SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 33-99762
CALVIN B. TAYLOR BANKSHARES, INC.
(Exact name of registrant as specified in its
Charter)
Maryland
52-1948274
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization)
Identification No.)
P. O. Box 5, Berlin, Maryland
21811 (Address of principal executive
offices) (Zip Code)
Issuer's telephone number, including area code:
(410) 641-1700
Securities registered under Section 12(b) of the
Exchange Act:
Name of each exchange
Title of each class
on which registered
None
None
Securities registered under Section 12(g) of the
Exchange Act:
Common Stock
(Title of
Class)
Check whether the small business issuer (1) filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that
the small business issuer was required to file
such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Check if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be
contained, to the best of the small business
issuer's knowledge, in definitive proxy or
information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [ ]
State small business issuer's revenues for its
most recent fiscal year: $17,611,734.
The aggregate market value of the Common Stock
held by non-affiliates of the small business
issuer on December 31, 1996,
was $50,422,500. This calculation is based upon
an estimation by the Company's Board of Directors
of fair market value of the Common Stock of $62.25
per share. There is not an active trading market
for the Common Stock and it is not possible to
identify precisely the market value of the Common
Stock.
On March 4, 1997, 810,000 shares of the small
business issuer's common stock were issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual report to Shareholders for
the year ended December 31, 1996, is incorporated
by reference in this Form 10-KSB in Part II Item
5, Item 6, and Item 7. The Company's Proxy
Statement for Annual Meeting of Shareholders to be
held on May 7, 1997, is incorporated by reference
in this Form 10-KSB in Part III, Item 9, Item 10,
Item 11, and Item 12.
PART I
Item 1. Description of Business
General
Calvin B. Taylor Bankshares, Inc. (the
"Company") was incorporated as a Maryland
corporation on October 31, 1995.
The Bank is a commercial bank incorporated under
the laws of the State of Maryland on December 17,
1907. The Bank operates 10 banking offices in
Worcester County with the Bank's main office
located in Berlin, Maryland. It is engaged in a
general commercial and retail banking business
serving individuals, businesses, and governmental
units in Worcester County, Maryland and
neighboring counties. The Company has acquired
land for future Bank expansion but engaged in no
other business excluding the operation of the
Bank.
The Company's holding company structure
can assist the Bank in maintaining its required
capital ratios because the Company may, subject
to compliance with debt guidelines implemented by
the Board of Governors of the Federal Reserve
System (the "Board of Governors" or the "Federal
Reserve"), borrow money and contribute the
proceeds to the Bank as primary capital.
The holding company structure also permits greater
flexibility in issuing stock for cash, property or
services and in reorganization transactions.
Moreover, subject to certain regulatory
limitations, a holding company can purchase shares
of its own stock, which the Bank may not do. A
holding company may also engage in certain non-
banking activities which the Board of Governors
has
deemed to be closely related to banking and proper
incidents to the business of a bank holding
company. These activities include making or
servicing loans and certain types of leases;
performing certain data processing services;
acting as a fiduciary or investment or financial
advisor; acting as a management consultant for
other depository institutions; providing courier,
appraisal, and consumer financial counseling
services; providing tax planning and preparation
services; providing check guaranty and
collection agency services; engaging in limited
real estate investment activities; underwriting,
brokering, and selling credit life and disability
insurance; engaging in certain other limited
insurance activities; providing discount brokerage
services; underwriting
and dealing in certain government obligations and
money market instruments and providing portfolio
investment advice; acting as a futures commission
merchant with respect to certain financial
instrument transactions; providing foreign
exchange advisory and transactional services;
making investments in certain corporations for
projects designed primarily to promote community
welfare; and owning and operating certain healthy
savings and loans associations. Although the
Company has no present intention of engaging in
any of these services, if circumstances should
lead the Company's management to believe that
there is a need for these services in the Bank's
marketing area and that such activities could be
profitably conducted, the management of the
Company would have the flexibility of commencing
these activities upon filing notice thereof with
the Board of Governors.
Location and Service Area
The Bank conducts a general commercial
banking industry in its primary service area,
emphasizing the banking needs of individuals and
small- to medium-sized businesses and professional
concerns. The Bank operates from ten branches
located throughout Worcester County, Maryland.
The Bank draws most of its customer deposits and
conducts most of its lending transactions from
within its primary service area which encompasses
Worcester County, Maryland and neighboring
counties.
Worcester County is located along the
shores of the Atlantic Ocean and has experienced
growth in population in recent years. The area is
growing as both a resort and retirement community.
The principal components of the economy of
Worcester County are tourism and agriculture.
Berlin has a strong
component of health-care related businesses. The
tourist businesses of Ocean City, Maryland, with
health-care facilities in Berlin, Maryland
(including Berlin Nursing Home and Atlantic
General Hospital) are the largest employers in the
County.
Banking Services
The Bank offers a full range of deposit services
that are typically available in most banks and
savings and loan
associations, including checking accounts, NOW
accounts, savings accounts and other time deposits
of various types, ranging
from daily money market accounts to longer-term
certificates of deposit. The transaction accounts
and time certificates are tailored to the Bank's
principal market area at rates competitive to
those offered in the area. In addition, the Bank
offers certain retirement account services, such
as Individual Retirements Accounts ("IRAs"). All
deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to the
maximum amount allowed by law (generally, $100,000
per depositor subject to aggregation rules). The
Bank solicits these accounts from individuals,
businesses, associations and organizations, and
governmental authorities.
The Bank also offers a full range of short- to
medium-term commercial and personal loans.
Commercial loans include
both secured and unsecured loans for working
capital (including inventory and receivables),
business expansion (including acquisition of
real estate and improvements), and purchase of
equipment and machinery. Consumer loans include
secured and unsecured loans
for financing automobiles, home improvements,
education, and personal investments. The Bank
also originates mortgage loans
and real
estate construction and acquisition loans. The
Bank's lending activities are subject to a variety
of lending limits imposed by state and federal
law. The Bank may not make any loans to any
director, officer, or employee of the Bank (except
for commercial loans
to directors who are not officers or employees)
unless the loan is approved by the Board of
Directors of the Bank. Any such
loans must be reviewed every six months by the
Board of Directors.
Other bank services include cash
management services, safe deposit boxes, travelers
checks, direct deposit of payroll and social
security checks, and automatic drafts for various
accounts. The Bank is associated with the MAC
network of automated teller machines that may be
used by Bank customers throughout Maryland and
other regions. The Bank also offers credit card
services through a correspondent bank as an agent
for the Bank.
Competition
The Bank faces strong competition in all
areas of its operations. The competition comes
from entities operating in Worcester County and
neighboring counties and includes branches of some
of the largest banks in Maryland, Delaware, and
Virginia. Its most direct competition for deposits
historically has come from other commercial banks,
savings banks, savings and loan associations and
credit unions operating in Worcester County,
Maryland. The Bank competes for deposits with
money
market mutual funds and corporate and government
securities. The Bank competes with the same
banking entities for loans, as well as mortgage
banking companies and other institutional lenders.
The competition for loans varies from time to time
depending on certain factors. These factors
include, among others, the general availability of
lendable funds and credit, general and local
economic conditions, current interest rate levels,
conditions in the mortgage market and other
factors which are not readily predictable.
At December 31, 1996, there were eight other
commercial banks and two savings banks operating
in Worcester County,
together accounting for 31 banking offices.
Employees
As of December 31, 1996, the Bank had 89 full-time
employees and 4 part-time employees. The
Company's operations
are conducted through the Bank. Consequently, the
Company does not have separate employees. None of
the employees of the
Bank are represented by any collective bargaining
unit. The Bank considers its relations with its
employees to be good.
SUPERVISION AND REGULATION
The Company and the Bank are subject to
state and federal banking laws and regulations
which impose specific
requirements or restrictions on, and provide for
general regulatory oversight with respect to,
virtually all aspects of operations. These laws
and regulations are generally intended to protect
depositors, not shareholders. The following is a
brief summary of certain statutes, rules and
regulations affecting the Company and the Bank.
To the extent that the following summary describes
statutory or regulatory provisions, it is
qualified in its entirety by reference to the
particular statutory and regulatory provisions.
Any change in applicable laws or regulations may
have a material adverse effect on the business and
prospects of the Company.
The banking industry is also likely to change
significantly as a result of the passage of the
Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking
Act"). The operations of the Company and the Bank
may be affected by legislative changes and the
policies of various regulatory authorities. The
Company is unable to predict the nature or the
extent of the effect on its business and earnings
that fiscal or monetary policies, economic
control, or new federal or state legislation may
have in the future.
The Company
Because it owns the outstanding common
stock of the Bank, the Company is a bank holding
company within the
meaning of the federal Bank Holding Company Act of
1956 (the "BHCA"). Under the BHCA, the Company is
subject to periodic examination by the Federal
Reserve and is required to file periodic reports
of its operations and such additional information
as the Federal Reserve may require. The Company's
and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services
to or performing services for its subsidiaries, or
engaging in any other activity that the Federal
Reserve determines to be so closely related to
banking or managing and controlling banks as to be
a proper incident thereto.
