SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(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, 1998
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. [ X ]
State small business issuer's revenues for its most recent fiscal year:
$18,884,830.
The aggregate market value of the Common Stock held by non-affiliates of the
small business issuer on December 31, 1998, was $66,825,000. This
calculation is based upon an estimation by the Company's Board of Directors
of fair market value of the Common Stock of $41.25 per share. There is not
an active trading market for the Common Stock and it is not possible to
identify precisely the market value of the Common Stock.
On March 4, 1999, 1,620,000 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,
1998, 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 5, 1999, 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 Company owns all of the stock
of two banks. The Maryland bank is a commercial bank incorporated under the
laws of the State of Maryland on December 17, 1907. This 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 second bank was incorporated
in 1997 but opened late in the second quarter of 1998. This one-branch bank
offers the same services as the Maryland Bank.
The Company's holding company structure can assist the banks in maintaining
their 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 banks 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 of
its own stock, which the banks may not do without regulatory approval. 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 invest-
ments 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 areas
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 Company conducts a general commercial banking industry in its primary
service areas, emphasizing the banking needs of individuals and small- to
medium-sized businesses and professional concerns. The Maryland bank
operates from ten branches located throughout Worcester County, Maryland
while the Delaware bank operates from one branch located in Sussex County,
Delaware. The Banks draw most of their customer deposits and conduct most
of their lending transactions from within their primary service areas, which
encompasses Worcester County, Maryland, Sussex County, Delaware and neighboring
counties.
Both Sussex County, Delaware and Worcester County, Maryland are located
along the shores of the Atlantic Ocean and have 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 the counties are tourism and
agriculture. Berlin has a strong component of health-care related
businesses. The tourist businesses of Ocean City, Maryland and Bethany,
Delaware and the health-care facilities in Berlin, Maryland (including
Berlin Nursing Home and Atlantic General Hospital) are the largest employers
in the Counties. The largest industrial employers are Perdue Farms and
Hudson Farms.
Banking Services
The banks offer 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 banks' principal market areas at rates competitive to those
offered in the area. In addition, the banks offer 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 banks solicit these accounts from individuals,
businesses, associations and organizations, and governmental authorities.
The Company, through its banks, 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 Company also
originates mortgage loans and real estate construction and acquisition loans.
These lending activities are subject to a variety of lending limits imposed
by state and federal law. Neither bank may make any loans to any director,
officer, or employee (except for commercial loans to the directors who are not
officers or employees) unless the loans are approved by the Board of Directors
of the bank. The Board of Directors must review any such loans every
six months.
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 Company is associated with the
MAC network of automated teller machines that may be used by Bank customers
throughout Maryland, Delaware, and other regions. The Company also offers
credit card services through a correspondent bank.
Competition
The Company faces strong competition in all areas of its operations. The
competition comes from entities operating in Worcester County, Maryland and
Sussex County, Delaware 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 its service areas. The banks compete for deposits with money
market mutual funds and corporate and government securities. The banks compete
with the same banking entities for loans, as well as mortgage banking
companies and other institutional lenders. The competition for loans varies
from time to time depending on certain factors. These factors include, among
others, the general availability of lendable funds and credit, general and
local economic conditions, current interest rate levels, conditions in the
mortgage market, and other factors which are not readily predictable.
Employees
As of December 31, 1998, the Banks employed 100 full-time equivalent
employees. The Company's operations are conducted through the banks.
Consequently, the Company does not have separate employees. None of the
employees of the banks are represented by any collective bargaining unit.
The banks consider their relations with their employees to be good.
SUPERVISION AND REGULATION
The Company and the banks 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 banks.
To the extent that the following summary describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory provisions. Any change in applicable laws or regulations may have
a material adverse effect on the business and prospects of the Company.
Legislative changes and the policies of various regulatory authorities may
affect the operations of the Company and the banks. 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 banks, the Company is a
bank holding company within the meaning of the federal Bank Holding Company
Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file periodic reports
of its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services to or performing services
for its subsidiaries, or engaging in any other activity that the Federal
Reserve determines to be so closely related to banking or managing and
controlling banks as to be a proper incident thereto.
Investments, Control, and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank
, (ii) acquiring direct or indirect ownership or control of any voting shares
of any bank if after such acquisition it would own or control more than 5%
of the voting shares of such bank (unless it already owns or controls the
majority of such shares), or (iii) merging or consolidating with another bank
holding company.
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to
exist if an individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Because the Company's Common
Stock is registered under the Securities Exchange Act of 1934, under Federal
Reserve regulations control will be rebuttably presumed to exist if a person
acquires at least 10% of the outstanding shares of any class of voting
securities of the Company. The regulations provide a procedure for challenge
of the rebuttable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in nonbanking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation
to be proper incidents to the business of banking include making or servicing
loans and certain types of leases, engaging in certain insurance and discount
brokerage activities, performing certain data processing services, acting in
certain circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or
projects designed primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to
its banks and to commit resources to support the banks 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 banks 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 invest-
ments in healthy bank subsidiaries available to the FDIC to assist any failing
or failed bank subsidiary of the Company.
