 Restated Certificate of Incorporation of Bancshares 2000, Inc., as amended, dated August 10, 1988 (Incorporated by
reference to Exhibit 3.4 of the 1988 Annual Report on Form 10-K)
3.1 Amendment to Certificate of Incorporation of Bancshares 2000, Inc. as adopted at the Stockholders' Meeting held on
October 3, 1989 (Incorporated by reference to Exhibit 3.11 of the 1989 Annual Report on Form 10-K)
3.2 Amendment to Certificate of Incorporation of Bancshares 2000, Inc. as adopted at the Stockholders' Meeting held on
June 26, 1991 (Incorporated by reference to Exhibit 3.2 of the 1992 Annual Report on Form 10-K)
3.3 Amendment to Certificate of Incorporation of Suburban Bancshares, Inc. as adopted at the Stockholders' Meeting held
on June 2, 1993 (Incorporated by reference to Exhibit 3.3a to Registration Statement No. 33-63286)
3.4 Amended and Restated By-Laws of Suburban Bancshares, Inc. (Incorporated by reference to Exhibit 3.4 to Registration
Statement No. 33-63286)
4.0 Form of Common Stock Certificate of Bancshares 2000, Inc. (Incorporated by reference to Exhibit 4. to Registration
Statement No. 33-11380)
</TABLE>
21
<PAGE> 17
<TABLE>
<S> <C>
4.1 Form of Common Stock Certificate of Suburban Bancshares, Inc. (Incorporated by reference to Exhibit 4.1 of the 1992
Annual Report on Form 10-K)
10.3 Incentive Stock Option Plan, as adopted by the Board of Directors of Bancshares 2000, Inc., on December 18, 1986
(Incorporated by reference to Exhibit 10.5 to Registration Statement No. 33-11380)
10.4 Incentive Stock Option Plan, as amended, as adopted at the stockholders' meeting held on October 3, 1989
(Incorporated by reference to Exhibit 10.3 to Registration Statement No. 33-30727)
10.4a Amendment to Incentive Stock Option Plan, as adopted by the Board of Directors of Suburban Bancshares, Inc., on
February 14, 1992 (Incorporated by reference to Exhibit 3.13 of the 1991 Annual Report on Form 10-K)
10.5a Employment Agreement with William R. Johnson dated December 27, 1996 and effective January 1, 1997 (Incorporated by
reference to Exhibit 10.5a of the 1996 Annual Report on Form 10-K)
10.5b Deferred Compensation Agreement with William R. Johnson dated December 27, 1996 (Incorporated by reference to
Exhibit 10.5a of the 1996 Annual Report on Form 10-K)
10.5c Trust Under Deferred Compensation Agreement with William R. Johnson dated December 27, 1996 (Incorporated by
reference to Exhibit 10.5a of the 1996 Annual Report on Form 10-K)
10.6 Services Agreement with Winfield M. Kelly, Jr. dated January 29, 1997 and effective January 1, 1997 (Incorporated
by reference to Exhibit 10.5a of the 1996 Annual Report on Form 10-K)
10.7 Employment Agreement with Stephen A. Horvath dated December 9, 1996 and effective January 1, 1997 (Incorporated by
reference to Exhibit 10.5a of the 1996 Annual Report on Form 10-K)
10.8 1997 Stock Option Plan, as adopted at the stockholders' meeting held on May 22, 1997
10.9a Severance Agreement with Joseph E. Burnett dated March 2, 1998
10.9b Severance Agreement with Harold J. Koch dated March 2, 1998
10.9c Severance Agreement with Sibyl S. Malatras dated March 2, 1998
11. Computation of per share earnings
13. Suburban Bancshares, Inc. 1997 Annual Report to Stockholders (furnished for the information of the Securities and
Exchange Commission only and not to be deemed filed as part of this Annual Report on Form 10-K except for the
portions thereof which are specifically incorporated herein by reference)
21. List of Subsidiaries of Suburban Bancshares, Inc.
23 Consent of Stegman and Company
27. Financial Data Schedule
</TABLE>
22
<PAGE> 1
EXHIBIT 10.8
SUBURBAN BANCSHARES, INC.
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of this Suburban Bancshares, Inc. 1997 Stock Option Plan (the "
1997 Plan") is to advance the interests of the Company through providing
selected key Employees and Directors of the Company and its Affiliates with the
opportunity to acquire Shares. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate the best available personnel for
positions of substantial responsibility; to provide additional incentive to key
Employees and Directors of the Company and its Affiliates to promote the
success of the business as measured by the value of its Shares; and generally
to increase the commonality of interests between key Employees, Directors and
other shareholders.
2. DEFINITIONS
As used herein, the following definitions shall apply.
(a) "Affiliate"shall mean any Parent Corporation or Subsidiary Corporation
of the Company, and shall include the Bank.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Section 5(c).
(c) "Award" shall mean, collectively, Options, unless the context clearly
indicates a different meaning.
(d) "Bank" shall mean Suburban Bank of Maryland, Greenbelt, Maryland.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Cause" shall mean, in the context of the termination of an Employee's
employment by the Company or any Affiliate, or the removal of a Director
(whether by action of the appropriate Board of Directors, shareholders,
regulatory action or otherwise), as a result of the failure of the Participant
(other than for the reasons set forth in Section 9(a) or 9(b) hereof) to
perform in any material respect, the duties of such Participant's position; any
misconduct on the part of the Participant that, in the reasonable determination
of the Board is damaging or detrimental to the Company or any Affiliate;
conviction of a crime involving a felony, fraud, embezzlement, perjury or the
like; any breach of fiduciary duty involving personal profit or
misappropriation of funds or property of, or entrusted to, the Company or any
Affiliate; or the receipt of any written order, agreement, memorandum or other
requirement from any regulatory agency having jurisdiction over the Company or
any Affiliate requiring the termination, removal or resignation of such
Participant.
(g) "Change in Control" shall mean any one of the following events
occurring after the Effective Date: (1) the acquisition of ownership, holding
or power to vote more than 51% of the Bank's or Company's voting stock, (2) the
acquisition of the power to control the election of a majority of the Bank's or
Company's Directors, (3) the exercise of a controlling influence over the
management or policies of the Bank or the Company by any person or by persons
acting as a "group" (as that term is used for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended), or (4) the failure of Continuing
Directors to constitute at least two-thirds of the Board of Directors of the
Company or the Bank (the "Company Board") during any period of two consecutive
years. For purposes of this 1997 Plan, "Continuing Directors" shall include
only those individuals who were members of the Company Board at the Effective
Date and those other individuals whose election or nomination for election as a
member of the Company Board was approved by a vote of at least two-thirds of
the Continuing Directors then in office. For purposes of this subparagraph
only, the term "person" refers to an individual or a corporation, partnership,
trust, association, company, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a
Change in Control has occurred shall be conclusive and binding.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(i) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Section 5(a) hereof
(j) "Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
(k) "Company" shall mean Suburban Bancshares, Inc.
<PAGE> 2
(1) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee of the Company or an Affiliate.
Continuous Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Company or
in the case of transfers between payroll locations of the Company or between
the Company, an Affiliate or a successor.
(m) "Director" shall mean a member of the Board or of the Board of
Directors of any Affiliate.
(n) "Effective Date" shall mean the date specified in Section 15 hereof.
(o) "Employee" shall mean any person employed, as an Officer or otherwise,
by the Company or by an Affiliate, and shall include Directors of the Company
or an Affiliate who are also employed by the Company or an Affiliate.
(p) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(q) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the 1997 Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(r) "Market Value" shall mean the fair market value of the Common Stock,
as determined in accordance with Section 7(b) hereof.
(s) "Non-Employee Director" shall mean a Director who, at any time of
determination: (i) is not currently an Employee; (ii) does not, directly or
indirectly, currently receive compensation from the Company or any Affiliate
for services rendered as a consultant, other than in the capacity as a director
and other than compensation in an amount which would not require disclosure
pursuant to Item 404(a) of Regulation S-K; (iii) does not have an interest in
any transaction which would require disclosure pursuant to Item 404(a) of
Regulation S-K; and (iv) is not engaged in a business relationship which would
require disclosure pursuant to Item 404(b) of Regulation S-K.
(t) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the 1997 Plan but which is not intended to be, and is
not identified as, an ISO.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an Option granted
pursuant to this 1997 Plan.
(w) "Parent" shall mean any present or future corporation which would be a
"parent corporation" as defined in Subsection 425(e) and (g) of the Code.
(x) "Participant" shall mean any person who receives an Award pursuant to
the 1997 Plan.
(y) "1997 Plan" shall mean the Suburban Bancshares, Inc. 1997 Stock Option
Plan.
(z) "Regulation S-K" shall mean Regulation S-K of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as amended,
17 CFR Section 229.1 et. seq., provided, however, if the Company shall commence
reporting as a "small business issuer" within the meaning of Rule 405
promulgated under the Securities Act of 1933, as amended, references to
Regulation S-K shall refer to the comparable provisions of Regulation S-B of
the General Rules and Regulation promulgated under the Securities Exchange Act
of 1934, as amended 17 CFR Section 228.1 et. seq.
(aa) "Share" shall mean one share of Common Stock.
(ab) "Subsidiary" shall mean any present or future corporation which would
be a "subsidiary corporation" as defined in Subsection 425(f) and (g) of the
Code.
3. TERM OF THE 1997 PLAN AND AWARDS
(a) Term of the 1997 Plan. The 1997 Plan shall continue in effect for a
term of ten years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Award shall be granted under the 1997 Plan after ten
years from the Effective Date.
(b) Term of Awards. The term of each Award granted under the 1997 Plan
shall be established by the Committee, but shall not exceed 10 years; provided,
however, that in the case of an Employee who owns Shares representing more than
10% of the outstanding Common Stock at the time an ISO is granted to such
Employee, the term of such ISO shall not exceed five years.
<PAGE> 3
4. SHARES SUBJECT TO THE 1997 PLAN
Subject to adjustment in accordance with the provisions of Section 12
hereof, the aggregate number of Shares with respect to which Awards may be
granted shall not exceed 391,635. Optioned Shares may either be authorized but
unissued Shares or Shares held in treasury. If an Award expires, becomes
unexercisable or is forfeited for any reason without being exercised or
becoming vested in full, the Optioned Shares subject to such Award shall,
unless the 1997 Plan shall have been terminated, be available for the grant of
additional Awards under the 1997 Plan.
5. ADMINISTRATION OF THE 1997 PLAN
(a) Composition of the Committee. The 1997 Plan shall be administered by
the Committee, which shall consist solely of not less than two (2) members of
the Board who are Non-Employee Directors. Members of the Committee shall serve
at the pleasure of the Board. In the absence at any time of a duly appointed
Committee, the 1997 Plan shall be administered by those members of the Board
who are Non-Employee Directors.
(b) Powers of the Committee. Except as limited by the express provisions
of the 1997 Plan or by resolutions adopted by the Board, the Committee shall
have sole and complete authority and discretion: (i) to select Participants and
grant Awards; (ii) to determine the form and content of Awards to be issued in
the form of Agreements under the 1997 Plan; (iii) to interpret the 1997 Plan;
(iv) to prescribe, amend and rescind rules and regulations relating to the 1997
Plan; (v) to make other determinations necessary or advisable for the
administration of the 1997 Plan; and (vi) to delegate ministerial tasks in
connection with the administration of the 1997 Plan to one or more of the
members of the Committee. The Committee shall have and may exercise such other
power and authority as may be delegated to it by the Board from time to time.
A majority of the entire Committee shall constitute a quorum and the action of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the 1997 Plan and of such Agreement.
The terms of each such Agreement shall be in accordance with the 1997 Plan, but
any Agreement may include such additional provisions and restrictions
determined by the Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of the 1997
Plan. In particular, the Committee shall set forth in each Agreement: (i) the
Exercise Price of an Option; (ii) the number of Shares subject to, and the
expiration date of, the Award; (iii) the manner, time and rate (cumulative or
otherwise) of exercise or vesting of such Award; and (iv) the restrictions, if
any, to be placed upon such Award, or upon Shares which may be issued upon
exercise of such Award.
The Chairman of the Committee and such other officers as shall be
designated by the Committee are hereby authorized to execute Agreements on
behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations
and interpretations of the Committee shall be final, conclusive and binding on
all persons affected thereby.
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to
any action taken or failure to act under or in connection with the 1997 Plan or
any Award granted hereunder, to the full extent provided for under the
Company's Articles of Incorporation or Bylaws with respect to the
indemnification of Directors.
6. GRANT OF OPTIONS
(a) General. In its sole discretion, the Committee may grant Options to
Employees of the Company or its Affiliates and may grant Non-ISOs to Directors.
In selecting Participants and in determining the number of shares of Common
Stock to be granted to each such Participant pursuant to each Award granted
under the 1997 Plan, the Committee may consider the nature of the services
rendered by each such Participant, each such Participant's current and
potential contribution to the Company, and such other factors as the Committee
may, in its sole discretion, deem relevant. Participants who have been granted
an Award may, if otherwise eligible, be granted additional Awards.
(b) Special Rules for ISOs. The aggregate Market Value, as of the date
the Option is granted, of the Shares with respect to which ISOs are exercisable
for the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in
<PAGE> 4
Section 422 of the Code, of the Company or any present or future Parent or
Subsidiary of the Company) shall not exceed $100,000. Notwithstanding the
prior provisions of this paragraph, the Committee may grant to Employees
Options in excess of the foregoing limitations, in which case such Options
granted in excess of such limitation shall be Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS
(a) Limitations. The Exercise Price as to any particular Option granted
under the 1997 Plan shall not be less than the Market Value of the Optioned
Shares on the date of grant. In the case of an Employee who is granted an ISO
and at that time owns Shares representing more than 10% of the Company's
outstanding Shares of Common Stock, the Exercise Price of such ISO shall not be
less than 110% of the Market Value of the Optioned Shares subject to such ISO
at the time the ISO is granted.
(b) Determination of Exercise Price. If the Common Stock is listed on a
national securities exchange (including the NASDAQ National Market) on the date
in question, then the Market Value per Share shall be not less than the average
of the highest and lowest selling price on such exchange on such date, or if
there were no sales on such date, then the Exercise Price shall be not less
than the mean between the bid and asked price on such date. If the Common
Stock is traded otherwise than on a national securities exchange on the date in
question, then the Market Value per Share shall be not less than the mean
between the bid and asked price on such date, or, if there is no bid and asked
price on such date, then on the next prior business day on which there was a
bid and asked price. If no such bid and asked price is available, then the
Market Value per Share shall be its fair market value as determined by the
Committee, in its sole and absolute discretion.
(c) Reissuance of Options. Not withstanding anything herein to the
contrary, the Committee shall have the authority to cancel outstanding Options
with the consent of the Participant and to reissue new Options at a lower
Exercise Price equal to the then Market Value per share of Common Stock in the
event that the Market Value per share of Common Stock at any time prior to the
date of exercise of outstanding Options falls below the Exercise Price.
8. EXERCISE OF OPTIONS
(a) General. Any Option granted hereunder shall be exercisable at such
times and under such conditions as shall be permissible under the terms of the
1997 Plan and of the Agreement granted to a Participant. An Option may not be
exercised for a fractional Share.
(b) Procedure for Exercise. A Participant may exercise Options, subject
to provisions relative to its termination and limitations on its exercise, only
by delivering to the Company both (i) written notice of intent to exercise the
Option with respect to a specified number of Shares, and (ii) payment in full
of the aggregate Exercise Price of the Shares with respect to which the Option
is being exercised, which payment may be in cash, in Common Stock, or a
combination of cash and Common Stock. Each such notice and payment shall be
delivered, or mailed by prepaid registered or certified mail, addressed to the
Treasurer of the Company at the Company's executive offices. Common Stock
utilized in full or partial payment of the Exercise Price for Options shall be
valued at its Market Value at the date of exercise.
(c) Exercisability and Termination. (i) Except as otherwise provided
herein or in the Agreement relating to any Option, no Employee may exercise any
Option unless the Employee shall have been in the Continuous Employment of the
Company or any Affiliate at all times during the period beginning with the date
of grant of any such Option and ending on the date three (3) months prior to
the date of exercise of any such Option. Notwithstanding anything to the
contrary contained herein, if an Employee's employment with the Company is
terminated for Cause, all of such Employee's Options shall terminate effective
immediately upon termination of Employee's employment. Except as otherwise
provided herein or in the Agreement relating to an Option, no NonEmployee
Director may exercise any Option more than one year after the termination of
such Non-Employee Directors service as a Director. In the event of the removal
of a Non-Employee Director for Cause, all of such NonEmployee Director's
Options shall terminate effective upon removal of such Non-Employee Director.
(ii) In the event that any Employee's employment by the Company or any
Affiliate shall terminate for any reason, other than Permanent and Total
Disability (as such term is defined in Section 22(e)(3) of the Code), death or
Cause, all of any such Employee's Options and all of any such Employee's rights
to purchase or receive shares of Common Stock pursuant thereto, shall
automatically terminate on the earlier of (A) the respective expiration dates
of such Options; or (B) the expiration of three (3) months after the date of
such termination of employment, but only if, and to the extent that, the
Employee was entitled to exercise such Option at the date of such termination
of employment. In the event that a Subsidiary ceases to be a Subsidiary of the
Company, the employment of all of its employees who are not immediately
thereafter employees of the Company shall be deemed to terminate upon the date
such Subsidiary so ceases to be a Subsidiary of the Company.
<PAGE> 5
(iii) In the event that the employment of any Employee by the Company or
any Affiliate (including any service by an Employee as a Director) shall
terminate as the result of the Permanent and Total Disability of such Employee,
or if the service of any Non-Employee Director shall terminate as a result of
Permanent and Total Disability, such Employee or Non-Employee Director, as the
case may be, may exercise any Option granted to him pursuant to the 1997 Plan
at any time prior to the earlier of (A) the respective expiration dates of such
Options or (B) the date which is one (1) year after the date of such
termination, but only if, and to the extent that, the such Participant was
entitled to exercise such Option at the date of such termination. For purposes
of this Section 8(iii), any Option held by an Employee or Non-Employee Director
shall be considered exercisable at the date of his Permanent and Total
disability if the only unsatisfied condition precedent to the exercisability of
such Option at such date is the passage of a specified period of time.