Investments, Control, and Activities. With
certain limited exceptions, the BHCA requires
every bank holding company
to obtain the prior approval of the Federal
Reserve before (i) acquiring substantially all the
assets of any bank, (ii) acquiring direct or
indirect ownership or control of any voting shares
of any bank if after such acquisition it would own
or control more than 5% of
the voting shares of such bank (unless it already
owns or controls the majority of such shares), or
(iii) merging or consolidating with another bank
holding company.
In addition, and subject to certain
exceptions, the BHCA and the Change in Bank
Control Act, together with regulations thereunder,
require Federal Reserve approval (or, depending on
the circumstances, no notice of disapproval) prior
to any person or company acquiring "control" of a
bank holding company, such as the Company.
Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any
class of voting securities of the bank holding
company. Because the
Company's Common Stock is registered under the
Securities Exchange Act of 1934, under Federal
Reserve regulations control will
be rebuttably presumed to exist if a person
acquires at least 10% of the outstanding shares of
any class of voting securities of the Company.
The regulations provide a procedure for challenge
of the rebuttable control presumption.
Under the BHCA, the Company is generally
prohibited from engaging in, or acquiring direct
or indirect control of more
than 5% of the voting shares of any company
engaged in, nonbanking activities, unless the
Federal Reserve, by order or regulation, has found
those activities to be so closely related to
banking or managing or controlling banks as to be
a proper incident thereto. Some of the activities
that the Federal Reserve has determined by
regulation to be proper incidents to the business
of banking include making or servicing loans and
certain types of leases, engaging in certain
insurance and discount
brokerage activities, performing certain data
processing services, acting in certain
circumstances as a fiduciary or investment or
financial advisor, owning savings associations,
and making investments in certain corporations or
projects designed primarily to promote community
welfare.
Source of Strength; Cross-Guarantee. In
accordance with Federal Reserve policy, the
Company is expected to act as a
source of financial strength to the Bank and to
commit resources to support the Bank in
circumstances in which the Company
might not otherwise do so. Under the BHCA, the
Federal Reserve may require a bank holding company
to terminate any activity or relinquish control of
a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control
constitutes a serious risk to the financial
soundness or stability of any subsidiary
depository institution of the bank holding
company. Further, federal bank regulatory
authorities have additional discretion to require
a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency
determines that divestiture may
aid the depository institution's financial
condition. The Bank may be required to indemnify,
or cross-guarantee, the FDIC against losses it
incurs with respect to any other Bank controlled
by the Company, which in effect makes the
Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any
failing or failed bank subsidiary of the Company.
The Bank
General. The Bank operates as a state
nonmember banking association incorporated under
the laws of the State of Maryland and is subject
to examination by the FDIC and the Commissioner.
Deposits in the Bank are insured by the FDIC up to
a maximum amount (generally $100,000 per
depositor, subject to aggregation rules). The
Commissioner and FDIC regulate or
monitor all areas of the Bank's operations,
including security devices and procedures,
adequacy of capitalization and loss reserves,
loans, investments, borrowings, deposits, mergers,
issuances of securities, payment of dividends,
interest rates payable on deposits, interest rates
or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance
of books and records, and adequacy of staff
training to carry on safe lending and deposit
gathering practices. The FDIC requires the Bank
to maintain certain capital ratios and imposes
limitations on the Bank's aggregate investment in
real estate, bank premises, and furniture and
fixtures. The Bank is required by the FDIC and
the Commissioner to prepare quarterly reports on
the Bank's financial condition.
Under FDICIA, all insured institutions
must undergo periodic on-site examination by their
appropriate banking agency. The cost of
examinations of insured depository institutions
and any affiliates may be assessed by the
appropriate agency against
each institution or affiliate as it deems
necessary or appropriate. Insured institutions
are required to submit annual reports to the FDIC
and the appropriate agency (and state supervisor
when applicable). FDICIA also directs the FDIC to
develop with other appropriate agencies a method
for insured depository institutions to provide
supplemental disclosure of the estimated fair
market
value of assets and liabilities, to the extent
feasible and practicable, in any balance sheet,
financial statement, report of condition, or other
report of any insured depository institution.
FDICIA also requires the federal banking
regulatory agencies to prescribe,
by regulation, standards for all insured
depository institutions and depository institution
holding companies relating, among
other things, to: (i) internal controls,
information systems, and audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; and (v) asset
quality.
Transactions With Affiliates and Insiders.
The Bank is subject to Section 23A of the Federal
Reserve Act, which places
limits on the amount of loans or extensions of
credit to, or investment in, or certain other
transactions with, affiliates and on the amount of
advances to third parties collateralized by the
securities or obligations of affiliates. In
addition, most of these loans and certain other
transactions must be secured in prescribed
amounts. The Bank is also subject to Section 23B
of the Federal Reserve
Act which, among other things, prohibits an
institution from engaging in certain transactions
with certain affiliates unless the transactions
are on terms substantially the same, or at least
as favorable to such institution or its
subsidiaries, as those prevailing at the time for
comparable transactions with non-affiliate
companies. The Bank is subject to certain
restrictions on extensions of credit to executive
officers, directors, certain principal
shareholders, and their related interests. Such
extensions of credit (i) must be made on
substantially the same terms, including interest
rates and collateral, as those prevailing at the
time for comparable transactions with third
parties and (ii) must not involve more than the
normal risk of repayment or present other
unfavorable
features.
Branching. Under Maryland law, the Bank
may open branches state-wide, subject to the prior
approval of the
Commissioner and the FDIC. Maryland law permits
banking organizations in other states to acquire
Maryland banking organizations, as long as such
states grant similar privileges for acquiring
banking organizations in their states to banking
organizations in Maryland, by opening a de novo
branch, by acquiring an existing branch from a
Maryland depository institution, or as a result of
an interstate merger with a Maryland banking
organization. The Company is investigating
opening a new Bank in the State of Delaware.
Should this occur, the new bank will be subject to
the laws of the State of Delaware.
Community Reinvestment Act. The Community
Reinvestment Act requires that each insured
depository institution shall
be evaluated by its primary federal regulator with
respect to its record in meeting the credit needs
of its local community, including low and moderate
income neighborhoods, consistent with the safe and
sound operation of those institutions. These
factors are
also considered in evaluating mergers,
acquisitions, and applications to open a branch or
facility. The Bank received a
satisfactory rating in its most recent evaluation.
Other Regulations. Interest and certain
other charges collected or contracted for by the
Bank are subject to state usury laws and certain
federal laws concerning interest rates. The
Bank's loan operations are also subject to certain
federal laws applicable to credit transactions,
such as the federal Truth-In-Lending Act governing
disclosures of credit terms to consumer borrowers,
the Home Mortgage Disclosure Act of 1975 requiring
financial institutions to provide information to
enable the public
and public officials to determine whether a
financial institution is fulfilling its obligation
to help meet the housing needs of the community it
serves, the Equal Credit Opportunity Act
prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending
credit, the Fair Credit Reporting Act of 1978
governing the use and provision of information to
credit reporting agencies, the Fair Debt
Collection Act governing the manner in which
consumer debts may be collected by collection
agencies, and the rules and regulations of the
various federal agencies charged with the
responsibility of implementing such federal laws.
The deposit operations of the Bank are also
subject to the Right to Financial Privacy Act,
which imposes a duty to maintain confidentiality
of consumer financial records and prescribes
procedures for complying with administrative
subpoenas of financial records, and the Electronic
Funds Transfer Act and Regulation E issued by the
Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from
deposit accounts and customers' rights and
liabilities arising from the use of automated
teller machines and other electronic banking
services.
Deposit Insurance
The deposits of the Bank are currently insured to
a maximum of $100,000 per depositor, subject to
certain aggregation
rules. The FDIC establishes rates for the payment
of premiums by federally insured banks and thrifts
for deposit insurance. Separate insurance funds
(BIF and SAIF) are maintained for commercial banks
and thrifts, with insurance premiums from the
industry used to offset losses from insurance
payouts when banks and thrifts fail. Due to the
high rate of failures in recent years, the fees
that commercial banks and thrifts pay to BIF and
SAIF have increased. Since 1993, insured
depository institutions like the Bank have paid
for deposit insurance under a risk-based premium
system. Under this system, until mid-1995 a
depository institution paid to BIF or SAIF from
$.23 to $.31 per $100 of insured deposits
depending on its capital levels and risk profile,
as determined by its primary federal regulator on
a semi-annual basis. Once the BIF reached its
legally mandated reserve ratio in mid1995, the
FDIC lowered premiums for well-capitalized banks
to $.04 per $100. Subsequently, the FDIC revised
the range of
premiums from $.00 to $.31 per $100.
