<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------
COMMISSION FILE NUMBER 0-16595
----------------------------------------------------------
SUBURBAN BANCSHARES, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
DELAWARE 54-1319441
- --------------------------------------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7505 GREENWAY CENTER DRIVE, GREENBELT, MARYLAND 20770
- --------------------------------------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(301) 474-6694
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
<TABLE>
<CAPTION>
COMMON STOCK $.01 PAR VALUE OUTSTANDING AT NOVEMBER 6, 1998
- --------------------------- -------------------------------
<S> <C>
(CLASS)
10,951,218 SHARES
--------------------------
</TABLE>
1
<PAGE> 2
SUBURBAN BANCSHARES, INC.
S.E.C. FORM 10-Q
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------- --------
<S> <C> <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 (UNAUDITED)
AND DECEMBER 31, 1997 (AUDITED) 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 4
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-19
PART II. OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
</TABLE>
FORWARD-LOOKING INFORMATION
PORTIONS OF THIS QUARTERLY REPORT ON FORM 10Q CONTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE ADEQUACY OF THE ALLOWANCE FOR LOAN LOSSES,
INTEREST RATE RISK, AND THE YEAR 2000 ISSUE 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.
2
<PAGE> 3
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1998 1997
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,969 $ 10,759
Federal funds sold 53,085 15,569
Investment securities available for sale 34,699 30,360
Loans held for sale 774 --
Loans 122,778 113,543
Less: Allowance for loan losses (1,452) (1,473)
Loans, net 121,326 112,070
Premises and equipment, net 1,723 1,658
Foreclosed real estate 402 349
Accrued interest receivable 1,216 1,172
Deferred income taxes 2,620 3,299
Other assets 996 430
TOTAL ASSETS $229,810 $175,666
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 34,016 $ 28,856
Interest-bearing deposits 162,116 123,946
Total deposits 196,132 152,802
Securities sold under repurchase agreements 11,627 3,049
Accrued expenses and other liabilities 1,637 633
Total liabilities 209,396 156,484
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; 10,951,218 shares
issued and outstanding at September 30, 1998 and December 31, 1997 109 109
Paid-in capital - stock options 534 534
Additional paid-in capital 25,259 25,259
Accumulated deficit (5,917) (6,910)
Accumulated other comprehensive income 429 190
Total shareholders' equity 20,414 19,182
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $229,810 $175,666
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
(in thousands, except per share data) 1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,765 $6,280
Taxable interest on securities 1,598 1,254
Interest on Federal funds sold and deposits with other banks 1,028 675
Total interest income 10,391 8,209
INTEREST EXPENSE
Interest on deposits 4,427 3,227
Interest on short-term borrowings 172 17
Total interest expense 4,599 3,244
NET INTEREST INCOME 5,792 4,965
Provision for loan losses 315 195
Net interest income after provision for loan losses 5,477 4,770
NONINTEREST INCOME
Service charges on deposit accounts 467 465
Other income 255 123
Total noninterest income 722 588
NONINTEREST EXPENSE
Salaries and employee benefits 2,520 2,163
Occupancy expense 555 504
Furniture and equipment expense 197 161
Other expense 1,380 1,324
Total noninterest expense 4,652 4,152
Income before income taxes 1,547 1,206
Income tax 554 430
NET INCOME $ 993 $ 776
Basic earnings per common share $0.09 $0.07
Diluted earnings per common share 0.09 0.07
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
(in thousands, except per share data) 1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,696 $2,224
Taxable interest on securities 576 483
Interest on Federal funds sold and deposits with other banks 424 249
Total interest income 3,696 2,956
INTEREST EXPENSE
Interest on deposits 1,578 1,215
Interest on short-term borrowings 87 13
Total interest expense 1,665 1,228
NET INTEREST INCOME 2,031 1,728
Provision for loan losses 120 80
Net interest income after provision for loan losses 1,911 1,648
NONINTEREST INCOME
Service charges on deposit accounts 157 184
Other income 113 40
Total noninterest income 270 224
NONINTEREST EXPENSE
Salaries and employee benefits 871 699
Occupancy expense 189 177
Furniture and equipment expense 68 59
Other expense 488 390