(iv) In the event of the death of any Participant all of the Options
granted to any such Employee may be exercised by the person or persons to whom
the Participant's rights under any such Options pass by will or the laws of
descent and distribution (including the Participant's estate during the period
of administration) at any time prior to (A) the respective expiration dates of
such Options; or (B) the date which is one (1) year after the date of death of
such Participant but only if, and to the extent that, the Participant was
entitled to exercise any of such Options at the date of death. For purposes of
this Section 8(iv), any Option held by a Participant shall be considered
exercisable at the date of his death if the only unsatisfied condition
precedent to the exercisability of such Option at the date of death is the
passage of a specified period of time.
9. CHANGE IN CONTROL
(a) General. Notwithstanding the provisions of any Award which provides
for its exercise or vesting in installments, all Options shall be immediately
exercisable and fully vested upon the occurrence of a change in control. At
the time of a Change in Control, the Participant shall, at the discretion of
the Committee, be entitled to receive cash in an amount equal to the excess of
the Market Value of the Common Stock subject to such Option over the Exercise
Price of such Shares, in exchange for the cancellation of such Options by the
Participant.
(b) Exception. Notwithstanding subparagraph (a) of this Section, in no
event may an Option be canceled in exchange for cash, within the six-month
period following the date of its grant.
10. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE 1997 PLAN
(a) Recapitalization; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the 1997 Plan, and the number and kind of shares
subject to outstanding Awards (and the Exercise Price thereof), shall be
proportionately adjusted for any increase, decrease, change or exchange of
Shares for a different number or kind of shares or other securities of the
Company which results from a merger, consolidation, recapitalization,
reorganization, reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares is changed
without the receipt or payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity.
Subject to Section 9 hereof, in the event of (i) the liquidation or dissolution
of the Company, (ii) a merger or consolidation in which the Company is not the
surviving entity, or (iii) the sale or disposition of all or substantially all
of the Company's assets (any of the foregoing to be referred to herein as a
"Transaction"), all outstanding Awards shall be surrendered. With respect to
each Award so surrendered, the Committee shall in its sole and absolute
discretion determine whether the holder of the surrendered Award shall receive
- --
(1) for each Share then subject to an outstanding Award an option
for the number and kind of shares into which each outstanding Share
(other than Shares held by dissenting stockholders) is changed or
exchanged, together with an appropriate adjustment to the Exercise
Price; or
(2) a payment in cash or shares (from the Company or the successor
corporation), in an amount equal to the Market Value of the Shares
subject to the Award on the date of the Transaction, less the Exercise
Price of the Award.
(c) Special Rule for ISOS. Any adjustment made pursuant to subparagraphs
(a) or (b)(1) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOS.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Section, a
Participant becomes entitled to new, additional, or different shares of stock
or securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
<PAGE> 6
(e) Other Issuances. Except as expressly provided in this Section, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no
adjustment shall be made with respect to, the number, class, or Exercise Price
of Shares then subject to Awards or reserved for issuance under the 1997 Plan.
11. NON-TRANSFERABILITY OF AWARDS
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations
order" (within the meaning of Section 414(p) of the Code and the regulations
and rulings thereunder).
12. TIME OF GRANTING AWARDS
The date of grant of an Award shall, for all purposes, be the later of the date
on which the Committee makes the determination of granting such Award, and the
Effective Date. Notice of the determination shall be given to each Participant
to whom an Award is so granted within a reasonable time after the date of such
grant.
13. EFFECTIVE DATE
The 1997 Plan shall be effective as of May 22,1997. Awards may be made prior
to approval of the 1997 Plan by the shareholders of the Company if the exercise
of Awards in the form of Options, are conditioned upon shareholder approval of
the 1997 Plan.
14. APPROVAL BY SHAREHOLDERS
The 1997 Plan shall be approved by shareholders of the Company within twelve
(12) months before or after the Effective Date.
15. MODIFICATION OF AWARDS
At any time, and from time to time, the Board may authorize the Committee to
direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the
grant of a new Award at such time, or impair the Award without the consent of
the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE 1997 PLAN
The Board may from time to time amend the terms of the 1997 Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the 1997 Plan; provided that the provisions of Section 9 may not be amended
more than once every six months (other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder), and provided further that any material amendment shall be
subject to stockholder approval.
No amendment, suspension or termination of the 1997 Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such
Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then be listed.
The 1997 Plan is intended to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and any provision of the 1997 Plan
which the Committee determines in its sole and absolute discretion to be
inconsistent with said Rule shall, to the extent of such inconsistency, be
inoperative and null and void, and shall not affect the validity of the
remaining provisions of the 1997 Plan.
(b) Special Circumstances. The inability of the Company to obtain
approval from any regulatory body or authority deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder shall
relieve the Company of any liability in respect of the non-issuance or sale of
such Shares. As a condition to the exercise of an Option, the Company may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
<PAGE> 7
the registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose
a right of first refusal or to establish repurchase rights or both of these
restrictions.
18. RESERVATION OF SHARES
The Company, during the term of the 1997 Plan, will reserve and keep available
a number of Shares sufficient to satisfy the requirements of the 1997 Plan.
19. WITHHOLDING TAX
The Company's obligation to deliver Shares upon exercise of Options shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and employment tax withholding obligations. The Committee, in its
discretion, may permit the Participant to satisfy the obligation, in whole or
in part, by irrevocably electing to have the Company withhold Shares, or to
deliver to the Company Shares that he already owns, having a value equal to the
amount required to be withheld. The value of Shares to be withheld, or
delivered to the Company, shall be based on the Market Value of the Shares on
the date the amount of tax to be withheld is to be determined. As an
alternative, the Company may retain, or sell without notice, a number of such
Shares sufficient to cover the amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS
In no event shall a Participant's eligibility to participate or participation
in the 1997 Plan create or be deemed to create any legal or equitable right of
such Participant or any other party to continue service with the Company, the
Bank, or any Affiliate thereof. No Participant shall have a right to be
granted an Award or, having received an Award, the right to again be granted an
Award. However, a Participant who has been granted an Award may, if otherwise
eligible, be granted an additional Award or Awards.
21. GOVERNING LAW
The 1997 Plan shall be governed by and construed in accordance with the laws of
the State of Maryland, without reference to the choice of law or conflicts of
law provisions thereof, except to the extent that federal law shall be deemed
to apply.
<PAGE> 1
EXHIBIT 10.9a
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (hereinafter this "Agreement") is entered
into on this 2nd day of March , 1998, by and between Joseph E. Burnett,
now residing at 16740 Claggett Landing Road, Upper Marlboro, Maryland 20772,
(the "Employee") and Suburban Bank of Maryland, 7505 Greenway Center Drive,
Greenbelt, Maryland, 20768, (the "Employer").
RECITAL
The Employee is employed as Senior Vice President of Suburban Bank
of Maryland. This Agreement is intended to supplement the existing terms of
such employment by providing the terms and conditions under which the Employer
shall pay severance compensation to the Employee. For all purposes of this
Agreement, unless otherwise indicated, all references to the "Employer" shall
be construed to include Suburban Bancshares, Inc. or any successor entity or
organization of Suburban Bank of Maryland or Suburban Bancshares, Inc. (or any
parent, subsidiary or affiliate of either such entity or its successor).
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. SEVERANCE PAYMENT. In the event that the Employee's employment is
terminated or, if the Employee is employed under a written agreement
with a specified term, not renewed by the Employer at the next
opportunity for termination or non-renewal, as a result of any merger
or buy-out or change in control of the Employer, the Employer shall
continue to pay to the Employee his or her base compensation
(exclusive of bonus or incentive compensation and exclusive of
benefits) for a period of Six (6) months following the date of such
termination or non-renewal (the "Severance Period").
2. EVENTS OF DISQUALIFICATION. Notwithstanding the foregoing provisions
of paragraph 1, the Employee shall be disqualified from receiving such
severance compensation in any of the following events.:
(a) ACCEPTANCE OF EMPLOYMENT. In the event that the Employee
accepts new or continued employment from the Employer,
regardless of the compensation level, benefits or other terms
or conditions of such employment;
(b) REJECTION OF EQUIVALENT EMPLOYMENT. In the event that the
Employee is offered new or continued employment with the
Employer at a level of compensation and with benefits
equivalent to or better than those then governing his or her
employment and at a location within Fifty (50) miles of the
Employer's current address; or
(c) VIOLATION OF COVENANT. In the event that the Employee
violates any term or provision of the Covenants of the
Employee provided in paragraph 3, below.
3. COVENANTS OF THE EMPLOYEE.
(a) NON-DISPARAGEMENT, NON-DISCLOSURE AND NON-SOLICITATION.
Throughout the term of the Employee's employment and the
Severance Period thereafter (together defined as the "Covenant
Period") the Employee covenants and agrees that he or she:
(1) Shall not directly or indirectly disparage the
business of the Employer, nor disclose any
information relating to the Employer's business,
processes, trade secrets, procedures, computer
software or any other information learned as an
employee of the Employer, to any person, firm or
corporation;
(2) Shall not directly or indirectly discuss or disclose
to any other person, firm or corporation the names of
past, present or future customers or employees of the
Employer, where such discussion or disclosure is
undertaken for the purpose of soliciting the banking
business of any such customer or soliciting the
employment of any such employee.
(b) PROPRIETARY INFORMATION. The Employee acknowledges that in
the course of his or her employment, the Employee
<PAGE> 2
will be making use of, acquiring and adding to the Employer's
confidential and proprietary information of a special and
unique nature and value relating to such matters as, but not
limited to the Employer's business operations, internal
structure, financial affairs, programs, software systems,
procedures, manuals, confidential reports, and sales and
marketing methods, as well as the amount, nature and type of
services, equipment and methods used an preferred by the
Employer's suppliers, and customers, all of which shall be
deemed to be confidential information. The Employee
acknowledges that such confidential information has been and
will continue to be of central importance to the business of
the Employer and that disclosure of it or its use by others
could cause substantial loss to the Employer. In
consideration of his anticipated and thereafter continued
employment by the Employer, upon acceptance hereof, the
Employee agrees that during the entire period of his
employment with the Employer, and upon and after leaving the
employ of the Employer for any reason whatsoever, the Employee
shall not, for any purpose whatsoever, directly or indirectly,
divulge, reveal, report, publish, transfer, or disclose to any
person or entity any of such confidential information which
was obtained by the Employee as a result of the Employee's
employment with the Employer, nor shall the Employee reveal to
any person or entity any trade secrets of the Employer, but
the Employee shall hold all of the same confidential and
inviolate.
(c) PROPERTY OF THE EMPLOYER. All contracts, agreements, forms,
financial books, records, instruments and documents, supplier
lists, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research,
listings, programming, and any other instruments, records or
documents relating or pertaining to the Employer (hereinafter
referred to as "Records") shall at all times be and remain the
property of the Employer. Upon termination of the Employee's
employment with the Employer for any reason whatsoever, the
Employee shall return to the Employer all Records (whether
furnished by the Employer, by a third party or prepared by the
Employee), and the Employee shall neither make nor retain any
copies of any such Records after such termination.
(d) INVENTIONS AND CREATIONS. All inventions and other creations,
whether or not patentable or copyrightable, and all ideas,
reports and other creative works, including, without
limitation, innovations, manuals or other materials, made or
conceived in whole or in part by the Employee while employed
by the Employer, which relate in any manner whatsoever to the
business, existing or proposed of the Employer or any other
businesses or research development effort in which the
Employer or any of its subsidiaries or affiliates engages
during the Employee's employment by the Employer, will be
disclosed promptly by the Employee to the Employer and shall
be the sole and exclusive property of the Employer.
4. BREACH; REMEDIES.
(a) RIGHT TO CURE; DEFAULT. In the event either party shall be
alleged to be in breach of this Agreement, written notice
shall be given by the other party and a Thirty (30) day
opportunity to cure shall be provided. After such Thirty (30)
day cure period, if the breach is not cured and remains as
alleged, the breaching party shall be deemed in default and
this Agreement may be terminated by written notice to the
breaching or defaulting party.
(b) INJUNCTIVE RELIEF. In the event of a breach of this
Agreement, the Employer shall be entitled to injunctive relief
restraining the Employee form taking or continuing any action
which would constitute a breach of the covenants contained
herein. Such injunctive remedies shall not be exclusive and
shall be in addition to any and all other remedies which may
be available to the Employer at law or equity, including,
without limitation, the recovery of direct, indirect,
incidental, consequential and/or punitive damages.
5. ENTIRE AGREEMENT: This Agreement represents the entire agreement of
the parties relating to the services of the Employee. All prior
negotiations between the parties are merged into this Agreement and
there are no understandings or agreements other than those
incorporated herein.
6. MISCELLANEOUS.
(a) SEVERABILITY; COURT ENFORCEMENT. The parties hereto covenant
and agree that to the extent any provisions or portion of this
Agreement shall be held, found or deemed to be unreasonable,
unlawful or unenforceable, by any Court of law, then the
parties hereto expressly covenant and agree that any such
provision or portion thereof shall be modified to the extent
necessary in order that any such provision or portion thereof
shall be legally enforceable to the fullest extent
<PAGE> 3
permitted by applicable law and that any court of competent
jurisdiction shall, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to, enforce any
such provision or portion thereof or to modify any such
provision thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
(b) WAIVER. The Employer and the Employee each reserve the right
to waive any of the terms of this Agreement which benefits the
party waiving same. Any such waiver must be in a writing
signed by the party waiving the same.
(c) CHOICE OF LAW. It is the intention of the parties hereto that
this Agreement shall be governed by the laws of the State of
Maryland.
(d) SUCCESSORS. The terms of this Agreement shall inure to the
benefit of and be binding upon the Employer, its successors
and assigns, and upon the Employee, his heirs, guardians and
personal and legal representatives.
(e) GENDER. The use of the masculine gender herein shall be
deemed to be or include the feminine gender, wherever
appropriate.
(f) NOTICES. All notices, demands and other communications
hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or if sent registered or
certified mail, return receipt requested, properly addressed
and postage prepaid to the addresses set forth hereinabove.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
(h) HEADINGS. The Section and paragraph headings used herein are
for convenience and reference only and shall not enter into
the interpretation hereof.
(i) REPRESENTATION BY COUNSEL. The parties hereto acknowledge
that Stephen C. Hosea, of the law firm, McNamee, Hosea,
Jernigan & Kim, P.A., Suite 200, 6411 Ivy Lane, Greenbelt,
Maryland 20770 has acted as counsel to the Employer in this
matter. The parties hereto acknowledge that the Employee, for
the purposes of this Agreement, has sought and obtained, or
acknowledges his right and opportunity to seek and obtain the
advise of his independent legal counsel with regard to the
contents and interpretation of this Agreement and each party
hereto is fully and independently apprised of the meaning and
legal effect of this Agreement.
(j) MODIFICATIONS. There shall be no modifications or amendment
of this Agreement except by written amendment hereto signed by
both parties.
IN WITNESS WHEREOF this Agreement has been executed by the parties of
the day and year first above written.
WITNESS/ATTEST: SUBURBAN BANK OF MARYLAND
/s/ /s/
Susan J. Hansen By: Winfield M. Kelly, Jr.
- ----------------------------- ----------------------------------------
Winfield M. Kelly, Jr., Chairman
/s/ /s/
Susan J. Hansen Joseph E. Burnett
- ----------------------------- ----------------------------------------
Joseph E. Burnett, Employee
<PAGE> 1
EXHIBIT 10.9b
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (hereinafter this "Agreement") is entered
into on this 2nd day of March , 1998, by and between Harold J. Koch,
now residing at 11605 Bonaventure Drive, Upper Marlboro, Maryland 20772, (the
"Employee") and Suburban Bank of Maryland, 7505 Greenway Center Drive,
Greenbelt, Maryland, 20768, (the "Employer").
RECITAL
The Employee is employed as Senior Vice President of Suburban Bank
of Maryland. This Agreement is intended to supplement the existing terms of
such employment by providing the terms and conditions under which the Employer
shall pay severance compensation to the Employee. For all purposes of this
Agreement, unless otherwise indicated, all references to the "Employer" shall
be construed to include Suburban Bancshares, Inc. or any successor entity or
organization of Suburban Bank of Maryland or Suburban Bancshares, Inc. (or any
parent, subsidiary or affiliate of either such entity or its successor).
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. SEVERANCE PAYMENT. In the event that the Employee's employment is
terminated or, if the Employee is employed under a written agreement
with a specified term, not renewed by the Employer at the next
opportunity for termination or non-renewal, as a result of any merger
or buy-out or change in control of the Employer, the Employer shall
continue to pay to the Employee his or her base compensation
(exclusive of bonus or incentive compensation and exclusive of
benefits) for a period of Six (6) months following the date of such
termination or non-renewal (the "Severance Period").
2. EVENTS OF DISQUALIFICATION. Notwithstanding the foregoing provisions
of paragraph 1, the Employee shall be disqualified from receiving such
severance compensation in any of the following events.:
(a) ACCEPTANCE OF EMPLOYMENT. In the event that the Employee
accepts new or continued employment from the Employer,
regardless of the compensation level, benefits or other terms
or conditions of such employment;
(b) REJECTION OF EQUIVALENT EMPLOYMENT. In the event that the
Employee is offered new or continued employment with the
Employer at a level of compensation and with benefits
equivalent to or better than those then governing his or her
employment and at a location within Fifty (50) miles of the
Employer's current address; or
(c) VIOLATION OF COVENANT. In the event that the Employee
violates any term or provision of the Covenants of the
Employee provided in paragraph 3, below.
3. COVENANTS OF THE EMPLOYEE.
(a) NON-DISPARAGEMENT, NON-DISCLOSURE AND NON-SOLICITATION.