The Banks
General. The banks operate as state nonmember banking associations
incorporated under the laws of the State of Maryland and the State of
Delaware. They are subject to examination by the FDIC and the State Bank
Commissioners. Deposits in the banks are insured by the FDIC up to a
maximum amount (generally $100,000 per depositor, subject to aggregation
rules). The Commissioners and FDIC regulate or monitor all areas of the
banks' operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuance's 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
pratices. The FDIC requires the banks to maintain certain capital ratios
and imposes limitations on each of the bank's aggregate investment in real
estate, bank premises, and furniture and fixtures. The banks are required by
the FDIC and the Commissioner to prepare quarterly reports on the banks'
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 appro-
priate agencies a method for insured depository institutions to provide
supplemental disclosure of the estimated fair market value of assets and
liabilities, to the extent feasible and practicable, in any balance sheet,
financial statement, report of condition, or other report of any insured
depository institution. FDICIA also requires the federal banking regulatory
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating, among other
things, to: (i) internal controls, information systems, and audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate risk
exposure; and (v) asset quality.
Transactions With Affiliates and Insiders. The banks are 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 banks are also subject to Section 23B of the Federal Reserve Act which,
among other things, prohibits an institution from engaging in certain trans-
actions with certain affiliates unless the transactions are on terms sub-
stantially 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 banks are 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 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 Maryland 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. Delaware law also
allows branches statewide with prior approval of the Commissioner and the FDIC.
Delaware law is more restrictive allowing other state banking organizations
to branch to Delaware through opening a de novo bank, or as the result of an
interstate merger.
Community Reinvestment Act. The Community Reinvestment Act requires that
each insured depository institution shall be evaluated by its primary
federal regulator with respect to its record in meeting the credit needs of
its local community, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility. The banks received satisfactory
ratings in their most recent evaluations.
Other Regulations. Interest and certain other charges collected or
contracted for by the banks are subject to state usury laws and certain
federal laws concerning interest rates. Loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials
to determine whether a financial institution is fulfilling its obligation to
help meet the housing needs of the community it serves, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of race, creed, or
other prohibited factors in extending credit, the Fair Credit Reporting Act
of 1978 governing the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations
of the various federal agencies charged with the responsibility of implementing
such federal laws. The deposit operations of the Bank are also subject to the
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality
of consumer financial records and prescribes procedures for complying with
administrative subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve Board to implement that act,
which governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Deposit Insurance
The deposits of the banks 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 each 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 Financing Corporation (FICO) to service the interest on
its bond obligations. The insurance assessment will remain at $.00 to $.31
per $100 in deposits through June 1999. Any increase in deposit insurance
premiums for the banks will increase the banks' cost of funds, and there can
be no assurance that such costs can be passed on to the banks' customers.
Dividends
The principal source of the Company's cash revenues comes from dividends
received from the Maryland bank. The amount of dividends that may be paid
by the bank to the Company depends on the bank's earnings and capital
position and is limited by federal and state laws, regulations, and policies.
The Federal Reserve has stated that bank holding companies should refrain
from or limit dividend increases or reduce or eliminate dividends under
circumstances in which the bank holding company fails to meet minimum
capital requirements or in which earnings are impaired.
The Company's ability to pay any cash dividends to its shareholders in the
future will depend primarily on the Maryland 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 Maryland 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 holding companies contem-
plating significant expansion programs should not allow expansion to diminish
their capital ratios and should maintain ratios well in excess of the minimums.
The current guidelines require all bank holding companies and federally
regulated banks to maintain a minimum 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 no 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, 1998, the Company and its banks 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 eleven branch locations, all of which are owned by the Company.
The locations are described as follows:
OFFICE LOCATION Square Footage
Maryland:
Main Office 24 North Main Street, Berlin, Maryland 21811 6,500
East Berlin 10524 Old Ocean City Boulevard, Berlin, Maryland 21811 1,500
20th Street 100 20th Street, Ocean City, Maryland 21842 3,100
Ocean Pines 11003 Cathell Road, Berlin, Maryland 21811 2,420
Mid-Ocean City 9105 Coastal Highway, Ocean City, Maryland 21842 1,984
North Ocean City 14200 Coastal Highway, Ocean City, Maryland 21842 2,545
West Ocean City 9923 Golf Course Road, Ocean City, Maryland 21842 2,496
East Pocomoke 2140 Old Snow Hill Road,Pocomoke, Maryland 21851 3,240
South Pocomoke 121 Ames Plaza, Pocomoke, Maryland 21851 1,715
Snow Hill 108 West Market Street, Snow Hill, Maryland 21863 3,773
Delaware:
Main Office 50 Atlantic Avenue, Ocean View, Delaware 4,900
The Berlin office is the centralized location for the Company and for all
the Maryland branches; that is to say that all proof and bookkeeping is
performed there. The Delaware office has its own proof and bookkeeping
functions.
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 offices participate in normal day-to-day banking operations.
Six Maryland offices offer automated teller machines; these being the 20th
Street, Ocean Pines, Mid-Ocean City, West Ocean City, Route 13 Pocomoke, and
South Pocomoke Offices. The Delaware bank has an automated teller machine
on-premise. The Company operates one automated teller machine which is
located at a local hospital.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or the
banks 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 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
In response to this Item, the information included on 21 page of the
Company's Annual Report to Shareholders for the year ended December 31,
1998, is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
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 "Maryland Bank"). The Maryland Bank was incorporated under the
laws of the State of Maryland on December 17, 1907. The Maryland Bank was
organized as a nonmember state bank under the laws of the State of Maryland.
Calvin B. Taylor Bank of Delaware (the "DE Bank") was incorporated under the
laws of the State of Delaware on September 18, 1997. The DE Bank was organized
as a nonmember state bank under the laws of the State of Delaware. Calvin B.
