<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           JUNE 30, 1998
                 ---------------------------------------------------------------

COMMISSION FILE NUMBER      0-16595
                      ----------------------------------------------------------


                            SUBURBAN BANCSHARES, INC.
--------------------------------------------------------------------------------
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

      DELAWARE                                             54-1319441
--------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION                            (I.R.S. EMPLOYER
     OF INCORPORATION)                                  IDENTIFICATION NO.)


      7505 GREENWAY CENTER DRIVE, GREENBELT, MARYLAND                 20770
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                            (ZIP CODE)

                                 (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
                   ---                          ---

COMMON STOCK $.01 PAR VALUE                  OUTSTANDING AT AUGUST 3, 1998
---------------------------                  -----------------------------
        (CLASS)

                                              10,951,218 SHARES
                                             -----------------------



                                        1

<PAGE>   2



                            SUBURBAN BANCSHARES, INC.

                                S.E.C. FORM 10-Q

                                  JUNE 30, 1998

<TABLE>
<CAPTION>
PART  I.  FINANCIAL INFORMATION                                                      PAGE NO.
-------------------------------                                                      --------
<S>                                                                                 <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS

               CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 (UNAUDITED)
               AND DECEMBER 31, 1997 (AUDITED)                                           3

               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997                          4

               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997                        5

               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
               SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997                          6

               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
               SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997                          7

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                8-11


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             11-18

PART II.  OTHER INFORMATION
---------------------------

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                              19

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                 19
</TABLE>



                                        2

<PAGE>   3



SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                      June 30,         December 31,
(in thousands)                                                                                           1998                 1997
                                                                                                   (unaudited)            (audited)
ASSETS
<S>                                                                                                  <C>                  <C>
Cash and due from banks                                                                              $  14,422            $  10,759

Federal funds sold                                                                                      31,732               15,569

Investment securities available for sale                                                                34,785               30,360

Loans                                                                                                  121,777              113,543
  Less: Allowance for loan losses                                                                       (1,514)              (1,473)
Loans, net                                                                                             120,263              112,070

Premises and equipment, net                                                                              1,719                1,658
Foreclosed real estate                                                                                     349                  349
Accrued interest receivable                                                                              1,249                1,172
Deferred income taxes                                                                                    2,947                3,299
Other assets                                                                                               458                  430

TOTAL ASSETS                                                                                         $ 207,924            $ 175,666

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
  Noninterest-bearing deposits                                                                       $  31,718            $  28,856
  Interest-bearing deposits                                                                            148,155              123,946
    Total deposits                                                                                     179,873              152,802

Securities sold under repurchase agreements                                                              7,511                3,049

Accrued expenses and other liabilities                                                                     701                  633

Total liabilities                                                                                      188,085              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 June 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                                                                                   (6,279)              (6,910)
  Accumulated other comprehensive income                                                                   216                  190 
Total shareholders' equity                                                                              19,839               19,182 
                                                                                                                                    
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                           $ 207,924            $ 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>
                                                                                     Six months ended June 30,
(in thousands, except per share data)                                              1998                    1997
<S>                                                                             <C>                     <C>
INTEREST INCOME
Interest and fees on loans                                                       $5,069                  $4,056
Taxable interest on securities                                                    1,022                     771
Interest on Federal funds sold and deposits with other banks                        604                     426
Total interest income                                                             6,695                   5,253

INTEREST EXPENSE
Interest on deposits                                                              2,849                   2,012
Interest on short-term borrowings                                                    85                       4
Total interest expense                                                            2,934                   2,016

NET INTEREST INCOME                                                               3,761                   3,237
Provision for loan losses                                                           195                     115
Net interest income after provision for loan losses                               3,566                   3,122

NONINTEREST INCOME
Service charges on deposit accounts                                                 310                     281
Other income                                                                        142                      83
Total noninterest income                                                            452                     364