Throughout the term of the Employee's employment and the
Severance Period thereafter (together defined as the "Covenant
Period") the Employee covenants and agrees that he or she:
(1) Shall not directly or indirectly disparage the
business of the Employer, nor disclose any
information relating to the Employer's business,
processes, trade secrets, procedures, computer
software or any other information learned as an
employee of the Employer, to any person, firm or
corporation;
(2) Shall not directly or indirectly discuss or disclose
to any other person, firm or corporation the names of
past, present or future customers or employees of the
Employer, where such discussion or disclosure is
undertaken for the purpose of soliciting the banking
business of any such customer or soliciting the
employment of any such employee.
(b) PROPRIETARY INFORMATION. The Employee acknowledges that in
the course of his or her employment, the Employee
<PAGE> 2
will be making use of, acquiring and adding to the Employer's
confidential and proprietary information of a special and
unique nature and value relating to such matters as, but not
limited to the Employer's business operations, internal
structure, financial affairs, programs, software systems,
procedures, manuals, confidential reports, and sales and
marketing methods, as well as the amount, nature and type of
services, equipment and methods used an preferred by the
Employer's suppliers, and customers, all of which shall be
deemed to be confidential information. The Employee
acknowledges that such confidential information has been and
will continue to be of central importance to the business of
the Employer and that disclosure of it or its use by others
could cause substantial loss to the Employer. In
consideration of his anticipated and thereafter continued
employment by the Employer, upon acceptance hereof, the
Employee agrees that during the entire period of his
employment with the Employer, and upon and after leaving the
employ of the Employer for any reason whatsoever, the Employee
shall not, for any purpose whatsoever, directly or indirectly,
divulge, reveal, report, publish, transfer, or disclose to any
person or entity any of such confidential information which
was obtained by the Employee as a result of the Employee's
employment with the Employer, nor shall the Employee reveal to
any person or entity any trade secrets of the Employer, but
the Employee shall hold all of the same confidential and
inviolate.
(c) PROPERTY OF THE EMPLOYER. All contracts, agreements, forms,
financial books, records, instruments and documents, supplier
lists, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research,
listings, programming, and any other instruments, records or
documents relating or pertaining to the Employer (hereinafter
referred to as "Records") shall at all times be and remain the
property of the Employer. Upon termination of the Employee's
employment with the Employer for any reason whatsoever, the
Employee shall return to the Employer all Records (whether
furnished by the Employer, by a third party or prepared by the
Employee), and the Employee shall neither make nor retain any
copies of any such Records after such termination.
(d) INVENTIONS AND CREATIONS. All inventions and other creations,
whether or not patentable or copyrightable, and all ideas,
reports and other creative works, including, without
limitation, innovations, manuals or other materials, made or
conceived in whole or in part by the Employee while employed
by the Employer, which relate in any manner whatsoever to the
business, existing or proposed of the Employer or any other
businesses or research development effort in which the
Employer or any of its subsidiaries or affiliates engages
during the Employee's employment by the Employer, will be
disclosed promptly by the Employee to the Employer and shall
be the sole and exclusive property of the Employer.
4. BREACH; REMEDIES.
(a) RIGHT TO CURE; DEFAULT. In the event either party shall be
alleged to be in breach of this Agreement, written notice
shall be given by the other party and a Thirty (30) day
opportunity to cure shall be provided. After such Thirty (30)
day cure period, if the breach is not cured and remains as
alleged, the breaching party shall be deemed in default and
this Agreement may be terminated by written notice to the
breaching or defaulting party.
(b) INJUNCTIVE RELIEF. In the event of a breach of this
Agreement, the Employer shall be entitled to injunctive relief
restraining the Employee form taking or continuing any action
which would constitute a breach of the covenants contained
herein. Such injunctive remedies shall not be exclusive and
shall be in addition to any and all other remedies which may
be available to the Employer at law or equity, including,
without limitation, the recovery of direct, indirect,
incidental, consequential and/or punitive damages.
5. ENTIRE AGREEMENT: This Agreement represents the entire agreement of
the parties relating to the services of the Employee. All prior
negotiations between the parties are merged into this Agreement and
there are no understandings or agreements other than those
incorporated herein.
6. MISCELLANEOUS.
(a) SEVERABILITY; COURT ENFORCEMENT. The parties hereto covenant
and agree that to the extent any provisions or portion of this
Agreement shall be held, found or deemed to be unreasonable,
unlawful or unenforceable, by any Court of law, then the
parties hereto expressly covenant and agree that any such
provision or portion thereof shall be modified to the extent
necessary in order that any such provision or portion thereof
shall be legally enforceable to the fullest extent
<PAGE> 3
permitted by applicable law and that any court of competent
jurisdiction shall, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to, enforce any
such provision or portion thereof or to modify any such
provision thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
(b) WAIVER. The Employer and the Employee each reserve the right
to waive any of the terms of this Agreement which benefits the
party waiving same. Any such waiver must be in a writing
signed by the party waiving the same.
(c) CHOICE OF LAW. It is the intention of the parties hereto that
this Agreement shall be governed by the laws of the State of
Maryland.
(d) SUCCESSORS. The terms of this Agreement shall inure to the
benefit of and be binding upon the Employer, its successors
and assigns, and upon the Employee, his heirs, guardians and
personal and legal representatives.
(e) GENDER. The use of the masculine gender herein shall be
deemed to be or include the feminine gender, wherever
appropriate.
(f) NOTICES. All notices, demands and other communications
hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or if sent registered or
certified mail, return receipt requested, properly addressed
and postage prepaid to the addresses set forth hereinabove.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
(h) HEADINGS. The Section and paragraph headings used herein are
for convenience and reference only and shall not enter into
the interpretation hereof.
(i) REPRESENTATION BY COUNSEL. The parties hereto acknowledge
that Stephen C. Hosea, of the law firm, McNamee, Hosea,
Jernigan & Kim, P.A., Suite 200, 6411 Ivy Lane, Greenbelt,
Maryland 20770 has acted as counsel to the Employer in this
matter. The parties hereto acknowledge that the Employee, for
the purposes of this Agreement, has sought and obtained, or
acknowledges his right and opportunity to seek and obtain the
advise of his independent legal counsel with regard to the
contents and interpretation of this Agreement and each party
hereto is fully and independently apprised of the meaning and
legal effect of this Agreement.
(j) MODIFICATIONS. There shall be no modifications or amendment
of this Agreement except by written amendment hereto signed by
both parties.
IN WITNESS WHEREOF this Agreement has been executed by the parties of
the day and year first above written.
WITNESS/ATTEST: SUBURBAN BANK OF MARYLAND
/s/ /s/
Susan J. Hansen By: Winfield M. Kelly, Jr.
- ----------------------------- -------------------------------------
Winfield M. Kelly, Jr., Chairman
/s/ /s/
Susan J. Hansen Harold J. Koch
- ----------------------------- -------------------------------------
Harold J. Koch, Employee
<PAGE> 1
EXHIBIT 10.9c
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (hereinafter this "Agreement") is entered
into on this 2nd day of March , 1998, by and between Sibyl S. Malatras,
now residing at 7476 Weatherworn Way, Columbia, Maryland 21406, (the
"Employee") and Suburban Bank of Maryland, 7505 Greenway Center Drive,
Greenbelt, Maryland, 20768, (the "Employer").
RECITAL
The Employee is employed as Senior Vice President of Suburban Bank
of Maryland. This Agreement is intended to supplement the existing terms of
such employment by providing the terms and conditions under which the Employer
shall pay severance compensation to the Employee. For all purposes of this
Agreement, unless otherwise indicated, all references to the "Employer" shall
be construed to include Suburban Bancshares, Inc. or any successor entity or
organization of Suburban Bank of Maryland or Suburban Bancshares, Inc. (or any
parent, subsidiary or affiliate of either such entity or its successor).
NOW THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. SEVERANCE PAYMENT. In the event that the Employee's employment is
terminated or, if the Employee is employed under a written agreement
with a specified term, not renewed by the Employer at the next
opportunity for termination or non-renewal, as a result of any merger
or buy-out or change in control of the Employer, the Employer shall
continue to pay to the Employee his or her base compensation
(exclusive of bonus or incentive compensation and exclusive of
benefits) for a period of Six (6) months following the date of such
termination or non-renewal (the "Severance Period").
2. EVENTS OF DISQUALIFICATION. Notwithstanding the foregoing provisions
of paragraph 1, the Employee shall be disqualified from receiving such
severance compensation in any of the following events.:
(a) ACCEPTANCE OF EMPLOYMENT. In the event that the Employee
accepts new or continued employment from the Employer,
regardless of the compensation level, benefits or other terms
or conditions of such employment;
(b) REJECTION OF EQUIVALENT EMPLOYMENT. In the event that the
Employee is offered new or continued employment with the
Employer at a level of compensation and with benefits
equivalent to or better than those then governing his or her
employment and at a location within Fifty (50) miles of the
Employer's current address; or
(c) VIOLATION OF COVENANT. In the event that the Employee
violates any term or provision of the Covenants of the
Employee provided in paragraph 3, below.
3. COVENANTS OF THE EMPLOYEE.
(a) NON-DISPARAGEMENT, NON-DISCLOSURE AND NON-SOLICITATION.
Throughout the term of the Employee's employment and the
Severance Period thereafter (together defined as the "Covenant
Period") the Employee covenants and agrees that he or she:
(1) Shall not directly or indirectly disparage the
business of the Employer, nor disclose any
information relating to the Employer's business,
processes, trade secrets, procedures, computer
software or any other information learned as an
employee of the Employer, to any person, firm or
corporation;
(2) Shall not directly or indirectly discuss or disclose
to any other person, firm or corporation the names of
past, present or future customers or employees of the
Employer, where such discussion or disclosure is
undertaken for the purpose of soliciting the banking
business of any such customer or soliciting the
employment of any such employee.
(b) PROPRIETARY INFORMATION. The Employee acknowledges that in
the course of his or her employment, the Employee
<PAGE> 2
will be making use of, acquiring and adding to the Employer's
confidential and proprietary information of a special and
unique nature and value relating to such matters as, but not
limited to the Employer's business operations, internal
structure, financial affairs, programs, software systems,
procedures, manuals, confidential reports, and sales and
marketing methods, as well as the amount, nature and type of
services, equipment and methods used an preferred by the
Employer's suppliers, and customers, all of which shall be
deemed to be confidential information. The Employee
acknowledges that such confidential information has been and
will continue to be of central importance to the business of
the Employer and that disclosure of it or its use by others
could cause substantial loss to the Employer. In
consideration of his anticipated and thereafter continued
employment by the Employer, upon acceptance hereof, the
Employee agrees that during the entire period of his
employment with the Employer, and upon and after leaving the
employ of the Employer for any reason whatsoever, the Employee
shall not, for any purpose whatsoever, directly or indirectly,
divulge, reveal, report, publish, transfer, or disclose to any
person or entity any of such confidential information which
was obtained by the Employee as a result of the Employee's
employment with the Employer, nor shall the Employee reveal to
any person or entity any trade secrets of the Employer, but
the Employee shall hold all of the same confidential and
inviolate.
(c) PROPERTY OF THE EMPLOYER. All contracts, agreements, forms,
financial books, records, instruments and documents, supplier
lists, memoranda, data, reports, programs, software, tapes,
rolodexes, telephone and address books, letters, research,
listings, programming, and any other instruments, records or
documents relating or pertaining to the Employer (hereinafter
referred to as "Records") shall at all times be and remain the
property of the Employer. Upon termination of the Employee's
employment with the Employer for any reason whatsoever, the
Employee shall return to the Employer all Records (whether
furnished by the Employer, by a third party or prepared by the
Employee), and the Employee shall neither make nor retain any
copies of any such Records after such termination.
(d) INVENTIONS AND CREATIONS. All inventions and other creations,
whether or not patentable or copyrightable, and all ideas,
reports and other creative works, including, without
limitation, innovations, manuals or other materials, made or
conceived in whole or in part by the Employee while employed
by the Employer, which relate in any manner whatsoever to the
business, existing or proposed of the Employer or any other
businesses or research development effort in which the
Employer or any of its subsidiaries or affiliates engages
during the Employee's employment by the Employer, will be
disclosed promptly by the Employee to the Employer and shall
be the sole and exclusive property of the Employer.
4. BREACH; REMEDIES.
(a) RIGHT TO CURE; DEFAULT. In the event either party shall be
alleged to be in breach of this Agreement, written notice
shall be given by the other party and a Thirty (30) day
opportunity to cure shall be provided. After such Thirty (30)
day cure period, if the breach is not cured and remains as
alleged, the breaching party shall be deemed in default and
this Agreement may be terminated by written notice to the
breaching or defaulting party.
(b) INJUNCTIVE RELIEF. In the event of a breach of this
Agreement, the Employer shall be entitled to injunctive relief
restraining the Employee form taking or continuing any action
which would constitute a breach of the covenants contained
herein. Such injunctive remedies shall not be exclusive and
shall be in addition to any and all other remedies which may
be available to the Employer at law or equity, including,
without limitation, the recovery of direct, indirect,
incidental, consequential and/or punitive damages.
5. ENTIRE AGREEMENT: This Agreement represents the entire agreement of
the parties relating to the services of the Employee. All prior
negotiations between the parties are merged into this Agreement and
there are no understandings or agreements other than those
incorporated herein.
6. MISCELLANEOUS.
(a) SEVERABILITY; COURT ENFORCEMENT. The parties hereto covenant
and agree that to the extent any provisions or portion of this
Agreement shall be held, found or deemed to be unreasonable,
unlawful or unenforceable, by any Court of law, then the
parties hereto expressly covenant and agree that any such
provision or portion thereof shall be modified to the extent
necessary in order that any such provision or portion thereof
shall be legally enforceable to the fullest extent
<PAGE> 3
permitted by applicable law and that any court of competent
jurisdiction shall, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to, enforce any
such provision or portion thereof or to modify any such
provision thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
(b) WAIVER. The Employer and the Employee each reserve the right
to waive any of the terms of this Agreement which benefits the
party waiving same. Any such waiver must be in a writing
signed by the party waiving the same.
(c) CHOICE OF LAW. It is the intention of the parties hereto that
this Agreement shall be governed by the laws of the State of
Maryland.
(d) SUCCESSORS. The terms of this Agreement shall inure to the
benefit of and be binding upon the Employer, its successors
and assigns, and upon the Employee, his heirs, guardians and
personal and legal representatives.
(e) GENDER. The use of the masculine gender herein shall be
deemed to be or include the feminine gender, wherever
appropriate.
(f) NOTICES. All notices, demands and other communications
hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or if sent registered or
certified mail, return receipt requested, properly addressed
and postage prepaid to the addresses set forth hereinabove.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same
instrument.
(h) HEADINGS. The Section and paragraph headings used herein are
for convenience and reference only and shall not enter into
the interpretation hereof.
(i) REPRESENTATION BY COUNSEL. The parties hereto acknowledge
that Stephen C. Hosea, of the law firm, McNamee, Hosea,
Jernigan & Kim, P.A., Suite 200, 6411 Ivy Lane, Greenbelt,
Maryland 20770 has acted as counsel to the Employer in this
matter. The parties hereto acknowledge that the Employee, for
the purposes of this Agreement, has sought and obtained, or
acknowledges his right and opportunity to seek and obtain the
advise of his independent legal counsel with regard to the
contents and interpretation of this Agreement and each party
hereto is fully and independently apprised of the meaning and
legal effect of this Agreement.
(j) MODIFICATIONS. There shall be no modifications or amendment
of this Agreement except by written amendment hereto signed by
both parties.
IN WITNESS WHEREOF this Agreement has been executed by the parties of
the day and year first above written.
WITNESS/ATTEST: SUBURBAN BANK OF MARYLAND
/s/ /s/
Susan J. Hansen By: Winfield M. Kelly, Jr.
- ----------------------------- -----------------------------------
Winfield M. Kelly, Jr., Chairman
/s/ /s/
Susan J. Hansen Sibyl S. Malatras
- ----------------------------- -----------------------------------
Sibyl S. Malatras, Employee
<PAGE> 1
EXHIBIT 11
SUBURBAN BANCSHARES, INC.
EARNINGS PER SHARE CALCULATION
DECEMBER 31, 1997
EARNINGS PER SHARE CALCULATION -- 1997
<TABLE>
<CAPTION>
Income Shares
Basic Earnings per Share: (Numerator) (Denominator) EPS
<S> <C> <C> <C>
Net Income $1,130,695.58
Common Shares Outstanding 10,951,218
Basic EPS $1,130,695.58 10,951,218 $0.1032
Income Shares
Diluted Earnings per Share: (Numerator) (Denominator) EPS
Net Income $1,130,695.58 10,951,218
Additional shares to be issued upon assumed exercise of management
stock options 350,000
Shares hypothetically repurchased at the average market price with
the proceeds (12,893)
Additional shares to be issued upon assumed exercise of incentive
stock options (dilutive in the 4th Quarter only) 3,176
Shares hypothetically repurchased at the average market price with
the proceeds (2,279)
Diluted EPS $1,130,695.58 11,289,222 $0.1002
</TABLE>
<PAGE> 2
SUBURBAN BANCSHARES, INC.
EARNINGS PER SHARE CALCULATION EXHIBIT 11
DECEMBER 31, 1997
INFORMATION FOR COMPUTATION OF DILUTION
<TABLE>
<CAPTION>
Market Price per Share: Daily Average
<S> <C>
First Quarter 1997 $2.4412
Second Quarter 1997 $2.2846
Third Quarter 1997 $2.4141
Fourth Quarter 1997 $3.6577
Average Price for the Year $2.7147
</TABLE>
(a) 350,000 Management Stock Options exercisable at $0.10 and outstanding
for the entire year.
