SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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: $18,258,544.
The aggregate market value of the Common Stock held by non-affiliates
of the small business issuer on December 31, 1997, was $56,700,000. This
calculation is based upon an estimation by the Company's Board of Directors
of fair market value of the Common Stock of $70 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.
The Company is filing delinquent Forms 10-SB, Form 3, and Schedule 13D. The
aformentioned forms and schedules are for Directors, Officers, and beneficial
owners of the company, and 5% owners the Company's outstanding Common Stock.
On March 4, 1998, 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, 1997, 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 13, 1998, is incorporated by reference in this
Form 10-KSB in Part III, Item 9, Item 10, Item 11, and Item 12.
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These statements appear in a number
of places in this Report and include all statements regarding the intent,
belief or current expectations of the Company, its directors, or its officers
with respect to, among other things: (i) the Company's financing plans; (ii)
trends affecting the Company's financial condition or results of operations;
(iii) the Company's growth strategy and operating strategy; and (iv) the
declaration and payment of dividends. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a result
of various factors discussed herein and those factors discussed in detail in
the Company's filings with the Securities and Exchange Commission.
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,
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 nonbanking 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. The largest
Industrial employers are Perdue Farms and Hudson Farms.
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 dependable 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, 1997, there were six other commercial banks and two
savings banks operating in Worcester County, together accounting for twenty
banking offices.
Employees
As of December 31, 1997, the Bank had 95 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, 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
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 t
he 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 subsidiariesavailable 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 theFDIC 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
valueof 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 nonaffiliate 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 planning to open
a new Bank in the State of Delaware. 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
needsof 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
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
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. During 1996, the FDIC revised the range of premiums from
$.00 to $.31 per $100 in deposits.
The assessment rate for the Bank is currently $1,000 for each six-month
period.In addition to the FDIC assessment, banks are required to pay
an assessment to the Financial Corporation (FICO)
to service the interest on its bond obligations. For the first
semi-annual period of 1997, the FICO assessment rate was 1.30
basis points for BIF deposits. The insurance assessment will remain
at $.00 to $.31 per $100 in deposits through June, 1998.
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 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
minimums. The current guidelines require all bank holding companies
and federally regulated banks to maintain a minimum risk-based 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, 1997, 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, MD 21811 6,500
East Berlin Office 10524 Old Ocean City Boulevard, Berlin, MD 21811 1,500
20th Street Office 100 20th Street, Ocean City, MD 21842 3,100
Ocean Pines Office 11003 Cathell Road, Berlin, MD 21811 2,420
91St Street Office 9105 Coastal Highway, Ocean City, MD 21842 1,984
142nd Street Office 14200 Coastal Highway, Ocean City, MD 21842 2,545
West Ocean City Office 9923 Golf Course Road, Ocean City, MD 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 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. The Company operates one automated teller machine
which is located off premises at a local hospital.
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 1997.
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, 1997, 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, 1997, is incorporated herein by reference.
Item 7. Financial Statements
In response to this Item, the information included on pages 16
through 38 of the Company's Annual Report to Shareholders for the year
ended December 31, 1997, is incorporated herein by reference.
PART III
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
Not applicable.
Item 9. Directors and Executive Officers; Compliance with Section 16(a)
of the Exchange Act
The table below sets forth certain information about the nominees and
officers, including age, position with the Company, and position the Calvin
B. Taylor Banking Company (the "Bank), the Company's wholly owned banking
subsidiary. All of the nominees are currently directors of the Company
and the bank are nominated as directors. Each of the nominees has
been a director of the Company since its formation on October 31, 1995.
Title or Position with the
Name Age Corporation Title or Position with the Bank
James R. Bergey, Jr. 42 Director Director
James R. Bergey, Sr. 63 Senior Vice President, Senior Vice President,
Secretary and Director Manager of Ocean City
Branches, and Director
Richard L. Bunting. 68 Director Director
John H. Burbage, Jr. 54 Director Director
Reese F. Cropper, Jr. 55 President, CEO President, CEO
Director Director
Hale Harrison. 50 Director Director
Gerald T. Mason 49 Director Director
William H. Mitchell 48 Treasurer Vice President and
Cashier
Joseph E. Moore 54 Director Director
Horace D. Quillin, Sr. 69 Director Director
Michael L. Quillin, Sr. 58 Director Director
Hugh F. Wilde, Sr. 69 Director Director
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
Name and Principal Position Year Salary Bonus All Other Compensation (1)
Reese F. Cropper, Jr. - President
and Chief Executive Officer
1997 $157,300 6,642 3,325
1996 $142,509 5,720 3,153
1995 $115,623 4,818 2,299
James R. Bergey, Jr., Senior
Vice President and Secretary
1997 $113,740 4,890 1,450
1996 $102,959 4,136 1,411
1995 $ 93,640 3,760 1,432
(1) Represents benefits paid by the bank in connection with the use
of an automobile.
Directors of the Company received a fee of $440 for each board
meeting attended and $440 for each of the Bank's executive committee meetings
attended. The Company also paid a director emeriti fee of $160 for each board
meeting attended. Two directors, Richard L. Bunting and Horace D, Quillin, Sr.,
are paid by salary rather than a director's fee. Mr. Bunting and Mr. Quillin
received a salary of $33,068 each in 1997. The total fees paid by the Company to
directors, excluding Mr. Cropper, Mr. Bergey, Mr. Bunting, and Mr. Quillin,
during 1997, were $61,200.
Item 11. Security Ownership of Certain Beneficial Owners and Management
In response to this item, the information included on pages 7 through
8 of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held May 12, 1998, is incorporated herein by reference.
The table below sets forth certain information about the nominees and officers,
including age, position with the Company, and position the
Calvin B. Taylor Banking
Company (the "Bank), the Company's wholly owned banking subsidiary. All of the
nominees are currently directors of the Company and the bank are nominated as
directors. Each of the nominees has been a director of the Company since its
formation on October 31, 1995.
Title or Position with the
Name Age Corporation Title or Position with the Bank
James R. Bergey, Jr. 42 Director Director
James R. Bergey, Sr. 63 Senior Vice President Senior Vice President,
Secretary and Director Manager of Ocean City
Branches, and Director
Richard L. Bunting. 68 Director Director
John H. Burbage, Jr. 54 Director Director
Reese F. Cropper, Jr. 55 President, CEO President, CEO
Director Director
Hale Harrison. 50 Director Director
Gerald T. Mason 49 Director Director
William H. Mitchell 48 Treasurer Vice President and Cashier
Joseph E. Moore 54 Director Director
Horace D. Quillin, Sr. 69 Director Director
Michael L. Quillin, Sr. 58 Director Director
Hugh F. Wilde, Sr. 69 Director Director
Mr. James R. Bergey, Jr. was first elected as a Director of the Bank
on February 2, 1994. His current term expires May, 1998. Mr. Bergey became
a Director of the Company on October 31, 1995. Mr. Bergey is a Certified
Public Accountant and a Partner with Faw, Casson, & Co., LLP in Ocean City,
Maryland. He is also Chairman of the Board of Directors of Atlantic General
Hospital in Berlin, Maryland.
Mr. James R. Bergey, Sr. was first elected as a Director of the Bank
on February 4, 1987. His current term expires May, 1998. Mr. Bergey became
a Director, Senior Vice President, and Secretary of the Company on October
31, 1995. Mr. Bergey has been employed by the Bank since 1954.