NONINTEREST EXPENSE
Salaries and employee benefits                                                    1,649                   1,464
Occupancy expense                                                                   366                     327
Furniture and equipment expense                                                     129                     102
Other expense                                                                       892                     934
Total noninterest expense                                                         3,036                   2,827

Income before income taxes                                                          982                     659
   Income tax                                                                       351                     236

NET INCOME                                                                       $  631                  $  423

Basic earnings per common share                                                  $ 0.06                  $ 0.04
Diluted earnings per common share                                                  0.06                    0.04
</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 June 30,
(in thousands, except per share data)                                             1998                   1997
<S>                                                                            <C>                   <C>
INTEREST INCOME
Interest and fees on loans                                                      $2,568                 $2,097
Taxable interest on securities                                                     540                    434
Interest on Federal funds sold and deposits with other banks                       367                    231
Total interest income                                                            3,475                  2,762

INTEREST EXPENSE
Interest on deposits                                                             1,515                  1,077
Interest on short-term borrowings                                                   49                      4
Total interest expense                                                           1,564                  1,081

NET INTEREST INCOME                                                              1,911                  1,681
Provision for loan losses                                                           95                     80
Net interest income after provision for loan losses                              1,816                  1,601

NONINTEREST INCOME
Service charges on deposit accounts                                                159                    159
Other income                                                                        85                     34
Total noninterest income                                                           244                    193

NONINTEREST EXPENSE
Salaries and employee benefits                                                     833                    734
Occupancy expense                                                                  184                    163
Furniture and equipment expense                                                     66                     50
Other expense                                                                      453                    490
Total noninterest expense                                                        1,536                  1,437

Income before income taxes                                                         524                    357
   Income tax                                                                      188                    130

NET INCOME                                                                      $  336                 $  227

Basic earnings per common share                                                 $ 0.03                 $ 0.02
Diluted earnings per common share                                                 0.03                   0.02
</TABLE>

See accompanying notes to consolidated financial statements



                                        5

<PAGE>   6



SUBURBAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                                                                     Six Months Ended June 30,
 (in thousands)                                                                        1998             1997
<S>                                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                                       $    631         $    423
  Adjustments to reconcile net income to net cash (used) provided by operating
  activities:                                                                           117               80
     Depreciation                                                                       195              115
     Provision for loan losses                                                          351              236
     Income tax expense, deferred                                                        --             (320)
     Originations of loans held for sale                                                (54)             (36)
     Net accretion on securities                                                        (58)             (22)
     Decrease in deferred loan fees                                                    (222)            (704)
     Net increase in premium on loans purchased                                        (121)              58
     (Increase) decrease in accrued income and other assets                              68              (63)
     Increase (decrease) in accrued expenses and other liabilities                       --               (4)
     Gain on sale of fixed assets                                                       (15)              --
     Gain on sale of foreclosed real estate
                                                                                        892             (237)
  Net cash provided (used) by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:                                               (16,163)          (6,732)
  Increase in Federal funds sold                                                     (8,809)         (10,026)
  Purchases of available for sale securities                                          4,450            3,775
  Proceeds from maturities of available for sale securities                              31               62
  Proceeds from prepayments of principal on securities                               (5,306)          (4,297)
  Net increase in loans                                                              (3,541)          (8,868)
  Purchases of loans                                                                   (178)            (428)
  Net purchases of premises and equipment                                               755               --
  Proceeds from sale of foreclosed real estate
                                                                                    (28,761)         (26,514)
  Net cash used by investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:                                                27,071           28,987
  Net increase in total deposits                                                      4,461            1,247
  Net increase in securities sold under agreements to repurchase
                                                                                     31,532           30,234

  Net cash provided by financing activities
                                                                                      3,663            3,483
Net increase in cash and due from banks                                              10,759            7,848
Cash and due from banks at beginning of period                                     $ 14,422         $ 11,331

