Bay Bancshares, Inc. Announces Earnings for the 3rd Quarter 1998.

LA PORTE, Texas, Oct. 22 /PRNewswire/ -- L. D. Wright, Chief Executive Officer of Bay Bancshares, Inc. (the "Company") (Nasdaq: BAYB), announced record earnings for the nine months ended September 30, 1998. Net income for the nine months ended September 30, 1998 was $1,869,000 compared with $1,235,000 for the nine months ended September 30, 1997, an increase of $634,000 or 51.34%. Per share (basic) earnings remained unchanged at $0.91 for the nine months ended September 30, 1998 and 1997 respectively. Per share (diluted) earnings increased $0.02 to $0.88 for the nine months ended September 30, 1998 from $0.86 for the same period ended September 30, 1997. Net income for the third quarter of 1998 was $618,000, an increase of $238,000 or 62.63% compared with $380,000 for the same period in 1997. Per share (basic) earnings increased $0.02 to $0.30 for the third quarter of 1998 from $0.28 for the same period in 1997. Per share (diluted) earnings increased $0.03 to $0.29 for the third quarter of 1998 from $0.26 for the same period in 1997.

Net income increased in the third quarter 1998, enhanced by a higher dollar amount of interest earning assets, continued margin improvements, fees generated by the Mortgage Lending Department and gains on the sale of SBA loans. The increase was supplemented through the elimination of acquisition and conversion related expenses following the full integration of the 1997 acquisitions and the completion of the Y2K compliant mainframe and communication system conversions.

On June 30, 1998 the Company announced that the Board of Directors approved the repurchase of up to $500,000 of Company common stock. As of October 21, 1998 the Company, using excess funds has repurchased 13,500 shares of common stock in the open market in two separate trades at a total cost of $187,000.

Even though one-time conversion related costs were incurred and expensed in the first half of 1998, operational expenses have increased and will affect future periods as a result of these major technology investments. However, the capabilities provided by these investments position the Company not only for future expansion but also to begin offering state-of- the art customer products that facilitate the ability to capitalize on technological efficiencies and generate internal growth. Working towards a paper-less environment, the Company rolled out imaged statements on all retail and commercial customer accounts during the third quarter, 1998. Additionally, the Company began offering Internet banking for retail customers enabling account access and automated bill paying. For commercial customers, the Company introduced cash management capabilities that include both Internet account access and an automated sweep investment product.

Volumes in the Mortgage Lending Department continue to grow as a result of the decline in mortgage lending rates and the increased sales emphasis on generating new loans. As the Company immediately sells the loans, subsequent fee income and the profitability of the department continues to improve. Fee income generated year to date is $190,000 and generated quarter to date is $76,000.

With start up costs expensed during the first half of 1998, the affiliation with Bayshore Insurance Agency ("BIA") has generated a small level of fee income for the Company. Existing customer referrals, continued sales development and other new business production efforts should provide for increasing levels of fee income as BIA continues to grow.

Total assets as of September 30, 1998 were $274,341,000 compared with $187,102,000 at September 30, 1997 an increase of $87,239,000 or 46.63%. At September 30, 1998, investment securities totaled $69,249,000, an increase of $26,747,000 or 62.93% from $42,502,000 at September 30, 1997. Net loans were $165,095,000 at September 30, 1998, an increase of $50,444,000 or 44.00% from $114,651,000 at September 30, 1997. At September 30, 1998, deposits totaled $242,733,000, an increase of $71,442,000 or 41.71% from $171,291,000 at September 30, 1997. The net interest margin increased 52 basis points to 5.03% for the nine months ended September 30, 1998 from 4.51% for the same period ended September 30, 1997. Third quarter balance sheet growth was attributable primarily to the 1997 Acquisitions and internal growth.

Bay Bancshares, Inc. is a bank holding company headquartered in La Porte, Texas, which is located in eastern Harris County, the county that comprises most of the greater Houston metropolitan area. Bayshore National Bank, the Company's flagship, currently has ten full-service locations and three loan production offices. The market area of the Company extends from Seabrook, Texas in eastern Harris County to Cleveland, Texas in western Liberty County. Commenting on third quarter results, L. D. Wright, Chief Executive Officer states, "With our new products and technological infrastructure in place and the conversions behind us, we have instigated a vigorous calling effort focused on new customer development and our business strategy of becoming the premier financial services institution in the greater southeast Houston metroplex. Our efforts are concentrated on enhancing shareholder value through profitable balance sheet growth."