Mr. Richard L. Bunting was first elected Director of the bank on
February 3, 1988. His current term expires May, 1998. He is also a member of t
he Bank's Executive Committee. Mr. Bunting became a Director of the Company
on October 31, 1995. He is the retired President and owner of William B.
Tilghman Co., in Pocomoke, Maryland.
Mr. John H. Burbage, Jr. was first elected as a Director of the Bank
on February 4, 1987. His current term expires May, 1998. Mr. Burbage became
a Director of the Company on October 31, 1995. Mr. Burbage is the owner
of Mystic Harbour Development Co., Mystic Harbour Utility Co., Bethany
Land Co., and Style Guide Clothing Stores.
Mr. Reese F. Cropper, Jr. has been employed by the Bank since May
1962 and was elected President in January 1974. Mr. Cropper was first elected
Director of the Bank on March 6, 1974. His current term expires May, 1998. He
is a member of the Executive Committee of the Bank. Mr. Cropper became
President, Chief executive officer, and a director of the Company on October
31, 1995. He is the past president of the Maryland Bankers Association and he
serveda six year term as a member of the Banking Board of the State of
Maryland from 1983 to 1989. Mr. Cropper is also a Director of
Atlantic General Hospital.
Mr. Hale Harrison was first elected as a Director of the Bank on January
8, 1975. His current term expires May, 1998. Mr. Harrison became a Director of
the Company on October 31, 1995. He owns and operates several motels and
restaurants in Ocean City, Maryland. Mr. Harrison serves as a member of the
board of directors and as a member of the finance committee of Atlantic General
Hospital.
Mr. Gerald T. Mason was first elected as a Director of the bank on
February 2, 1994. His current term expires May, 1998. Mr. Mason became a
Director of the Company on October 31, 1995. Mr. Mason is the Administrator
for Worcester County and serves as a director of Hospice.
Mr. Joseph E. Moore was first elected Director of the Bank on November
3, 1976. His current term expires May, 1998. Mr. Moore became a Director of the
Company on October 31, 1995. Mr. Moore is a Partner at the law firm Williams,
Hammond, Moore, Shockley & Harrison, P.A. He is the Chairman of the Berlin
Board of Zoning Appeals and a member of the board of directors at Atlantic
General Hospital.
Mr. Horace D. Quillin, Sr. was first elected as Director of the Bank
on August 2, 1972. His current term expires May, 1998. Mr. Quillin became
a Director of the Company on October 31, 1995. He is the Chairman of the
Executive Committee. He is the retired owner and operator of Berlin Ice
Company in Berlin, Maryland.
Mr. Michael L. Quillin, Sr. was first elected Director of the Bank on
December 6, 1978. His current term expires May, 1998. Mr. Quillin became a
Director of the Company on October 31, 1995. Mr. Quillin owns and operates
several motels in Ocean City, Maryland. He is a director and treasurer of the
Quillin Foundation. Mr. Quillin is also a member of the Ocean City Chamber
of Commerce.
Mr. Hugh F. Wilde. Sr. Was first elected as a Director of the Bank
on December 12, 1967. His current term expires May, 1998. Mr. Wilde became
a Director of the Company on October 31, 1995. He is the President of the
Executive Corporation and a Partner in W.I.I. Ltd. Partnership.
Mr. Wilde operatesa motel in Ocean City, Maryland and is a
member of the ocean City Chamber of Commerce.
Mr. William H. Mitchell has been employed by the Bank since June
1970. He became Vice President of the Bank on February 3, 1988. Mr. Mitchell
became Cashier of the Bank on February 5, 1986. He became Treasurer of the
Corporation on October 31, 1995.
Item 12. Certain Relationships and Related Transactions
In response to this item, the information included on page 8 of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be
held May 13, 1998, is incorporated herein by reference.
There are two sets of directors that have a family relationship. James R.
Bergey, Sr. is the father of James R. Bergey, Jr.; and Reese F.
Cropper, Jr. and Joseph E. Moore are first cousins.
None of the directors of the Company and the Bank have been
involved in any administrative or criminal proceedings. Mr. Mitchell has not
been involved in any administrative or criminal proceedings.
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 for the year ended December 31, 1997.
- Additional disclosures
13 (a) Annual Report to Shareholders for the year ended December 31, 1997
Calvin B. Taylor Bankshares, Inc.
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, 1997.
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:
EXHIBIT 13
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1997
Calvin B. Taylor Bankshares, Inc.
1997 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 underthe 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,
travellers 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 1997 net income was $4,934,903, compared to $4,535,641
for 1996. The Company continued its history of above average earnings with
a return on equity of 11.90% and return on assets of 1.99% for 1997, compared
to returns of 11.71% and 1.87% for 1996.
Results of Operations
The Company reported net income of $4,934,903, or $6.09 per share,
for the year ended December 31, 1997, which was an increase of $399,262, or
8.80%, over the net income of $4,535,641, or $5.60 per share, for the year
ended December 31, 1996. The primary reason for the change in profitability
is the increase in net interest income.
Net interest income increased $737,565, or 6.88%, to $11,464,583 in
1997, from $10,727,018 in 1996. This increase in net interest income was the
result of an increase in interest revenue of $611,837 and a decrease in
interest expense of $125,728. The yield on interest-earning assets increased
to 7.60% in 1997, from 7.53% in 1996, while the combined yield on deposits and
borrowed funds decreased to 2.90% from 3.01% for the same period.
Net interest income increased primarily because the balance of
interest-earningassets grew faster than the
balance of deposits and borrowed funds. A secondary cause of the increase
in net interest income is the decline in the cost of funds.
The provision for loan losses was $50,000 in 1997, a decrease of
$143,000 from the $193,000 provision in 1996. The decreased provision is
the result of a $1,839 decrease in net charge-offs for 1997, while the loan
portfolio growth slowed during 1997. During 1997, the Company had net
charge-offs of $9,677 which was .01% of average loans while during 1996
there were net charge-offs of $11,516.
Both noninterest income and noninterest expense changed by less
than 8.00% during 1997, compared to 1996. 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 1997 and 1996, 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 1997, was
5.03% compared to 4.84% for 1996. 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 arebased 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.