Total noninterest expense 1,616 1,325
Income before income taxes 565 547
Income tax 203 194
NET INCOME $ 362 $ 353
Basic earnings per common share $0.03 $0.03
Diluted earnings per common share 0.03 0.03
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands) 1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $993 $776
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation 181 141
Provision for loan losses 315 195
Provision for losses on foreclosed real estate 6 --
Income tax expense, deferred 554 352
Originations of loans held for sale (774) (564)
Proceeds from loan sales 593 --
Gain on sales of loans (48) --
Net realized gains on available for sale securities (12) --
Net accretion on securities (102) (63)
Decrease in deferred loan fees (89) (40)
Net increase in premium on loans purchased (317) (1,157)
Increase in accrued income and other assets (636) (55)
Increase (decrease) in accrued expenses and other liabilities 1,005 (7)
Gain on sale of fixed assets -- (4)
Gain on sale of foreclosed real estate (15) --
Net cash provided (used) by operating activities 1,654 (426)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Federal funds sold (37,516) (4,916)
Purchases of available for sale securities (11,313) (16,450)
Proceeds from maturities of available for sale securities 6,350 5,775
Proceeds from prepayments of principal on securities 97 71
Proceeds from sales of available for sale securities 1,031 --
Net increase in loans (4,902) (4,055)
Purchases of loans (5,607) (14,284)
Net purchases of premises and equipment (246) (450)
Proceeds from sale of foreclosed real estate 755 --
Net cash used by investing activities (51,351) (34,309)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in total deposits 43,330 34,047
Net increase in securities sold under agreements to repurchase 8,577 3,123
Net cash provided by financing activities 51,907 37,170
Net increase in cash and due from banks 2,210 2,435
Cash and due from banks at beginning of period 10,759 7,848
Cash and due from banks at end of period $12,969 $10,283
Interest paid $4,562 $3,232
Income taxes paid 26 --
Loans transferred to foreclosed real estate 800 --
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(in thousands) Accumulated
Other
Nine Months Ended Comprehensive Accumulated Comprehensive Common Paid-in
September 30, 1998 Total Income Deficit Income Stock Capital
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $19,182 $(6,910) $190 $109 $25,793
------- ----------- --------- ------ -------
Comprehensive income:
Net income 993 993 993
---------
Other comprehensive income,
net of tax
Unrealized gains on
securities available for sale 239 239 239
---------
Comprehensive income 1,232
------- ========= ----------- --------- ------- -------
Ending balance $20,414 $(5,917) $429 $109 $25,793
======= =========== ========= ======= =======
Nine Months Ended
September 30, 1997
Beginning balance $17,831 $(8,041) $(30) $109 $25,793
------- ----------- ---------- -------- -------
Comprehensive income:
Net income 776 776 776
---------
Other comprehensive income,
net of tax
Unrealized gains on
securities available for sale 153 153 153
---------
Comprehensive income 929
------- ========= ----------- --------- ------- -------
Ending balance $18,760 $(7,265) $123 $109 $25,793
======= =========== ========= ========= =======
</TABLE>
7
<PAGE> 8
SUBURBAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited consolidated financial statements, which include
the accounts of Suburban Bancshares, Inc. ("Bancshares" or "the Company") and
its wholly-owned subsidiary, Suburban Bank of Maryland ("Suburban Maryland"),
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the disclosures required by generally accepted accounting
principles. All adjustments which, in the opinion of management, are necessary
to a fair presentation of the results for the interim periods presented have
been made; all of these adjustments are of a normal and recurring nature. The
results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 1998.
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
Reference should be made to the Notes to Consolidated Financial Statements
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1997, which contain the Company's accounting policies and other
data.
NOTE B - INVESTMENT SECURITIES
The Company is required to classify its debt and marketable equity
securities in one of three categories: trading, available for sale, or held to
maturity. At the time of purchase, management determines the appropriate
designation for securities.