(b) 12,600 options granted 1/22/97 exercisable at $2.625
<TABLE>
<CAPTION>
First Quarter 1997 Diluted
<S> <C> <C>
12,600 - ((12,600*2.625)/avg price) = (949) Antidilutive
Second Quarter 1997
12,600 - ((12,600*2.625)/avg price) = (1,877) Antidilutive
Third Quarter 1997
12,600 - ((12,600*2.625)/avg price) = (1,101) Antidilutive
Fourth Quarter 1997
12,600 - ((12,600*2.625)/avg price) = 3,557
</TABLE>
<PAGE> 1
EXHIBIT 13
Dear Shareholders, Customers, and Employees:
1997 was a year of re-evaluation for Suburban Bancshares, Inc. Re-evaluation
of where we are, where we want to be and how we are going to get there. In our
assessment of the banking environment, we concur with the thinking that today's
community banks, operating in a broad-based financial services industry, have
the primary options of being either small business specialists or
investment/retirement service providers for the moderately affluent.
Accordingly, Suburban has reaffirmed its primary mission of being a leader in
providing banking services to small- to middle-market businesses, as well as
accounting, legal and medical professionals in Prince George's and Montgomery
Counties, Maryland.
With the guidance of a prominent bank consulting firm, we thoroughly analyzed
the current banking environment, Suburban's local market position and our
financial structure. A key goal of our efforts is to enhance shareholder
value. We believe our plan to maximize the efficiency of the Company's assets
through our "200 IN 2000" strategy achieves this goal. That is, we will strive
to have $200 million in assets by the year 2000 and to have $250 million in
five years.
To meet these goals and enhance our leadership in serving small- to
middle-market businesses, we expanded our product line in 1997. New commercial
services include lockbox, sweep to repo, account reconciliation, zero balance
accounts, escrow manager and corporate retirement plans (401(k) programs).
Further, to supplement our construction lending to single family home
developers, we have formed SUBURBAN BANK MORTGAGE, a residential mortgage
division. Finally, we added to our convenient branch locations by opening our
seventh branch in Rockville/White Flint.
We made substantial progress toward our targets with record growth during 1997.
The Company's assets grew 39% to $175.8 million, while deposits increased 42%
and loans, 43%. As earning assets increase, we receive a greater contribution
to overhead, thereby increasing profitability. In 1997, net income was
$1,131,000 or $0.10 per share. With continued effort and the support of our
shareholders, employees and the communities we serve, we hope to make further
progress this year.
Thank you for your continuing support.
/s/ /s/
Winfield M. Kelly, Jr. Stephen A. Horvath
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
A picture of the Chairman and the President appears in the upper right-hand
corner of this page, above the letter. Facing this page are three (3) bar
charts showing the following data:
<TABLE>
<CAPTION>
in millions 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Assets $101.9 $114.2 $115.4 $126.1 $175.7
Loans 57.1 66.6 66.3 79.4 113.5
in dollars
Stock Price $1.50 $1.28 $1.59 $2.31 $3.81
</TABLE>
SUBURBAN BANCSHARES, INC.
Annual Report Photo Text
STAYING CLOSE TO OUR BUSINESS CUSTOMERS
"Having worked for many years at a major national bank, I'm used to turf wars,"
states Jerome D. Smallwood, a Vice President in Suburban's Commercial Banking
Group. "Suburban keeps it simple. Commercial lenders assist businesses with
their financing requirements. The branch staff focuses on depository and cash
management products. Our operations group makes it all work!"
<PAGE> 2
Jeffrey D. Franklin, Assistant Vice President and Clinton Branch Manager,
agrees. "My commercial customers know they can contact the branch at any time
for assistance with their accounts or cash management services. I also enjoy
providing personal banking services to the employees of the companies we bank.
Jerome and I work together to make sure all businesses in our geographic market
receive visits from one of us."
"At our Greenbelt Operations Center, our operations staff of nine deposit and
lending specialists know Suburban customers well," mentions Annette L. Pointer,
Assistant Vice President and Bank Operations Manager. "We take pride in
calling customers to discuss operational issues. I enjoy visiting clients with
our lending officers and branch managers to present cash management products.
We truly are a customer service team!"
The picture on the facing page under the caption, "Customer service is a team
effort at Suburban. Individual business owners are personally known to
representatives of our branch, commercial lending, and operations groups. "
shows Annette Pointer, Jeffrey Franklin and Jerome Smallwood at the Lite House,
a lighting fixtures store, in Clinton, Maryland.
ADDING PRODUCTS TO HELP OUR BUSINESS CUSTOMERS
"Construction lending to developers of single family homes and townhouses has
been a Suburban product for many years," reflects Jeffrey S. Wagner, a Suburban
Vice President and Senior Commercial Real Estate Officer. "However , we
realized that if we truly wanted to be a soup-to-nuts bank for builders, we
needed to do end financing." Responding to this market opportunity, we created
SUBURBAN BANK MORTGAGE, a residential mortgage division, and engaged a veteran
mortgage banker, Richard A. Lichty, to start this new venture.
"With Suburban's excellent home builder customer base, we have immediate access
to residential mortgage requests," notes Richard Lichty. "These leads, coupled
with my many years of contacts with local real estate agents, should enable us
to contribute positively to Suburban Bank's bottom line in our first year of
operation." SUBURBAN BANK MORTGAGE'S residential mortgage products include
FHA, VA, Conventional and Jumbo Loans. Fixed rate and variable rate pricing
options exist. Customers may also obtain Home Equity Lines of Credit, which
can be closed with the first mortgage.
In addition to adding residential mortgage financing in 1997, Suburban Bank
expanded its cash management services for businesses. We now offer products to
enhance a company's cash cycle. Receivables can be collected faster through
our wholesale mail lockbox product. Idle cash can be reduced with our sweep to
interest earning Repurchase Agreement product. Through our PC banking product,
Suburban OnLine, commercial account activity can be monitored and balances
transferred. We also reduce clerical efforts through our account
reconciliation product.
The photograph opposite the above comments shows Richard Lichty and Jeffrey
Wagner as they inspect a townhouse development, Brinkley Crest, under
construction by Vendemia & DeCesaris Builders, Inc. The caption above the
picture reads, "At Suburban, we continually add products and services for our
business customers and their employees. In 1997, we added five new cash
management products, a 401(k) Plan and a mortgage division."
EXPANDING OUR LEADERSHIP IN BUSINESS BANKING
"Local business people like to deal with local decision makers," states
Lawrence A. Shulman, Senior Partner, Shulman, Rogers, Gandal, Pordy & Ecker,
P.A. Suburban Bank's Board of Directors and management are local residents,
thoroughly familiar with the types of businesses operating in its markets.
Decision-making is thus sensitive to local business requirements. "Knowing of
Suburban's extensive involvement in Prince George's and Montgomery Counties, I
was pleased to accept election to Suburban's Board of Directors in 1997,"
states Director Shulman.
"To be successful in a market, a bank must have the correct product mix,"
states Albert W. Turner, Senior Partner, Carrollton Enterprises. "With
Suburban's business lending and cash management products, I know they can well
serve locally owned companies." Also joining Suburban's Board of Directors in
1997, Director Turner noted: "With the experience of the directors on
Suburban's Executive Committee, we can respond quickly and decisively to the
larger commercial loan requests the bank received."
"The greater Washington marketplace is the home of many government
contractors," states Carol A. Trawick, Chief Executive Officer of Trawick and
Associates. Many banks target these specialty clients. "Being a government
contractor, I know that a bank which lends to smaller government contractors
provides a vital service to the Washington business community," Ms. Trawick
observed. "With this
<PAGE> 3
local leadership, I was pleased to join Suburban's Board in 1997."
Suburban Bank of Maryland has 18 local board members. We are proud of their
leadership in our community.
Pictured on the facing page are our newest directors Carol Trawick and Lawrence
Shulman at our new office in White Flint. Albert Turner is not pictured. The
caption above the photograph says, "Suburban's Board of Directors are active
members in the business communities we serve. Their role strengthens our
ability to identify the most vital business needs."
<PAGE> 4
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
in thousands, except per share data 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Results of Operations
---------------------
Interest income $11,363 $9,176 $8,358 $7,156 $6,575
Interest expense 4,570 3,362 3,119 2,377 2,385
Net interest income 6,793 5,814 5,239 4,779 4,190
Provision (recovery) for loan losses 254 (227) (260) 39 1,133
Noninterest income 774 517 1,599 787 1,313
Noninterest expense 5,511 5,614 5,551 5,308 5,762
Income tax expense (benefit) 671 (4,058) 6 -- --
Net income (loss) 1,131 5,002 1,541 219 (1,392)
Per Share Data
--------------
Net income (loss):
Basic $0.10 $0.46 $0.17 $0.02 $(0.29)
Diluted 0.10 0.44 0.15 0.02 (0.29)
Book value per share 1.75 1.63 1.20 0.95 0.96
Financial Condition (December 31)
---------------------------------
Total assets $175,666 $126,085 $115,431 $114,229 $101,922
Net loans 112,070 71,940 61,555 61,775 54,662
Total deposits 152,802 107,573 101,889 104,402 92,021
Total equity 19,182 17,831 13,096 8,587 8,649
Ratios
------
Return on average assets 0.76% 4.42% 1.49% 0.21% (1.40)%
Return on average equity 6.14 36.35 15.29 2.51 (23.63)
Net yield on earning assets 5.02 5.57 5.50 5.05 4.74
Average equity to average assets 12.42 12.15 9.75 8.31 5.92
Average loans to average deposits 72.13 74.75 69.87 63.74 68.03
Average Balances
----------------
Assets $148,281 $113,272 $103,377 $105,137 $99,611
Loans 92,200 74,014 64,616 60,577 62,244
Earning assets 135,401 104,356 95,228 94,664 88,426
Deposits 127,829 99,017 92,483 95,035 91,491
Equity 18,412 13,760 10,080 8,734 5,892
</TABLE>
PORTIONS OF THIS ANNUAL REPORT CONTAIN FORWARD-LOOKING STATEMENTS, INCLUDING
STATEMENTS OF GOALS, INTENTIONS, AND EXPECTATIONS, REGARDING OR BASED UPON
GENERAL ECONOMIC CONDITIONS, INTEREST RATES, DEVELOPMENTS IN NATIONAL AND
LOCAL MARKETS, AND OTHER MATTERS, AND WHICH, BY THEIR NATURE, ARE SUBJECT TO
SIGNIFICANT UNCERTAINTIES. BECAUSE OF THESE UNCERTAINTIES AND THE ASSUMPTIONS
ON WHICH STATEMENTS IN THIS REPORT ARE BASED, THE ACTUAL FUTURE RESULTS MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN THIS REPORT.
<PAGE> 5
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Suburban Bancshares, Inc. and Subsidiary
This commentary provides an overview of the financial condition and significant
changes in the results of the operations of Suburban Bancshares, Inc. and its
subsidiary ("Bancshares" or "the Company") for the years 1995 through 1997.
Throughout this review the subsidiary of Suburban Bancshares, Inc., Suburban
Bank of Maryland, is referred to as "Suburban Maryland" or "the Bank". This
discussion should assist readers in their analysis of the accompanying
consolidated financial statements and should be read together with the
consolidated financial statements.
Suburban Bancshares, Inc. and its subsidiary, Suburban Bank of Maryland,
provide a variety of banking services to businesses, professionals and
individuals through seven branches located in Prince George's and Montgomery
Counties in Maryland. In addition to commercial and personal depository
services and cash management services, Suburban Bank of Maryland offers lending
products such as commercial loans, commercial real estate loans, Small Business
Administration loans, asset-based lending, government contract loans and
consumer loan products, including vehicle, home equity, mortgage and personal
loans.
RESULTS OF OPERATIONS
Overview
Suburban Bancshares, Inc. reported record growth in 1997, with assets reaching
$175,666,000, an increase of $49,581,000, or 39.3%, from $126,085,000 in 1996.
Total loans rose to $113,543,000 from $79,381,000 in 1996, an increase of
$34,162,000, or 43.0%, and total deposits climbed to $152,802,000 at the end of
the year, a $45,229,000, or 42.0%, increase from $107,573,000 in 1996.
The Company recorded net income in 1997 of $1,131,000, or diluted earnings per
share of $0.10. In 1996, earnings, after nonrecurring items, were $5,002,000,
or diluted earnings per share of $0.46. The 1996 nonrecurring items included
the recognition of income tax benefits of loss carryforwards and temporary
differences of $4,058,000 as required by Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109") when it becomes
"more likely than not" that they will be realized from the Company's future
earnings capacity.
The significant growth in 1997 and steadily improving net interest income have
contributed to an improvement in core profitability. Core profitability is
defined here as earnings from continuing operations, excluding nonrecurring
income and expenses. Because 1997 is the first year the Company has recorded
tax expense, core earnings for 1997 are defined, for comparative purposes, as
pretax income of $1,802,000, an increase of $306,000, or 20.5%, from core
earnings of $1,496,000 in 1996. Core earnings in 1996 represent earnings from
continuing operations after the elimination of the tax benefit, the losses and
expenses of the disposition of nonperforming assets, a reversal of the
provision for loan losses, and reorganizational expenses. In 1995, core
earnings were $1,016,000, after excluding the income and expense associated
with the disposition of Suburban Virginia's assets and liabilities, the
recognition of compensation expense for management stock options, a reversal in
the provision for loan losses and acquisition-related expenses.
Average assets climbed to $148,281,000 in 1997 from $113,272,000 in 1996, a
30.9%, or $35,009,000 increase. Average loans rose $18,186,000, or 24.6%, to
$92,200,000 in 1997 from $74,014,000 in 1996, while average deposits grew
$28,812,000, or 29.1%, reaching $127,829,000.
Net Interest Income and Net Interest Margin
The principal source of the Company's earnings, 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, impact the level of net interest
income.
Net interest income rose $979,000, or 16.8%, in 1997 to $6,793,000 from
$5,814,000 in 1996, the result of the significant growth in both loan and
deposit volume. In 1996, net interest income rose 11.0%, or $575,000, due to
an increase in loans as a percentage of earning assets.
<PAGE> 6
The net interest margin represents the Company's net yield on its earning
assets and is calculated as net interest income divided by average earning
assets. In 1997, the net interest margin fell to 5.02%, a 55 basis point
decrease from 5.57% for the prior year. Negative influences on the margin
include a lower loan yield, a higher cost of funds and a lower ratio of loans
to earning assets. These negative factors were mitigated by the increase in
volume on both sides of the balance sheet and a rising investment portfolio
yield. In 1996, the net interest margin rose 7 basis points from 5.50%, the
result of a change in the mix of earning assets toward a higher percentage of
loans, which traditionally provide a higher return than other earning assets.
Changes in the volume of earning assets and interest-bearing liabilities impact
both interest income and interest expense. Average earning assets rose
$31,045,000, or 29.7%, to $135,401,000 in 1997 from $104,356,000 in 1996.
Total funding sources rose $30,032,000, or 30.3%, during the same period but
only $24,922,000 of those funds were interest bearing; noninterest-bearing
funds provided $5,110,000 for earning assets, producing a positive impact on
net interest income. In 1996, earning assets grew $9,128,000 from $95,228,000
in 1995, but only $5,553,000 was funded by interest-bearing sources of funds,
resulting in a higher increase in interest income than in interest expense.
Changes in the composition of earning assets and of funding sources also impact
the level of net interest income. Changes in earning asset mix impacted the
1997 margin negatively as the loan portfolio, which produces the highest
return, comprised a lesser percentage of earning assets. In 1996, average
loans were 70.9% of total earning assets and in 1997, the ratio decreased to
68.1%. As the loan mix declined, the mix of investment securities increased
from 16.6% in 1996 to 20.3% in 1997. On the liability side of the balance
sheet, the composition of interest-bearing funding sources shifted toward a
higher percentage of funds in lower cost sources. This shift helped to
moderate the negative effect of a higher ratio of interest-bearing sources as a
percentage of total sources of funds. As total interest-bearing funds
increased to 81.1% of total funding sources in 1997 from 80.5% in 1996, the
percentage of funds deposited in lower cost checking, money market and savings
accounts increased to 59.1% in 1997 from 56.8% in 1996 and the percentage of
higher-cost time deposits decreased to 21.0% from 23.7%. In 1996, the growth
in loans resulted in an increase in the ratio of loans to earning assets, while
interest-bearing funds increased at a slower pace, both factors providing a
positive influence on the margin.
Combined changes in interest rates received on earning assets and paid on
funding sources negatively affected the net interest margin in 1997. The yield
on earning assets fell in 1997 to 8.39% from 8.79% in 1996, as loan yields
dropped to 9.49% from 10.01%. The lower yield on loans was the combined effect
of competitive factors in our market, a lower interest rate environment
overall, and a lower rate earned on a portfolio of the guaranteed portion of
SBA loans, which were purchased during the last half of the year. This pool,
totaling $7,804,000, represents 8.5% of the average loan portfolio, and because
of the reduced risk associated with the pool, the yield at 7.33% is less than
loans without the backing of a government guarantee. The yield on the
investment portfolio increased as we extended the overall maturity of the
portfolio and the return on Federal funds remained higher on average than last
year.
An increase in the cost of funds also reduced the margin, as rates paid for
funds rose to 3.54% for 1997 from 3.39% in 1996, a 15 basis point increase. In
early 1996, as market rates began to decline, the decrease in the cost of funds
moved more slowly and when other market rates leveled off, deposit costs
continued a slow decline. Competition for funds, however, increased in late
1996 and early 1997. At that time the Company offered a special rate on
savings accounts, a typically stable source of funds, which brought in new
funds and also resulted in some shifts within the deposit base. Savings
accounts rose to an average of $23,887,000 with an average cost of 4.79% in
1997 from $8,849,000 at 4.58% in 1996, an increase of $15,038,000 and 21 basis
points. As the rates paid on savings and money market accounts increased, the
cost of time deposits declined to 5.50% from 5.67%, which helped somewhat to
mitigate the rising cost of other funds.