Taylor Bankshare, Inc. acquired all of the capital stock of Calvin B. Taylor
Bank of Delaware also. Both banks are engaged in a general commercial banking
business, emphasizing in their market the Company's local management and
ownership, from their main offices located in their primary service areas of
Worcester County, Maryland and Sussex County, Delaware, and their neighboring
counties. The banks offer 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 banks offer certain retirement account services, such
as Individual Retirement Accounts. The banks also offer a full range of short-
to medium-term commercial and personal loans. The banks originate fixed rate
mortgage loans and real estate construction and acquistion loans. These loans
generally have a demand feature. Other bank services include cash management
services, safe deposit boxes, travelers checks, direct deposit of payroll and
social security checks, and automatic drafts for various accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Company's financial
statements and related notes and other statistical information included
elsewhere herein.
Overview
Consolidated income of the Company is derived primarily from operations of
the banks. The 1998 net income was $4,697,014, compared to $4,934,903 for
1997. Although the Company experienced a lower net income, the Company
continued its history of above average earnings with a return on average
equity of 10.54% and return on average assets of 1.78% for 1998, compared to
returns of 11.90% and 1.99%, respectively for 1997.
Results of Operations
The Company reported net income of $4,697,014, or $2.90 per share, for the
year ended December 31, 1998, which was a decrease of $237,889, or (4.82%),
over the net income of $4,934,903, or $3.05 per share, for the year ended
December 31, 1997. Earnings are down from the previous year totals due to a
market that drove the interest rates down, causing lower asset yields.
Operating expenses increased as the result of opening a new bank in Delaware.
Net interest income increased $89,128, or .77%, to $11,553,711 in 1998, from
$11,464,583 in 1997. This increase in net interest income was the result of
an increase in interest revenue of $456,376 while interest expense increased
by $367,248. Net interest income increased primarily because the balance
of interest-earning assets grew faster than the balance of deposits and
borrowed funds. The yield on interest-earning assets decreased to 7.36% in
1998, from 7.60% in 1997, while the combined yield on deposits and borrowed
funds decreased to 2.89% from 2.90% for the same period.
The provision for loan losses was $1,175 in 1998, a decrease of $48,825
from the $50,000 provision in 1997. The decreased provision is the result
of a $11,051 decrease in net charge-offs for 1998, creating a net recovery
of $1,374. Outstanding loans decreased during the same period. During 1998,
the Company had net recoveries of $1,374, which was less than .01% of
average loans while during 1997 there were net charge-offs of $9,677.
Noninterest income and noninterest expense increased by 16.75% and 14.64%,
respectively during 1998, compared to 1997. 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 1998 and 1997, 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 1998, was 4.80%
compared to 5.03% for 1997. Because most of the loans of the Banks are
written with a demand feature, the income of the Banks should not change
dramatically as interest rates change. Management of the Company expects to
maintain the net margin on interest-earning assets. The net margin may decline,
however, if competition increases, loan demand decreases, or the cost of funds
rises faster than the return on loans and securities. Although such
expectations are based on management's judgement, 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, 1998 December 31, 1997
Average Average
balance Interest Yield balance Interest Yield
Assets
Federal funds sold
and securities sold
under repurchase
agreements 26359775 1411818 5.36% 21772942 1213039 5.57%
Interest bearing
deposits 1248049 70757 5.67% 1243208 69397 5.58%
Investment securities:
U. S. Treasury 60151499 3468511 5.77% 47767048 2856937 5.98%
U. S. Agency 272603 14923 5.47%
State and municipal 12353098 710258 5.75% 11991438 706528 5.89%
Other 351216 24076 6.86% 249030 20000 8.03%
Total investment
securities 73128416 4217768 5.77% 60007516 3583465 5.97%
Loans:
Commercial 14919040 1298811 8.71% 15039707 1272668 8.46%
Mortgage 127295155 10585496 8.32% 131512234 11012492 8.37%
Consumer 5019523 512712 10.21% 5010982 510500 10.19%
Total loans 147233718 12397019 8.42% 151562923 12795660 8.44%
Allowance for
loan losses 2086253 2053552
Total loans,
net of allowance 145147465 12397019 8.54% 149509371 12795660 8.56%
Total interest-
earning assets 245883705 18097362 7.36% 232533037 17661561 7.60%
Noninterest-
bearing cash 10887288 0 9997110 0
Premises and
equipment 4584091 0 3967373 0
Other assets 2112827 0 1839672 0
Total assets 263467911 18097362 248337192 17661561
Liabilities and Stockholders' Equity
Interest-bearing Deposits
Savings and
NOW deposits 60545046 1493594 2.47% 53793965 1389996 2.58%
Money market and
supernow 57902148 1530457 2.64% 55012180 1497011 2.72%
Other time deposits 65020172 3277413 5.04% 62944109 3078856 4.89%
Total interest-
bearing deposits 183467366 6301464 3.43% 171750254 5965863 3.47%
Borrowed funds 10822 0 0.00% 80743 1820 2.25%
Total interest-
bearing liabilities 183478188 6301464 3.43% 171830997 5967683 3.47%
Noninterest-bearing