The following table shows the amortized cost and estimated fair value of
investment securities classified as available for sale at September 30, 1998
(in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury notes $ 1,448 $ 36 $ -- $ 1,484
Federal agencies 30,682 653 -- 31,335
Mortgage-backed obligations of federal agencies 980 6 (1) 985
Other 890 11 (6) 895
Total investment securities $34,000 $706 $ (7) $34,699
</TABLE>
The schedule below shows the amortized cost and estimated fair value
of investment securities classified as available for sale at December 31,
1997 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
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 securities available for sale $30,051 $315 $ (6) $30,360
</TABLE>
8
<PAGE> 9
The amortized cost and estimated fair value for securities at September 30,
1998, 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 $ 6,640 $ 6,672
Due after one year through 5 years 20,902 21,467
Due after 5 years through 10 years 5,478 5,575
Due after 10 years -- --
Mortgage-backed securities 980 985
Total $34,000 $34,699
</TABLE>
Sales of securities in the nine months ended September 30, 1998 resulted
in profits of $12,000; there were no sales of securities in the nine months
ended September 30, 1997. The net unrealized holding gain on available for
sale securities, which is included in accumulated other comprehensive income
and shown as a separate component of shareholders' equity in the accompanying
Consolidated Balance Sheets, was $429,000 at September 30, 1998 and $6,000 at
December 31, 1997.
NOTE C - IMPAIRED LOANS AND ALLOWANCE FOR LOAN LOSSES
Impaired loans are 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.
Information with respect to impaired loans is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
in thousands 1998 1997
<S> <C> <C>
Impaired loans with a valuation allowance $1,109 $ 1,763
Impaired loans without a valuation allowance -- --
------ ---------
Total impaired loans 1,109 1,763
Allowance for credit losses related to impaired loans 106 274
Allowance for credit losses related to other than impaired loans 1,346 1,199
----- -----
Total allowance for credit losses 1,452 1,473
Average impaired loans for the period $1,489 $1,633
Interest income on impaired loans recognized on the cash basis -- --
</TABLE>
There were no 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 at September 30, 1998 or December 31,
1997.
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
9
<PAGE> 10
uncollectible amounts have been charged off and that the allowance is
adequate to cover losses inherent in the portfolio at September 30, 1998.
Increases and decreases in the allowance include changes in the measurement
of impaired loans.
Activity in the allowance for losses is summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended
in thousands September 30, 1998
------------------------
<S> <C>
Balance at beginning of period $ 1,473
Provision for loan losses 315
Loans charged off (424)
Recoveries 88
------------------------
Balance at end of period $ 1,452
========================
</TABLE>
NOTE D - 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 (in thousands) at September 30, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------
<S> <C> <C>
Commercial property 402 $402
Commercial land 60 --
--------------------------------------
Total $462 402
Allowance for losses (60) (53)
--------------------------------------
ESTIMATED FAIR VALUE $402 $349
======================================
</TABLE>
NOTE E - 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 classifications are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors.
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 September 30, 1998,
that the Company meets all capital adequacy requirements to which it is
subject.
10
<PAGE> 11
As of September 30, 1998, 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 CAPITALIZED
PURPOSES
$ in thousands AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998:
Total capital (to risk-weighted assets):
Company $20,791 17.27% $9,633 8.00% $12,0411 10.00%
Suburban Bank of Maryland 16,159 13.59 9,510 8.00 1,887 10.00
Tier 1 capital (to risk-weighted assets):
Company 19,338 16.06 4,817 4.00 7,225 6.00
Suburban Bank of Maryland 14,707 12.37 4,755 4.00 7,132 6.00
Tier 1 capital (to average assets):
Company 19,338 9.52 8,128 4.00 10,160 5.00
Suburban Bank of Maryland 14,707 7.35 8,002 4.00 10,002 5.00
As of December 31, 1997:
Total capital (to risk-weighted assets):
Company $18,981 18.44% $8,233 8.00% $ 10,292 10.00%
Suburban Bank of Maryland 14,437 14.25 8,105 8.00 10,132 10.00
Tier 1 capital (to risk-weighted assets):
Company 17,692 17.19 4,117 4.00 6,175 6.00
Suburban Bank of Maryland 13,168 13.00 4,053 4.00 6,079 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
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following 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
nine months ended September 30, 1998 and 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.