<PAGE> 7
AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
in thousands
<TABLE>
<CAPTION>
Years ended December 31, 1997
Assets Average % of Earning Interest Average
Balance Assets & Yield or
Funding Sources Rate
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $92,200 68.1% $8,752 9.49%
Investment securities 27,471 20.3% 1,746 6.35%
Federal funds sold
and other deposits 15,730 11.6% 865 5.50%
Total interest-earning
assets 135,401 100.0% 11,363 8.39%
Noninterest-earning
assets:
Cash and due from
banks 7,517
Premises and
equipment 1,591
Other assets 5,302
Less: Allowance for
loan losses (1,530)
Total noninterest-earning
assets 12,880
TOTAL ASSETS $148,281
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Checking and money
market deposits $52,389 40.6% $1,886 3.60%
Savings deposits 23,887 18.5% 1,144 4.79%
Time deposits 27,111 21.0% 1,490 5.50%
Securities sold under
repurchase agreements 1,220 1.0% 50 4.08%
Total interest-bearing
liabilities 104,607 81.1% 4,570 4.37%
Noninterest-bearing
deposits 24,442 18.9%
Total funding sources 129,049 100.0% 4,570 3.54%
Other liabilities 820
TOTAL LIABILITIES 129,869
Shareholders' equity 18,412
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $148,281
Net interest income $6,793
Net interest spread 4.85%
Net interest margin 5.02%
<CAPTION>
1996 1995
Assets Average % of Interest Average Average % of Interest Average
Balance Earning Yield or Balance Earning Yield or
Assets Rate Assets Rate
& &
Funding Funding
Sources Sources
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $74,014 70.9% $7,409 10.01% $64,616 67.9% $6,525 10.10%
Investment securities 17,325 16.6% 1,080 6.23% 20,235 21.2% 1,229 6.07%
Federal funds sold
and other deposits 13,017 12.5% 687 5.28% 10,377 10.9% 604 5.82%
Total interest-earning
assets 104,356 100.0% 9,176 8.79% 95,228 100.0% 8,358 8.78%
Noninterest-earning
assets:
Cash and due from
banks 7,073 6,322
Premises and
equipment 1,213 1,045
Other assets 2,155 3,124
Less: Allowance for
loan losses (1,525) (2,342)
Total noninterest-earning
assets 8,916 8,149
TOTAL ASSETS $113,272 $103,377
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
Checking and money
market deposits $47,337 47.8% $1,625 3.43% $43,340 46.7% $1,547 3.57%
Savings deposits 8,849 9.0% 405 4.58% 7,115 7.7% 269 3.78%
Time deposits 23,499 23.7% 1,332 5.67% 23,416 25.2% 1,290 5.51%
Securities sold under
repurchase agreements -- -- -- -- 261 0.3% 13 4.83%
Total interest-bearing
liabilities 79,685 80.5% 3,362 4.22% 74,132 79.9% 3,119 4.21%
Noninterest-bearing
deposits 19,332 19.5% 18,612 20.1%
Total funding sources 99,017 100.0% 3,362 3.39% 92,744 100.0% 3,119 3.36%
Other liabilities 495 553
TOTAL LIABILITIES 99,512 93,297
Shareholders' equity 13,760 10,080
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $113,272 $103,377
Net interest income $5,814 $5,239
Net interest spread 5.40% 5.42%
Net interest margin 5.57% 5.50%
</TABLE>
<PAGE> 8
Provision for Loan Losses
The provision or reversal for loan losses is the effect 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 based upon a review of many factors,
including historical loss experience, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), economic
conditions and trends, loan portfolio volume 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
or reversal necessary to maintain an appropriate allowance.
In 1997, the Company recorded a provision for loan losses of $254,000, as loan
volume increased; loan charge-offs totaled $418,000 and recoveries were
$129,000.
In 1996, a reverse provision of $227,000 was recognized to reduce an excess in
the allowance for loan losses created by recoveries on loans previously charged
off and the disposition of nonperforming loans totaling $816,000. In 1995, the
Company also recognized a reverse provision of $260,000, the excess allowance
created by the disposition of Suburban Virginia loans and a sharp drop in
nonperforming loans.
Noninterest Income
Noninterest income increased 49.7% to $774,000 in 1997 from $517,000 in 1996.
The increase was primarily in deposit account service charges, the result of
both deposit account growth and new deposit-related services being offered.
Fees for other services rose, as well, as the growing customer base utilized
multiple services within the expanded product line.
Noninterest income in 1996 was $1,082,000 less than the $1,599,000 recorded in
1995. In 1995, the Company recognized a $1 million premium on the sale of
assets and transfer of liabilities of Suburban Virginia and a $19,000 payment
of interest on a refund of taxes from prior years. Noninterest income from
continuing operations was $580,000. The decrease in noninterest income of
$63,000, or 10.9%, to $517,000 in 1996 was primarily the result of declining
service charges on deposit accounts, as the customer base decreased.
Noninterest Expenses
Noninterest expenses declined 1.9% in 1997 to $5,511,000 from $5,614,000 in
1996. The comparability of results for 1997, 1996 and 1995 are impacted by
nonrecurring events in 1996 and 1995 which precipitated the recognition of
additional expenses.
In 1996, the Company disposed of nonperforming assets and recognized a loss on
the transactions totaling $611,000, and expenses associated with a corporate
reorganization were $151,000. In 1995, the divestiture and subsequent closing
of Suburban Virginia, a charge to compensation expense as the management stock
options became exercisable, and merger and acquisition costs resulted in
additional expenditures of $735,000 for nonrecurring events. Also in 1995, the
Company recognized a total gain on sales of foreclosed properties of $85,000.
Noninterest expenses from continuing operations were $4,852,000 in 1996 and
$4,901,000 in 1995. The increase in 1997 to $5,511,000, or 13.6%, from the
adjusted expenses from continuing operations for 1996 is the result of
increases in the cost of additional staff, data services, printing and office
services, equipment, and office rental as we opened a new branch in Bethesda,
renovated our Greenbelt headquarters and implemented new services for our
customers. Reductions in expenses associated with nonperforming assets,
insurance and marketing partially offset other rising costs.
In 1996, noninterest expenses from continuing operations exhibited a slight
decline of $49,000, or 1.0%, from 1995, the result of savings realized after
the disposition of the Virginia operations.
The Bank opened a new full-service banking office in Clinton, Maryland in
December 1995, another full-service office in Bethesda, Maryland in November
1996, and a full-service branch in White Flint, Maryland in January 1998. The
increased operating expenses of new offices are not immediately offset by
income until the offices become established, which, though not assured, often
occurs after approximately three to four years.
Please reference Note I to the Consolidated Financial Statements for a
breakdown of Other Expenses.
<PAGE> 9
Deferred Income Taxes
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires the recognition of income tax benefits of loss carryforwards
and temporary differences when it is "more likely than not" that they will be
realized from the Company's future earnings capacity. At December 31, 1996,
the Company recognized net deferred tax assets of $4,058,000 including
approximately $3,930,000 relating to tax loss carryforwards, which expire in
varying amounts between 2003 and 2008. Realization of these benefits depends
on generating sufficient taxable income before the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that the deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced if
estimates of future taxable income during the carryforward period are reduced.
The amount of loss carryforward available for any one year may be limited if
the Company is subject to the alternative minimum tax. In 1997, the deferred
tax asset was reduced by the income tax expense of $671,000 and the tax on the
unrealized gain on securities available for sale of $119,000, net of the
estimated alternative minimum tax of $32,000. At December 31, 1997, the
deferred tax asset was $3,299,000, including approximately $3,200,000 relating
to tax loss carryforwards.
ASSET QUALITY
Loan impairment applies to loans for which it is probable that the creditor
will not collect all principal and interest payments according to the loan's
contractual terms. The impairment of a loan is measured at the present value
of expected future cash flows using the loan's effective interest rate, or as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Interest income on
impaired loans is recognized on a cash basis. Restructured loans are loans on
which the borrower has been granted a concession as to rate or term as a result
of financial difficulty. Nonaccrual loans are those loans on which the accrual
of interest 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 of interest 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.
The recorded investment in loans that were considered impaired was $1,763,000
and $771,000 at December 31, 1997 and 1996, respectively. This increase of
$992,000 is attributable primarily to the placement of one large loan on
nonaccrual status.
The recorded investment in loans that were restructured prior to the adoption
of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and which
were performing according to the new terms was $44,000 at December 31, 1997 and
$1,088,000 at the end of 1996. This decrease was the result of normal loan
payoffs and principal payments.
Real estate acquired through foreclosure is carried at fair value less
estimated selling costs, based upon current market conditions and expected cash
flows. Foreclosed real estate rose $137,000, or 64.6%, to $349,000 at December
31, 1997 from $212,000 at December 31, 1996. This increase was the result of
foreclosure on one property.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of future
payments), the estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on impaired
loans that may be susceptible to significant change.
The allowance for loan losses is established through provisions for loan losses
charged against income. Loans deemed to be uncollectible are charged against
the allowance for loan losses, and subsequent recoveries, if any, are credited
to the allowance. The allowance for loan losses related to loans that are
identified as impaired is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans.
At December 31, 1997, the allowance for loan losses was $1,473,000, a decrease
of $35,000, or 2.3%, from $1,508,000 at the end of 1996. Even though loans
increased $34,162,000, or 43.0%, a large portion, $17,696,000, or 51.8%, of the
growth, was in loans with
<PAGE> 10
a low risk factor because of the government guarantee on the SBA loans
purchased. The combined effect of the lower portfolio risk, offset by the loan
growth, was a slight reduction in the required reserves.
The activity in the allowance for loan losses is shown in the following
schedule:
<TABLE>
<CAPTION>
Years ended December 31,
in thousands 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $1,508 $1,467 $2,750
Provision (recovery) for loan losses 254 (227) (260)
Loans charged off (418) (444) (1,340)
Recoveries 129 712 317
------- -------- ----------
Balance at end of year $1,473 $1,508 $1,467
</TABLE>
The allowance for loan losses rose to $1,508,000 at the end of 1996 from
$1,467,000 at December 31, 1995. The disposition of impaired loans in 1996
reduced the required reserve significantly, allowing the Company to recognize a
reverse provision of $227,000 while maintaining a reserve believed to be
sufficient to cover the loan growth in that year.
LIQUIDITY AND INTEREST SENSITIVITY
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. Liquidity is provided through readily
marketable assets, maturing loans and investments, and the ability to generate
new deposits or borrowings as needed. The Company's liquidity position is
monitored and managed by the Asset/Liability Management Committee, which has
the overall objective of optimizing income while minimizing and controlling
liquidity and interest rate risk, and maintaining capital adequacy.
Core deposits normally provide a stable source of liquidity for the Company.
These core deposits are composed of noninterest checking accounts, interest
checking and money market accounts, and savings and individual retirement
accounts. This core deposit base represented 77.6% of total funding sources at
December 31, 1997, compared to 83.9% at the end of 1996. Offsetting this
decrease is an increase in the level of readily marketable assets, which is
another indicator of adequate liquidity. These liquid assets, securities
available for sale, overnight federal funds and the guaranteed portion of SBA
loans in the loan portfolio, were 40.5% of total assets at December 31, 1997
and 31.3% at December 31, 1996.
As a supplementary source of short-term liquidity, the Bank maintains
$16,000,000 of reverse repurchase lines of credit and unsecured lines of credit
totaling $2,000,000 with correspondent banks. These correspondents meet
regulatory capital requirements for well capitalized financial institutions,
thereby minimizing the risk that might be associated with this level of
interbank exposure. The Bank has not needed to utilize these backup lines as
internally generated liquidity has provided ample resources.
Interest sensitivity pertains to the volatility of earnings resulting from
interest rate fluctuations. The management of interest rate risk has two
goals: to minimize fluctuations in net interest income and net income, and to
identify the potential change in the Company's market value of portfolio
equity. Interest rate risk can be defined or measured as either the change in
earnings that results from changes in interest rates (earnings at risk) or a
change in the theoretical market value of the Company (economic value at risk).
Economic value at risk is essentially the value of equity at risk. The Company
recognizes that with return, there must be risk; however, the levels of risk
must be contained within tolerable limits as established by the Asset/Liability
Management Committee and the Investment Sub-committee.
One method of measuring the Company's interest rate sensitivity is the "gap"
report, which measures the mismatch in repricing between interest-sensitive
assets and liabilities and provides a general indication of the interest
sensitivity of the balance sheet at a point in time. By limiting the size of
the gap position, the Company can limit the net interest income at risk arising
from pricing imbalances. The gap schedule that follows reflects the earlier of
the maturity or repricing dates for various interest-earning assets and
interest-bearing liabilities at December 31, 1997.
<PAGE> 11
<TABLE>
<CAPTION>
Interest Rate Sensitivity Analysis
3 months or Over 3 months Over 6 Over 1 year Total
less to months to 1
in thousands 6 months year
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $15,569 $ -- $ -- $ -- $ 15,569
Investments 2,040 499 1,894 30,360
Loans (1) 72,213 4,792 8,638 25,927 113,634
Total interest-earning assets 89,822 5,291 10,532 27,991 159,563
Cumulative rate sensitive assets 89,822 95,113 105,645 53,918
159,563
Interest-bearing liabilities:
Interest checking deposits $ 12,461 $ -- $ -- $ -- $ 12,461
Money market deposits 50,987 -- -- -- 50,987
Savings deposits 24,607 -- -- -- 24,607
Time deposits 23,155 2,847 2,899 6,990 35,891
Securities sold under repurchase
agreements 3,049 -- -- -- 3,049
Total interest-bearing liabilities 114,259 2,847 2,899 6,990 126,995
Cumulative rate sensitive liabilities 114,259 117,106 120,005 126,995
GAP $ $(24,437) $ 2,444 $7,633 $46,928
CUMULATIVE GAP (24,437) (21,993) (14,360) 32,568 $32,568
CUMULATIVE GAP TO TOTAL ASSETS -13.91% -12.52% -8.17% 18.54%
</TABLE>
(1) Excludes net deferred fees of ($91).
The amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual terms of the asset or liability. The Company has
assumed that its savings, interest checking and money market accounts reprice
daily. At December 31, 1997, the Company's one-year interest sensitivity gap
(the difference between the amount of interest-earning assets anticipated by
the Company, based on certain assumptions, to mature or reprice within one year
and the amount of interest-bearing liabilities anticipated by the Company,
based on certain assumptions, to mature or reprice within one year) as a
percentage to total assets was negative 8.17%. This negative gap position
means that the Company had $14,360,000 more liabilities than assets repricing
within one year. This generally indicates that in a period of rising interest
rates, the Company's net interest income may be adversely affected.
Conversely, in a declining interest rate environment, the Company's net
interest income may improve.
Another tool used to assess interest rate risk reflects the adverse changes
that would occur assuming an instantaneous, parallel shift of 200 basis points
in the Treasury Yield Curve is introduced over a one-year forecast horizon.
This interest shock simulation measures the potential changes in simulated
earnings and the potential changes in market value of portfolio equity as rates
are shifted at each point on the yield curve upward and downward. The
methodology is based upon an initial forecast assumption of a constant balance
sheet and constant market interest rates and utilizes present value
computations on cash flows as well as duration analysis to produce measurements
of earnings and economic value at risk. The analyses are prepared using
current call report data from the Bank and incorporate both management
assumptions and trend analyses based upon the Company's historical data as well
as market trends in pricing spreads, prepayment patterns and other rate-driven
parameters which affect the level and timing of cash flows. Finally, the
impact of planned growth is factored into the simulation model.
The Asset/Liability Committee has established limits or guidelines on earnings
and economic value at risk and monitors the Company's performance against these
guidelines, as well as peer results, on a quarterly basis. The Company's
policy is to limit the percentage change in annual net interest income to -15%
and in economic value to -20% from an immediate and sustained parallel shift in
interest rates of 200 basis points. As of December 31, 1997, the estimated
sensitivity profile for the Company was as follows:
<PAGE> 12
<TABLE>
<CAPTION>
Immediate Change in Rates Policy Limitation
+200 BP -200 BP
------- -------
<S> <C> <C> <C>
Net interest income at risk 12.7% -12.5% -15%
Economic value at risk 9.4% -14.1% -20%
</TABLE>
Both of the above tools used to assess interest rate risk have strengths and
weaknesses. Because the gap reflects a static position at a single point in
time, it is limited in quantifying the total impact of market rate changes
which do not affect all earning assets and interest-bearing liabilities equally
or simultaneously. In addition, gap reports depict the existing structure,
excluding exposure arising from new business. While the simulation process is
a powerful tool in analyzing interest rate sensitivity, many of the assumptions
used in the process are both highly qualitative and subjective and subject to
the risk that past historical activity may not generate accurate predictions of
the future. Both measurement tools, however, provide a comprehensive
evaluation of the Company's exposure to changes in interest rates, enabling
management to control the volatility of earnings.
CAPITAL RESOURCES AND ADEQUACY
Shareholders' equity was $19,182,000 at December 31, 1997 representing a 7.6%
increase from $17,831,000 at the end of 1996. Equity growth in 1997 was
primarily attributable to the earnings of the Company of $1,131,000. Also
contributing to the increase was the impact of net unrealized gains on
securities available for sale of $220,000, net of taxes.
In 1996, shareholders' equity increased $4,735,000, or 36.2%, from $13,096,000
at December 31, 1995. Earnings of $5,002,000, offset by a decrease in the
market value of the Company's available for sale securities of $267,000, were
the components of this rise in equity.
A combination of the leverage capital ratio and the risk-based capital ratios
is used to categorize banks as well capitalized, adequately capitalized, or
under capitalized financial institutions under the guidelines established by
the Federal Deposit Insurance Corporation Improvement Act of 1991. 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 a written
agreement, order, or directive. At December 31, 1997 and 1996, the Company was
considered to be a well capitalized financial institution for regulatory
purposes.
One measure of capital adequacy is the risk-based capital ratio or the ratio of
total capital to risk-adjusted assets. Total capital is composed of both core
capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital consists of
common equity, excluding unrealized gains or losses on available for sale
securities and a disallowed portion of the deferred tax asset. Tier 2 capital
consists 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%. Financial institutions 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. At December 31, 1997, the Company
reported a Tier 1 risk-based capital ratio of 17.49% and a ratio of 18.74%
based on total capital. Both ratios were well above the general regulatory
minimums of 4% and 8%, respectively.