The assessment rate for the Bank is
currently $1,000 for each six-month period. This
assessment is subject to change. Any increase in
deposit insurance premiums for the Bank will
increase the Bank's cost of funds, and there can
be no assurance that such costs can be passed on
to the Bank's customers.
Dividends
The principal source of the Company's cash
revenues comes from dividends received from the
Bank. The amount of
dividends that may be paid by the Bank to the
Company depends on the Bank's earnings and capital
position and is limited by federal and state laws,
regulations, and policies. The Federal Reserve
has stated that bank holding companies should
refrain from or limit dividend increases or reduce
or eliminate dividends under circumstances in
which the bank holding company fails to meet
minimum capital requirements or in which earnings
are impaired.
The Company's ability to pay any cash
dividends to its shareholders in the future will
depend primarily on the Bank's ability to pay
dividends to the Company. In order to pay
dividends to the Company, the Bank must comply
with the requirements of
all applicable laws and regulations. Under
Maryland law, the Bank must pay a cash dividend
only from the following, after
providing for due or accrued expenses, losses,
interest, and taxes: (i) its undivided profits,
or (ii) with the prior approval of the
Commissioner, its surplus in excess of 100% of its
required capital stock. Under FDICIA, the Bank
may not pay a dividend if, after paying the
dividend, the Bank would be undercapitalized. See
"Capital Regulations" below. See Item 5 for a
discussion of
dividends paid by the Bank in the past two years.
In addition to the availability of funds
from the Bank, the future dividend policy of the
Company is subject to the discretion of the Board
of Directors and will depend upon a number of
factors, including future earnings, financial
condition, cash needs, and general business
conditions. If dividends should be declared in
the future, the amount of such dividends presently
cannot be estimated and it cannot be known whether
such dividends would continue for future periods.
Capital Regulations
The federal bank regulatory authorities
have adopted risk-based capital guidelines for
banks and bank holding
companies that are designed to make regulatory
capital requirements more sensitive to differences
in risk profile among banks and bank holding
companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid
assets. The
resulting capital ratios represent qualifying
capital as a percentage of total risk-weighted
assets and off-balance sheet items. The
guidelines are minimums, and the regulators have
noted that banks and bank holding companies
contemplating significant
expansion programs should not allow expansion to
diminish their capital ratios and should maintain
ratios well in excess of the
minimums. The current guidelines require all bank
holding companies and federally-regulated banks to
maintain a minimum riskbased total capital ratio
equal to 8%, of which at least 4% must be Tier 1
capital. Tier 1 capital includes common
shareholders' equity before the unrealized gains
and losses on securities available for sale,
qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated
subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan
and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier
1 capital, mandatory convertible securities,
hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general
reserves for loan and lease losses up to 1.25% of
risk-weighted assets.
Under the guidelines, banks' and bank
holding companies' assets are given risk-weights
of 0%, 20%, 50%, and 100%. In addition, certain
off-balance sheet items are given credit
conversion factors to convert them to asset
equivalent amounts to which
an appropriate risk-weight will apply. These
computations result in the total risk-weighted
assets. Most loans are assigned to the 100% risk
category, except for first mortgage loans fully
secured by residential property and, under certain
circumstances, residential construction loans,
both of which carry a 50% rating. Most investment
securities are assigned to the 20% category,
except for municipal or state revenue bonds, which
have a 50% rating, and direct obligations of or
obligations guaranteed by the United States
Treasury or United States Government agencies,
which have a 0% rating.
The federal bank regulatory authorities
have also implemented a leverage ratio, which is
Tier 1 capital as a percentage of average total
assets less intangibles, to be used as a
supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to
place a constraint on the maximum degree to which
a bank holding company may leverage its equity
capital base. The minimum required leverage ratio
for top-rated institutions is 3%, but most
institutions are required to maintain an
additional cushion of at least 100 to 200 basis
points.
FDICIA established a new capital-based
regulatory scheme designed to promote early
intervention for troubled banks
and requires the FDIC to choose the least
expensive resolution of bank failures. The new
capital-based regulatory framework
contains five categories for compliance with
regulatory capital requirements, including "well
capitalized," "adequately capitalized,"
"undercapitalized," "significantly
undercapitalized," and "critically
undercapitalized." To qualify as a "well
capitalized" institution, a bank must have a
leverage ratio of no less than 5%, a Tier 1 risk-
based ratio of no less than 6%, and a total risk-
based capital ratio of no less than 10%, and the
bank must not be under any order or directive from
the appropriate regulatory agency to meet and
maintain a specific capital level. As of December
31, 1996, the Company and the Bank were qualified
as "well
capitalized." See "Item 6. Management's
Discussion and Analysis or Plan of Operation -
Capital."
Item 2. Description of Property
The Company has a main office and nine
branch locations, all of which are owned by the
Company. The locations are
described as follows:
OFFICE LOCATION
Square Footage
Main Office 24 North Main
Street, Berlin, Maryland 21811 6,500
East Berlin Office 10524 Old
Ocean City Boulevard, Berlin, Maryland 21811 1,500
20th Street Office 100 20th
Street, Ocean City, Maryland 21842 3,100
Ocean Pines Office 11003 Cathell Road,
Berlin, Maryland 21811 2,420
Mid-Ocean City Office 9105 Coastal
Highway, Ocean City, Maryland 21842 1,984
North Ocean City Office 14200 Coastal
Highway, Ocean City, Maryland 21842 2,545
West Ocean City Office 9923 Golf Course
Road Ocean City, Maryland 21842 2,496
Downtown Pocomoke Office 144 Market Street,
Pocomoke, Maryland 21851 3,240
South Pocomoke Office 121 Ames Plaza
Pocomoke, Maryland 21851 1,715
Snow Hill Office 108 West
Market Street, Snow Hill, Maryland 21863 3,773
The Main Office is the centralized
location for all nine branches; that is to say
that all proof and bookkeeping is performed there.
Each branch has a manager that also serves
as its loan officer as well, with the exception of
the East Berlin Office which does not have a loan
officer. All ten offices participate in normal
day-to-day banking operations.
Five offices offer Automated Teller Machines;
these being the 20th Street, Ocean Pines, Mid-
Ocean City, West
Ocean City, and South Pocomoke Offices.
Item 3. Legal Proceedings
There are no material pending legal
proceedings to which the Company or the Bank or
any of their properties are subject.
Item 4. Submission of Matters to a Vote of
Security Holders
There were no matters submitted to a vote of the
shareholders of the Company during the fourth
quarter of 1996.
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters
In response to this Item, the information
included on page 15 of the Company's Annual Report
to Shareholders for the year ended December 31,
1996 is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or
Plan of Operation
In response to this Item, the information included
on pages 2 through 14 of the Company's Annual
Report to
Shareholders for the year ended December 31, 1996
is incorporated herein by reference.
Item 7. Financial Statements
In response to this Item, the information included
on pages 16 through 39 of the Company's Annual
Report to
Shareholders for the year ended December 31, 1996
is incorporated herein by reference.
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures
Not applicable.
PART III
Item 9. Directors and Executive Officers;
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange
Act of 1934 requires (i) the Company's Directors
and Executive Officers and (ii) persons who own
more than 10% of a registered class of the
Company's equity securities to file with the
Securities and Exchange Commission (the "SEC"),
within certain specified time periods, reports of
ownership and changes in ownership.
Such Officers, Directors, and Shareholders are
required by the SEC regulations to furnish the
Company with copies of all such reports that they
file.
Item 10. Executive Compensation
The table below presents a summary of the
compensation for the last three fiscal years of
Mr. Reese F. Cropper, Jr., Chief Executive Officer
and President of the Company and Bank, and Mr.
James R. Bergey, Sr., Senior Vice President and
Secretary of the Company and Bank. No other
executive officers of the Company and Bank
received an annual salary and
bonus which exceeded $100,000 during any of the
past three fiscal years.
Annual Compensation
All Other Name and Principal Position Year Salary Bonus
Compensation(1)
Reese F. Cropper, Jr. - President 1996
$142,509 $5,720 $3,153
and Chief Executive Officer
1995 115,623
$4,818 2,299
1994 104,832
4,368 1,485
James R. Bergey, Sr., Senior
Vice President and Secretary 1996 $102,959
$4,136 $1,411
1995 93,640
3,760 1,432
1994 87,730
3,520 1,257
(1) Represents benefits paid by the bank in
connection with the use of an automobile.
Item 11. Security Ownership of Certain Beneficial
Owners and Management
In response to this item, the information included
on pages X through X of the Company's Proxy
Statement for the
Annual Meeting of Shareholders to be held May 7,
1997 is incorporated herein by reference.
The following table sets forth the number and
percentage of outstanding shares of the Company's
Common Stock beneficially owned at the record date
by (a) each Executive Officer of the Company, (b)
each Director of the Company, (c) all Directors
and Executive Officers of the Company as a group,
and (d) each person or entity known to the Company
to own more than five percent of the outstanding
Common Stock.