OVERVIEW
Suburban Bancshares, Inc. reported earnings of $993,000 for the nine months
ending September 30, 1998, an increase of $217,000, or 28.0%, over $776,000
reported for the same period of 1997. Improvement in earnings is attributed to
strong asset growth, offset by a declining net interest margin.
11
<PAGE> 12
Total assets reached $229.8 million at September 30, 1998, a $65.7 million,
or 40.0%, increase from $164.1 million at September 30, 1997. Asset growth
since December 31, 1997 is $54.1 million, or 30.8%. Loans have increased $24.2
million, or 24.3%, since September 30, 1997 and $10.0 million, or 8.8%, since
year-end 1997, reaching $123.6 million at the end of the third quarter of 1998.
Deposits, at $196.1 million, rose 38.5% since September 30, 1997 and 28.4%
since December 31, 1997.
Average assets were $190.6 million for the first nine months of 1998, $48.5
million, or 34.1%, above average assets of $142.1 million for the same period
of 1997. Average earning assets rose $45.8 million, or 35.4%, and average
deposits rose $41.5 million, or 33.9%.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income, the largest contributor to the Company's earnings, is
defined as the difference between income on assets and the cost of funds
supporting those assets. Earning assets are composed primarily of loans and
investments while deposits and short-term borrowings, in the form of securities
sold under repurchase agreements, represent interest-bearing liabilities.
Noninterest-bearing checking deposits are another component of funding sources.
Variations in the volume and mix of these assets and liabilities, as well as
changes in the yields earned and rates paid, are determinants of changes in net
interest income.
Net interest income rose $827,000, or 16.7%, from $4,965,000 for the first
three quarters of 1997 to $5,792,000 in 1998, the net result of higher loan and
deposit volume which offset a falling net interest margin.
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 the first nine months of 1998, the net interest margin was 4.42%,
falling 71 basis points from 5.13% in the same period of 1997, the result of a
drop of 82 basis points in the yield on loans and an increase of 10 basis
points in funding costs.
Changes in the volume of earning assets and interest bearing funds impact
both interest income and interest expense, and volume changes were key
determinants of the increase in net interest income in the first nine months of
1998. Both total average earning assets and total average interest bearing
funds rose in the first three quarters of 1998 as compared to 1997. Average
earning assets rose $45.8 million, or 35.4%, from $129.4 million in 1997 to
$175.2 million in 1998, and average interest bearing funds increased $40.7
million, or 40.9%, from $99.4 million to $140.1 million for the same periods.
As a percentage of average assets, earning assets rose from 91.0% in the first
three quarters of 1997 to 91.9% in 1998, which resulted in higher interest
income. Average interest-bearing funding sources rose as well, from 80.7% of
total funding sources in the first nine months of 1997 to 82.5% in the same
period in 1998, resulting in a higher cost of funds. Because the growth in
earning assets exceeded the growth of interest-bearing funds, the level of net
interest income improved, even though the net interest margin declined.
Combined changes in interest rates received on earning assets and paid on
funding sources negatively affected the net interest margin in the first nine
months of 1998. The yield on earning assets fell in 1998 to 7.93% from 8.48%
in 1997, as loan yields dropped to 8.85% from 9.67%. 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
1997. This pool, averaging $18,693,000 in the first nine months of 1998,
represents 15.9% of the average loan portfolio, and because of the reduced risk
associated with the pool, the yield, at 6.79%, is less than loans without the
backing of a government guarantee. The yield on the investment portfolio
remained stable as maturing dollars were reinvested and extended the overall
portfolio maturity, and the return on Federal funds remained higher on average
than in the first nine months of 1997. An increase in the cost of funds also
reduced the margin, as rates paid for funds rose to 3.62% for 1998 from 3.52%
in 1997, a 10 basis point increase, primarily the result of changes in the
composition of funding sources.