Average Balances, Interest, and Yields
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996
Avg. balance Interest Yield Avg. balance Interest Yield
Assets
Federal funds sold and
securities sold
under repurchase
agreements $21,772,942 $1,213,039 5.57% $23,969,126 $1,259,685 5.26%
Interest bearing
deposits 1,243,208 69,397 5.58% 1,704,150 95,268 5.59%
Investment
securities:
U. S. Treasury 47,767,048 2,856,937 5.98% 43,711,492 2,583,671 5.91%
State and municipal 11,991,438 706,528 5.89% 13,903,680 801,909 5.77%
Other 249,030 20,000 8.03% 239,800 17,511 7.30%
Total investment
securities 60,007,516 3,583,465 5.97% 57,854,972 3,403,091 5.88%
Loans:
Commercial 15,039,707 1,272,668 8.46% 15,633,923 1,367,904 8.75%
Mortgage 131,512,234 11,012,492 8.37% 124,541,433 10,420,312 8.37%
Consumer 5,010,982 510,500 10.19% 5,093,110 530,990 10.43%
Total loans 151,562,923 12,795,660 8.44% 145,268,466 12,319,206 8.48%
Allowance for
loan losses 2,053,552 1,882,458
Total loans, net
of allowance 149,509,371 12,795,660 8.56% 143,386,008 12,319,206 8.59%
Total interest-
earning assets 232,533,037 17,661,561 7.60% 226,914,256 17,077,250 7.53%
Noninterest-bearing
cash 9,997,110 - 10,031,886 -
Premises & equipment 3,967,373 - 3,526,237 -
Other assets 1,839,672 - 1,776,380 -
Total assets $ 248,337,192 17,661,561 $ 242,248,759 17,077,250
Liabilities and Stockholders' Equity
Interest-bearing
Deposits Savings
and NOW deposits $ 53,793,965 1,389,996 2.58% 52,217,712 1,360,659 2.61%
Money market
and supernow 55,012,180 1,497,011 2.72% 53,398,291 1,486,936 2.78%
Other time deposits 62,944,109 3,078,856 4.89% 63,458,397 3,242,018 5.11%
Total interest-
bearing deposits 171,750,254 5,965,863 3.47% 169,074,400 6,089,613 3.60%
Borrowed funds 80,743 1,820 2.25% 135,884 3,798 2.80%
Total interest-
bearing liabilities 171,830,997 5,967,683 3.47% 169,210,284 6,089,613 3.60%
Noninterest-bearing
deposits 34,304,946 - 33,499,139 -
206,135,943 5,967,683 202,709,423 6,093,411
Other liabilities 738,550 - 820,691 -
Stockholders'
equity 41,462,699 - 38,718,645 -
Total liabilities
and
stockholders'
equity $ 248,337,192 5,967,683 242,248,759 6,093,411
Net interest spread 4.13% 3.93%
Net interest income 11,693,878 10,983,839
Net margin on
interest-earning
assets 5.03% 4.84%
Interest on tax-exempt securities, including dividends, are reported
on fully taxable equivalent basis.
Analysis of Changes in Net Interest Income
Year ended December 31, Year ended December 31,
1997 compared with 1996 1996 compared with 1995
variance due to variance due to
Total Rate Volume Total Rate Volume
Earning assets
Interest bearing
deposits $(25,871) (104) (25,767) $(19,813) 4,324 (24,137)
Federal funds
sold (46,646) 68,873 (115,519) 142,948 (86,922) 229,870
Investment
securities:
U. S. Treasury 273,266 33,583 239,683 (51,095) 61,263 (112,358)
U. S. Agency (95,381) 14,955 (110,336) 157,715 (1,457) 159,172
Other 2,489 1,815 674 4,905 3,683 1,222
Loans:
Demand and time (95,236)(43,242) (51,994) 198,482 3,412 195,070
Mortgage 592,180 8,724 583,456 528,199 (10,752) 538,951
Installment (20,490)(11,924) (8,566) (18,433) 4,753 (23,186)
Total interest
revenue 584,311 72,680 511,631 942,908 (21,696) 964,604
Interest-bearing liabilities
Savings and NOW
deposits 29,337 (11,803) 41,140 (62,047)(105,360) 43,313
Money market
and supernow 10,075 (34,791) 44,866 (99,684) (65,391) (34,293)
Other time
deposits (163,162)(136,882) (26,280) 477,137 125,456 351,681
Other borrowed
funds (1,978) (434) (1,544) (2,007) (162) (1,845)
Total interest
expense (125,728)(183,910) 58,182 313,399 (45,457) 358,856
Net interest
income $ 710,03 256,590 453,449 629,509 23,761 605,748
Interest on tax-exempt securities, including dividends, are reported
on fully taxable equivalent basis.
The variance that is both rate/volume related is reported with
the rate variance.
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 $149,509,371 and $143,386,008 during 1997 and 1996,
respectively, which constituted 64.30% and 63.19% of average
interest-earning assets for the periods. At December 31, 1997, the
Company's loan to deposit ratio was 71.18% compared to 72.96% at
December 31, 1996, while the 1997 average loans to average deposits
were 72.56%. 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.
Compositon of Loan Portfolio
December 31,
1997 1996
Percent Percent
Amount of total Amount of total
Commercial $ 13,237,003 8.87% 16,481,935 10.91%
Real estate 129,549,396 86.79% 127,381,520 84.30%
Construction 1,372,853 0.92% 2,277,132 1.51%
Consumer 5,112,378 3.42% 4,959,548 3.48%
Total loans 149,271,630 100.00% 151,100,135 100.00%
Less allowance
for credit losses 2,080,798 2,040,475
Net loans 147,190,832 149,059,660
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
December 31, 1997
Over one
One year through Over five
or less five years years Total
Commercial $ 13,237,003 - - 13,237,003
Real estate 129,549,396 - - 129,549,396
Construction 1,372,853 - - 1,372,853
Consumer 436,889 4,122,176 553,313 5,112,378
Total 144,596,141 4,122,176 553,313 149,271,630
Fixed interest
rate $ 436,889 4,122,176 553,313 5,112,378
Variable interest
rate (demand) 144,159,252 - - 144,159,252
Total 144,596,141 4,122,176 553,313 149,271,630
As of December 31, 1997, $144,159,252, or 96.58%, of the total
loans were either variable arte loans or loans written on demand.
The Company has the following commitments, lines of credit, and
letters of credit outstanding as of December 31, 1997 and 1996, respectively.
1997 1996
Construction loans $ 2,616,516 $ 6,948,259
Other loan commitments 1,981,942 4,500,515
Standby letters of credit 1,119,080 1,162,117
Total $ 5,717,538 $ 12,610,891
The following table sets forth the composition of the Company's
loan portfolio as of December 31, 1997 and
1996, respectively.
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
the 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, 1997 and 1996, 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, 1997 and 1996, the respective allowance for
loan losses were 1.39% and 1.35% of outstanding loans.
Allocation of Allowance for Loan Losses
1997 1996
Commercial 135,128 6.49% 191,819 9.40%
Real estate 749,644 36.03% 665,194 32.60%
Construction 5,491 0.26% 9,109 0.45%
Consumer 158,785 7.63% 159,296 7.81%
Commitments 22,992 1.10% 57,244 2.81%
General 1,008,758 48.49% 957,813 46.93%
Total $ 2,080,798 100.00% $ 2,040,475 100.00%
Allowance for Loan Losses
1997 1996
Balance at beginning
of year $ 2,040,475 $ 1,858,991
Loan losses:
Commercial - 196
Mortgages 13,701 4,694
Consumer 4,854 18,105
Total loan losses 18,555 22,995
Recoveries on loans
previously charged off:
Commercial 198 425
Consumer 8,680 11,054
Total loan recoveries 8,878 11,479
Net loan losses 9,677 11,516
Provision for loan losses
charged to expense 50,000 193,000
Balance at end of year $ 2,080,798 $ 2,040,475
Allowance for loan losses
to loans outstanding
at end of year 1.39% 1.35%
Net charge-offs to
average loans 0.01% 0.01%
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
nonaccrualeven though the presence of collateral or the borrower's
financial strength may be sufficient toprovide for ultimate repayment.
Interest on nonaccrualloans 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 no nonperforming loans at December 31, 1997, while
year-end 1996 nonperforming loans totaled $67,194. 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, 1997 or 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
45.14% of average deposits for 1997, compared to 46.19% for 1996.