Shares of Common
Stock Beneficially Owned by Directors
Name and Address Relationship to
Company Number Percent(1)
James R. Bergey, Jr. Director 1800 .2%
6213 South Point Road
Berlin, Maryland 21811
James R. Bergey, Sr. Director, Vice
President
100 20th Street and
Secretary 7360 .9%
Ocean City, Maryland 21842
Name and Address Relationship to
Company Number Percent(1)
Richard L. Bunting Director 100 .01%
1911 Buck Harbor Road
Pocomoke, Maryland 21851
John H. Burbage, Jr. Director 11,230 1.38%
7 Main Street
Berlin, Maryland 21811
Reese F. Cropper, Jr. Director, President
and
9620 Ocean View Lane Chief Executive
Officer 24,856 3.06%
Ocean City, Maryland 21842
Hale Harrison Director 10,834 1.33%
1552 Teal Drive
Ocean City, Maryland 21842
Gerald T. Mason Director
100 .01%
Scotty Road
Pocomoke, Maryland 21851
Joseph E. Moore Director
856 .10%
319 South Main Street
Berlin, Maryland 21811
Horace D. Quillin, Sr. Director 22,854 2.82%
100 Quillin Drive
Berlin, Maryland 21811
Michael L. Quillin, Sr. Director 8,000 .98%
P.O. Box 2
Ocean City, Maryland 21842
Hugh F. Wilde, Sr. Director 46,752 5.77%
P.O. Box 540
Ocean City, Maryland 21842
Shares of Common Stock Beneficially Owned
by Executive Officers and Major Shareholders
Name and Address Relationship to
Company Number Percent(1)
William H. Mitchell Treasurer
228 .02% 8230 Donaway Road
Whaleyville, Maryland 21872
Stamp & Co. None
64,676 7.98%
c/o NationsBank Trust Co.
Income Collections, P.O. Box 96572
Washington, D.C. 20090
Mary E. Humphreys None
49,086 6.06%
6 Baker Street
Berlin, Maryland 21811
______________________
(1) Based on 810,000 shares of Common Stock
outstanding.
Item 12. Certain Relationships and Related
Transactions
In response to this item, the information
included on page 7 of the Company's Proxy
Statement for the Annual Meeting of Shareholders
to be held May 7, 1997 is incorporated herein by
reference.
The Bank is legally represented by and
engages Williams, Hammond, Moore, Shockley, and
Harrison, P.A., of which Director of the Company,
Joseph E. Moore, is a Partner. The total amount of
legal fees for both the Company and Bank in 1996,
as engaged by Mr. Moore, and/or his legal firm,
was $2,183.
Management believes that the terms of all of the
above-described transactions are at least as
favorable to the
Company and the Bank as could have been obtained
in negotiating transactions with independent third
parties.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1
of Registration Statement Form
S-4, File No. 33-99762).
3.2 Bylaws of the Company (incorporated
by reference to Exhibit 3.2 of Registration
Statement Form S-4, File
No. 33-99762).
13 Annual Report to Shareholders for
the year ended December 31, 1996.
21 Subsidiaries of the Company.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
fourth quarter of the year ended December 31,
1996.
SIGNATURES
In accordance with Section 13 or 15(d) 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.
CALVIN B. TAYLOR BANKSHARES, INC.
(Registrant)
Date: By:
Reese F. Cropper, Jr.
President and Chief
Executive Officer
In accordance with the Securities Exchange Act of
1934, this report has been signed below by the
following persons
on behalf of the registrant and in the capacities
and on the dates indicated.
Date: By:
James R. Bergey, Jr.
Director
Date: By:
James R. Bergey, Sr.
Executive Vice President
Date: By:
Richard L. Bunting
Director
Date: By:
John H. Burbage, Jr.
Director
Date: By:
Reese F. Cropper, Jr.
President and Chief
Executive Officer
Date: By:
Hale Harrison
Director
Date: By:
Gerald T. Mason
Director
Date: By:
Joseph E. Moore
Director
Date: By:
Horace D. Quillin, Sr.
Director
Date: By:
Michael L. Quillin
Director
Date: By:
Hugh F. Wilde, Sr.
Director
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1996
Calvin B. Taylor Bankshares, Inc.
1996 Annual Report
Calvin B. Taylor Banking Company
BUSINESS OF THE COMPANY
Calvin B. Taylor Bankshares, Inc. (the
"Company") was incorporated as a Maryland
corporation on October 31, 1995, to become a one-
bank holding company by acquiring all of the
capital stock of Calvin B. Taylor Banking Company
(the "Bank"). The Bank was incorporated under the
laws of the State of Maryland on December 17,
1907. The Bank was organized as a nonmember state
bank under the laws of the State of Maryland. The
Bank is engaged in a general commercial banking
business, emphasizing in its marketing the Bank's
local management and ownership, from its main
office location in its primary service area of
Worcester County and its neighboring counties.
The Bank offers a full range of deposit services
that are typically available in most banks and
savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other
time deposits of various types, ranging from daily
money market accounts to longer-term certificates
of deposit. In addition, the Bank offers certain
retirement account services, such as Individual
Retirement Accounts. The Bank also offers a full
range of short- to medium-term commercial and
personal loans. The Bank also originates and
holds or sells into the secondary market fixed and
variable rate mortgage loans and real estate
construction and acquisition loans. Other bank
services include cash management services, safe
deposit boxes, travelers checks, direct deposit of
payroll and social security checks, and automatic
drafts for various accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's
financial condition and results of operations
should be read in conjunction with the Company's
financial statements and related notes and other
statistical information included elsewhere herein.
Overview
Consolidated income of the Company is
derived primarily from operations of the Bank.
The 1996 net income was $4,535,641, compared to
$4,119,915 for 1995. The Company continued its
history of above average earnings with a return on
equity of 11.67% and return on assets of 1.87% for
1996 compared to returns of 12.75% and 1.80% for
1995.
Results of Operations
The Company reported net income of
$4,535,641, or $5.60 per share, for the year ended
December 31, 1996, which was
an increase of $415,726, or 10.09%, over the net
income of $4,119,915 or $5.09 per share, for the
year ended December 31, 1995. The primary reason
for the change in profitability is the increase in
net interest income.
Net interest income increased $572,470, or
5.64%, to $10,727,018 in 1996 from $10,154,548 in
1995. This increase in net interest income was
the result of an $885,869 increase in interest
revenue and a $313,399 increase in interest
expense. The yield on interest-earning assets
decreased from 7.54% in 1995 to 7.53% in 1996
while the combined yield on deposits and borrowed
funds increased to 3.01% from 3.00% for the same
period. Net interest income increased primarily
because the
balance of interest-earning assets grew faster
than the balance of deposits and borrowed funds.
The provision for loan losses was $193,000
in 1996, a decrease of $133,000 from the $60,000
provision in 1995. The increased provision is the
result of net charge-offs for 1996 and a
$12,921,506 growth in outstanding loans. During
1996, the Company had net charge-offs of $11,516
which was .01% of average loans while during 1995
there were net recoveries of $306.
Both noninterest income and noninterest
expense changed by less than 5.00% during 1996
compared to 1995.
Discussion of these items is presented later under
their respective headings.
Net Interest Income
The primary source of income for the
Company is net interest income, which is the
difference between revenue on interest-earning
assets, such as investment securities and loans,
and interest incurred on interest-bearing sources
of funds, such as deposits and borrowings. The
level of net interest income is determined
primarily by the average balance of interest-
earning assets and funding sources and the various
rate spreads between the interest-earning assets
and the Company's
funding sources. The table "Average Balances,
Income and Expenses, and Rates" which follows
shows the Company's
average volume of interest-earning assets and
interest-bearing liabilities for 1996 and 1995 and
related income/expense and yields. Changes in net
interest income from period to period result from
increases or decreases in the volume of interest-
earning assets and interest-bearing liabilities,
and increases or decreases in the average rates
earned and paid on such assets and liabilities.
The volume of interest-earning assets and
interest-bearing liabilities is affected by the
ability to manage the earning-asset portfolio
(which includes loans), and the availability of
particular sources of funds, such as noninterest
bearing deposits. The table "Analysis of Changes
in Net Interest Income" shows the amount of net
interest income change from rate changes and from
activity changes.
The key performance measure for net interest
income is the "net margin on interest-bearing
assets," or net interest
income divided by average interest-earning assets.
The Company's net interest margin for both 1996
and 1995 was 4.84%. Because most of the loans of
the Bank are written with a demand feature, the
income of the Bank should not change
dramatically as interest rates change. Management
of the Company expects to maintain the net margin
on interest-earning assets. The net margin may
decline, however, if competition increases, loan
demand decreases, or the cost of funds rises
faster than the return on loans and securities.
Although such expectations are based on
management's judgment, actual results will depend
on a number of factors that cannot be predicted
with certainty, and fulfillment of management's
expectations cannot be assured.