Cash and due from banks at end of period
                                                                                   $  2,904         $  2,031
Interest paid                                                                            16               --
Income taxes paid                                                                       740               --
Loans transferred to foreclosed real estate
</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                                         
                                                       Accumulate       Comprehensive       Common       Paid-in                
Six Months Ended June 30, 1998                          Deficit            Income           Stock        Capital        Total   
<S>                                                   <C>              <C>                 <C>           <C>            <C>     
Balance January 1, 1998                                  $(6,910)             $190           $109         $25,793        $19,182
                                                         -------              ----           ----         -------        -------
Comprehensive income:                                                                                                           
   Net income                                                631                                                             631
   Other comprehensive income, net of tax                                                                                       
                                                                                26                                            26
                                                                                                                         -------
   Unrealized gains on securities available for sale                                                                         657 
Comprehensive income                                     -------              ----           ----         -------        -------
Balance June 30, 1998                                    $(6,279)             $216           $109         $25,793        $19,839
                                                         =======              ====           ====         =======        =======

Six Months Ended June 30, 1997                                                                                                  
                                                                                                                                
Balance January 1, 1997                                  $(8,041)             $(30)          $109         $25,793        $17,831
                                                         -------              ----           ----         -------        -------
Comprehensive income:                                                                                                           
  Net income                                                 423                                                             423
  Other comprehensive income, net of tax                                                                                        
  Unrealized gains on securities                                                                                                
   available for sale                                                           36                                            36
                                                                                                                         -------
Comprehensive income                                                                                                         459
                                                         -------              ----           ----         -------        -------
Balance June 30, 1997                                    $(7,618)             $  6           $109         $25,793        $18,290
                                                         =======              ====           ====         =======        =======
</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 three months ended June 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 June 30, 1998 (in
thousands):


<TABLE>
<CAPTION>
                                                      Amortized            Gross          Gross  Estimated Fair
                                                           Cost       Unrealized     Unrealized           Value
                                                                           Gains         Losses                
<S>                                                   <C>                 <C>           <C>           <C>      
U.S. Treasury notes                                    $  1,946            $  16          $  --        $  1,962
Federal agencies                                         30,557              341            (8)          30,890
Mortgage-backed obligations of federal agencies           1,044                1            (9)           1,036
Other                                                       885               12             --             897
                                                                                                               
Total investment securities                             $34,432             $370          $(17)         $34,785
</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>
                                              Amortized            Gross            Gross   Estimated Fair
                                                   Cost       Unrealized       Unrealized            Value
                                                                   Gains           Losses
<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               89                2               --               91
agencies                                            883                7              (1)              889
Other

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 June 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                        $  5,130               $  5,150
Due after one year through 5 years               22,344                 22,645
Due after 5 years through 10 years                5,914                  5,954
Due after 10 years                                   --                     --
Mortgage-backed securities                        1,044                  1,036

Total                                           $34,432                $34,785
</TABLE>

        There were no sales of securities in the six months ended June 30, 1998
or 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 $216,000 at June 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>
                                                                       June 30,         December 31,
in thousands                                                             1998               1997
<S>                                                                       <C>                <C> 
Impaired loans with a valuation allowance                                     $1,677              $1,763
Impaired loans without a valuation allowance                                      --                  --
                                                                              ------              ------
Total impaired loans                                                           1,677               1,763

Allowance for credit losses related to impaired loans                            296                 274
Allowance for credit losses related to other than impaired loans               1,218               1,199
                                                                               -----               -----
Total allowance for credit losses                                              1,514               1,473

Average impaired loans for the period                                         $1,493              $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 June 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 June 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>
                                                    Six Months Ended
in thousands                                          June 30, 1998
                                                 -----------------------
<S>                                                            <C>
Balance at beginning of period                                   $ 1,473
Provision for loan losses                                            195
Loans charged off                                                   (220)
Recoveries                                                            66
                                                 -----------------------
Balance at end of period                                         $ 1,514
                                                 =======================

</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 June 30, 1998 and December 31, 1997:


<TABLE>
<CAPTION>
                                         June 30, 1998    December 31,
                                                              1997
                                        --------------------------------
<S>                                              <C>              <C> 
Commercial property                                $402             $402
                                        --------------------------------
Total                                              $402              402
  Allowance for losses                              (53)             (53)
                                        --------------------------------
TOTAL FAIR VALUE                                   $349             $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 June 30, 1998, that the Company
meets all capital adequacy requirements to which it is subject.