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, 1997, 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
December 31, 1997
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 20,207,703 $ - $ - $ - $ 20,207,703
Interest-bearing
deposits 100,000 935,000 194,000 - 1,229,000
Investment
securities 18,330,186 22,310,552 22,608,522 2,310,000 65,559,260
Loans 144,214,543 381,598 4,122,176 553,313 149,271,630
Total earning
assets $ 182,852,432 23,627,150 26,924,698 2,863,313 236,267,593
Liabilities
Interest-bearing
liabilities:
Money market 55,482,239 - - - 55,482,239
Savings and
NOW deposits 55,214,983 - - - 55,214,983
Certificates
$100,000 and
over 1,490,525 5,653,695 1,203,917 - 8,348,137
Certificates
under $100,000 17,566,176 27,644,757 9,443,318 - 54,654,251
Total
interest-bearing
liabilities 129,753,923 33,298,452 10,647,235 - 173,699,610
Period gap 53,098,509 (9,671,302) 16,277,463 2,863,313 62,567,983
Cumulative
gap 53,098,509 43,427,207 59,704,670 62,567,983 62,567,983
Ratio of
cumulative gap
to total earning
assets 22.47% 18.38% 25.27% 26.48% 26.48%
The table "Investment Securities Maturity Distribution and Yields" shows that
as of December 31, 1997, $40,640,738 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, 1997,
was $15,000,000.
Investment Security Maturity Distribution and Yields
1997 1996
Year-end Year-end
tax equivalent tax equivalent
Book value yields Book value yields
U.S. Treasury
securities:
One year or less $ 34,909,733 5.76% $ 21,739,065 5.56%
Over one
through five 18,980,412 6.00% 25,452,039 6.12%
Over ten years 2,310,000 7.29% 2,125,000 7.29%
Total U.S. Treasury
securities 56,200,145 5.90% 49,316,104 5.92%
State, county, and
municipal
securities:
One year or less 5,731,005 5.74% 7,843,837 5.75%
Over one through
five 3,628,110 6.10% 7,575,301 6.14%
Over ten years - - % - - %
Total state, county,
and municipal
securities 9,359,115 5.88% 15,419,138 5.94%
Total investment
securities:
One year or less 40,640,738 5.75% 29,582,902 5.61%
Over one
through five 22,608,522 6.02% 33,027,340 6.12%
Over ten years 2,310,000 7.29% 2,125,000 7.29%
Total debt
securities 65,559,260 5.90% 64,735,242 5.92%
Equity securities 263,450 8.03% 235,400 8.33%
Total securities $ 65,822,710 5.91% $ 64,970,642 5.93%
Yields are calculated based on amortized cost.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing liabilities increased $2,620,713, or
1.55%, to $171,830,997 in 1997, from $169,210,284 in 1996.
Average interest-bearing deposits increased $2,675,404, or 1.58%,
1997. to $171,750,254 in 1997, from $169,074,400 in 1996, while
average demand deposits increased $805,807, or 2.41% to $34,304,946 in 1997,
from $33,499,139 in 1996. A December 31, 1997, total deposits were $206,793,198
, compared to $204,297,806 at December 31, 1996, an increase of 1.22%.
The following table sets forth the deposits of the Company by
category as of December 31, 1997 and 1996, respectively.
December 31,
1997 1996
Percent of Percent of
Amount deposits Amount deposits
Demand deposit
accounts 33,093,588 16.00% 31,837,470 15.58%
NOW accounts 23,836,816 11.53% 23,873,331 11.69%
Money market
and Supernow
accounts 55,482,239 26.83% 53,907,865 26.39%
Savings
accounts 31,378,167 15.17% 30,003,012 14.69%
Time deposits
less than
$100,000 54,654,251 26.43% 55,270,915 27.05%
Time deposits
of $100,000
or more 8,348,137 4.04% 9,405,213 4.60%
Total deposits 206,793,198 100.00% 204,297,806 100.00%
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 increased
$3,552,468 during 1997. 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, 1997, is shown in the following table.
December 31, 1997
After six
After three through After
Within three through twelve twelve
months six months months months Total
Certificates
ofdeposit
of $100,000
or more $ 1,490,525 $ 5,653,695 $ 1,203,917 - $ 8,348,137
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
expensiveand 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 1997 was $853,278, compared to noninterest
income in 1996 of $791,305, an increase of $61,973, or 7.83%. The Bank has
restructured its credit card merchant fees which resulted in an increased in
credit card income of $18,115. Service charges on deposits have grown with the
growth in deposits while the Bank has implemented only a modest increase
in the fee schedule.
The following table presents the principal components of noninterest
income for the years ended December 31, 1997 and 1996, respectively.
Noninterest Income
1997 1996
Serivice charges on
deposit accounts $ 607,647 $ 567,154
Other noninterest
revenue 245,631 224,151
Total noninterest
income $ 853,278 $ 791,305
Noninterest income as
a percentage of average
total assets 0.34% 0.33%
Noninterest Expense
Noninterest expense increased by $325,286, or 7.54%, from $4,314,750
in 1996 to $4,640,036 in 1997. Increased personnel costs were due primarily to
annual raises. Other operating expenses have increased with the growth in
deposits and loans and as general prices have increased.
The Company has plans to open a second bank in Delaware during the first
half of 1998. 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, 1997 and 1996, respectively.
Noninterest Expense
1997 1996
Compensation and related expenses 2,757,865 2,573,228
Occupancy expense 366,170 363,175
Furniture and equipment expense 450,593 417,582
Amortization of intangible assets 18,249 18,368
Advertising 117,356 124,635
Courier service 66,615 66,910
Deposit insurance 31,666 2,000
Director fees 64,352 61,200
Dues, donations, and subscriptions 58,658 41,384
Freight 47,145 28,604
Liability insurance 56,172 52,068
Postage 150,210 153,123
Professional fees 63,194 53,864
Stationery and supplies 163,105 139,428
Telephone 61,145 65,388
Teller machine fees 65,207 53,197
Miscellaneous 102,334 100,596
Total noninterest expense $ 4,640,036 $ 4,314,750
Noninterest expense as a
percentage of average
total assets 1.87% 1.78%
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 maintaina 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, 1997, the Company and the Bank exceeded their
regulatory capital ratios, as set forth in the following table.
Analysis of Capital
Analysis of Capital
Required 1997 1996
Minimums Company Bank Company Bank
Total risk-based
capital ratio 8.0% 36.1% 32.5% 33.6% 32.8%
Tier I risk-based
capital ratio 4.0% 34.9% 31.2% 32.3% 31.5%
Tier I
leverage ratio 3.0% 16.7% 14.8% 15.8% 15.4%
Accounting Rule Changes
FASB Statement No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities requires recognition of
financial and servicing assets an entity controls and the liabilities it has
incurred after a transfer has occurred. The Statement was effective for
transfers occurring after December 31, 1996.
FASB Statement No. 128, Earnings Per Share replaces the presentation
of primary earnings per share with a presentation of basic earnings per share.
It also requires a dual presentation of basic and diluted earnings per share
on the face of the income statement. It is effective for financial
statements issued for periods ending after December 15, 1997. Because of the
noncomplex capital structure of the Company, this pronouncement did not
change the earnings per share presentation.
FASB Statement No. 129, Disclosure of Information about Capital
Structure establishes standards for disclosing information about an entity's
capital structure, including dividend and liquidation preferences, participation
rights and any unusual voting rights. It is effective for financial
statements for periods ending after December 15, 1997. There were no changes
to the Bank's financial statements as a result of this new standard.
FASB Statement No. 130, Reporting Comprehensive Income requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements.
Comprehensive income of the Bank would include unrealized gains and losses on
securities available for sale, net of tax. This Statement is effective for
financial statements for periods beginning after December 15, 1997.
FASB Statement No. 131, Disclosures about Segments of an Enterprise
and Related Information requires that a public company report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by management in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. This Statement is effective for financial statements
for periods beginning after December 15, 1997.
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.