Changes in the mix of both earning assets and funding sources also impacted
net interest income in the first three quarters of both 1998 and 1997; however,
the changes in the mix of earning assets were not significant compared to the
changes in composition of funding sources. Average loans as a percentage of
average earning assets decreased slightly from 67.1% in
12
<PAGE> 13
1997 to 67.0% in 1998; average investments fell slightly from 20.2% to 18.9%.
Short-term investments, Federal funds sold, rose from 12.7% of earning assets
to 13.9%. The impact of these shifts, though small, helped to moderate the
decrease in the yield on earning assets resulting from rate changes. Changes
in the mix of interest-bearing funds were more pronounced as funds shifted to
higher-cost deposits from noninterest-bearing funding sources and lower-cost
transaction accounts. Time deposits rose $18.8 million, from 19.9% of funding
sources to 25.5% in 1998, and noninterest-bearing deposits fell from 19.3% to
17.5%; both of these changes in deposit composition resulted in an increase in
the cost of funds. A new product introduced in the second quarter of 1997
offers a sweep of noninterest-bearing deposits into a repurchase agreement;
this shift of funds from noninterest-bearing to interest-bearing funds was also
a negative impact on the margin.
In the three months ended September 30, 1998, net interest income was
$2,031,000, $303,000, or 17.5%, above the $1,728,000 recorded for the third
quarter of 1997. This improvement was also the result of volume increases,
mitigated by falling yields and higher costs of funding.
13
<PAGE> 14
AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
(In thousands)
<TABLE>
<CAPTION>
Nine Months ended September 30, 1998 1997
AVERAGE AVERAGE
AVERAGE YIELD AVERAGE YIELD
ASSETS BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $117,358 $7,765 8.85% $86,846 $6,280 9.67%
Investment securities 33,154 1,598 6.44% 26,141 1,254 6.41%
Fed funds sold and other deposits 24,687 1,028 5.57% 16,428 675 5.49%
Total interest-earning assets 175,199 10,391 7.93% 129,415 8,209 8.48%
Noninterest-earning assets:
Cash and due from banks 9,738 7,437
Bank property and equipment 1,716 1,571
Other assets 5,436 5,260
Less: Allowance for loan losses (1,489) (1,537)
Total noninterest-earning assets 15,401 12,731
TOTAL ASSETS $190,600 $142,146
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Checking, money market and savings deposits $91,101 $2,636 3.87% $74,291 $2,213 3.98%
Time deposits 43,368 1,791 5.52% 24,550 1,014 5.52%
Securities sold under repurchase agreements 5,609 172 4.11% 544 17 4.12%
Total interest-bearing liabilities 140,078 4,599 4.39% 99,385 3,244 4.36%
Noninterest-bearing deposits 29,726 23,828
Total funding sources 169,804 4,599 3.62% 123,213 3,244 3.52%
Other liabilities 1,070 792
TOTAL LIABILITIES 170,874 124,005
Shareholders' equity 19,726 18,141
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $190,600 $142,146
Net interest income $5,792 $4,965
Net interest spread 4.31% 4.96%
Net interest margin 4.42% 5.13%
</TABLE>
14
<PAGE> 15
PROVISION FOR LOAN LOSSES
The provision 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 and mix, loan performance trends, the value and adequacy of
collateral, and the Company's internal credit review process. Based on this
ongoing evaluation, management determines the provision or reversal necessary
to maintain an appropriate allowance.
In the first nine months of 1998, the provision for loan losses was
$315,000. Loans charged off totaled $424,000 and recoveries were $88,000. In
the same period of 1997, the provision was $195,000, loans charged off were
$189,000 and recoveries totaled $101,000. The provision in the third quarter
of 1998 was $120,000, an increase of $40,000 over the $80,000 recorded in the
same period of 1997.