        As of June 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

                                       10

<PAGE>   11



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 June 30, 1998:
   Total capital (to risk-weighted assets):
          Company                                           $20,186      17.42%    $9,269       8.00%  $11,586      10.00%
          Suburban Bank of Maryland                          15,578      13.64      9,139       8.00    11,424      10.00
   Tier 1 capital (to risk-weighted assets):
          Company                                            18,737      16.17      4,634       4.00     6,951       6.00
          Suburban Bank of Maryland                          14,149      12.39      4,569       4.00     6,854       6.00
   Tier 1 capital (to average assets):
          Company                                            18,737       9.75      7,684       4.00     9,605       5.00
          Suburban Bank of Maryland                          14,149       7.50      7,550       4.00     9,438       5.00
   Tier 1 capital (to average assets):                       

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 six months ended
June 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 $631,000 for the six
months ending June 30, 1998, an increase of $208,000, or 49.2%, over $423,000
reported for the first half of 1997. Improvement in earnings is attributed to
strong asset growth, offset by a declining net interest margin.

        Total assets reached $207.9 million at June 30, 1998, a $51.2 million,
or 32.7%, increase from $156.7 million at June 30, 1997. Asset growth since
December 31, 1997 is $32.3 million, or 18.4%. Loans have increased $28.3
million, or 30.3%,

                                       11
<PAGE>   12



since June 30, 1997 and $8.2 million, or 7.3%, since year-end 1997, reaching
$121.8 million at the end of the second quarter of 1998. Deposits, at $179.9
million, rose 31.7% since June 30, 1997 and 17.7% since December 31, 1997.

        Average assets were $183.8 million for the first six months of 1998,
$47.5 million, or 34.9%, above average assets of $136.3 million for the same
period of 1997. Average earning assets rose $44.8 million, or 36.3%, and average
deposits rose $41.8 million, or 35.6%.

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 $524,000, or 16.2%, from $3,237,000 for the
first two quarters of 1997 to $3,761,000 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 six months of 1998, the net interest margin was
4.50%, falling 78 basis points from 5.28% in the same period of 1997, the result
of a drop of 85 basis points in the yield on loans and an increase of 16 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 six months of
1998. Both total average earning assets and total average interest bearing funds
rose in the first two quarters of 1998 as compared to 1997. Average earning
assets rose $44.8 million, or 36.3%, from $123.6 million in 1997 to $168.5
million in 1998, and average interest bearing funds increased $40.4 million, or
42.8%, from $94.4 million to $134.8 million for the same periods. As a
percentage of average assets, earning assets rose from 90.7% in the first half
of 1997 to 91.7% in 1998, which resulted in higher interest income. Average
interest-bearing funding sources rose as well, from 80.4% of total funding
sources in the first six months of 1997 to 82.6% 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 six
months of 1998. The yield on earning assets fell in 1998 to 8.01% from 8.57% in
1997, as loan yields dropped to 8.94% from 9.79%. 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 $17,508,000 in the first half of 1998, represents 15.3% of the
average loan portfolio, and because of the reduced risk associated with the
pool, the yield, at 7.06%, 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 six
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 3.46% in 1997, a 16 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 half 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 increased slightly from 67.6% in 1997 to 67.8% in 1998;
average investments fell slightly from 19.6% to 19.2%. Short-term investments,
Federal funds sold, rose from 12.8% of earning assets to 13.0%. 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