deposits 34675359 0 0.00% 34304946 0
218153547 6301464 2.89% 206135943 5967683 2.90%
Other liabilities 748148 0 738550 0
Stockholders' equity 44566216 0 41462699 0
Total liabilities and
stockholders'
equity 263467911 6301464 248337192 5967683
Net interest spread 3.93% 4.13%
Net interest income 11795898 11693878
Net margin on
interest-earning assets 4.8% 5.03%
Analysis of Changes in Net Interest Income
Year ended December 31, Year ended December 31,
1998 compared with 1997 1997 compared with 1996
variance due to variance due to
Total Rate Volume Total Rate Volume
Earning assets
Interest bearing deposits 1360 1090 270 -25871 -104 -25767
Federal funds sold 198779 -56708 255487 -46646 68873 -115519
Investment securities:
U. S. Treasury 611574 -129016 740590 273266 33583 239683
U. S. Agency 14923 0 14923 0 0 0
State, county, and
municipals 3730 -17572 21302 -95381 14955 -110336
Other 4076 -4130 8206 2489 1815 674
Loans:
Demand and time 26143 36351 -10208 -95236 -43242 -51994
Mortgage -426996 -74026 -352970 592180 8724 583456
Installment 2212 1342 870 -20490 -11924 -8566
Total interest
revenue 435801 -242669 678470 584311 72680 511631
Interest-bearing liabilities
Savings and NOW
deposits 103598 -70580 174178 29337 -11803 41140
Money market and
supernow 33446 -45161 78607 10075 -34791 44866
Other time deposits 198557 97038 101519 -163162 -136882 -26280
Other borrowed funds -1820 -247 -1573 -1978 -434 -1544
Total interest
expense 333781 -18950 352731 -125728 -183910 58182
Net interest income 102020 -223719 325739 710039 256590 453449
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 $145,147,465 and
$149,509,371 during 1998 and 1997, respectively, which constituted 59.03%
and 64.30% of average interest-earning assets for the periods. At December 31,
1998, the Company's loan to deposit ratio was 60.60% compared to 71.18% at
December 31, 1997, while the 1998 average loans to average deposits were
66.54%. The Company extends loans primarily to customers located in and near
Worcester County, Maryland and Sussex County, Delaware. There are no industry
concentrations in the Company's loan portfolio. The Company does, however, have
a substantial portion of its loans in real estate and its performance will
be influenced by the real estate market in the region.
The following table sets forth the composition of the Company's loan
portfolio as of December 31, 1998 and 1997, respectively.
Composition of Loan Portfolio
December 31,
1998 1997
Percent Percent
Amount of total Amount of total
Commercial 16253621 11.46% 13237003 8.87%
Real estate 118837336 83.78% 129549396 86.79%
Construction 1795952 1.27% 1372853 0.92%
Consumer 4950912 3.49% 5112378 3.42%
Total loans 141837821 100.0% 149271630 100.0%
Less allowance for
credit losses 2080358 2080798
Net loans 139757463 147190832
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for selected
components of the Company's loan portfolio as of December 31, 1998.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
December 31, 1998
Over one
One year through Over five
or less five years years Total
Commercial 16253621 0 0 16253621
Real estate 118837336 0 0 118837336
Construction 1795952 0 0 1795952
Consumer 386094 4223521 341297 4950912
Total 137273003 4223521 341297 141837821
Fixed interest rate 428897 4223521 341297 4950912
Variable interest
rate (or demand) 136844106 0 0 136886909
Total 137273003 4223521 341297 141837821
As of December 31, 1998, $136,886,909 or 96.51%, of the total loans were
either variable rate loans or loans written on demand.
The Company has the following commitments, lines of credit, and letters
of credit outstanding as of December 31, 1998 and 1997, respectively.
1998 1997
Construction loans 1470375 2616516
Other loan commitments 6012019 1981942
Standby letters of credit 1387865 1119080
Total 8870259 5717538
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 has provided an allowance of $2,989 for losses the Company may
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 Company 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. Generally, the Company will
not require a negative provision to reduce the allowance as a result of
either net recoveries or a decrease in loans. This may cause the allowance
as a percentage of gross loans to exceed the Company's target of 1.35%.
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, 1998 and 1997, 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, 1998 and 1997, the respective
allowance for loan losses were 1.47% and 1.39% of outstanding loans.
Allocation of Allowance for Loan Losses
1998 1997
Commercial 318138 15.29% 135128 6.49%
Real estate 698303 33.57 749644 36.03
Construction 2175 0.1 5491 0.2
Consumer 151124 7.26 158785 7.63
Commitments 0 0 22992 1.10
General 910618 43.78 1008758 48.49
Total 2080358 100.00 % 2080798 100.00 %
Allowance for Loan Losses
1998 1997
Balance at beginning of year 2080798 2040475
Loan losses:
Commercial 2652 0
Mortgages 0 13701
Consumer 10453 4854
Total loan losses 13105 18555
Recoveries on loans previously charged off
Commercial 0 198
Consumer 14479 8680
Total loan recoveries 14479 8878
Net loan losses -1374 9677
Provision for loan losses
charged to expense -1814 50000
Balance at end of year 2080358 2080798
Allowance for loan losses to loans outstanding
at end of year 1.47% 1.39%
Net charge-offs to average loans 0.00% 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
nonaccrual even though the presence of collateral or the borrower's
financial strength may be sufficient to provide for ultimate repayment.