Year 2000 Issues
The Company anticipates replacing its in-house computer system by the
first quarter of 1999. It will only invest in hardware and software that
will operate effectively through and past the year 2000 (y2k). The current
hardware and software vendors have made changes to get their computers and
programs year 2000 compliant. In addition to its mainframe, the Company has
numerous portable computers. It is in the process of accessing which
computers and programs will need to be replaced before the end of 1999.
Because the Bank routinely upgrades its computers, the cost to replace old
machines and software is not expected to exceed the normal replacement costs
for the next two years. The largest y2k exposure to most banks is the
preparedness of its customers. Management is addressing with its customers
the possible consequences of not being prepared for y2k.
Should large borrowers not sufficiently address this area, the Company may
experience an increase in loan defaults. The amount of potential loss from
this issue is not quantifiable. Management is reducing its exposure to these
losses by educating its customers.
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 February 24, 1998, there were approximately 595 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 $2.70 per
share in 1997, and $2.10 per share in 1996. During both 1997 and 1996, the
Company paid a special midyear dividend of $1.00 per share that is not expected
to be an annual event.
EXHIBIT 13 (a)
Annual Report to the Shareholders
for the Year ending December 31, 1997
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Table of Contents
Page
Report of Independent Auditors 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes 4
in Stockholder's Equity
Consolidated Statements of 5-6
Cash Flows
Notes to Consolidated Financial 7-24
Statements
Report of Independent Auditors
The Board of Directors and Stockholders
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Berlin, Maryland
We have audited the accompanying consolidated balance sheets of Calvin B.
Taylor Bankshares, Inc. and Subsidiaries as of December 31, 1997, 1996, and
1995, 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 Subsidiaries as of December 31, 1997, 1996, and 1995,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Rowles & Company, LLP
Rowles & Company, LLP
Salisbury, Maryland
January 5, 1998
Consolidated Balance Sheets
December 31,
1997 1996 1995
Assets
Cash and due from banks $ 9,150,979 $ 9,802,923 $ 11,028,482
Federal funds sold and
securities purchased under
agreements to resell 20,207,703 14,000,000 31,000,000
Interest-bearing deposits 1,229,000 1,423,000 2,009,000
Investment securities
available for sale 2,573,450 2,360,400 2,517,530
Investment securities
held to maturity
(approximate market value
of $63,457,503,
62,789,427, and $53,408,540) 63,249,260 62,610,242 53,207,744
Loans, less allowance for credit
losses of $2,080,798,
$2,040,475, and $1,858,991 147,190,832 149,059,660 136,319,638
Premises and equipment 4,152,389 3,473,786 3,393,761
Accrued interest income 1,790,423 1,626,619 1,450,219
Intangible assets 107,476 66,812 15,552
Deferred income taxes 104,061 154,323 28,103
Other assets 137,039 63,200 74,431
$ 249,892,612 $ 244,640,965 $ 241,044,460
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 33,093,588 $ 31,837,470 $ 40,938,084
Interest-bearing 173,699,610 172,460,336 161,902,004
206,793,198 204,297,806 202,840,088
Accrued interest payable 433,344 428,451 456,222
Accrued income taxes 21,527 81,197 589,913
Obligation under capital lease 61,720 126,611 193,511
Other liabilities 5,806 7,827 3,649
207,315,595 204,941,892 204,083,383
Stockholders' equity
Common stock, par value $1
per share; authorized
2,000,000 shares; issued
and outstanding 810,000
shares 810,000 810,000 810,000
Surplus 17,290,000 17,290,000 17,290,000
Retained earnings 24,120,666 21,372,763 18,538,122
42,220,666 39,472,763 36,638,122
Net unrealized gain on
securities available for sale 356,351 226,310 322,955
42,577,017 39,699,073 36,961,077
$ 249,892,612 $ 244,640,965 $ 241,044,460
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and subsidiaries
Consolidated Statements of Income
Years Ended December 31,
1997 1996 1995
Interest and dividend revenue
Loans, including fees $ 12,793,350 $ 12,314,677 $ 11,610,958
U. S. Treasury securities 2,856,937 2,583,671 2,634,766
State and municipal securities 486,343 554,258 444,412
Federal funds sold and
securities purchased under
agreements to resell 1,213,039 1,259,685 1,116,737
Time certificates of deposit 69,397 95,268 115,081
Equity securities 13,200 12,870 12,606
Total interest and
dividend revenue 17,432,266 16,820,429 15,934,560
Interest expense
Deposit interest 5,965,863 6,089,613 5,774,207
Other 1,820 3,798 5,805
Total interest expense 5,967,683 6,093,411 5,780,012
Net interest income 11,464,583 10,727,018 10,154,548
Provision for credit losses 50,000 193,000 60,000
Net interest income
after provision 11,414,583 10,534,018 10,094,548
for credit losses
Other operating revenue
Service charges on deposit
accounts 607,647 567,154 540,182
Other noninterest revenue 245,631 224,151 217,053
Total other operating revenue 853,278 791,305 757,235
Other expenses
Salaries 2,291,375 2,109,328 1,998,463
Employee benefits 466,490 463,900 417,972
Occupancy 366,170 363,175 354,992
Furniture and equipment 450,593 417,582 426,095
Other operating 1,065,408 960,765 1,157,559
Total other expenses 4,640,036 4,314,750 4,355,081
Income before income taxes 7,627,825 7,010,573 6,496,702
Income taxes 2,692,922 2,474,932 2,376,787
Net income $ 4,934,903 $ 4,535,641 $ 4,119,915
Earnings per common share $ 6.09 $ 5.60 $ 5.09
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Unrealized
Common stock Undivided gain on
Shares Par value Surplus profits securities
Balance, December 31, 1994 810,000 $810,000 17,290,000 5,228,207 -
Net income - - - 4,119,915 -
Cash dividend, $1.00
per share - - - (810,000) -
Change in unrealized
gain on securities - - - - 322,955
Balance, December 31, 1995 810,000 810,000 17,290,000 18,538,122 322,955
Net income - - - 4,535,641 -
Cash dividend, $2.10
per share - - - (1,701,000) -
Change in unrealized
gain on securities - - - - (96,645)
Balance, December 31, 1996 810,000 810,000 17,290,000 21,372,763 226,310
Net income - - - 4,934,903 -
Cash dividend, $2.70 per share - - - (2,187,000) -
Change in unrealized gain - - - - 130,041
on securities
Balance, December 31, 1997 810,000 810,000 17,290,000 24,120,666 356,351
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996 1995
Cash flows from operating activities
Interest received $ 16,835,399 $ 16,187,302 $ 15,262,895
Fees and commissions received 856,139 761,379 691,058
Interest paid (5,962,790) (6,121,182) (5,624,996)
Cash paid to suppliers
and employees (4,297,300) (3,979,974) (4,005,200)
Income taxes paid (2,885,011) (3,049,058) (1,907,237)
4,546,437 3,798,467 4,416,520
Cash flows from investing activities
Proceeds from maturities 33,192,000 43,555,000 35,334,183
of investment securities
Purchase of investment (33,399,142) (52,501,096) (24,278,134)
securities held to maturity
Certificates of deposits
purchased, net of maturities 194,000 586,000 592,000
Loans made, net of principal
collected 1,818,828 (12,933,022) (5,517,381)
Purchases of and deposits
on premises, equipment,
software, and other
intangibles (1,039,865) (437,851) (254,341)
Proceeds from sale of equipment - 17,125 -
765,821 (21,713,844) 5,876,327
Cash flows from financing activities
Net increase (decrease) in
Time deposits (1,673,740) 2,732,698 9,929,539
Other deposits 4,169,132 (1,274,980) 1,188,361
Payments on capital lease (64,891) (66,900) (67,914)
Dividends paid (2,187,000) (1,701,000) (810,000)
243,501 (310,182) 10,239,986
Net increase (decrease) in cash 5,555,759 (18,225,559) 20,532,833
and cash equivalents
Cash and cash equivalents at 23,802,923 42,028,482 21,495,649
beginning of year
Cash and cash equivalents $ 29,358,682 $ 23,802,923 $ 42,028,482
at end of year
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 31,
1997 1996 1995
Reconciliation of net income
to net cash provided by
operating activities
Net income $ 4,934,903 $ 4,535,641 $ 4,119,915
Adjustments to reconcile
net income to net cash
provided by operating activities
Depreciation and amortization 347,663 346,078 353,440
Provision for credit losses 50,000 193,000 60,000
Deferred income taxes (31,560) (65,410) (4,292)
Amortization of premiums and (433,063) (456,727) (586,404)
accretion of discounts, net
(Gain) loss on disposition
of assets - (12,287) -
Loss on security sale - - 817
Decrease (increase) in
Accrued interest receivable (163,804) (176,400) (86,895)
Other assets (100,904) (33,119) (65,360)
Increase (decrease) in
Accrued interest payable 4,893 (27,771) 155,016
Accrued income taxes (59,670) (508,716) 473,842
Other liabilities (2,021) 4,178 (3,559)
$ 4,546,437 $ 3,798,467 $ 4,416,520
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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 principal
subsidiary, Calvin B. Taylor Banking Company, is a financial institution
operating primarily in Worcester County, Maryland. 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.