Analysis of Changes
in Net Interest
Income
Year Ended December
31,
1996 Compared with
1995
Variance Due To
Year Ended December
31,
1995 Compared with
1994
Variance Due To
Total
Rate
Volume
Total
Rate
Volume
Earning Assets
Interest-bearing
deposits
$(19,813)
$ 4,324
$ (24,137)
$ 20,815
$ 18,601
$ 2,214
Federal funds
sold
142,948
(86,922)
229,870
(52,714)
319,661
(372,375)
Investment
Securities:
U.S. Treasury
(51,095)
61,263
(112,358)
404,522
312,868
91,654
State and
municipal
157,715
(1,466)
159,181
125,639
50,811
74,828
Other
4,905
3,683
1,222
286
(721)
1,007
Loans:
Demand and
time
198,482
3,412
195,070
(42,139)
(15,801)
(26,338)
Mortgage
528,199
(10,752)
538,951
574,490
2,367
572,123
Installment
(18,433)
4,753
(23,186)
5,240
(24,529)
29,769
Total interest
revenue
942,908
(21,705)
964,613
1,036,139
663,257
372,882
Interest-Bearing
Liabilities
Savings and NOW
deposits
(62,047)
(105,360)
43,313
1,881
8,537
(6,656)
Money market
and supernow
(99,684)
(65,391)
(34,293)
(154,308)
(6,505)
(147,803)
Other time
deposits
477,137
125,456
351,681
824,249
766,208
58,041
Other borrowed
funds
(2,007)
(162)
(1,845)
(2,038)
(173)
(1,865)
Total
interest expense
313,399
(45,457)
358,856
669,784
768,067
(98,283)
Net interest
income
$629,509
$ 23,752
$605,757
$ 366,355
$(104,810)
$ 471,165
Composition of Loan Portfolio
Because loans are expected to produce
higher yields than investment securities and other
interest-earning assets (assuming that loan losses
are not excessive), the absolute volume of loans
and the volume as a percentage of total earning
assets is an important determinant of net interest
margin. Average loans, net of the allowance for
loan losses, were $143,386,008 and $135,008,463
during 1996 and 1995, respectively, which
constituted 63.19% and 63.07% of average interest-
earning assets for the periods. At December 31,
1996, the Company's loan to deposit ratio was
72.96% compared to 67.21% at December 31, 1995,
while the 1996 average loans to average deposits
were 70.78%. The Bank extends loans primarily to
customers located in and near Worcester County.
There are no industry concentrations in the Bank's
loan portfolio. The Bank does, however, have a
substantial portion of its loans in real estate
and its performance will be influenced by the real
estate market in the region.
The following table sets forth the
composition of the Company's loan portfolio as of
December 31, 1996 and 1995, respectively.
Composition of Loan Portfolio
December 31,
1996 1995
Percent Percent
Amount of
Total Amount of Total
Commercial $ 16,481,935 10.91% $
13,701,63 1 9.92%
Real estate 127,381,520 84.30%
118,210,875 85.55%
Construction 2,277,132 1.51%
1,018,052 0.74%
Consumer 4,959,548 3.28% 5,248,071 3.79%
Total Loans 151,100,135 100.00% 138,178,629 100.00%
Less allowance for credit losses
2,040,475 1,858,991
Net Loans $149,059,660
$136,319,638
The following table sets forth the
maturity distribution, classified according to
sensitivity to changes in interest rates, for
selected components of the Company's loan
portfolio as of December 31, 1996.
Loan Maturity Schedule and Sensitivity to Changes
in Interest Rates
December 31, 1996
Over one
One Year through
Over five
or less
five years years Total
Commercial $ 16,481,935 $
- - $ - $ 16,481,935
Real estate 127,381,520 - -
127,381,520
Construction 2,277,132 - -
2,277,132
Consumer 487,457
3,911,648 560,443 4,959,548
Total $146,628,044 $3,911,648
$560,443 $151,100,135
Fixed interest rate $ 487,457 $3,911,648
$560,443 $ 4,959,548
Variable interest rate (or demand)
146,140,587 -
- - 146,140,587
Total $146,628,044 $3,911,648
$560,443 $151,100,135
As of December 31, 1996, $146,140,587, or
96.72%, of the total loans were either variable
rate loans or
loans written on demand.
The Company has the following commitments,
lines of credit, and letters of credit outstanding
as of December 31, 1996 and 1995, respectively.
1996
1995
Construction loans $ 6,948,259
$4,344,065
Other loan commitments 4,500,515
2,190,300
Standby letters of credit
1,162,117 457,755
Total $12,610,891 $6,992,120
Loan commitments are agreements to lend to
a customer as long as there is no violation of any
condition to the contract. Loan commitments may
have interest fixed at current rates, fixed
expiration dates, and may require the payment of a
fee. Letters of credit are commitments issued to
guarantee the performance of a customer to a third
party. Loan commitments and letters of credit are
made on the same terms, including collateral, as
outstanding loans. The Company's exposure to
credit loss in the event of nonperformance by the
borrower is represented by the contract amount of
the commitment. Management
is not aware of any accounting loss the Company
will incur by the funding of these commitments.
Loan Quality
The allowance for loan losses represents a
reserve for potential losses in the loan
portfolio. The adequacy of the allowance for loan
losses is evaluated periodically based on a review
of all significant loans, with a particular
emphasis on non-accruing, past due, and other
loans that management believes require attention.
The determination of the reserve level rests upon
management's judgment about factors affecting loan
quality and assumptions about the economy.
Management considers the year-end allowance
appropriate and adequate to cover possible losses
in the loan portfolio; however, management's
judgment is based upon a number of assumptions
about future events, which are believed to be
reasonable,
but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future
periods will not exceed the allowance for loan
loss or that additional increases in the loan loss
allowance will not be required.
For significant problem loans,
management's review consists of evaluation of the
financial strengths of the borrowers and
guarantors, the related collateral, and the
effects of economic conditions. The overall
evaluation of the adequacy of the total allowance
for loan losses is based on an analysis of
historical loan loss ratios, loan charge-offs,
delinquency trends, and previous collection
experience, along with an assessment of the
effects of external economic conditions. Although
the Bank
has a history of low loan charge-offs, its current
policy is to maintain an allowance of
approximately 1.35% of gross loans unless
management's evaluation of the risk associated
with each loan indicates that allowance should be
higher. This allowance may be increased for
reserves for specific loans identified as
substandard during management's loan review.
The table "Allocation of Allowance for Loan
Losses" which follows shows the specific allowance
applied by loan
type and also the general allowance included in
the December 31, 1996 and 1995, allowance for loan
losses.
The provision for loan losses is a charge
to earnings in the current period to replenish the
allowance and maintain it at a level management
has determined to be adequate. As of December 31,
1996 and 1995, the allowance for loan losses was
1.35% of outstanding loans.
Allocation of Allowance for Loan Losses
1996
1995
Percent of Loan
Percent of Loan
Amount to Total
Loans Amount to Total Loans
Commercial $ 191,819 10.91% $
142,575 9.92%
Real estate 665,194 84.30% 726,172
85.55%
Construction 9,109
1.51% 4,072 0.74%
Consumer 159,296
3.28% 166,330 3.79%
Commitments 57,244
N/A 32,672 N/A
General 957,813 N/A
787,170 N/A
Total $2,040,475 100.00%
$1,858,991 100.00%
Allowance for Loan Losses
1996 1995
Balance at beginning of year $1,858,991
$1,798,685
Loan losses:
Commercial 196 -
Mortgage 4,694 -
Consumer 18,105
25,680
Total loan losses 22,995 25,680
Recoveries on loans previously
charged off Commercial 425 14,101
Consumer 11,054 11,885
Total loan recoveries 11,479
25,986
Net loan losses 11,516 (306)
Provision for loan losses charged to expense
193,000 60,000 Balance at end of year
$2,040,475 $1,858,991
Allowance for loan losses to loans outstanding
at end of year 1.35%
1.35%
Net charge-offs to average loans 0.01%
0.00%
As a result of management's ongoing review
of the loan portfolio, loans are classified as
nonaccrual
when it is not reasonable to expect collection of
interest under the original terms. These loans
are classified as nonaccrual even though the
presence of collateral or the borrower's financial
strength may be sufficient to provide for ultimate
repayment. Interest on nonaccrual loans is
recognized only when received. A delinquent
loan is generally placed in nonaccrual status when
it becomes 90 days or more past due. When a loan
is placed
in nonaccrual status, all interest which has been
accrued on the loan but remains unpaid is reversed
and
deducted from earnings as a reduction of reported
interest income. No additional interest is
accrued on the loan
balance until the collection of both principal and
interest becomes reasonably certain.
The Company had nonperforming loans totaling
$67,194 and $107,042 as of December 31, 1996 and
1995, respectively.
Where real estate acquired by foreclosure and held
for sale is included with nonperforming loans, the
result comprises nonperforming assets. Loans are
classified as impaired when the collection of
contractual obligations, including principal and
interest, is doubtful. Management has identified
no significant impaired loans as of December 31,
1996.