Interest on nonaccrual loans is recognized only when received. A delinquent
loan is generally placed in nonaccrual status when it becomes 90 days or more
past due. When a loan is placed in nonaccrual status, all interest which has
been accrued on the loan but remains unpaid is reversed and deducted from
earnings as a reduction of reported interest income. No additional interest
is accrued on the loan balance until the collection of both principal and
interest becomes reasonably certain.
The provision for loan loses shown on the income statement includes
$2,989 provided for loan commitments.
The Company had no nonperforming loans at December 31, 1998 or 1997.
Where real estate acquired by foreclosure and held for sale is included
with nonperforming loans, the result comprises nonperforming assets.
Nonperforming assets at December 31, 1998, totaled $39,000. 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, 1998 or 1997.
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
51.17% of average deposits for 1998, compared to 45.14% for 1997.
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, 1998, 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, 1998
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 33337435 0 0 0 33337435
Interest-bearing
deposits 199000 736000 293000 0 1228000
Investment
securities 14178107 19744830 46869112 2480799 83272848
Loans 136750566 522437 4223521 341297 141837821
Total earning
assets 184465108 21003267 51385633 2822096 259676104
Liabilities
Interest-bearing
liabilities
Money market 57683937 0 0 0 57683937
Savings and
NOW deposits 66606783 0 0 0 66606783
Certificates
$100,000 and over 3962747 9453247 1181142 0 14597136
Certificates under
$100,000 15531433 32566541 6982876 0 55080850
Total interest-
bearing liabilities 143784900 42019788 8164018 0 193968706
Period gap 40680208 -21016521 43221615 2822096 65707398
Cumulative gap 40680208 19663687 62885302 65707398 65707398
Ratio of cumulative
gap to
total earning assets 15.67% 7.57% 24.22% 25.30% 25.30%
The table "Investment Securities Maturity Distribution and Yields" shows
that as of December 31, 1998, $33,411,911 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, 1998, was $15,000,000.
Investment Securities Maturity Distribution and Yields
Amount Percent Amount Percent
U. S. Treasury securities
One year or less 26331468 5.46% 34909733 5.76%
Over one through five years 38494930 5.41% 18980412 6.00%
Over ten years 2480799 7.29% 2310000 7.29%
Total U.S. Treasury
securities 67307197 5.50% 56200145 5.90%
U.S. Government Agencies
Over one through five years 1000000 5.51% 0 0%
State, county, and
municipal securities
One year or less 7080443 3.80% 5731005 5.74%
Over one through five years 7368870 3.71% 3628110 6.10%
Total state, county, and
unicipal securities 14449313 5.16% 9359115 5.88%
Total debt securities
One year or less 33411911 5.11% 40640738 5.75%
Over one through five years 46863800 5.14% 22608522 6.02%
Over ten years 2480799 7.29% 2310000 7.29%
Total debt securities 82756510 5.16% 65559260 5.90%
Equity securities 516338 8.03% 263450 8.03%
Total securities 83272848 5.21% 65822710 5.91%
Yields are based on amortized cost.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing liabilities increased $11,647,191, or 6.78%, to
$183,478,188 in 1998, from $171,830,997 in 1997. Average interest-bearing
deposits increased $11,717,112, or 6.82%, to $183,467,366 in 1998, from
$171,750,254 in 1997, while average demand deposits increased $370,413, or
1.08% to $34,675,359 in 1998, from $34,304,946 in 1997. At December 31,
1998, total deposits were $230,617,685, compared to $206,793,198 at December
31, 1997, an increase of 11.52%.
The following table sets forth the deposits of the Company by category as
of December 31, 1998 and 1997, respectively.
December 31,
1998 1997
Percent of Percent of
Amount Deposits Amount Deposits
Demand deposit accounts 36648979 15.89% 33093588 16.00%
NOW accounts 33925681 14.71% 23836816 11.53%
Money market and
Supernow accounts 57683937 25.01% 55482239 26.83%
Savings accounts 32681102 14.17% 31378167 15.17%
Time deposits less
than $100,000 55080850 23.89% 54654251 26.43%
Time deposits of $100,000
or more 14597136 6.33% 8348137 4.04%
Total deposits 230617685 100.00% 206793198 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 $17,575,488
during 1998. 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, 1998, is shown in the following table.
Maturities of Certificates of Deposit
and Other Time Deposits of $100,000 or More
December 31, 1998
After six
After three through
Within three through twelve After twelve
months six months months months Total
Certificates of
deposit of $100,000
or more 3962747 3478687 5974560 1181142 14597136
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits. Some financial
institutions partially fund their balance sheets using large certificates of
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, the
Company does not accept brokered deposits.
Noninterest Income
Noninterest income for 1998 was $996,188, compared to noninterest income in
1997 of $853,278, an increase of $142,910, or 16.75%. During 1998, the
Company collected fees for automatic teller machine usage from noncustomers
and also offered a new club account. Income from these new fees totaled
$148,060.
The following table presents the principal components of noninterest income
for the years ended December 31, 1998 and 1997, respectively.
Noninterest Income
1998 1997
Service charges on deposit accounts 691945 607647
Other noninterest revenue 304243 245631
Total noninterest income 996188 853278
Noninterest income as a percentage
of average total assets 0.38% 0.34%
Noninterest Expense
Noninterest expense increased by $679,467, or 14.64%, from $4,640,036 in
1997 to $5,319,503 in 1998. Increased personnel costs were due to annual
raises and additional staff for the new Delaware bank. As the result of
offering new club accounts and opening a new bank, marketing and product
development costs increased $128,632. Other operating expenses have
increased with the growth in deposits and the opening of the Delaware bank.