Another capital adequacy measure is the leverage capital ratio, which is
calculated by dividing average total assets for the most recent quarter into
core (Tier 1) capital. The regulatory minimum for this ratio is 3%, with most
financial institutions required to maintain a ratio of a least 4% to 5%,
depending upon risk profiles and other factors. At December 31, 1997, the
leverage capital ratio for the Company was 10.82%.
YEAR 2000 ISSUE
Many computer programs now in use have not been designed to properly recognize
years after 1999. If not corrected, these programs could fail or create
erroneous results. This year 2000 issue affects the entire banking industry
because of its reliance on computers and other equipment that use computer
chips, and may have significant effects on banking customers and regulators.
In recognition of the potential adverse effects of the year 2000 issue,
management of the Company created a task force and established a plan to
prevent or mitigate adverse effects of the year 2000 issue on the Company and
its customers. The Board of Directors reviews progress under the plan each
quarter. The Company's primary supplier of data processing services also had
adopted a year 2000 plan and timetable. Management believes that the cost of
resolving year 2000 issues relating to the Company's computer programs and
those used by its
<PAGE> 13
suppliers of significant data processing services will not be material to the
Company's business, operations, liquidity, capital resources, or financial
condition, based on information developed to date and communications from data
processing suppliers. The Company's year 2000 plan requires an assessment of
year 2000 effects on its commercial lending and other customers. The effects
on individuals, corporate and governmental customers of the Company and on
governmental authorities that regulate the Company and its subsidiary, and any
resulting consequences to the Company, cannot yet be determined. The Company
has committed significant management resources to identification and timely
resolution of all significant year 2000 issues.
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Years ended December 31,
in thousands 1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,759 $ 7,848
Federal funds sold 15,569 12,215
Investment securities available for sale 30,360 21,290
Loans held for sale -- 5,933
Loans 113,543 73,448
Less: Allowance for loan losses (1,473) (1,508)
Loans, net 112,070 71,940
Premises and equipment, net 1,658 1,314
Foreclosed real estate 349 212
Accrued interest receivable 1,172 771
Deferred income taxes 3,299 4,058
Other assets 430 504
TOTAL ASSETS $175,666 $126,085
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 28,856 $ 21,145
Interest-bearing deposits 123,946 86,428
Total deposits 152,802 107,573
Securities sold under repurchase agreements 3,049 --
Accrued expenses and other liabilities 633 681
Total liabilities 156,484 108,254
Commitments and contingent liabilities -- --
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;
shares issued and outstanding: 10,951,218 at December 31, 109 109
1997 and December 31, 1996 534 534
Paid-in capital -- stock options 25,259 25,259
Additional paid-in capital (6,910) (8,041)
Accumulated deficit 190 (30)
Net unrealized gain (loss) on securities available for sale, 19,182 17,831
net of taxes
Total shareholders' equity $175,666 $126,085
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
in thousands, except per share data 1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 8,752 $7,409 $6,525
Taxable interest on securities 1,746 1,080 1,229
Interest on Federal funds sold and deposits with other banks 865 687 604
Total interest income 11,363 9,176 8,358
INTEREST EXPENSE
Interest on deposits 4,520 3,362 3,106
Interest on short-term borrowings 50 -- 13
Total interest expense 4,570 3,362 3,119
NET INTEREST INCOME 6,793 5,814 5,239
Provision for loan losses 254 (227) (260)
Net interest income after provision for loan losses 6,539 6,041 5,499
NONINTEREST INCOME
Service charges on deposit accounts 612 394 440
Gain on sale of assets and transfer of liabilities -- -- 1,000
Other income 162 123 159
Total noninterest income 774 517 1,599
NONINTEREST EXPENSE
Salaries and employee benefits 2,873 2,743 2,735
Occupancy expense 673 518 549
Furniture and equipment expense 222 153 133
Loss (gain) on sale of loans and foreclosed assets -- 611 (85)
Other expense 1,743 1,589 2,219
Total noninterest expense 5,511 5,614 5,551
Income before income taxes 1,802 944 1,547
Income tax expense (benefit) 671 (4,058) 6
NET INCOME $1,131 $5,002 $1,541
Basic earnings per common share $0.10 $0.46 $0.17
Diluted earnings per common share 0.10 0.44 0.15
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
in thousands 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,131 $5,002 $1,541
Adjustments to reconcile net income to net cash provided (used) by operating
activities: 194 129 139
Depreciation 254 (227) (260)
Provision (recovery) for loan losses -- -- 231
Provision for foreclosed real estate losses -- -- 362
Stock option compensation expense 639 (4,058) --
Deferred income tax expense (benefit) -- (2,641) (2,214)
Originations of loans held for sale -- 382 --
Proceeds from loan sales -- 434 --
Loss on sale of loans (87) (55) (100)
Net accretion on securities (41) 24 (25)
(Decrease) increase in net deferred loan fees 75 -- --
Amortization of premiums on loans purchased (327) 259 (448)
(Increase) decrease in accrued income and other assets (48) 235 (78)
(Decrease) increase in accrued expenses and other liabilities -- -- 185
Income tax refunds received -- 177 (85)
Loss (gain) on sale of foreclosed real estate -- -- (1,000)
Gain on sale of assets and transfer of liabilities -- -- 104
Loss on write-off of fixed assets
1,790 (339) (1,648)
Net cash provided (used) by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in deposits with other banks -- 2,220 (1,975)
(Increase) decrease in Federal funds sold (3,354) 4,275 (5,220)
Purchases of available for sale securities (17,529) (11,819) (7,076)
Proceeds from sales of available for sale securities -- -- 709
Proceeds from maturities of available for sale securities 8,775 8,235 11,450
Proceeds from prepayments of principal on securities 110 150 75
Net increase in loans (16,301) (11,014) (11,493)
Purchases of loans (18,320) -- --
Net purchases of premises and equipment (538) (252) (322)
Proceeds from sale of foreclosed real estate -- 777 1,720
Cash transferred on sale of assets and transfer of liabilities -- -- (1,346)
Consideration paid on sale of assets and transfer of liabilities -- -- (754)
Net cash used in investing activities (47,157) (7,428) (14,232)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in total deposits 45,229 5,684 16,486
Net increase in securities sold under agreements to repurchase 3,049 -- 423
Net proceeds from sale or issuance of common stock -- -- 1,897
Net cash provided by financing activities 48,278 5,684 18,806
Net increase (decrease) in cash and due from banks 2,911 (2,083) 2,926
Cash and due from banks at beginning of period 7,848 9,931 7,005
Cash and due from banks at end of period $10,759 $7,848 $9,931
Interest paid $4,523 $3,378 $3,090
Income taxes paid -- -- 6
Loans transferred to foreclosed real estate 136 15 --
Investments transferred from held to maturity to available for sale -- -- 4,872
Transfer of loans held for sale to portfolio 5,933 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
in thousands Common Additional Accumulated Unrealized Total
Stock Paid-In Deficit Gain (Loss)
Capital on
Available
for Sale
Securities
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995 $ 91 $23,552 ($14,584) ($472) $8,587
Net income for 1995 1,541 1,541
Issuance of common stock upon exercise of warrants 18 1,879 1,897
Paid-in capital - stock options 362 362
Unrealized gain on securities available for sale 709 709
Balances, January 1, 1996 109 25,793 (13,043) 237 13,096
Net income for 1996 5,002 5,002
Unrealized loss on securities available for sale (267) (267)
Balances, January 1, 1997 109 25,793 (8,041) (30) 17,831
Net income for 1997 1,131 1,131
Unrealized gain on securities available for sale 220 220
Balances, December 31, 1997 $109 $25,793 ($6,910) $190 $19,182
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Suburban Bancshares, Inc. and its subsidiary, Suburban Bank of Maryland,
provide a variety of banking services to businesses, professionals and
individuals through seven branches located in Prince George's and Montgomery
Counties in Maryland. In addition to commercial and personal depository
services and cash management services, Suburban Bank of Maryland offers lending
products such as commercial loans, commercial real estate loans, Small Business
Administration loans, asset based lending, government contract loans and
consumer loan products, including vehicle, home equity, mortgage and personal
loans.
NOTE A ACCOUNTING POLICIES
The accounting and reporting policies of Suburban Bancshares, Inc. and its
subsidiary (the "Company") are in conformity with generally accepted accounting
principles and conform to general practices within the banking industry.
Certain reclassifications have been made to conform the prior year's financial
statements to the 1997 presentation. The following is a summary of the
significant policies:
(1) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Suburban Bancshares, Inc. include the
accounts of Suburban Bancshares, Inc. and its wholly-owned banking subsidiary,
Suburban Bank of Maryland ("Suburban Maryland" or the "Bank"). A former
subsidiary, Suburban Bank of Virginia, N.A. ("Suburban Virginia") was merged
into Suburban Maryland on August 18, 1995 in a pooling of interests
transaction. Financial statements for periods prior to the merger include both
subsidiaries, collectively referred to as the "Banks". All significant
intercompany balances and transactions have been eliminated in consolidation.
In the condensed financial statements of Suburban Bancshares, Inc. ("Parent")
(Note Q), the investment in the subsidiary is stated as equity in the net
assets of such subsidiary.
(2) BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and of revenues and expenses for the period. Material estimates
that are particularly susceptible to significant change in the near-term relate
to the determination of the allowance for loan losses and the evaluation of
real estate acquired in connection with foreclosures or in satisfaction of
loans. Actual results could differ from those estimates.
(3) CASH AND DUE FROM BANKS
The Bank is required to maintain reserves against its deposits with the Federal
Reserve Bank. The balances of such reserves at December 31, 1997 and 1996 were
$1,212,000 and $1,030,000, respectively. At December 31, 1997, Suburban
Maryland had secured reverse repurchase lines of credit aggregating $16,000,000
and unsecured lines of credit totaling $2,000,000 for short-term financing, all
of which was available at that date. None of these financing arrangements
required compensating balances. For purposes of the Consolidated Statements of
Cash Flows, the Company considers cash and due from banks to be cash and cash
equivalents.
<PAGE> 17
(4) INVESTMENT SECURITIES
The Company classifies its securities in one of three categories: trading,
held to maturity or available for sale. Management determines the appropriate
classification of securities at the time of purchase. Held to maturity
securities are those securities in which the Company has the ability and the
intent to hold until maturity and are reported at cost, adjusted for
amortization of premium and accretion of discounts using a method which
approximates the interest method over the term of the securities. All other
securities not included in trading or held to maturity are classified as
available for sale and are reported at fair value, with unrealized gains and
losses, net of taxes, reported as a separate component of shareholders' equity.
Securities available for sale will be used as part of the Company's interest
rate risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk and other factors.
Realized gains or losses on securities are recognized at the time of sale using
the specific identification method and are classified as securities gains or
losses in the accompanying Consolidated Statements of Operations.
(5) LOANS HELD FOR SALE
The Company originates loans to customers under the Small Business
Administration ("SBA") program that generally provides for SBA guarantees of
75% to 90% of each loan. The Company may sell the guaranteed portion of each
loan to a third party and retain the unguaranteed portion in its own portfolio.
Those loans to be sold are classified as loans held for sale and are carried at
the lower of aggregate cost or market. A gain is recognized on the sale of
these loans through collection of a premium over the adjusted carrying value,
and through retention of an ongoing rate differential as a normal servicing fee
between the rate paid by the borrower to the Company and the rate paid by the
Company to the purchaser (excess servicing fee). The Company's investment in
an SBA loan is based upon a relative fair market value allocation between the
portion of the loan sold, the portion of the loan retained and any excess
servicing retained. The gain on the sold portion of the loan is recognized,
the carrying value of the retained portion of the loan is reduced, thereby
increasing the future yield, and any excess servicing is recorded as an asset
and subsequently amortized to servicing income. The Company utilizes a 1%
normal servicing fee and has not recorded any excess servicing assets.
(6) LOANS
Loans generally are stated at their outstanding, unpaid principal balances net
of any deferred fees or costs, or unamortized premiums or discounts on
purchased loans. Interest income is accrued on the unpaid principal balance.
Discounts and premiums are amortized to income using the interest method. Loan
origination fees net of certain direct origination costs are deferred and
recognized as an adjustment of the yield (interest income) of the related
loans.
Nonaccrual loans -- Generally, a loan is classified as nonaccrual and the
accrual of interest on such loan is discontinued when the contractual payment
of principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a
loan is placed on nonaccrual status, unpaid interest credited to income is
reversed and the recognition of deferred fees or costs is discontinued.
Interest received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal. Generally, loans are restored to accrual
status when the obligation is brought current, has performed in accordance with
the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
Impaired Loans -- Loans are considered impaired when, based on current
information, it is probable that the Company will not collect all principal and
interest payments according to contractual terms. Generally, loans are
considered impaired once principal or interest payments become 90 days or more
past due and they are placed on nonaccrual. Management also considers the
financial condition of the borrower, cash flows of the loan and the value of
the related collateral. Loans specifically reviewed for impairment are not
considered impaired during periods of "minimal delay" in payment (90 days or
less) provided eventual collection of all amounts due is expected. The
impairment of a loan is measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or the fair value
of the collateral if repayment is expected to be provided by the collateral.
Generally, the Company's impairment on such loans is measured by reference to
the fair value of the collateral. Interest income on impaired loans is
recognized on the cash basis.
Allowance for Loan Losses -- The allowance for loan losses is increased through
provisions for credit losses charged against income and reduced by reversals of
previous years' provisions. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to loans that are identified as impaired
is based on discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain collateral dependent
loans.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past loan
loss experience, known and
<PAGE> 18
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on loans
that may be susceptible to significant change.
(7) FORECLOSED REAL ESTATE
Foreclosed real estate is comprised of property acquired through foreclosure
proceedings or acceptance of a deed-in-lieu of foreclosure. Foreclosed assets
initially are recorded at fair value at the date of foreclosure establishing a
new cost basis. After foreclosure, valuations are periodically performed by
management, and the real estate is carried at the lower of cost or fair value
minus estimated costs to sell. Costs relating to property improvements are
capitalized to the extent that they are recoverable and costs relating to
holding property are expensed when incurred. Gains or losses on the sale of
foreclosed real estate are recognized upon disposition of the property.
(8) LONG-LIVED ASSETS
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line method and are included in noninterest expense in the
accompanying Consolidated Statements of Operations. Premises and equipment are
depreciated over the estimated useful lives of the assets (generally five to
ten years), except for leasehold improvements which are amortized over the
terms of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.
Long-lived assets are evaluated regularly for other-than-temporary impairment.
If circumstances suggest that their value may be impaired and the write-down
would be material, an assessment of recoverability is performed prior to any
write-down of the assets. Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, was adopted on January 1, 1996. Implementation of this
standard did not have a significant impact on the Company's financial condition
or results of operations.
(9) INCOME TAXES
Under the asset and liability method of accounting for income taxes, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are recognized for future
deductible temporary differences and tax loss carryforwards if their
realization is "more than likely".
(10) NET INCOME PER COMMON SHARE
Basic and diluted net income per common share are accounted for under Statement
of Financial Accounting Standards No. 128, Earnings per Share. Basic net
income per common share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the year. Diluted net income per common share is computed by dividing net
income available to common shareholders by the weighted average number of
common shares outstanding during the year including any dilutive potential
common shares outstanding, such as options and warrants.
(11) STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), establishes a fair value based method of accounting
for employee stock options and expands disclosure requirements, including a
description of the plan. SFAS 123 permits a company to continue to measure
compensation cost for its stock option plans using the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. The Company adopted SFAS 123 on
January 1, 1996 as presented in Note M.
(12) NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS 125"), which
provides new accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets and extinguishments of
liabilities. SFAS 125 is effective for transactions occurring after December
31, 1996, except for the provisions relating to repurchase agreements,
securities lending and other similar transactions and pledged collateral, which
have been delayed until after December 31, 1997 by SFAS 127, Deferral of the
Effective Date of Certain Provisions of SFAS Statement No. 125, an amendment of
SFAS Statement No. 125. Adoption of SFAS 125 was not material; SFAS 127 will
be adopted as required in 1998 and is not expected to be material.
<PAGE> 19
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128") was issued and establishes new standards for reporting
and presenting earnings per share. SFAS 128 is effective for the Company's
December 31, 1997 financial statements, including restatement of interim
periods; earlier application was not permitted. The effect of the new standard
was not material.
In June 1997, Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), was issued and establishes standards for
reporting and displaying comprehensive income and its components. SFAS 130
requires comprehensive income and its components, as recognized under the
accounting standards, to be displayed in a financial statement with the same
prominence as other financial statements. The Company plans to adopt the
standard, as required, beginning in 1998; adoption of this disclosure
requirement will not have a material impact on the Company.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS 131"), also issued in June
1997, establishes new standards for reporting information about operating
segments in annual and interim financial statements. The standard also
requires descriptive information about the way the operating segments are
determined, the products and services provided by the segments and the nature
of differences between reportable segment measurements and those used for the
consolidated enterprise. This standard is effective for years beginning after
December 15, 1997. Adoption in interim financial statements is not required
until the year after initial adoption; however, comparative prior period
information is required. The Company is evaluating the standard and plans
adoption as required in 1998; adoption of this disclosure requirement will not
have a significant financial impact on the Company.