Liquidity and Interest Rate Sensitivity
The primary objective of asset/liability
management is to ensure the steady growth of the
Company's primary source
of earnings, net interest income. Net interest
income can fluctuate with significant interest
rate movements. To lessen the impact of these
margin swings, the balance sheet should be
structured so that repricing opportunities exist
for both assets and liabilities in roughly
equivalent amounts at approximately the same time
intervals. Imbalances in these repricing
opportunities at any point in time constitute
interest rate sensitivity.
Liquidity represents the ability to
provide steady sources of funds for loan
commitments and investment activities, as well as
to provide sufficient funds to cover deposit
withdrawals and payment of debt and operating
obligations. These funds can be obtained by
converting assets to cash or by attracting new
deposits.
Average liquid assets (cash and amounts due from
banks, interest bearing deposits in other banks,
federal funds
sold, and investment securities) were 46.19% of
average deposits for 1996, compared to 46.08% for
1995.
Interest rate sensitivity may be
controlled on either side of the balance sheet.
On the asset side, management can
exercise some control on maturities. Also, loans
may be structured with rate floors and ceilings on
variable rate notes and by providing for repricing
opportunities on fixed rate notes. The Company's
investment portfolio, including federal funds
sold, provides the most flexible and fastest
control over rate sensitivity since it can
generally be restructured more quickly than the
loan portfolio.
On the liability side, deposit products
can be restructured so as to offer incentives to
attain the maturity distribution desired.
Competitive factors sometimes make control over
deposits more difficult and less effective.
Interest rate sensitivity refers to the
responsiveness of interest-bearing assets and
liabilities to changes in market interest rates.
The rate-sensitive position, or gap, is the
difference in the volume of rate-sensitive assets
and liabilities at a given time interval. The
general objective of gap management is to actively
manage rate-sensitive assets and liabilities to
reduce the impact of interest rate fluctuations on
the net interest margin. Management generally
attempts to maintain a
balance between rate-sensitive assets and
liabilities as the exposure period is lengthened
to minimize the overall interest rate risk to the
Company.
The asset mix of the balance sheet is continually
evaluated in terms of several variables; yield,
credit quality,
appropriate funding sources, and liquidity.
Management of the liability mix of the balance
sheet focuses on expanding the various funding
sources.
The interest rate sensitivity position at
December 31, 1996, is presented in the table
"Interest Sensitivity Analysis."
The difference between rate-sensitive assets and
rate-sensitive liabilities, or the interest rate
sensitivity gap, is shown at the bottom of the
table. The Company was asset-sensitive for all
time horizons. For asset-sensitive institutions,
if interest rates should decrease, the net
interest margins should decline. Since all
interest rates and yields do not adjust at the
same velocity, the gap is only a general indicator
of rate sensitivity.
Interest Sensitivity Analysis
After three
Within but within After one
three twelve but within After
months months five years five years
Total
Assets
Earning Assets:
Federal funds sold $ 14,000,000 $
- - $ - $ - $
14,000,000
Investment securities 10,410,914 19,407,388
33,027,340 2,125,000 64,970,642
Loans 122,585,954 24,042,090
3,911,648 560,443 151,100,135
Total earning assets $146,996,868 $43,449,478
$36,938,988 $ 2,685,443 $230,070,777
Liabilities
Interest-bearing liabilities:
Money market and NOW $ 76,342,918 $
- - $ - $ - $
76,342,918
Savings deposits 31,441,290 - -
- - 31,441,290
Certificates $100,000
and over 2,244,402 6,110,871
1,049,940 - 9,405,213
Certificates under
$100,000 16,849,395 29,158,635
9,262,885 - 55,270,915
Total interest-bearing
liabilities $126,878,005 $35,269,506
$10,312,825 $ - $172,460,336
Period gap $ 20,118,863 $ 8,179,972
$26,626,163 $ 2,685,443 $ 57,610,441
Cumulative gap $ 20,118,863 $28,298,835
$54,924,998 $57,610,441 $ 57,610,441
Ratio of cumulative gap to
total earning assets 8.74% 12.30%
23.87% 25.04% 25.04%
The table "Investment Securities
Maturity Distribution and Yields" shows that as of
December 31, 1996, $29,582,902 of the investment
portfolio matures in one year or less. The
balance of the debt securities mature within five
years except for the only debt security classified
as "available-for-sale. The funds invested in
Federal funds sold provide liquidity so that only
debt securities with an original maturity in
excess of ten years have
been classified as "available-for-sale." Other
sources of liquidity include letters of credit,
overnight federal funds, and reverse repurchase
agreements available from correspondent banks.
The total lines of credit available from
correspondent banks at December 31, 1996, was
$15,000,000.
Investment Securities Maturity Distribution and
Yields
1996 1995
Year-end
Year-end
tax equivalent
tax equivalent
Book value yields
Book value yields
U.S. Treasury securities
One year or less $21,739,065 5.56%
$33,351,544 5.77%
Over one through five years 25,452,039
6.12% 8,486,937 6.24%
Over ten years 2,125,000 7.29%
3,307,016 7.18%
Total U.S. Treasury securities 49,316,104
5.92% 45,145,497 5.96%
State, county, and municipal securities
One year or less 7,843,837 5.75%
3,628,733 5.90%
Over one through five years 7,575,301
6.14% 6,590,626 6.14%
Over five through ten years - -% 108,518 6.49%
Total state, county, and municipal securities
15,419,138 5.94% 10,327,877 6.06%
Total investment securities
One year or less 29,582,902 5.61%
36,980,277 5.79%
Over one through five years 33,027,340
6.12% 15,077,563 6.20%
Over five through ten years - -%
108,518 6.49%
Over ten years 2,125,000 7.29%
3,307,016 7.18%
Total debt securities 64,735,242 5.92% 55,473,374 5.98%
Equity securities 235,400 8.33% 251,900 7.58%
Total securities $64,970,642 5.93% $55,725,274 5.99%
Deposits and Other Interest-Bearing
Liabilities
Average interest-bearing
liabilities increased $7,462,079, or 4.61%, to
$169,210,284 in 1996, from $161,748,205 in 1995.
Average interest-bearing deposits increased
$7,525,474, or 4.66%, to $169,074,400 in 1996,
from $161,548,926 in 1995 while average demand
deposits increased $2,809,820, or 9.16% from
$30,689,319 in 1995 to $33,499,139 in 1996. At
December 31, 1996, the Bank saw a shift in
deposits from noninterest-bearing demand deposits
to all categories of interest-bearing deposits. At
December 31, 1996, total deposits were
$204,297,806, compared to $202,840,088 at December
31, 1995, an increase of 0.72% while demand
deposits decreased 22.23% from $40,938,084 to
$31,837,470 during the same period.
The following table sets forth the
deposits of the Company by category as of December
31, 1996 and 1995, respectively.
Deposits
December 31,
1996
1995
Amount
Percent of
Deposits
Amount
Percent of
Deposits
Demand deposit accounts
$ 31,837,470
15.58%
$ 40,938,084
20.18%
NOW accounts
36,397,429
17.82%
32,336,192
15.94%
Money market accounts
39,945,489
19.55%
38,628,950
19.05%
Savings accounts
31,441,290
15.39%
28,993,432
14.29%
Time deposits less than
$100,000
55,270,915
27.06%
54,339,720
26.79%
Time deposits of $100,000
or over
9,405,213
4.60%
7,603,710
3.75%
Total deposits
$204,297,806
100.00%
$202,840,088
100.00%
Core deposits, which exclude certificates
of deposit of $100,000 or more, provide a
relatively stable funding source for the Company's
loan portfolio and other earning assets. The
Company's core deposits decreased $343,785 during
1996. Deposits, and particularly core deposits,
have been the Company's primary source of funding
and have enabled the Company
to meet both its short-term and long-term
liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary
source of funding in the future. The maturity
distribution of the Company's time deposits over
$100,000 at December 31, 1996, is shown in the
following table.
Maturities of Certificates of Deposit and Other Time Deposits of $100,000 or
More
December 31, 1996
Within
Three
Months
After Three
Through
Six Months
After Six
Through
Twelve
Months
After
Twelve
Months
Total
Certificates of
deposit of
$100,000 or more
$2,244,402
$2,737,905
$3,372,966
$1,049,940
$9,405,213
Large certificate of deposit customers
tend to be extremely sensitive to interest rate
levels, making these deposits less reliable
sources of funding for liquidity planning purposes
than core deposits. Some financial institutions
partially fund their balance sheets using large
certificates of deposit obtained through brokers.
These brokered deposits are generally expensive
and are unreliable as long-term funding sources.
Accordingly, the Company does not accept brokered
deposits.
Borrowed funds consist of an obligation under
capital lease which is paying down over the five
year lease term
which expires in 1998.