NONINTEREST INCOME
Noninterest income rose $134,000, or 22.8%, in the first nine months of
1998 to $722,000 from $588,000 in the same period of 1997. Deposit account
service charges increased as deposits rose; and fees for the origination of
mortgage loans, a new service in 1998, account for $105,000 of the increase
year-to-date and $46,000 of the increase for the quarter. In the third quarter
of 1998, $12,000 in gains from the sale of securities was recorded; no sales
were booked in 1997. In the three months ended September 30, 1998, noninterest
income was $270,000, $46,000, or 20.5%, higher than in the same period of 1997.
NONINTEREST EXPENSES
Noninterest expenses increased $500,000, or 12.0%, in the first nine months
of 1998 as compared to the same period of 1997, from $4,152,000 to $4,652,000.
Salaries and benefits increased, the result of merit increases and staffing for
a new branch. The new branch in White Flint and new services offered have
pushed other expenses higher, as well. In the third quarter, noninterest
expenses rose from $1,325,000 in 1997 to $1,616,000 in 1998, a 22.0% increase,
for the same reasons.
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 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 is 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
$1,109,000 and $1,763,000 at September 30, 1998 and December 31, 1997,
respectively. There were no 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 at September 30, 1998 or at December
31, 1997.
15
<PAGE> 16
Real estate acquired through foreclosure or deed in lieu of foreclosure is
carried at fair value less estimated selling costs, based upon current market
conditions and expected cash flows. Foreclosed real estate was $402,000 at
September 30, 1998, and $349,000 at December 31,1997.
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 loans'
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans.
The allowance for loan losses was $1,452,000 at September 30,1998, a
decrease of $21,000 from $1,473,000 at December 31, 1997. Activity in the
allowance for loan losses during the first three quarters of 1998 included
recoveries of $88,000, charge-offs of $424,000, and a provision for future
losses of $315,000.
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,
checking and money market accounts, and savings and individual retirement
accounts. This core deposit base represented 71.8% of total funding sources at
September 30, 1998, compared to 77.6% at the end of 1997. Another indicator of
adequate liquidity is the level of readily marketable assets. As the core
deposit base was declining due to an increase in certificates of deposit and
repurchase agreements, these liquid assets, securities available for sale,
overnight federal funds and the guaranteed portion of SBA loan in the loan
portfolio, increased to 50.6% of total assets at September 30, 1998 from 40.5%
at December 31, 1997.
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 $5,500,000 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.
16
<PAGE> 17
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 September 30, 1998.
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Analysis
3 months or Over 3 Over 6 Over 1 Total
less months to months to year
in thousands 6 months 1 year
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and other deposits $53,085 $ -- $ -- $ -- $ 53,085
Investment securities available for sale 3,061 3,830 7,758 20,050 34,699
Loans (1) 74,870 5,416 10,922 32,346 123,554
Total interest-earning assets 131,016 9,246 18,680 52,396 211,338
Cumulative rate sensitive assets 131,016 140,262 158,942 211,338
Interest-bearing liabilities:
Interest checking deposits $ 14,752 $ -- $ -- $ -- $ 14,752
Money market deposits and savings deposits 96,123 -- -- -- 96,123
Time deposits 36,925 2,893 4,170 7,253 51,241
Securities sold under repurchase agreements 11,627 -- -- -- 11,627
Total interest-bearing liabilities 159,427 2,893 4,170 7,253 173,743
Cumulative rate sensitive liabilities 159,427 162,320 166,490 173,743
GAP $ $(28,411) $ 6,353 $14,510 $45,143
CUMULATIVE GAP (28,411) (22,058) (7,548) 37,595 $37,595
CUMULATIVE GAP TO TOTAL ASSETS -13.66% -10.61% -3.63% 18.08% 18.08%
</TABLE>
(1) Excludes net deferred fees (costs) of ($2).
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 and that investment securities with call options will be called. At
September 30, 1998, 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 3.63%. This negative gap position means that the
Company had $7,548,000 more liabilities than assets repricing within one year.