NOTE B INVESTMENTS
The following table shows the amortized cost and estimated fair value of
investment securities classified as available for sale at December 31, 1997:
<TABLE>
<CAPTION>
Gross
Unrealized Estimated
Amortized ---------- Fair
in thousands Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 4,384 $ 21 $(1) $ 4,404
Federal agencies 24,695 285 (4) 24,976
Mortgage-backed obligations of
Federal agencies 89 2 -- 91
Other 883 7 (1) 889
--------- ------- ----- -------
Total $30,051 $315 $(6) $30,360
</TABLE>
The schedule below shows the amortized cost and estimated fair value of
investment securities classified as available for sale at December 31, 1996:
<TABLE>
<CAPTION>
Gross
Unrealized Estimated
Amortized ---------- Fair
in thousands Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 7,345 $ 40 $ (6) $ 7,379
Federal agencies 12,986 31 (96) 12,921
Mortgage-backed obligations of
Federal agencies 167 -- (1) 166
Collateralized mortgage
obligations 33 1 -- 34
Other 788 6 (4) 790
-------- ------ --- ---
Total $21,319 $ 78 $(107) $21,290
</TABLE>
In November 1995, the Financial Accounting Standards Board issued a Special
Report, A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities. The Report announced a one-time
window of opportunity for the reassessment and reclassification of securities
categorized as held to maturity. On December 31, 1995, the Company transferred
all securities previously classified as held to maturity to the available for
sale classification. The amortized cost of those securities transferred was
$4,872,000 and the estimated fair value was $5,007,000 on that date, resulting
in the addition of $135,000 to shareholders' equity.
<PAGE> 20
The amortized cost and estimated fair value for securities available for sale
at December 31, 1997, by contractual maturity are shown in the following table.
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.
<TABLE>
<CAPTION>
in thousands Amortized Cost Estimated Fair Value
<S> <C> <C>
Due in one year or less $ 4,414 $ 4,433
Due after 1 year through 5 years 21,183 21,327
Due after 5 years through 10 years 4,365 4,509
Mortgage-backed securities 89 91
---------- ---------
Total $30,051 $30,360
</TABLE>
The amortized cost and estimated fair value of securities pledged as collateral
to secure certain deposits and short-term borrowings were $9,344,000 and
$9,549,000, respectively at December 31, 1997, as compared to $1,465,000 and
$1,483,000, respectively, at December 31, 1996.
There were no sales of securities in 1997 or 1996. Proceeds from the sale of
available for sale securities in 1995 were $709,000, which included gross gains
of $3,000 and gross losses of $2,600.
NOTE C LOANS
Loans, net of amortized deferred fees, are summarized by type as follows:
<TABLE>
<CAPTION>
in thousands December 31,
1997 1996
<S> <C> <C>
Commercial $49,644 $21,941
Real Estate 44,181 35,157
Construction 12,071 9,944
Individual 5,069 5,046
Other 2,578 1,360
---------- --------
Total loans 113,543 73,448
Less: Allowance for loan losses (1,473) (1,508)
------- -------
Loans, net $112,070 $71,940
</TABLE>
NOTE D IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
Impaired loans are those loans for which it is probable that the creditor will
not collect all principal and interest payments according to the loan's
contractual terms. The impairment of a loan is measured at the present value
of expected future cash flows using the loan's effective interest rate, or as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. Interest income on
impaired loans is recognized on a cash basis. Restructured loans are loans on
which the borrower has been granted a concession as to rate or term as a result
of financial difficulty.
<PAGE> 21
Information with respect to impaired loans at December 31 is as follows:
<TABLE>
<CAPTION>
in thousands 1997 1996
---- ----
<S> <C> <C>
Impaired loans with a valuation allowance $1,763 $ 771
Impaired loans without a valuation allowance -- --
-------- ------
Total impaired loans $1,763 $ 771
Allowance for credit losses related to impaired loans $ 274 $ 78
Allowance for credit losses related to other than impaired loans 1,199 1,430
----- -----
Total allowance for credit losses $1,473 $1,508
Average impaired loans for the year $1,633 $1,752
Interest income on impaired loans recognized on the cash basis -- --
</TABLE>
The recorded investment in loans that were restructured prior to the adoption
of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and which
were performing according to the new terms was $44,000 at December 31, 1997 and
$1,088,000 at December 31, 1996. Interest income that would have been
recognized on these loans if they were performing according to their original
terms was $2,000 in 1997 and $119,000 in 1996; income recorded was $1,700 and
$136,000 in 1997 and 1996 respectively. The Company has no obligation to make
further extensions of credit under loans classified as troubled debt
restructurings.
The provision for loan losses is determined by analyzing the status of
individual loans, reviewing historical loss experience and reviewing the
delinquency of principal and interest payments where pertinent. Management
believes that uncollectible amounts have been charged off and that the
allowance is adequate to cover losses inherent in the portfolio at December 31,
1997. Increases and decreases in the allowance include changes in the
measurement of impaired loans.
Activity in the allowance for loan losses is summarized as follows for years
ended December 31:
<TABLE>
<CAPTION>
in thousands 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $1,508 $1,467 $2,750
Provision (recovery) for loan losses 254 (227) (260)
Loans charged off (418) (444) (1,340)
Recoveries 129 712 317
-------- --------- ---------
Balance at end of year $1,473 $1,508 $1,467
</TABLE>
NOTE E FORECLOSED REAL ESTATE
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs, based upon current market conditions and expected cash
flows.
The following schedule presents a breakdown by type of property of foreclosed
real estate at December 31:
<TABLE>
<CAPTION>
in thousands 1997 1996
<S> <C> <C>
Commercial property $402 $265
Less: Valuation allowance (53) (53)
------ ------
Total estimated fair value $349 $212
</TABLE>
<PAGE> 22
Activity in the valuation allowance on foreclosed real estate is as follows:
<TABLE>
<CAPTION>
in thousands 1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 53 $362 $ 748
Provision for losses -- -- 231
Dispositions, net -- (309) (597)
Charge-offs, net of recoveries -- -- (20)
---- ------ -------
Balance at end of year $ 53 $ 53 $ 362
</TABLE>
NOTE F PREMISES AND EQUIPMENT
Premises and equipment include the following at December 31:
<TABLE>
<CAPTION>
in thousands 1997 1996
<S> <C> <C>
Land $ 231 $ 310
Buildings and improvements 630 551
Leasehold improvements 904 689
Furniture and equipment 1,254 1,051
Branch in construction 66 --
Less: Accumulated depreciation and amortization (1,427) (1,287)
------- -------
Total premises and equipment $1,658 $1,314
</TABLE>
The Company occupies banking and office space in six locations under
noncancellable lease arrangements accounted for as operating leases. The
initial lease periods range from five to ten years and provide for one or more
five-year renewal options. The leases provide for percentage annual rent
escalations and require that the lessee pay certain operating expenses
applicable to the leased space. Rent expense applicable to operating leases
amounted to $441,000, $329,000 and $346,000 in 1997, 1996 and 1995,
respectively. At December 31, 1997, future minimum lease payments under
noncancellable operating leases having an initial term in excess of one year
are as follows (in thousands) for years ending December 31:
<TABLE>
<S> <C>
1998 $ 491
1999 502
2000 513
2001 524
2002 536
Thereafter 2,614
-----
Total minimum lease payments $5,180
</TABLE>
NOTE G DEPOSITS
Total deposits at December 31 are summarized by type as follows:
<TABLE>
<CAPTION>
in thousands 1997 1996
<S> <C> <C>
Noninterest-bearing deposits $28,856 $21,145
Interest-bearing:
Interest checking deposits 12,461 8,944
Money market deposits 50,987 40,092
Savings deposits 24,607 15,327
Certificates of deposit of $100,000 or more 11,259 2,624
Other time deposits 24,632 19,441
------ ------
Total interest-bearing deposits 123,946 86,428
------- ------
Total deposits $152,802 $107,573
</TABLE>
<PAGE> 23
NOTE H SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under repurchase agreements,
which are securities sold to the Bank's customers, at the customer's request,
under a continuing "roll-over" contract that matures in one business day. The
underlying securities sold are U.S. Treasury notes or Federal agencies which
are segregated in the Bank's Federal Reserve Bank account from the Company's
other investment securities. At December 31, 1996, there were no short-term
borrowings. The following table presents certain information for short-term
borrowings:
<TABLE>
<CAPTION>
1997 1996
in thousands Amount Rate Amount Rate
<S> <C> <C> <C> <C>
Securities sold under repurchase agreements:
At year end $3,049 4.15% -- --
Average for the year 1,220 4.08% -- --
Maximum month-end balance 4,259 --
</TABLE>
NOTE I OTHER EXPENSE
Other expense in the Consolidated Statements of Operations include the
following:
<TABLE>
<CAPTION>
Years ended December 31,
in thousands
1997 1996 1995
<S> <C> <C> <C>
Outside data service fees $ 434 $ 321 $ 242
Printing and office expenses 267 202 197
Director fees 210 146 158
Bank operations 179 163 137
Loan and foreclosed real estate expenses 139 206 494
Professional fees and services 127 163 347
Marketing and advertising 118 147 86
Insurance 60 87 124
Franchise taxes, filing fees and assessments 55 23 161
Other 154 131 273
-------- ------- -------
Total other expenses $1,743 $1,589 $2,219
</TABLE>
NOTE J INCOME TAXES
Federal and state income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
in thousands
1997 1996 1995
<S> <C> <C>
Current Federal income tax $ -- $ -- $ 6
Current state income tax -- -- --
Deferred Federal income tax expense (benefit) 614 (3,322) --
Deferred state income tax expense (benefit) 57 (736) --
------ --------- -----
Total income tax expense (benefit) $671 $ (4,058) $ 6
</TABLE>
The following chart is a summary of the tax effects of temporary differences
that give rise to significant portions of deferred tax assets:
<PAGE> 24
<TABLE>
<CAPTION>
Years ended December 31,
in thousands
1997 1996 1995
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 76 $ -- $ 66
Deferred loan fees and costs 60 51 42
Allowance for losses on foreclosed real estate 20 21 140
Deferred rent 14 9 5
Deferred compensation 22 72 --
Deferred gain on sale of loans 22 28 --
Loan interest 11 8 --
Alternative minimum tax 32 -- --
Net operating loss carryforwards 3,199 3,930 4,151
----- ----- -----
Gross deferred tax assets 3,456 4,119 4,404
Less valuation allowance -- -- (4,360)
-------- ------- -------
Total deferred tax assets 3,456 4,119 44
Deferred tax liabilities:
Allowance for loan losses -- (22) --
Tax on unrealized gain on securities available for sale (119) -- --
Premises and equipment (38) (39) (44)
------ -------- --------
Net deferred income taxes $3,299 $4,058 $ --
</TABLE>
A reconciliation of the statutory Federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal income tax benefit 2.1 4.6 --
Elimination of valuation allowance on deferred tax assets -- (468.4) --
Other, net 1.1 -- (33.6)
------- --------- ------
Effective tax rates 37.2% (429.8)% 0.4%
</TABLE>
At December 31, 1997 the Company reported a net deferred tax asset of
$3,299,000 reflecting the benefit of $8,283,000 in tax loss carryforwards,
which expire in varying amounts between 2003 and 2008. Realization depends on
generating sufficient taxable income before the expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. The amount of loss carryforward available for
any one year may be limited if the Company is subject to the alternative
minimum tax.
NOTE K EARNINGS PER COMMON SHARE
The weighted average number of shares outstanding used in the determination of
basic and diluted income per share are shown in the following table:
<PAGE> 25
<TABLE>
<CAPTION>
For the Year Ended 1997
-----------------------------------------------------
Income Shares Per Share
dollars in thousands (numerator) (denominator) Amount
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to common shareholders $1,131 10,951,218 $0.10
Effect of dilutive securities (assuming conversion) 338,004
Diluted Earnings per Share:
Income available to common shareholders plus
assumed conversions of options outstanding $1,131 11,289,222 $0.10
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended 1996
-----------------------------------------------------
Income Shares Per Share
dollars in thousands (numerator) (denominator) Amount
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to common shareholders $5,002 10,951,218 $0.46
Effect of dilutive securities (assuming conversion) 333,344
Diluted Earnings per Share:
Income available to common shareholders plus
assumed conversions of options outstanding $5,002 11,284,562 $0.44
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended 1995
-----------------------------------------------------
Income Shares Per Share
dollars in thousands (numerator) (denominator) Amount
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to common shareholders $1,541 9,159,315 $0.17
Effect of dilutive securities (assuming conversion)
Warrants 643,887
Options 327,872
Diluted Earnings per Share:
Income available to common shareholders plus
assumed conversions of options outstanding $1,541 10,131,074 $0.15
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 12,600 shares of common stock at $2.625 were outstanding
during 1997 but were not included in the computation of diluted EPS in the
first three quarters because the options' exercise price was greater than the
average market price of the common shares. Likewise, 80,000 options
outstanding during the entire year were exercisable at $5.625 and were not
included in the computation because they do not have a dilutive effect.
In January 1998, under the 1997 Stock Option Plan, the Company awarded 385,950
options to employees and directors, 207,950 of which vest at 20% per year over
a period of five years. The exercise price of the options granted was equal to
the market price on the date of grant at $3.625.
NOTE L RELATED PARTY TRANSACTIONS
Certain directors, officers and principal shareholders of the Company and its
subsidiary, including their immediate families and companies in which they have
significant ownership, were loan customers during 1997 and 1996. Such loans
were made in the ordinary course of business and on substantially the same
credit terms, including interest rates, maturities and collateralization, as
those prevailing at the time for comparable transactions with other persons,
and did not involve more than normal risk of collectibility or present other
unfavorable features. At December 31, 1997, all of the loans were current and
performing according to agreement.
Total loans outstanding for each year indicated and activity in those loans are
shown below:
<PAGE> 26
<TABLE>
<CAPTION>
Years ended December 31,
in thousands
1997 1996
<S> <C> <C>
Outstanding at beginning of year $ 870 $ 823
New loans and principal advances 524 223
Repayments (432) (176)
----- -----
Outstanding at end of year $ 962 $ 870
</TABLE>
An individual who was a director of the Company's subsidiary during 1997 is a
general partner in a partnership which leases a branch facility to the Bank.
The lease term expired June 30, 1997, and was renewed under the second of three
five-year renewal options at a minimum annual rate of approximately $75,600. A
director of the Company and its subsidiary is the Chairman of the Board of a
company that provided services associated with the management and disposition
of certain properties obtained through foreclosure. Fees and commissions for
these services were approximately $62,000 in 1996; no fees were paid in 1997.
Management believes that the services provided and the terms of the foregoing
lease are no more and no less favorable to the Company than those which could
have been received from unaffiliated parties.
NOTE M EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan covering all full-time employees who have reached
the age of 21 and have completed at least one year of service as defined by the
plan. The Company made contributions to the plan of approximately $67,000,
$55,000 and $41,000 in 1997, 1996 and 1995, respectively. These amounts are
included in salaries and employee benefits in the accompanying Consolidated
Statements of Operations.
In 1993, upon the successful completion of a stock offering, 350,000 Management
Stock Options were granted to the Chairman of the Board, the Vice Chairman and
a major stockholder under the terms of the Plan of Reorganization and
Recapitalization. These options are exercisable at a purchase price of $0.10
per share and have a term of five years, expiring in March of 2001. Deferred
compensation expense has been recognized and the offset, recorded to paid-in
capital - stock options.
An Incentive Stock Option ("ISO") Plan in place since 1987 allowed the Company
to grant options to officers and key employees for up to 404,235 shares of
common stock. There were 80,000 options outstanding under the ISO Plan at the
beginning of 1995. No options were granted under this plan during 1995 or
1996. In January 1997, seven officers and key employees were granted 12,600
options. The exercise price of the options, which have a term of ten years
from the date of the grant, equals the market price of the Company's stock on
the date of grant.
At the 1997 Annual Shareholders Meeting, a new combined stock option plan for
both employees and directors was approved to replace the original ISO Plan,
with a total of 500,000 shares of common stock available for grant. Awards
under the 1997 Stock Option Plan (the "1997 Plan") may be granted in the form
of incentive stock options for employees or non-incentive stock options for
either employees or directors, and have a maximum duration of ten years from
the date of grant. The exercise price of any option granted under the plan may
not be less than the market price of the optioned shares on the date of grant.
In January 1998, 178,000 options were granted under the 1997 Plan to directors,
and 207,950 incentive stock options, which vest at 20% per year over a five
year period, were granted to employees.
Under the provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), the Company had the
option of accruing a compensation expense for stock options granted to
employees or applying the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"). The Company has elected to continue to
account for the above fixed stock option plans under APB 25, which does not
require compensation expense to be recognized in the Consolidated Statements of
Operations. Had compensation cost for the plan been determined based on the
fair value of the options at the grant date consistent with the method of SFAS
123, the Company's net income and earnings per share would have been:
<PAGE> 27
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income (in thousands)
As reported $1,131 $5,002 $1,541
Pro forma 1,112 5,002 1,541
Basic earnings per share
As reported $0.10 $0.46 $0.17
Pro forma 0.10 0.46 0.17
Diluted earnings per share
As reported $0.10 $0.44 $0.15
Pro forma 0.10 0.44 0.15
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1997: dividend yield of 0%, expected volatility
of 30%, risk-free interest rate of 6.41%, and expected life of 10 years.
A summary of the status of the Company's fixed stock option plans at December
31, 1997, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Shares Exercise of Exercise
Shares Price Price Shares Price
<S> <C> <C> <C> <C> <C>
Beginning of year 430,000 $1.13 430,000 $1.13 430,000 $1.13
Granted 12,600 2.63 -- -- -- --
Exercised -- -- -- -- -- --
Forfeited -- -- -- -- -- --
End of year 442,600 $1.17 430,000 $1.13 430,000 $1.13
Weighted average fair value of
options granted during the year $1.50 -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
All options outstanding at December 31, 1997 were exercisable.
The following information applies to options outstanding at December 31, 1997:
<TABLE>
<S> <C>
Number outstanding 442,600
Range of exercise prices $0.10 to $5.625
Weighted average exercise price $1.17
Weighted average remaining contractual life 3.8 years
</TABLE>
NOTE N REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary -
actions by regulators that, if undertaken, could have a direct material effect
on the Company's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
<PAGE> 28
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based,
and Tier 1 leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
Bank's category.