Noninterest Income
Noninterest income for 1996 was $791,305, compared
to noninterest income in 1995 of $757,235, an
increase of
$34,070, or 4.50%. Service charges on deposits
have grown with the growth in deposits.
The following table presents the principal
components of noninterest income for the years
ended December 31,
1996 and 1995, respectively.
Noninterest Income
1996
1995
Service charges on deposit accounts
$567,154 $540,182
Other noninterest revenue
224,151 217,053
Total noninterest income
$791,305 $757,235
Noninterest income as a percentage of average
total assets 0.33% 0.33%
Noninterest Expense
Noninterest expense decreased by $40,331,
or 0.93%, from $4,355,081 in 1995 to $4,314,750 in
1996. Increased personnel costs and other
increases were offset primarily by the decrease in
FDIC insurance which decreased $223,546 from
$225,546 in 1995 to $2,000 in 1996.
The Company has plans to open a second
bank in Delaware during the last quarter of 1997.
The opening of this office is expected to increase
noninterest expense.
The following table presents the principal
components of noninterest expense for the years
ended December 31, 1996 and 1995, respectively.
Noninterest Expense
1996
1995
Compensation and related expenses
$2,573,228 $2,416,435
Occupancy expense 363,175 354,992
Furniture and equipment expense 417,582 426,095
Amortization of intangible assets 18,368 8,413
Advertising 124,635
129,578
Courier service 66,910
64,814
Deposit insurance
2,000 225,546
Director fees 61,200
61,125
Dues, donations, subscriptions 41,384 37,636
Freight 28,604
81,320
Liability insurance 52,068 47,835
Postage 153,123
138,344
Professional fees 53,864 49,914
Stationery and supplies 139,428 115,814
Telephone
65,388 55,030
Teller machine fees 53,197 45,525
Miscellaneous
100,596 96,665
Total noninterest expense $4,314,750
$4,355,081
Noninterest expense as a percentage of
average total assets 1.78% 1.91%
Capital
Under the capital guidelines of the
Federal Reserve Board and the FDIC, the Company
and the Bank are currently required to maintain a
minimum risk-based total capital ratio of 8%, with
at least 4% being Tier 1 capital. Tier 1 capital
consists of common shareholders' equity,
qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated
subsidiaries, less certain intangibles. In
addition, the Company and the Bank must maintain a
minimum
Tier 1 leverage ratio (Tier 1 capital to total
assets) of at least 3%, but this minimum ratio is
increased by 100 to 200 basis points for other
than the highest-rated institutions.
At December 31, 1996, the Company and the Bank
exceeded their regulatory capital ratios, as set
forth in the
following table.
Analysis of Capital
Company
Bank
Required
Minimums
Tier 1 risk-based capital ratio
32.3%
31.5%
4.0%
Total risk-based capital ratio
33.5%
32.8%
8.0%
Tier 1 leverage ratio
15.8%
15.4%
3.0%
Accounting Rule Changes
During 1996 the FASB issued SFAS 125,
Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of
Liabilities. Many of its provisions become
effective in 1997. SFAS 125 defines when assets
are
transferred or debt is extinguished. Generally,
transfers are recognized when the transferee no
longer has control over the assets. The Company
adopted SFAS 125 as of January 1, 1997.
Management does not expect the adoption of SFAS
125
to have a material adverse impact on the Company's
financial position or results of operations.
Impact of Inflation
Unlike most industrial companies, the
assets and liabilities of financial institutions
such as the Company and the Bank are primarily
monetary in nature. Therefore, interest rates
have a more significant effect on the Company's
performance than do the effects of changes in the
general rate of inflation and change in prices.
In addition, interest rates do not necessarily
move in the same direction or in the same
magnitude as the prices of goods and services. As
discussed previously, management seeks to manage
the relationships between interest sensitive
assets and liabilities in order to protect against
wide interest rate fluctuations, including those
resulting from inflation. See "Liquidity and
Interest Rate Sensitivity" above.
Industry Developments
Certain recently enacted and proposed
legislation could have an effect on both the costs
of doing business and
the competitive factors facing the financial
institution industry. The Company is unable at
this time to assess the impact of this legislation
on its financial condition or results of
operations.
MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Articles of Incorporation authorize
it to issue up to 2,000,000 shares of the Common
Stock.
As of March 4, 1997, there were approximately 522
holders of record of the Common Stock and 810,000
shares of
Common Stock issued and outstanding. There is no
established public trading market in the stock,
and there is no likelihood that a trading market
will develop in the near future. The development
of a trading market may be inhibited because a
large portion of the Company's shares is held by
insiders. Transactions in the Common Stock are
infrequent
and are negotiated privately between the persons
involved in those transactions.
All outstanding shares of Common Stock of
the Company are entitled to share equally in
dividends from funds legally available, when, as,
and if declared by the Board of Directors. The
Company paid dividends of $1.00 per share in
1995, and $2.10 per share in 1996. The 1996
dividend included a special dividend of $1.00 per
share that is not expected to be an annual event.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting
policies reflected in the financial statements
conform to generally accepted accounting
principles and to general practices within the
banking industry.
Calvin B. Taylor Bankshares, Inc.
is a bank holding company. Its subsidiary, Calvin
B. Taylor Banking Company, is a financial
institution operating primarily in Worcester
County. The Bank offers deposit services and
loans to individuals, small businesses,
associations and government entities. Other
services include direct deposit of payroll and
social security checks, automatic drafts from
accounts, automated teller machine services, safe
deposit boxes, money orders and travelers cheques.
The Bank also offers credit card services and
discount brokerage services through
correspondents.
The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date
of the financial statements. These estimates and
assumptions may affect the reported amounts of
revenues and expenses during the reporting period.
Actual
results could differ from these estimates.
Principles of consolidation
The consolidated financial
statements of Calvin B. Taylor Bankshares, Inc.
include the accounts of its wholly owned
subsidiary, Calvin B. Taylor Banking Company.
Intercompany accounts and transactions have
been eliminated. Capital accounts for 1994 and
1995 have been restated to conform with 1996
presentation,
showing the capitalization of the holding company.
Cash equivalents
For purposes of reporting cash
flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold,
and overnight securities purchased under
agreements to resell. Federal funds are purchased
and sold for one-day periods.
Investment securities
As securities are purchased,
management determines if the securities should be
classified as held to
maturity or available for sale. Securities which
management has the intent and ability to hold to
maturity are recorded at amortized cost which is
cost adjusted for amortization of premiums and
accretion of discounts to maturity. During 1995,
the Financial Accounting Standards Board (FASB)
provided a one-time opportunity to
transfer securities between classifications. All
securities classified as available-for-sale were
transferred from
the held-to-maturity classification.
Gains and losses on disposal are
determined using the specific-identification
method.
Premises and equipment
Bank premises and equipment are
recorded at cost less accumulated depreciation.
Depreciation is
computed under both straight-line and accelerated
methods over the estimated useful lives of the
assets.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(Continued)
Intangible assets
Intangible assets are amortized
over their useful lives using the straight-line
method.
Loans and allowance for credit losses
Interest on loans is credited to
income based on the principal amounts outstanding.
The accrual of interest is discontinued when
circumstances indicate that collection is
questionable. Loan origination costs have been
measured by management and determined to be
immaterial.
The allowance for credit losses is
maintained at a level deemed appropriate by
management to provide adequately for known and
inherent risks in the loan portfolio. The
allowance is based upon a continuing review
of past loan loss experience, current economic
conditions which may affect the borrowers' ability
to pay, and the underlying collateral value of the
loans. If the current economy or real estate
market were to suffer a severe downturn, the
estimate for uncollectible accounts would need to
be increased. Loans which are deemed to be
uncollectible are charged off and deducted from
the allowance. The provision for credit losses
and recoveries on loans previously charged off are
added to the allowance.
Management classifies loans as
impaired when the collection of contractual
obligations, including principal and interest, is
doubtful.
Income taxes
The provision for income taxes
includes taxes payable for the current year and
deferred income taxes. Deferred income taxes are
provided for the temporary differences between
financial and taxable income.
Per share data
Earnings per common share and
dividends per common share are determined by
dividing net income and dividends by the 810,000
shares outstanding after giving retroactive effect
to stock dividends.
2. Cash and Equivalents
The Bank normally carries balances
with other banks that exceed the federally insured
limit. The average balances carried in excess of
the limit, including unsecured federal funds sold
to the same banks, were
$24,057,839 for 1996, $17,812,744 for 1995, and
$28,971,863 for 1994.
Banks are required to carry
noninterest-bearing cash reserves at specified
percentages of deposit balances. The Bank's
normal amount of cash on hand and on deposit with
other banks is sufficient to satisfy the
reserve requirements.
3. Lines of Credit
The Bank has available lines of
credit, including overnight federal funds, reverse
repurchase agreements and letters of credit,
totaling $15,000,000, as of December 31, 1996,
1995, and 1994.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
4. Investment Securities
Investment securities are
summarized as follows:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
4. Investment Securities (Continued)
The amortized cost and estimated
market value of debt securities, by contractual
maturity and the amount of pledged securities,
follow. Actual maturities may differ from
contractual maturities because borrowers may
have the right to call or prepay obligations with
or without call or prepayment penalties.