                                       12
<PAGE>   13



to higher-cost deposits from noninterest-bearing funding sources and lower-cost
transaction accounts. Time deposits rose $17.9 million, from 19.4% of funding
sources to 25.0% in 1998, and noninterest-bearing deposits fell from 19.6% to
17.4%; 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 June 30, 1998, net interest income was
$1,911,000, $230,000, or 13.7%, above the $1,681,000 recorded for the second
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>
Six Months ended June 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                                            $114,278     $5,069         8.94%      $83,514       $4,056           9.79%
 Investment securities                              32,281      1,022         6.38%       24,255          771           6.41%
 Fed funds sold and other deposits                  21,904        604         5.56%       15,846          426           5.42%

Total interest-earning assets                      168,463      6,695         8.01%      123,615        5,253           8.57%


Noninterest-earning assets:
 Cash and due from banks                             9,492                                 7,332
 Bank property and equipment                         1,715                                 1,535
 Other assets                                        5,610                                 5,304
 Less: Allowance for loan losses                    (1,493)                               (1,533)

Total noninterest-earning assets                    15,324                                12,638

TOTAL ASSETS                                      $183,787                              $136,253

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Checking, money market and savings deposits        $89,878     $1,736         3.89%      $71,413       $1,390           3.92%
 Time deposits                                      40,767      1,113         5.51%       22,825          622           5.50%
 Securities sold under repurchase agreements         4,159         85         4.15%          188            4           4.14%

Total interest-bearing liabilities                 134,804      2,934         4.39%       94,426        2,016           4.31%

Noninterest-bearing deposits                        28,420                                23,036

Total funding sources                              163,224      2,934         3.62%      117,462        2,016           3.46%

Other liabilities                                      997                                   757

TOTAL LIABILITIES                                  164,221                               118,219

Shareholders' equity                                19,566                                18,034

TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY                                            $183,787                              $136,253

Net interest income                                            $3,761                                  $3,237

Net interest spread                                                           4.39%                                     5.11%

Net interest margin                                                           4.50%                                     5.28%
</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 six months of 1998, the provision for loan losses was
$195,000. Loans charged off totaled $220,000 and recoveries were $66,000. In the
same period of 1997, the provision was $115,000, loans charged off were $131,000
and recoveries totaled $30,000. The provision in the second quarter of 1998 was
$95,000, an increase of $15,000 over the $80,000 recorded in the same period of
1997.

NONINTEREST INCOME

        Noninterest income rose $88,000, or 24.2%, in the first half of 1998 to
$452,000 from $364,000 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 $59,000 of the increase year-to-date
and $50,000 of the increase for the quarter. In the three months ended June 30,
1998, noninterest income was $244,000, $51,000, or 26.4%, higher than in the
same period of 1997.

NONINTEREST EXPENSES

        Noninterest expenses increased $209,000, or 7.4%, in the first six
months of 1998 as compared to the same period of 1997, from $2,827,000 to
$3,036,000. Salaries and benefits increased over last year's first half, 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 second quarter, noninterest expenses rose from $1,437,000 in 1997 to
$1,536,000 in 1998, a 6.9% 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
$1,677,000 and $1,763,000 at June 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 June 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 $349,000 at June
30, 1998, and 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 $1,514,000 at June 30,1998, an
increase of $41,000 from $1,473,000 at December 31, 1997. Activity in the
allowance for loan losses during the first half of 1998 included recoveries of
$66,000, charge-offs of $220,000, and a provision for future losses of
$195,000.

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 73.8% of total funding sources at
June 30, 1998, compared to 77.6% at the end of 1997. Another indicator of
adequate liquidity is the level of readily marketable assets. These liquid
assets, securities available for sale, overnight federal funds and the
guaranteed portion of SBA loan in the loan portfolio increased to 45.4% of total
assets at June 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 June 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                        $31,732     $      --     $     --    $           $ 31,732
   Investment securities available for sale                         499         1,399        3,154           --     34,785
   Loans (1)                                                     74,803         6,542       13,578       29,733    121,810
      Total interest-earning assets                             107,034         7,941       16,732       26,887    188,327
Cumulative rate sensitive assets                                107,034       114,975      131,707       56,620    188,327