Calvin B. Taylor Bankshares, Inc.'s other subsidiary, Calvin B. Taylor Bank of
Delaware, is a financial institution in the process of formation which is
expected to begin operation in Sussex County, Delaware during 1998.
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 subsidiaries, Calvin B. Taylor Banking
Company and Calvin B. Taylor Bank of Delaware.
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
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.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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 any portion of the
principal or interest is ninety days past due and collateral is insufficient
to discharge the debt in full.
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.
Loans are considered impaired when, based on current information, management
considers it unlikely that collection of principal and interest payments will be
made according to contractual terms. Generally, loans are not reviewed for
impairment until the accrual of interest has been discontinued.
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. Tax expense and tax
benefits are allocated to the banks and company based on their proportional
share of 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.
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 $21,777,954 for 1997,
$24,057,839 for 1996, and $17,812,744 for 1995.
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, 1997, 1996, and 1995.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Investment Securities
Investment securities are summarized as follows:
Amortized Unrealized Unrealized Market
December 31, 1997 cost gains losses value
Available for sale
U.S. Treasury 1,992,885 317,115 - 2,310,000
Equity - 263,450 - 263,450
1,992,885 580,565 - 2,573,450
Held to maturity
U.S. Treasury 53,890,145 175,832 3,052 54,062,925
State and municipal 9,359,115 40,321 4,858 9,394,578
63,249,260 216,153 7,910 63,457,503
December 31, 1996
Available for sale
U.S. Treasury 1,991,698 133,302 - 2,125,000
Equity - 235,400 - 235,400
1,991,698 368,702 - 2,360,400
Held to maturity
U.S. Treasury 47,191,104 160,982 19,461 47,332,625
State and municipal 15,419,138 42,037 4,373 15,456,802
62,610,242 203,019 23,834 62,789,427
December 31, 1995
Available for sale
U.S. Treasury 1,991,373 274,257 - 2,265,630
Equity - 251,900 - 251,900
1,991,373 526,157 - 2,517,530
Held to maturity
U.S. Treasury 42,879,867 221,904 52,002 43,049,769
State and municipal 10,327,877 40,505 9,611 10,358,771
53,207,744 262,409 61,613 53,408,540
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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.
December 31, 1997 December 31, 1996 December 31, 1995
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
Available for sale due
After ten years
1,992,885 2,310,000 1,991,698 2,125,000 1,991,373 2,265,630
Held to maturity due
In one year or less
40,640,738 40,725,433 29,582,902 29,606,635 36,980,277 37,050,458
After one year
through five years
22,608,522 22,732,070 33,027,340 33,182,792 15,077,563 15,233,557
After five through
ten years
- - - - 1,149,904 1,124,525
63,249,260 63,457,503 62,610,242 62,789,427 53,207,744 53,408,540
Pledged securities
5,494,785 5,531,876 6,751,564 6,920,996 6,071,589 6,165,365
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:
1997 1996 1995
Demand and time $ 13,237,003 $ 16,481,935 $ 13,701,631
Mortgage 129,549,396 127,381,520 118,210,875
Construction 1,372,853 2,277,132 1,018,052
Installment 5,112,378 4,959,548 5,248,071
149,271,630 151,100,135 138,178,629
Allowance for credit losses 2,080,798 2,040,475 1,858,991
Loans, net $ 147,190,832 $ 149,059,660 $ 136,319,638
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses (Continued)
The rate repricing distribution of the loan portfolio follows:
1997 1996 1995
Immediately $ 144,169,000 $ 145,893,311 $ 132,930,558
Within one year 427,141 734,733 504,027
Over one to five years 4,122,176 3,911,648 4,247,071
Over five years 553,313 560,443 496,973
$ 149,271,630 $ 151,100,135 $ 138,178,629
Outstanding loan commitments and letters of credit are as follows:
1997 1996 1995
Loan commitments
Construction and
land development $ 2,616,516 $ 6,948,259 $ 4,344,065
Other 1,981,942 4,500,515 2,190,300
$ 4,598,458 $ 11,448,774 $ 6,534,365
Standby letters of credit
Secured by deposits $ 1,021,080 $ 1,020,467 $ 315,045
Other 98,000 141,650 142,710
$ 1,119,080 $ 1,162,117 $ 457,755
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.
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.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses (Continued)
Transactions in the allowance for credit losses were as follows:
1997 1996 1995
Beginning balance $ 2,040,475 $ 1,858,991 $ 1,798,685
Provision charged
to operation 50,000 193,000 60,000
Recoveries 8,878 11,479 25,986
2,099,353 2,063,470 1,884,671
Loans charged off 18,555 22,995 25,680
Ending balance $ 2,080,798 $ 2,040,475 $ 1,858,991
Amounts past due 90 days or more, and still accruing interest, and nonaccrual
loans are as follows:
December 31, 1997 December 31, 1996 December 31, 1995
90 days 90 days 90 days
or more Nonaccrual or more Nonaccrual or more Nonaccrual
Demand and time 1,645 $ - $ 54,000 $ - $ 11,117 $ -
Mortgage 201,047 - 244,748 66,587 399,614 107,042
Installment 12,671 - 20,413 607 17,776 -
$ 215,363 $ - $ 319,161 $ 67,194 $ 428,507 $ 107,042
Interest not
accrued on
nonaccrual loans $ - $ 896 $ 11,008
Management has identified no impaired loans at December 31, 1997, 1996, and
1995.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
6. Intangibles
A summary of intangible assets and the related amortization is as follows:
Estimated useful life 1997 1996 1995
Computer software 3 - 5 years $ 159,388 $ 159,388 $141,678
Other acquisition
costs 3 - 25 years 1,718 1,718 1,718
Organization costs 5 years 110,831 51,918 -
271,937 213,024 143,396
Accumulated amortization 164,461 146,212 127,844
Net intangible assets $ 107,476 $ 66,812 $ 15,552
Amortization expense $ 18,249 $ 18,368 $ 8,413
7. Bank Premises and Equipment
A summary of bank premises and equipment and the related depreciation is as
follows:
Estimated useful life 1997 1996 1995
Land $ 1,882,545 $ 991,013 $ 758,857
Premises 5-50 years 3,443,345 3,437,718 3,358,437
Furniture and
equipment 5-40 years 2,294,630 2,212,325 2,154,193
Construction-in-
progress 8,610 - -
Property held under
capital lease 5 years 329,303 329,303 329,303
7,958,433 6,970,359 6,600,790
Accumulated depreciation 3,806,044 3,496,573 3,207,029
Net premises and equipment $ 4,152,389 $ 3,473,786 $ 3,393,761
Depreciation expense $ 329,414 $ 327,710 $ 345,027
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.