The following table presents the principal components of noninterest
expense for the years ended December 31, 1998 and 1997, respectively.
Noninterest Expense
1998 1997
Compensation and related expenses 3052536 2757865
Occupancy expense 351601 366170
Furniture and equipment expense 483506 450593
Amortization of intangible assets 6064 18249
Advertising 141736 117356
Business and product development 118252 14000
Courier service 78900 66615
Deposit insurance 19499 31666
Director fees 71170 64352
Dues, donations, and subscriptions 64451 58658
Freight 60697 47145
Liability insurance 68460 56172
Postage 154295 150210
Professional fees 82128 63194
Stationery and supplies 266527 163105
Telephone 72682 61145
Teller machine fees 84720 65207
Miscellaneous 142279 88334
Total noninterest expense 5319503 4640036
Noninterest expense as a percentage
of average total assets 2.02% 1.87%
Capital
Under the capital guidelines of the Federal Reserve Board and the FDIC, the
Company and its banks 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
banks must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total
assets) of at least 3%, but this minimum ratio is increased by 100 to 200
basis points for other than the highest-rated institutions.
At December 31, 1998, the Company and the banks exceeded their regulatory
capital ratios, as set forth in the following table.
Analysis of Capital
1998 1997
Required Consolidated MD DE Consolidated MD DE
Minimums Company Bank Bank Company Bank Bank
Total risk-based
capital ratio 8.0% 38.4% 1.3% 349.0% 36.2% 32.5% n/a
Tier I risk-based
capital ratio 4.0% 37.2% 33.5% 348.9% 34.9% 31.2% n/a
Tier I leverage
ratio 3.0% 17.5% 14.8% 85.0% 16.7% 14.8% n/a
Accounting Rule Changes
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 Company includes unrealized gains and losses on
securities available for sale, net of tax. The Statement is effective for
years beginning after December 15, 1997. The Company adopted the standard
in the financial statements for the year-ended December 31, 1998 with
restatement of prior periods.
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 was effective for financial statements
for periods beginning after December 15, 1997. The standard had no effect on
the Company's financial statements.
FASB Statement No. 132, Employers' Disclosures about Pension and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and
106, standardizes the disclosure requirements for pension and postretirement
benefits. It requires additional information on the changes in benefit
obligations and fair values of plan assets and eliminates certain
disclosures that are not longer useful. It was effective for fiscal years
beginning after December 15, 1997. The pension disclosures have been
restated to conform to this pronouncement.
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. It is effective for fiscal years beginning
after June 15, 1999. The Company has no derivatives and expects no
additional disclosures from the adoption of this statement.
FASB Statement No. 134, Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise, is an amendment of FASB Statement No.65. After the
securitization of a mortgage loan held for sale, any retained mortgage-
backed securities shall be classified in accordance with the provisions of
Statement 115. However, a mortgage banking enterprise must classify as
trading any mortgage-backed securities that it commits to sell before or during
the securitization process. This Statement shall be effective for the first
fiscal quarter beginning after December 15, 1998. The Company does not
engage in the activities described by this statement.
Statement of Position 98-5 of the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants, Reporting on the Costs
of Start-up Activities, requires that start-up costs and organization costs
be expensed as incurred. Prior to 1998, organization costs were amortized
over five years. This Statement, which is effective for fiscal years
beginning after December 15, 1998, requires that the unamortized balance of
organization costs be written off when the statement is adopted. The Company
elected early adoption of this pronouncement. The cumulative effect of
changing to this accounting method was a decrease in earnings of $59,933,
net of income taxes.
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 following information is provided as a "Year 2000 Readiness Disclosure"
in compliance with the Year 2000 Information and Readiness Disclosure Act of
1998.
The Year 2000 issue relates to computer programs that use only two digits
to identify a year in the date field. Unless corrected, these programs
could read the year 2000 as the year 1900, and likely would adversely affect
any number of calculations that are made using the date field. Financial
institutions are highly computerized organizations, and the year 2000 issue
represents a significant risk to the industry. The Company faces the same
risks as the industry. The potential risk of any major loan or deposit systems
failure of the year 2000 issue are that loan interest and balances could not
be accurately calculated, billed and collected, and deposit interest and
balances could not be accurately calculated and paid to customers. These
failures could have a significant impact on a financial institutions
operations and liquidity.
The Company adopted a Year 2000 Testing Strategy and Plan ("the Plan")
during 1998. This Plan is consistent with the mandates and guidelines set
forth by the FDIC and the FFIEC. Within the Company, a committee of senior
managers was formed to address this issue. The management committee
identified five major phases of a strategic plan: Awareness, Assessment,
Renovation, Validation and Implementation.
The awareness phase is a continuing effort to educate employees, customers,
business partners and vendors of the impact of the Year 2000 issue. The
effort is well under way through communication with the appropriate
constituencies and training for all employees.
During the assessment phase, which as completed April 30, 1998, a detailed
listing was compiled of all hardware, software, equipment and vendors owned
or used by the Company. All manufacturers, software providers and vendors
were requested to provide information regarding their Year 2000 readiness.
On completion of the assessment phase, any hardware or software that was
determined not year 1000 compliant was slated for replacement or renovation.