At December 31, 1997 the gap as a percentage of assets was negative 8.17%. A
negative gap 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
17
<PAGE> 18
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 showed a change in annual net
interest income of -12.5% and a change in economic value of -14.1% for a
downward shift of 200 basis points in interest rates. At the end of the second
quarter of 1998, the profile showed a change in annual net interest income of
- -12.7% and a change in economic value of -17.9% for the same downward shift.
Based on the mix of assets and liabilities and the current interest rate
environment, management does not believe there has been a significant change in
the third quarter of 1998.
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 increased $1,232,000, or 6.4%, in the first nine
months of 1998 to $20,414,000 at September 30, 1998 from $19,182,000 at
December 31, 1997. Earnings of $993,000 and an increase of $239,000 in the
accumulated other comprehensive income accounted for the change in equity.
A combination of a leverage capital ratio and risk-based capital ratios is
used to categorize banks as well capitalized, adequately capitalized, or under
capitalized financial institutions under the guidelines established by FDICIA.
A financial institution is considered "well capitalized" if it has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, and a leverage ratio of 5% or greater and it is not subject to a
written agreement, order or directive. At December 31, 1997 and September 30,
1998, the Company was considered to be a well capitalized financial
institution.
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). The Bank's 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, and Tier 2, of a qualifying portion of the allowance for loan losses.
Assets, both on- and off-balance sheet items, are weighted according to the
underlying risk associated with the item and are assigned a risk weighting 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 September 30, 1998, the
Company reported at Tier 1 risk-based capital ratio of 16.06% and a ratio of
17.27% 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 of this ratio is 3%, with most
financial institutions required to maintain a ratio of at least 4% to 5%,
depending upon risk profiles and other factors. At September 30, 1998, the
leverage capital ratio for the Company was 9.52%.
18
<PAGE> 19
YEAR 2000 ISSUE
In 1997, Suburban appointed a Year 2000 Project Team and began the process
of preparing its information technology (IT) systems, as well as other systems
which may include imbedded technology (non-IT systems), for the date change
from the year 1999 to the year 2000. The assessment phase included an
inventory and physical date rollover testing of all computer hardware, and an
identification of other systems or functions that may be impacted by the date
change. The Company has moved aggressively to verify with third-party vendors
and service providers that software and non-IT systems are, or will be, Year
2000 compliant, and will complete the process of internal testing of critical
systems by March 31, 1999. Critical systems include communication with the
Federal Reserve via Fedline, the computer system and item processing, both of
which are provided by the third party servicers, and the wide-area network
supporting communications between offices. Non-critical systems that have been
tested for date transition include ATMs, payroll, accounts payable, internal
telephone systems and general operational hardware such as fax machines,
copiers, some of which required software enhancements and, some replacements.
As a result of the Company's planned migration to new data processing and
item processing providers in May 1999, and the planned enhancement of our
interbranch communication network through a wide-area network, the hardware
replacement costs resulting from date recognition failure have been replaced by
equipment costs for support of the new network environment. Costs related to
the migration will approximate $260,000, to be amortized over the life of each
of the contracts, and costs associated with the installation of the wide-area
network will total approximately $380,000, which will be depreciated over its
useful life. A one-time deconversion charge plus annual costs of the new
systems will result in a charge to income of approximately $16,000 in 1998 and
$120,000 in 1999, and will not materially impact the results of operations in
those or future years. The Company has been assured that the new systems are
Year 2000 compliant and will use proxy-testing to verify their readiness prior
to March 31, 1999.
In addition to testing and making appropriate changes to internal systems,
the Company is taking steps to evaluate Year 2000 readiness of its important
customers and vendors through questionnaires and personal visits by calling
officers. An awareness campaign was implemented to inform customers and
shareholders of the potential problem and its implications, and our employees
will be kept informed of the issue and of our progress toward minimizing its
impact.
While management currently believes that its Year 2000 plans for monitoring
third-party progress and subsequent systems testing will mitigate the Year 2000
problem, if the service providers and customers, upon whom we rely, are not in
compliance, the Year 2000 issued may have a material adverse impact on the
operation of the Bank. The Company has established contingency plans in case
of failure resulting from the date change issue, and will be prepared to
function on a limited basis until such failure is corrected. Because the Bank
is a relatively small financial institution, daily transactions, deposits,
withdrawals and payments, can be processed normally, and accounts can be
updated manually until computer connectivity is re-established.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report.