Minimum future lease payments as of December 31, 1997, including maintenance,
under the capital lease total $90,720, including $29,000 for the maintenance
agreement.
The interest rate on the capital lease was imputed based on the Bank's
incremental borrowing rate at the inception of the lease.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
8. Deposits
Major classifications of interest-bearing deposits are as follows:
1997 1996 1995
Money market and Supernow $ 55,482,239 $ 53,907,865 $ 50,796,846
Savings and NOW 55,214,983 53,876,343 49,161,728
Other time 63,002,388 64,676,128 61,943,430
$ 173,699,610 $ 172,460,336 $ 161,902,004
Included in other time deposits are certificates of deposit of $100,000 or more
with the following maturities:
Three months or less $ 1,490,525 $ 2,244,402 $ 1,168,771
Over three through
twelve months 5,653,695 6,110,871 4,886,481
Over one through five years 1,203,917 1,049,940 1,548,458
$ 8,348,137 $ 9,405,213 $ 7,603,710
Interest expense $ 506,234 $ 428,182 $ 250,237
No certificates of deposit have remaining maturities in excess of five years.
9. Other Operating Expenses
The components of other operating expenses follow:
1997 1996 1995
Amortization of intangible assets $ 18,249 $ 18,368 $ 8,413
Advertising 117,356 124,635 129,578
Courier service 66,615 66,910 64,814
Deposit insurance 31,666 2,000 225,546
Director fees 64,352 61,200 61,125
Dues, donations, and subscriptions 58,658 41,384 37,636
Freight 47,145 28,604 81,320
Liability insurance 56,172 52,068 47,835
Postage 150,210 153,123 138,344
Professional fees 63,194 53,864 49,914
Stationery and supplies 163,105 139,428 115,814
Telephone 61,145 65,388 55,030
Teller machine fees 65,207 53,197 45,525
Miscellaneous 102,334 100,596 96,665
$ 1,065,408 $ 960,765 $1,157,559
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes
The components of income tax expense are as follows:
1997 1996 1995
Current
Federal $ 2,346,813 $ 2,134,931 $ 1,926,206
State 377,669 405,411 454,873
2,724,482 2,540,342 2,381,079
Deferred (31,560) (65,410) (4,292)
$ 2,692,922 $ 2,474,932 $ 2,376,787
The components of the deferred tax benefit are as follows:
Provision for
credit losses $(15,574) $ (70,207) $ (23,172)
Pension expense 1,795 1,974 6,701
Depreciation (16,247) (1,351) 11,440
Discount accretion 11,470 269 3,884
Health insurance
premium deposits (13,350) - -
Nonaccrual loans 346 3,905 (3,145)
$ (31,560) $ (65,410) $ (4,292)
The components of the net deferred tax assets are as follows:
Deferred tax asset
Allowance for
credit losses $ 562,373 $ 546,799 $ 476,592
Health insurance
premium deposits 13,350 - -
Nonaccrual loans - 346 4,251
575,723 547,145 480,843
Deferred tax liabilities
Depreciation 212,282 228,529 229,880
Pension 13,973 12,178 10,204
Discount accretion 21,193 9,723 9,454
Unrealized gain on
securities available
for sale 224,214 142,392 203,202
471,662 392,822 452,740
$ 104,061 $ 154,323 $ 28,103
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes (Continued)
A reconciliation of the provision for taxes on income from the statutory
federal income tax rates to the effective income tax rates follows:
1997 1996 1995
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
Increase (decrease) in tax
rate resulting from
Tax-exempt income (1.9) (2.4) (2.1)
State income taxes net of federal 3.2 3.7 4.6
income tax benefit
Other - - 0.1
35.3% 35.3 % 36.6 %
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:
Minimum
Period rentals
1998 $ 18,162
1999 16,495
2000 13,162
2001 13,162
2002 13,162
$ 74,143
The Route 50 lease provides for an increase in rent every 121/2 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.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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:
1997 1996 1995
Accumulated benefit obligation
Vested $ 1,603,951 $ 1,433,780 $ 1,279,175
Nonvested 2,169 7,380 8,022
$ 1,606,120 $ 1,441,160 $ 1,287,197
Plan assets at fair value $ 2,219,851 $ 2,004,200 $ 1,799,123
Projected benefit obligation 2,310,520 2,080,175 1,890,146
Projected plan assets in excess (90,669) (75,975) (91,023)
of benefit obligations
Unrecognized prior service cost 70,821 80,939 91,057
Unrecognized net (gain) loss 29,610 (4,250) (8,653)
Unamortized net obligation 26,418 30,820 35,222
from transition
Prepaid pension expense $ 36,180 $ 31,534 $ 26,603
included in other assets
Net pension expense includes
the following components:
Service cost $ 82,851 $ 81,063 $ 66,172
Interest cost 143,866 130,838 119,413
Actual return on assets (180,123) (165,889) (146,874)
Amortization of unrecognized 10,118 10,118 10,118
prior service cost
Amortization of transition
obligations 4,402 4,402 4,402
Deferred loss 28,240 18,598 13,237
Net pension expense $ 89,354 $ 79,130 $ 66,468
Assumptions used in the accounting for net pension expense were:
1997 1996 1995
Discount rates 7.00% 7.00% 7.00%
Rates of increase in compensation levels 6.00% 6.00% 6.00%
Long-term rate of return on assets 7.50% 8.00% 8.00%
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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.
(Due to the difficulty in reading the numbers, I have listed each year
separately.)
December 31, 1997
Carrying Fair
amount value
Financial assets
Cash and due from banks $ 9,150,979 $ 9,263,907
Federal funds sold 20,207,703 20,207,703
Interest-bearing deposits 1,229,000 1,238,186
Investment securities (total) 65,822,710 66,030,953
Loans, net 147,190,832 146,996,644
Accrued interest receivable 1,790,423 1,790,423
Financial liabilities
Noninterest-bearing deposits $ 33,093,588 $ 33,093,588
Interest-bearing deposits 173,699,610 173,776,507
Obligation under capital lease 61,720 61,720
Accrued interest payable 433,344 433,344
December 31, 1996
Carrying Fair
Amount Value
Financial assets
Cash and due from banks $ 9,802,923 $ 9,887,787
Federal Funds sold 14,000,000 14,000,000
Interest-bearing deposits 1,423,000 1,433,599
Investment securities (total) 64,970,642 65,149,827
Loans, net 149,059,660 148,899,731
Accrued interest receivable 1,626,619 1,626,619
Financial liabilities
Noninterest-bearing deposits 31,837,470 31,837,470
Interest-bearing deposits 172,460,336 172,641,527
Obligation under capital lease 126,611 126,611
Accrued interest payable 428,451 428,451
December 31, 1995
Carrying Fair
amount value
Financial assets
Cash and due from banks $ 11,028,482 $ 11,119,681
Federal funds sold 31,000,000 31,000,000
Interest-bearing deposits 2,009,000 2,027,014
Investment securities (total) 55,725,274 55,926,070
Loans, net 136,319,638 136,178,402
Accrued interest receivable 1,450,219 1,450,219
Financial liabilities
Noninterest-bearing deposits $ 40,938,084 $ 40,938,084
Interest-bearing deposits 161,902,004 162,121,003
Obligation under capital lease 193,511 193,511
Accrued interest payable 456,222 456,222
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.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments (Continued)
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. The fair value of fixed-rate time
deposits is estimated based on interest rates currently offered for deposits
of similar remaining maturities.