Investments are pledged to secure
deposits of federal and local governments.
Securities with an amortized cost
of $50,000 were sold from the held-to-maturity
portfolio during 1995 because they did not conform
to the Bank's investment policy.
5. Loans and Allowance for Credit
Losses
Major classifications of
loans are as follows:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses
(Continued)
The rate repricing distribution of
the loan portfolio follows:
Outstanding loan commitments and
letters of credit are as follows:
Loan commitments are agreements to
lend to customers as long as there is no violation
of any conditions of the contracts. Loan
commitments generally have interest at current
market rates, fixed expiration dates, and
may require payment of a fee.
Letters of credit are commitments
issued to guarantee the performance of a customer
to a third party.
Loan commitments and letters of
credit are made on the same terms, including
collateral, as outstanding loans. The Bank's
exposure to credit loss in the event of
nonperformance by the borrower is represented by
the contract amount of the commitment. Management
is not aware of any accounting loss the Bank will
incur by the
funding of these commitments.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses
(Continued)
The Bank makes loans to customers located
primarily in the Delmarva region. Although the
loan portfolio is diversified, its performance
will be influenced by the economy of the region.
Transactions in the allowance for
credit losses were as follows:
Amounts past due 90 days or more,
and still accruing interest, and nonaccrual loans
are as follows:
Management has identified no impaired
loans at December 31, 1996 and 1995.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
6. Intangibles
A summary of intangible assets and
the related amortization is as follows:
7. Premises and Equipment
A summary of premises and equipment
and the related depreciation is as follows:
The Bank leases data processing
equipment under a capital lease expiring in 1998.
The assets under the lease are recorded at the
present value of the minimum lease payments at
inception less accumulated
depreciation. The liability is the present value
of remaining payments.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
7. Premises and Equipment (Continued)
Minimum future lease payments as of
December 31, 1996, including maintenance, under
the capital lease are as follows:
The interest rate on the capital
lease was imputed based on the Bank's incremental
borrowing rate at the inception of the lease.
8. Deposits
Major classifications of interest-
bearing deposits are as follows:
Included in other time deposits are
certificates of deposit of $100,000 or more with
the following maturities:
No certificates of deposit have
remaining maturities in excess of five years.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
9. Other Operating Expenses
The components of other operating
expenses follow:
10. Income Taxes
The components of income tax
expense are as follows:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
10. Income Taxes (Continued)
The components of the deferred tax
benefit are as follows:
The components of the net deferred
tax assets are as follows:
A reconciliation of the provision
for taxes on income from the statutory federal
income tax rates to the effective income tax rates
follows:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
11. Lease Commitments
The Bank leases the land on which
the Route 50 branch is located and the branch
office in South Pocomoke. Lease obligations will
require payments as follows:
The Route 50 lease provides for an
increase in rent every 12.5 years based on the
consumer price index. The lease also provides an
option to renew for a twenty-five year period
subject to the same terms at the
expiration of the initial term, August 31, 1999.
The South Pocomoke lease provides
for an increase in rent every five years based on
the consumer price index. The lease expires
January 1, 2003. All costs associated with the
properties, including real estate taxes, are
obligations of the Bank.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
12. Pension Plan
The Bank has a defined benefit
pension plan covering substantially all of the
employees. Benefits are based on years of service
and the employee's average rate of earnings for
the final five full years before retirement. The
Bank's funding policy is to contribute annually an
amount that can be deducted for income tax
purposes, determined using the projected unit
credit cost method. Assets of the plan are held
in deposit accounts and mortgage loans. The
following table sets forth the financial status of
the plan:
Net pension expense includes the
following components:
Assumptions used in the accounting
for net pension expense were:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments
The estimated fair values of the
Bank's financial instruments are summarized below.
The fair values of a significant portion of these
financial instruments are estimates derived using
present value techniques prescribed
by the FASB and may not be indicative of the net
realizable or liquidation values. The calculation
of estimated fair values is based on market
conditions at a specific point in time and may not
reflect current or future fair values.
The fair value of silver coin included with cash
is determined based on quoted market prices.
The fair value of interest-bearing
deposits with other financial institutions is
estimated based on quoted interest rates for
certificates of deposit with similar remaining
terms.
The fair values of equity
securities are determined using market quotations.
The fair values of debt securities are estimated
using a matrix that considers yield to maturity,
credit quality, and marketability.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments
(Continued)
During 1996 and 1995, the fair
value of fixed-rate loans is estimated to be the
present value of scheduled payments discounted
using interest rates currently in effect for loans
of the same class and term. The fair value
of variable-rate loans, including loans with a
demand feature, is estimated to equal the carrying
amount. The
valuation of loans is adjusted for possible loan
losses.
The fair value of interest-bearing
checking, savings, and money market deposit
accounts is equal to the carrying amount. During
1996 and 1995, the fair value of fixed-rate time
deposits is estimated based on interest
rates currently offered for deposits of similar
remaining maturities.
In 1994, the Bank did not have the
resources to calculate the fair value of fixed-
rate loans or fixed-rate time deposits.
It is not practicable to estimate
the fair value of outstanding loan commitments,
unused lines, and letters of credit.
14. Related Party Transactions
The executive officers and
directors of the Bank enter into loan transactions
with the Bank in the ordinary course of business.
The terms of these transactions are similar to the
terms provided to other borrowers entering
into similar loan transactions. A summary of the
activity of these loans follows:
At December 31, 1995 and 1994, the total amount of
such loans outstanding was $7,178,848 and
$7,379,207, respectively.
The Bank obtains legal services
from a law firm in which one of the principal
attorneys is also a member
of the Bank's board of directors. Fees charged
for these services are at similar rates charged by
unrelated law
firms for similar legal work. Amounts paid to
this related party totaled $2,183 during the year
ended December 31, 1996.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
15. Capital Standards
The Federal Reserve Board and the
Federal Deposit Insurance Corporation have adopted
risk-based capital standards for banking
organizations. These standards require ratios of
capital to assets for minimum capital adequacy and
to be classified as well capitalized under prompt
corrective action provisions. As of December 31,
1996, the capital ratios and minimum capital
requirements of the Bank are as follows:
Tier 1 capital consists of capital
stock, surplus, and undivided profits and total
capital includes a limited amount of the allowance
for credit losses. In calculating risk-weighted
assets, specified risk percentages are
applied to each category of asset and off-balance
sheet items.
Failure to meet the capital
requirements could affect the Bank's ability to
pay dividends and accept deposits and may
significantly affect the operations of the Bank.
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
16. Parent Company Financial Information
Balance sheet, statements of income
and cash flows for Calvin B. Taylor Bankshares,
Inc:
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
16. Parent Company Financial Information
(Continued)
Calvin B. Taylor Bankshares, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
17. Quarterly Results of Operations
(Unaudited)
Report of Independent Auditors
The Board of Directors and Stockholders
Calvin B. Taylor Bankshares, Inc. and Subsidiary
Berlin, Maryland
We have audited the accompanying consolidated
balance sheets of Calvin B. Taylor Bankshares,
Inc. and
Subsidiary as of December 31, 1996, 1995, and
1994, and the related statements of income,
changes in stockholders' equity, and cash flows
for the years then ended. These consolidated
financial statements are the responsibility of the
Company's management. Our responsibility is to
express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about whether
the financial statements are free of material
misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial
statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in
all material respects, the financial position of
Calvin B. Taylor Bankshares, Inc. and Subsidiary
as of December 31, 1996, 1995, and 1994, and
the results of their operations and their cash
flows for the years then ended in conformity with
generally accepted accounting principles.
Salisbury, Maryland
January 3, 1997
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Calvin B. Taylor Banking Company, a state bank
organized under the laws of the State of Maryland.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,802,923
<SECURITIES> 80,393,642
<RECEIVABLES> 151,100,135
<ALLOWANCES> 2,040,475
<INVENTORY> 0
<CURRENT-ASSETS> 1,910,951
<PP&E> 3,473,786
<DEPRECIATION> 3,496,573
<TOTAL-ASSETS> 244,640,965
<CURRENT-LIABILITIES> 243,830,965
<BONDS> 0
0
0
<COMMON> 810,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 244,640,965
<SALES> 0
<TOTAL-REVENUES> 16,820,429
<CGS> 6,093,411
<TOTAL-COSTS> 10,408,161
<OTHER-EXPENSES> 4,314,750
<LOSS-PROVISION> 193,000
<INTEREST-EXPENSE> 6,089,613
<INCOME-PRETAX> 7,010,573
<INCOME-TAX> 2,474,932
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,535,641
<EPS-PRIMARY> 5.60
<EPS-DILUTED> 5.60
</TABLE>