Exhibit # Description
11.0 Computation of per share earnings
27.0 Financial Data Schedule
(b) No reports on Form 8K were filed in the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SUBURBAN BANCSHARES, INC.
(Registrant)
Date: November 12, 1998 Stephen A. Horvath
-------------------------- -------------------------------------
Stephen A. Horvath
President and Chief Operating Officer
Date: November 12, 1998 Sibyl S. Malatras
-------------------------- -------------------------------------
Sibyl S. Malatras
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
20
<PAGE> 1
SUBURBAN BANCSHARES, INC. EXHIBIT 11
EARNINGS PER SHARE CALCULATION
September 30, 1998
<TABLE>
<CAPTION>
INFORMATION FOR COMPUTATION OF DILUTION
=======================================
Market Price per Share: Daily Average
<S> <C>
First Quarter 1998 $3.6508 61 trading days
Second Quarter 1998 $4.2398 65 trading days
Third Quarter 1998 $3.4910 65 trading days
Fourth Quarter 1998
Average Price for the Period Ended September 30, 1998 $3.7969 191 trading days
(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
and outstanding for the entire year
(c) 178,000 options granted 1/21/98 exercisable at $3.50
First Quarter 1998 Diluted
178,000 - ((178,000*3.50)/avg price) = 7,352
Second Quarter 1998 Diluted
178,000 - ((178,000*3.50)/avg price) = 31,059
Third Quarter 1998 Antidilutive
178,000 - ((178,000*3.50)/avg price) = (459)
</TABLE>
<PAGE> 2
SUBURBAN BANCSHARES, INC. EXHIBIT 11
EARNINGS PER SHARE CALCULATION September 30, 1998
<TABLE>
<CAPTION>
EARNINGS PER SHARE CALCULATION - 1998
=====================================
Income Shares
Basic Earnings per Share: (Numerator) (Denominator) EPS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $992,600
Common Shares Outstanding 10,951,218
Basic EPS $992,600 10,951,218 $0.09
Income Shares
Diluted Earnings per Share: (Numerator) (Denominator) EPS
- ------------------------------------------------------------------------------------------------------------------
Net Income $992,600 10,951,218
Additional shares to be issued upon assumed exercise of 350,000
management stock options
Shares hypothetically repurchased at the average market (9,218)
price with the proceeds
Additional shares to be issued upon assumed exercise of 12,600
incentive options (b)
Shares hypothetically repurchased at the average market (8,711)
price with the proceeds
Additional shares to be issued upon assumed exercise of 178,000
incentive stock options (c)
Shares hypothetically repurchased at the average market (105,238)
price with the proceeds
Diluted EPS $992,600 11,368,651 $0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,969
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 53,085
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,699
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 123,552
<ALLOWANCE> 1,452
<TOTAL-ASSETS> 229,810
<DEPOSITS> 196,132
<SHORT-TERM> 11,627
<LIABILITIES-OTHER> 1,637
<LONG-TERM> 0
0
0
<COMMON> 109
<OTHER-SE> 20,305
<TOTAL-LIABILITIES-AND-EQUITY> 229,810
<INTEREST-LOAN> 7,765
<INTEREST-INVEST> 1,598
<INTEREST-OTHER> 1,028
<INTEREST-TOTAL> 10,391
<INTEREST-DEPOSIT> 4,427
<INTEREST-EXPENSE> 4,599
<INTEREST-INCOME-NET> 5,792
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 4,652
<INCOME-PRETAX> 1,547
<INCOME-PRE-EXTRAORDINARY> 993
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 993
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<YIELD-ACTUAL> 4.42
<LOANS-NON> 1,422
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,473
<CHARGE-OFFS> 424
<RECOVERIES> 88
<ALLOWANCE-CLOSE> 1,452
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