The validation phase consisted of testing all hardware and software for Year
2000 readiness. In November and December 1998, test transactions were
processed to validate changes made to the core banking system of deposits
and loans of our primary data processing third party service provider. The
tests were a success, and no Year 2000 problems were indicated. All of the
Company's ATM machines have been upgraded to be compliant with year 2000
requirements. The validation and renovation, if necessary, of other material
operation and support systems will be complete by June 30, 1999.
Contingency planning for all mission critical functions was completed on
March 10, 1999. Management's current estimate as this time of the worst case
scenario that may occur would be that the branches would function off-line
for the time period immediately following year end 1999. This off-line
processing would have minimal impact if the length of time that this
condition existed is limited. In addition, to accommodate all branches, the
bookkeeping department located at the operations center will have a complete
trial balance of all accounts for all branch locations.
During 1998, the Company incurred $44,898 of expense, above the normal
replacement costs, related to year 2000 compliance. Management estimates
that the cost of making all applications compliant in 1999 will be $30,000.
The Company does not track internal costs for personnel devoted to Year 2000
issues; however, two individuals have spent significant time on the project,
and many other individuals have spent numerous hours to ensure the Company
will be compliant.
MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Articles of Incorporation authorize it to issue up to
2,000,000 shares of the common stock.
As of March 4, 1999, there were approximately 636 holders of record of the
common stock and 1,620,000 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 $.65 per share in
1998, and $1.35 per share in 1997 after giving retroactive effect to the
1998 stock split effected in the form of a 100% stock dividend. During
1997, the Company paid a special mid-year dividend which was not expected to
be an annual event.
Item 7. Financial Statements
In response to this Item, the information included on pages 31 through 58
of the Company's Annual Report to Shareholders for the year ended December
31, 1998, 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 with the
Calvin B. Taylor Banking Company and Calvin B. Taylor Bank of Delaware (the
"Banks"), the Company's wholly owned banking subsidiaries. William H.
Mitchell is a new nominee for director for 1999. All of the other nominees
are currently directors of the Company and/or the banks and are nominated as
directors. Other than William H. Mitchell, each of the nominees has been a
director of the Company since its formation on October 31, 1995.
Title or Position Title or Position Title or Position
with the with the with the
Name Age Corporation Maryland Bank Delaware Bank
James R. Bergey, Jr 44 Director Director Director
James R. Bergey, Sr. 65 Director Director Director
Richard L. Bunting. 69 Director Director Director
John H. Burbage, Jr. 56 Director Director Director
Reese F. Cropper, Jr. 57 President, C.E.O. President, C.E.O. President,C.E.O
and Director and Director and Director
Hale Harrison. 51 Director Director Director
Gerald T. Mason 51 Director Director Director
Joseph E. Moore. 56 Director Director Director
Michael L. Quillin, Sr. 59 Director Director Director
Senator
George H. Bunting, Jr. 54 - - Director
William H. Mitchell 49 Vice President Sr. Vice President Treasurer
C.F.O. and Cashier
Raymond I. Robinson, Jr. 29 Treasurer Operations Officer
D. Kenneth Bates 46 Secretary Asst. Vice President
Mr. James R. Bergey, Jr. was first elected as a Director of the Bank on
February 2, 1994. His current term expires May 1999. Mr. Bergey became a
Director of the Company on October 31, 1995. Mr. Bergey is a Certified
Public Account and a Partner with Faw, Casson, & Co., LLP in Ocean City,
Maryland. He is also a member, and past-Chairman of the Board of Directors
of Atlantic General Hospital in Berlin, Maryland.
Mr. James Bergey, Sr. was first elected as a Director of the Bank on
February 4, 1987. His current term expires May 1999. Mr. Bergey became a
Director, Senior Vice President, and Secretary of the Company on October 31,
1995. Mr. Bergey was been employed with the Bank since 1954. Mr. Bergey
officially retired from the bank on December 31, 1998.
Mr. Richard L. Bunting was first elected as a Director of the Bank on
February 3, 1988. His current term expires May 1999. He is also a member
of the 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 1999. 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 as a
Director of the Bank on March 6, 1974. His current term expires May 1999.
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 served a six year term as a member of the Banking Board of the State of
Maryland from 1983 to 1989. Mr. Cropper is also a "Corporation Member" of
Atlantic General Hospital and a Director of Ocean City Golf and Yacht Club.
Mr. Cropper was elected President of the Delaware Bank on August 27, 1997.
Mr. Hale Harrison was first elected as a Director of the Bank on January 8,
1975. His current term expires May 1999. 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 Chairman 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 1999. Mr. Mason became a Director of
the Company on October 31, 1995. Mr. Mason is the Administrator for
Worcester County and serves as Director of Hospice.
Mr. Joseph E. Moore was first elected as a Director of the Bank on November
3, 1976. His current term expires May 1999. 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 a member of the
Board of Directors at Atlantic General Hospital.
Mr. Michael L. Quillin, Sr. was first elected as a Director of the Bank on
December 6, 1978. His current term expires May 1999. Mr. Quillin became a
Director of the Company on October 31, 1995. Mr. Quillin is retired from
the motel business 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, and Director of the Ocean City Golf and Yacht Club.
Mr. William H. Mitchell has been employed with the Bank since June 1970.
Mr. Mitchell became Cashier of the Bank on February 5, 1986. He became
Senior Vice President and Chief Financial Officer of the Maryland Bank on
January 6, 1999. He became Treasurer of the Delaware Bank on August 27,
1997. He became Vice President of the Corporation on February 3, 1999. Mr.
Mitchell is currently serving as the Treasurer of the Berlin Lions Club.