The actual capital amounts and ratios for the Company and the Bank are
presented in the table below:
<TABLE>
<CAPTION>
For Capital To Be Well
Actual Adequacy Purposes Capitalized
in thousands Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk-weighted assets):
Company $18,959 18.74% $8,094 8.00% $10,118 10.00%
Suburban Bank of Maryland 14,415 14.48 7,966 8.00 9,958 10.00
Tier 1 capital (to risk-weighted assets):
Company 17,692 17.49 4,047 4.00 6,071 6.00
Suburban Bank of Maryland 13,168 13.22 3,983 4.00 5,975 6.00
Tier 1 capital (to average assets):
Company 17,692 10.82 6,542 4.00 8,178 5.00
Suburban Bank of Maryland 13,168 8.25 6,383 4.00 7,979 5.00
As of December 31, 1996:
Total capital (to risk-weighted assets):
Company $16,689 20.45% $6,530 8.00% $8,162 10.00%
Suburban Bank of Maryland 12,292 15.36 6,403 8.00 8,003 10.00
Tier 1 capital (to risk-weighted assets):
Company 15,663 19.19 3,265 4.00 4,897 6.00
Suburban Bank of Maryland 11,286 14.10 3,201 4.00 4,802 6.00
Tier 1 capital (to average assets):
Company 15,663 12.75 4,913 4.00 6,141 5.00
Suburban Bank of Maryland 11,286 9.47 4,766 4.00 5,958 5.00
</TABLE>
NOTE O COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company incurs certain commitments and
contingent liabilities that are not reflected in the accompanying Consolidated
Financial Statements. These off-balance-sheet items include various
commitments to extend credit and standby letters of credit. No material losses
are expected to result from these transactions. At December 31, 1997 and 1996,
commitments under standby letters of credit totaled approximately $954,000 and
$446,000, respectively. Unfunded loan commitments totaled approximately
$15,000,000 and $8,761,000 at December 31, 1997 and 1996, respectively.
The Company's subsidiary is, at times, and in the ordinary course of banking
business, subject to legal actions. Management is of the opinion that losses,
if any, resulting from current legal actions will not have a material adverse
effect on the financial condition of the Company.
Because most of the Company's business activity is with customers located in
the Washington, D.C. metropolitan area, a geographic concentration of credit
risk exists within the loan portfolio, and, as such, its performance will be
influenced by the economy of the region. In addition, foreclosed real estate
is located in the same market or its surrounding areas; accordingly, the
recovery of a substantial portion of the carrying amount of foreclosed real
estate is susceptible to changes in market conditions in the Washington
metropolitan area. The loan portfolio is diversified with no single industry
or customer comprising more than 7.9% of the total portfolio. The largest
concentration of borrowers within general types of industries, as classified by
Standard Industrial Codes ("SIC"), is in the Finance/Insurance/Real Estate
group, which is 17.1% of the total portfolio.
<PAGE> 29
The Company sells excess funds overnight (Federal funds sold) to correspondent
banks. At December 31, 1997, a total of $15.6 million was invested with three
banks, the largest exposure being $7.6 million. All of these correspondent
banks are considered well capitalized under regulatory guidelines, and,
therefore, little, if any, credit risk is present.
NOTE P FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS 107"), requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value for its financial instruments as defined by SFAS 107.
CASH AND DUE FROM BANKS: The carrying amount approximates fair value.
INTEREST-BEARING DEPOSITS WITH BANKS AND FEDERAL FUNDS SOLD: The carrying
amount approximates fair value.
INVESTMENT SECURITIES AVAILABLE FOR SALE: Fair values are based on published
market prices or dealer quotes.
LOANS: For loans with short-term or variable characteristics, such as home
equity or personal lines of credit and variable-rate commercial and real estate
loans, the carrying value approximates fair value. This amount excludes any
value related to account relationships. The fair value of other types of loans
is estimated by discounting the future cash flows using the comparable
risk-free rate, adjusted for credit risk and operating expenses.
INTEREST RECEIVABLE AND INTEREST PAYABLE: The carrying amount approximates fair
value.
NONINTEREST-BEARING DEPOSITS: The fair value of these instruments, by the SFAS
107 definition, is the amount payable at the reporting date.
INTEREST-BEARING DEPOSITS: The fair value of demand deposits, savings accounts
and money market deposits with no defined maturity, by SFAS 107 definition, is
the amount payable on demand at the reporting date. The fair value of
certificates of deposit is estimated by discounting the future cash flows using
the current rates at which similar deposits would be made.
At December 31, 1997, the Company had outstanding letters of credit and
commitments to extend credit of $954,000 and $15,000,000, respectively; at
December 31, 1996, outstanding letters of credit totaled $446,000 and
commitments to extend credit were $8,761,000. The fair value of these
off-balance-sheet financial instruments, based on fees that would be charged to
enter similar arrangements, is immaterial.
The estimated fair values of the Company's financial instruments required to be
disclosed under SFAS 107 are as follows:
<PAGE> 30
<TABLE>
<CAPTION>
in thousands 1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $10,759 $10,759 $7,848 $7,848
Federal funds sold 15,569 15,569 12,215 12,215
Investment securities available for sale 30,360 30,360 21,290 21,290
Net loans (including loans held for sale) 112,070 113,671 77,873 79,499
Interest receivable 1,172 1,172 771 771
Liabilities:
Noninterest-bearing deposits $28,856 $28,856 $21,145 $21,145
Interest-bearing deposits 123,946 123,981 86,428 87,289
Securities sold under repurchase agreements 3,049 3,049 -- --
Interest payable 100 100 53 53
</TABLE>
NOTE Q PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
In 1997 and 1996, all costs of operating the Bank were allocated directly to
the Bank. Condensed financial statements of Suburban Bancshares, Inc. only
(the "Parent") follow:
CONDENSED BALANCE SHEETS
Parent Company
<TABLE>
<CAPTION>
December 31,
in thousands 1997 1996
<S> <C> <C>
ASSETS
Cash & due from banks $ 773 $ 635
Investment securities available for sale 3,300 3,265
Investment in subsidiary 14,789 13,743
Deferred income taxes 96 152
Other assets 46 51
--------- ---------
Total Assets $19,004 $17,846
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 5 $ 2
Shareholders' equity:
Common stock 109 109
Paid-in capital -- stock options 534 534
Additional paid-in capital 25,259 25,259
Accumulated deficit (6,910) (8,041)
Net unrealized gain (loss) on securities available for sale 7 (17)
---------- ----------
Total shareholders' equity 18,999 17,844
--------- ---------
Total Liabilities and Shareholders' Equity $19,004 $17,846
</TABLE>
<PAGE> 31
CONDENSED STATEMENTS OF OPERATIONS
Parent Company
<TABLE>
<CAPTION>
Years ended December 31,
in thousands 1997 1996 1995
<S> <C> <C> <C>
Interest on deposits $ 33 $ 64 $ 18
Interest on investments 197 148 95
Other income -- -- 6
------- ------ --------
Total income 230 212 119
Total expenses 91 111 552
Income (loss) before income taxes and equity in
undistributed income of subsidiaries 139 101 (433)
Income tax expense (benefit) 54 (152) --
----- ------- --------
Income (loss) before equity in undistributed
income of subsidiaries 85 253 (433)
Equity in undistributed income of subsidiaries 1,046 4,749 1,974
----- ------ -------
Net income $1,131 $5,002 $ 1,541
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Parent Company
<TABLE>
<CAPTION>
Years ended December 31,
in thousands 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,131 $5,002 $1,541
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in income of subsidiaries (1,046) (4,749) (1,974)
Stock option compensation expense -- -- 362
Accretion on securities (6) (3) (4)
Deferred income tax expense (benefit) 51 (152) --
Decrease (increase) in other assets 5 (34) 6
Increase (decrease) in other liabilities 3 (3) (2)
-------- -------- --------
Net cash provided (used) by operating activities 138 61 (71)
Net cash provided (used) by investing activities -- 526 (1,814)
Net cash provided by financing activities -- -- 1,897
Net increase in cash and cash equivalents 138 587 12
Cash and cash equivalents at beginning of year 635 48 36
---------- ------------ ------------
Cash and cash equivalents at end of year $773 $ 635 $ 48
</TABLE>
<PAGE> 32
NOTE R SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1997
Dollars in thousands First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Income from earning assets $2,491 $2,762 $2,956 $3,154
Interest expense 935 1,081 1,228 1,326
Net interest income 1,556 1,681 1,728 1,828
Provision for loan losses 35 80 80 59
Noninterest income 171 193 224 186
Noninterest expense 1,390 1,437 1,325 1,359
Income before income taxes 302 357 547 596
Income tax expense 106 130 194 241
Net income $196 $227 $353 $355
-----------------------------------------------------------------------------------------------------------------
Basic:
Earnings per share $0.02 $0.02 $0.03 $0.03
Average shares outstanding 10,951,218 10,951,218 10,951,218 10,951,218
Diluted:
Earnings per share $0.02 $0.02 $0.03 $0.03
Average shares outstanding 11,286,791 11,285,713 11,286,622 11,295,202
Dividends declared per common share -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Market price per common share
High for the period $ 2 5/8 $ 2 1/2 $ 3 9/16 $ 4
Low for the period 2 3/16 2 2 1/8 3
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
Dollars in thousands First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Income from earning assets $2,091 $2,208 $2,341 $2,536
Interest expense 801 797 850 914
Net interest income 1,290 1,411 1,491 1,622
Provision for loan losses 0 0 0 (227)
Noninterest income 136 142 126 113
Noninterest expense 1,138 1,227 1,222 2,027
Income (loss) before income taxes 288 326 395 (65)
Income tax benefit -- -- -- (4,058)
Net income $288 $326 $395 $3,993
-----------------------------------------------------------------------------------------------------------------
Basic:
Earnings per share $0.03 $0.03 $0.04 $0.36
Average shares outstanding 10,951,218 10,951,218 10,951,218 10,951,218
Diluted:
Earnings per share $0.03 $0.03 $0.04 $0.35
Average shares outstanding 11,280,314 11,285,705 11,284,904 11,286,015
Dividends declared per common share -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Market price per common share
High for the period $ 2 $ 2 9/16 $ 2 1/2 $ 2 9/16
Low for the period 1 1/4 1 7/8 1 15/16 2 1/16
=================================================================================================================
</TABLE>
MARKET FOR COMMON STOCK
Suburban Bancshares, Inc.'s common stock is traded on the NASDAQ Stock Market
under the symbol "SBNK". The approximate number of Suburban Bancshares, Inc.
shareholders of record as of March 2, 1998 was 946.
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Suburban Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of
Suburban Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Suburban Bancshares, Inc. and Subsidiary as of December 31, 1997
and 1996, and the results of their operations and cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Stegman & Company
Baltimore, Maryland
January 12, 1998
BOARD OF DIRECTORS
Suburban Bancshares, Inc. (1)
Suburban Bank of Maryland (2)
SAMUEL Y. BOTTS (1,2)
Partner, Jessamy, Fort & Botts
(law firm)
ALBERT G. DECESARIS (2)
Vice President, Vendemia & DeCesaris Builders, Inc.
ROBERT G. DEPEW (2)
President, Robert G. Depew & Associates, Inc.
(real estate leasing and management)
BARBARA M. DINENNA-CORBOY (1,2)
Chairman, DiNenna & Associates, C.P.A.
FRANK K. HALLEY, JR. (2)
President, Carrollton Realty, Inc.
(real estate sales and management)
STEPHEN A. HORVATH (1,2)
PRESIDENT
<PAGE> 34
MARLIN K. HUSTED (1,2)
VICE CHAIRMAN (1)
WINFIELD M. KELLY, JR. (1,2)
CHAIRMAN
President & CEO, Dimensions Health Corporation
(health care management)
RAYMOND G. LAPLACA (1,2)
VICE CHAIRMAN (2)
Partner, Reichelt, Nussbaum, LaPlaca and Miller
(law firm)
ROBERT L. LONG (2)
Chairman, Long Fence Company
(commercial and residential fencing)
FRANK LUCENTE, JR. (2)
President, Lucente Enterprises
(real estate development)
KENNETH H. MICHAEL (1,2)
Chairman, The Michael Companies, Inc.
(real estate sales and management)
ATA O. MOSHYEDI, M.D. (2)
Physician, Gastroenterology
VINCENT D. PALUMBO, D.D.S. (1,2)
President, V.D. Palumbo, P.A.
(oral and maxillofacial surgery)
NATHANAEL POLLARD, JR., PH.D. (2)
President, Bowie State University
LAWRENCE A. SHULMAN (1,2)
Partner, Shulman, Rogers, Gandal, Pordy & Ecker, P.A.
(law firm)
CAROL A. TRAWICK (2)
CEO, Trawick & Associates
(computer consulting firm)
ALBERT W. TURNER (1,2)
Senior Partner, Carrollton Enterprises
(real estate development and management)
OFFICERS
Suburban Bancshares, Inc.
WINFIELD M. KELLY, JR.
Chairman and Chief Executive Officer
MARLIN K. HUSTED
Vice Chairman
<PAGE> 35
STEPHEN A. HORVATH
President and Chief Operating Officer
SIBYL S. MALATRAS
Senior Vice President and Chief Financial Officer
SUSAN J. HANSEN
Corporate Secretary
Suburban Bank of Maryland
WINFIELD M. KELLY, JR.
Chairman
RAYMOND G. LAPLACA
Vice Chairman
STEPHEN A. HORVATH
President and Chief Executive Officer
JOSEPH E. BURNETT
Senior Vice President and Chief Lending Officer
CESAR O. CABREJAS
Senior Vice President, Branch Administration
HAROLD J. KOCH
Senior Vice President, Credit Administration
SIBYL S. MALATRAS
Senior Vice President and Treasurer
STEVEN M. BRUNN
Vice President
CHARLES E. CARNS
Vice President and Controller
JOAN U. FULTON
Vice President
BARBARA M. HART
Vice President
RICHARD A. LICHTY
Vice President
JOSEPH A. RUTH
Vice President
EDSEL G. SHAFFER
Vice President
JEROME D. SMALLWOOD
Vice President
AL TURCHAN
Vice President
<PAGE> 36
PATRICK VAN DER HAM
Vice President
JEFFREY S. WAGNER
Vice President
N. LEE WALTZ, JR.
Vice President
BRANCH LOCATIONS AND GENERAL INFORMATION
Suburban Bank of Maryland
<TABLE>
<S> <C> <C> <C>
Bethesda 7900 Wisconsin Avenue Lobby: M-F 9 am - 4 pm
Bethesda, MD 20814-3601 Drive-in: M-F 8 am - 6:30 pm
with ATM (301) 654-2200
fax: (301) 654-1040
Capitol Heights 8703 Central Avenue Lobby: M-F 9 am - 2 pm
Capitol Heights, MD 20743-3689 Drive-in: M-F 8 am - 6 pm
(301) 350-8100 Drive-in: Sat 9 am - 12 noon
fax: (301) 499-2597
Clinton 7600 Old Branch Avenue Lobby: M-F 9 am - 2 pm
Clinton, MD 20735-1603 Drive-in: M-F 8 am - 6 pm
with ATM (301) 868-1215 Drive-in: Sat 9 am - 12 noon
fax: (301) 868-0363
Greenbelt 7505 Greenway Center Drive Lobby: M-F 9 am - 4 pm
P. O. Box 298
Greenbelt, MD 20768-0298
(301) 220-0733
fax: (301) 220-2410
Oxon Hill 6196 Oxon Hill Road Lobby: M-F 9 am - 2 pm
Oxon Hill, MD 20745-3130 Drive-in: M-F 8 am - 6 pm
(301) 567-2650
fax: (301) 567-2479
Rockville 30 West Gude Drive Lobby: M-F 9 am - 4 pm
Rockville, MD 20850-1170 Walk-up: M-Th 8 am - 4 pm
(301) 309-1771 Walk-up: Fri 8 am - 6 pm
fax: (301) 309-6785
White Flint 11414 Rockville Pike Lobby: M-F 9 am - 4 pm
Rockville, MD 20852-3001 Drive-in: M-F 8 am - 6:30 pm
with ATM (301) 770-6625
fax: (301) 770-6658
</TABLE>
General Information
Corporate Office
7505 Greenway Center Drive
P. O. Box 298
Greenbelt, MD 20768-0298
(301) 474-6694
(301) 474-9103 fax
<PAGE> 37
Corporate Publications
Suburban Bancshares, Inc.'s Form 10-K and quarterly reports are available upon
request at no charge by writing or calling the Corporate Office.
Registrar
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
<PAGE> 1
EXHIBIT 21
List of subsidiaries of Suburban Bancshares, Inc.
Suburban Bank of Maryland
7505 Greenway Center Drive
Greenbelt, Maryland 20770
<PAGE> 1
STEGMAN
& Company
Certified Public Accountants and
Management Consultants since 1915
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Form 10-K
of Suburban Bancshares, Inc. for the year ended December 31, 1997 of our report
dated January 12, 1998, relating to the consolidated financial statements of
Suburban Bancshares, Inc.
/s/
Stegman & Company
Baltimore, Maryland
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,759
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,569
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,360
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 113,543
<ALLOWANCE> 1,473
<TOTAL-ASSETS> 175,666
<DEPOSITS> 152,802
<SHORT-TERM> 3,049
<LIABILITIES-OTHER> 633
<LONG-TERM> 0
0
0
<COMMON> 109
<OTHER-SE> 19,073
<TOTAL-LIABILITIES-AND-EQUITY> 175,666
<INTEREST-LOAN> 8,752
<INTEREST-INVEST> 1,746
<INTEREST-OTHER> 865
<INTEREST-TOTAL> 11,363
<INTEREST-DEPOSIT> 4,520
<INTEREST-EXPENSE> 4,570
<INTEREST-INCOME-NET> 6,793
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<EXPENSE-OTHER> 5,511
<INCOME-PRETAX> 1,802
<INCOME-PRE-EXTRAORDINARY> 1,131
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,131
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<YIELD-ACTUAL> 5.02
<LOANS-NON> 1,763
<LOANS-PAST> 160
<LOANS-TROUBLED> 44
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,508
<CHARGE-OFFS> 418
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