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.
1997 1996
Beginning balance $ 9,482,547 $ 7,178,848
Advances 2,651,499 3,328,459
12,134,046 10,507,307
Repayments 2,667,073 1,024,760
Ending balance $ 9,466,973 $ 9,482,547
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 $4,374 and
$2,183 during the years ended December 31, 1997 and 1996.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
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 organization. These standards
require ratios of capital to assets for minimum capital adequacy and to be
classified as well capitalized under prompt corrective action provisions.
The capital ratios and minimum capital requirements of the Bank are as follows:
To be well
Actual Capital adequacy capitalized
(in thousands) Amount Ratio Amount Ratio Amount Ratio
December 31, 1997
Total capital
(to risk-weighted assets) 38,896 32.5% > 9,589 > 8.0% > 11,986 > 10.0%
Tier 1 capital
(to risk-weighted assets) 37,391 31.2% > 4,795 > 4.0% > 7,192 > 6.0%
Tier 1 capital
(to average assets) 37,391 14.8% > 10,090 > 4.0% > 12,612 > 5.0%
December 31, 1996
Total capital
(to risk-weighted assets) 39,779 32.8% > 9,702 > 8.0% > 12,128 > 10.0%
Tier 1 capital
(to risk-weighted assets) 38,257 31.5% > 4,851 > 4.0% > 7,277 > 6.0%
Tier 1 capital
(to average assets) 38,257 15.4% > 9,962 > 4.0% > 12,453 > 5.0%
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, specific 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.
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
16. Parent Company Financial Information
The balance sheets and statements of income and cash flows for Calvin B.
Taylor Bankshares, Inc. (Parent Only) follow:
December 31,
Balance Sheets 1997 1996
Assets
Cash and due from banks $ 255,797 $ 909,975
Interest-bearing deposits 500,000 -
Securities available for sale 263,450 235,400
Investment in subsidiary banks 40,598,524 38,338,929
Premises and equipment 874,125 232,156
Organization costs 90,808 42,400
Other assets 2,597 33,087
Total assets $ 42,585,301 $ 39,791,947
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ - $ 1,963
Deferred income taxes 8,284 90,911
Total liabilities 8,284 92,874
Stockholders' equity
Common stock, par value $1.00
per share; authorized 2,000,000
shares; issued and outstanding
810,000 shares 810,000 810,000
Additional paid-in capital 17,290,000 17,290,000
Retained earnings 24,120,666 21,372,763
Net unrealized gain on securities
available for sale 356,351 226,310
Total stockholders' equity 42,577,017 39,699,073
Total liabilities and
stockholders' equity $ 42,585,301 $ 39,791,947
Statements of Income
Years Ended December 31,
1997 1996
Interest revenue $ 30,586 $ 5,228
Dividend revenue 13,200 9,702
Dividends from subsidiary 5,929,000 2,916,000
Equity in undistributed (1,001,768) 1,618,986
income of subsidiary
Rental income 1,575 -
4,972,593 4,549,916
Expenses
Occupancy 4,476 51
Furniture and equipment 2,616 -
Other 31,406 17,235
38,498 17,286
Income before income taxes 4,934,095 4,532,630
Income taxes (benefit) (808) (3,011)
Net income $ 4,934,903 $ 4,535,641
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
16. Parent Company Financial Information (Continued)
Years Ended December 31,
Statements of Cash Flows 1997 1996
Cash flows from operating activities
Interest and dividends received $ 5,728,997 $ 2,930,930
Rental payments received 1,575 -
Cash paid for operating expenses (27,340) (7,768)
Income taxes refunded (paid) 3,162 (150)
5,706,394 2,923,012
Cash flows from investing activities
Organization costs (58,912) (51,918)
Purchase premises and equipment (614,660) (260,119)
Investment in new subsidiary (3,000,000) -
Purchase of certificate of deposit (500,000) -
(4,173,572) (312,037)
Cash flows from financing activities
Dividends paid (2,187,000) (1,701,000)
Net increase in cash (654,178) 909,975
Cash and equivalents at beginning of year 909,975 -
Cash and equivalents at end of year $ 255,797 $ 909,975
Reconciliation of net income to net cash
provided by operating activities
Net income $ 4,934,903 $ 4,535,641
Adjustments to reconcile net
income to net cash used in
operating activities
Undistributed net income
of subsidiary 1,001,768 (1,618,986)
Noncash distribution from
subsidiary (242,000) -
Amortization and depreciation 13,121 9,518
Increase (decrease) in other
liabilities (1,963) -
Decrease (increase) in other
assets 565 (3,161)
$ 5,706,394 $ 2,923,012
The accompanying notes are an integral part of the financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
17. Quarterly Results of Operations (Unaudited)
Three months ended
December 31, September 30, June 30, March 31,
1997
Interest revenue $ 4,462,491 4,523,650 4,250,828 4,195,297
Interest expense 1,541,685 1,534,663 1,440,196 1,451,139
Net interest income 2,920,806 2,988,987 2,810,632 2,744,158
Provision for loan
losses 25,000 - 25,000 -
Net income 1,282,099 1,352,094 1,114,717 1,185,993
Earnings per share $ 1.58 $ 1.67 $ 1.38 $ 1.46
1996
Interest revenue $ 4,358,710 4,442,713 3,986,962 4,032,044
Interest expense 1,540,696 1,554,252 1,481,600 1,516,863
Net interest income 2,818,014 2,888,461 2,505,362 2,515,181
Provision for loan
losses 143,000 25,000 25,000 -
Net income 1,186,056 1,261,815 1,075,940 1,011,830
Earnings per share $ 1.46 $ 1.56 $ 1.33 $ 1.25
1995
Interest revenue $ 4,106,171 4,129,395 3,857,144 3,841,850
Interest expense 1,552,072 1,533,621 1,371,182 1,323,137
Net interest income 2,554,099 2,595,774 2,485,962 2,518,713
Provision for loan
losses 35,000 - 25,000 -
Net income 1,027,995 1,104,832 1,043,672 943,416
Earnings per share $ 1.27 $ 1.36 $ 1.29 $ 1.17
18. Contingencies
The Company is involved in various legal actions arising from normal business
activities. Management believes that the ultimate liability or risk of loss
resulting from these actions will not materially affect the Company's financial
position.
The accompanying notes are an integral part of the financial statements.
Signatures
Pursuant to the requirements of 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
Date: August 11, 1998 By:/s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and CEO
Date: August 11, 1998 By:/s/ William H. Mitchell
William H. Mitchell
Chief Financial Officer
This statement has not been reviewed, or confirmed for accuracy or relevance,
by the Federal Deposit Insurance Corporation.
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Calvin B. Taylor Banking Company, a state bank organized under the
laws of the State of Maryland.
Calvin B. Taylor Company, Delaware is in organization to be chartered
under the laws of the State of Delaware.
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