Interest-bearing liabilities:
   Interest checking deposits                                  $ 14,536      $     --     $     --     $     --   $ 14,536
   Money market deposits and savings deposits                    88,005            --           --           --     88,005
   Time deposits                                                 32,361         1,891        4,371        6,991     45,614
   Securities sold under repurchase agreements                    7,511            --           --           --      7,511
      Total interest-bearing liabilities                        142,413         1,891        4,371        6,991    155,666
Cumulative rate sensitive liabilities                           142,413       144,304      148,675      155,666

GAP $                                                          $(35,379)     $  6,050      $12,361     $ 49,629
CUMULATIVE GAP                                                  (35,379)      (29,329)     (16,968)      32,661    $32,661
CUMULATIVE GAP TO TOTAL ASSETS                                   -17.02%       -14.11%       -8.16%       15.71%     15.71%
</TABLE>

(1) Excludes net deferred fees (costs) of ($33).

        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 June 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 8.16%. This negative gap position
means that the Company had $16,968,000 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 first
quarter of 1998, the profile showed a change in annual net interest income of
-11.8% and a change in economic value of -20.3% 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 second 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 $657,000, or 3.4%, in the first six
months of 1998 to $19,839,000 at June 30, 1998 from $19,182,000 at December 31,
1997. Earnings of $631,000 and an increase of $26,000 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
June 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 June 30, 1998, the Company
reported at Tier 1 risk-based capital ratio of 16.17% and a ratio of 17.42%
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 June 30, 1998, the leverage
capital ratio for the Company was 9.75%.



                                       18
<PAGE>   19



PART II.     OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

                      An annual meeting of the shareholders (the "Meeting") was
               held on May 20, 1998. The following matters were submitted to a
               vote of shareholders either by proxy or in person:

               1.     Four directors were elected to the class of directors 
               whose terms expired at the Meeting to serve for terms
               expiring at the 2001 annual meeting of shareholders or until
               their successors are elected and qualify (the "2001 Class").

                      Samuel Y. Botts, Stephen A. Horvath, Winfield M. Kelly,
               Jr. and Kenneth J. Michael were elected to the 2001 Class. Mr.
               Botts was elected with 9,311,033 votes for and 37,125 votes
               withheld, Mr. Horvath was elected with 9,316,183 votes for and
               31,975 votes withheld, Mr. Kelly was elected with 9,316,183 votes
               for and 31,975 votes withheld and Mr. Michael was elected with
               9,316,183 votes for and 31,975 votes withheld.

                      Other directors whose terms continued after the Meeting
               were Barbara M. DiNenna-Corboy, Marlin K. Husted, Raymond G.
               LaPlaca and Lawrence A. Shulman, members of the class whose term
               expires at the end of the 1999 annual meeting of shareholders and
               Vincent D. Palumbo and Albert W. Turner, members of the class
               whose term expires at the 2000 annual meeting of shareholders or
               until their successors are elected and qualify.

               2.     The shareholders ratified the selection of Stegman & 
               Company as the Company's independent public accountants
               for 1998 with 9,310,594 votes for, 20,950 votes against and
               16,614 abstentions.

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 June
                   30, 1998.





                                       19

<PAGE>   20



PART II.    OTHER INFORMATION  (continued)


                                   SIGNATURES


        Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                  SUBURBAN BANCSHARES, INC.
                                  (Registrant)

<TABLE>
<S>     <C>                       <C>
Date:   August 12, 1998           Stephen A. Horvath
        -----------------         -------------------------------------------------
                                  Stephen A. Horvath
                                  President and Chief Operating Officer





Date:   August 12, 1998           Sibyl S. Malatras
        ---------------           --------------------------------------------------
                                  Sibyl S. Malatras
                                  Senior Vice President and Chief Financial Officer
                                  (Principal Financial Officer)
</TABLE>



                                       20