Senator George H. Bunting, Jr. was first elected a Director of the Delaware
Bank on June 4, 1997. In November of 1996 he was elected State Senator of
the 20th Senatorial District, which covers Delaware's southeastern corner
and includes much of Delaware's ocean coast from Rehoboth southward to the
Maryland State Line at Fenwick Island, inland to Selbyville and north to
Stockley. He served as president on the Rehoboth Beach/Dewey Beach Chamber
of Commerce in 1979. He is on the administrative board and is trustee of the
Salem Methodist Church. He currently serves on the Natural Resources
Committee, Joint Sunset Committee and is Chairman of the Agriculture
Committee of the Delaware Legislature.
Mr. Raymond I. Robinson, Jr. has been employed with the Bank since
September 1988. He became the Security Officer for the Maryland Bank in
August of 1995. He became Operations Officer of the Maryland Bank on
January 6, 1999. He became Treasurer of the Corporation on February 3, 1999.
Mr. D. Kenneth Bates has been employed with the Bank since November 1991.
Mr. Bates was hired as the Branch Manager of the Ocean Pines Office of the
Maryland Bank. He was elected Assistant Vice President of the Maryland Bank
in January 1992. Since December 1998, Mr. Bates has served as Assistant
Vice President and Loan Officer at the Main Office of the Maryland Bank.
He is former faculty member of the American Institute of Banking, past
Chairman of the Board of the Lower Shore Chapter of the American Red Cross,
is a current member of the Foundation Board of the Atlantic General Hospital
and serves on the hospital's planned giving committee. He was elected
Secretary of the Corporation on February 3, 1999.
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 (retired 1/1/99) of the Company and of Calvin
B. Taylor Banking Company. No other executive officers of the Company and
Banks received an annual salary and bonus that 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 1998 $175,000 7,000 2,252
1997 $157,300 6,642 3,325
1996 $142,509 5,720 3,153
James R. Bergey, Jr., Senior
Vice President and Secretary 1998 $122,000 4,880 963
(Retired 1/1/99) 1997 $113,740 4,890 1,450
1996 $102,959 4,136 1,411
______________
(1) Represents benefits paid by the bank in connection with the use of an
automobile.
Directors of the Company received a fee of $470 for each board meeting
attended and $470 for each of the Bank's executive committee meetings
attended. Richard L. Bunting was paid a salary, rather than a director's
fee. Mr. Bunting received a salary of $33,033 for 1998. The total fees
paid by the Company to Directors, excluding Mr. Cropper, Mr. Bergey and Mr.
Bunting, during 1998, were $70,230.00.
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 5, 1999, is incorporated herein by reference.
The following table sets forth the number and percentage of outstanding
shares of the Company's Common Stock beneficially owned at the record date
by (a) each executive officer of the Company, (b) each director of the
Company, (c) all directors and executive officers of the Company as a group,
and (d) each person or entity known to the Company to own more than five
percent of the outstanding Common Stock.
Shares of Common Stock Beneficially Owned
Name and Address Relationship to Company Number Percent(1)
James R. Bergey, Jr. Director 3,600 .22%
6213 South Point Road
Berlin, Maryland 21811
James R. Bergey, Sr. Director 15,000 .93%
P.O. Box 234
Bishopville, Maryland 21813
Richard L. Bunting Director 400 .02%
1911 Buck Harbor Road
Pocomoke, Maryland 21851
John H. Burbage, Jr. Director 25,770 1.59%
9428 Stephen Decatur Highway
Berlin, Maryland 21811
Reese F. Cropper, Jr. President, 51,480 3.18%
9620 Ocean View Lane Chief Executive Officer
Ocean City, Maryland 21842 and Director
Hale Harrison Director 21,936 1.35%
1552 Teal Drive
Ocean City, Maryland 21842
Gerald T. Mason Director 200 .01%
4485 Scotty Road
Pocomoke, Maryland 21851
Joseph E. Moore Director 1,712 .11%
319 South Main Street
Berlin, Maryland 21811
Michael L. Quillin, Sr. Director 16,000 .99%
P.O. Box 248
Ocean City, Maryland 21843
Executive Committee, Officers and Shareholders that own over 5%
Name and Address Relationship to Company Number Percent(1)
William H. Mitchell Vice President 494 .03%
8230 Donaway Road
Whaleyville, Maryland 21872
Raymond I. Robinson, Jr. Treasurer 30 .001%
12702 Campbelltown Road
Bishopville, Maryland 21813
Stamp & Co. None 129,352 7.98%
c/o NationsBank Trust Co.
Income Collections
P.O. Box 96572
Washington, D.C. 20090
Mary E. Humphreys None 98,172 6.06%
6 Baker Street
Berlin, Maryland. 21811
Hugh F. Wilde, Sr. Director Emeritus 93,504 5.77%
P.O. Box 540
Ocean City, Maryland 21843
______________
(1) Based on 1,620,000 shares of Common Stock outstanding.
Item 12. Certain Relationships and Related Transactions
In response to this item, the information included on pages X through X of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held May 5, 1999, 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 or officers of the Company and the Banks have been
involved in any administrative proceedings or convicted of any crime.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 of Registration Statement Form S-4, File No. 33-99762).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
Registration Statement Form S-4, File No. 33-99762).
13 Annual Report to Shareholders for the year ended December 31, 1998.
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, 1998.
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: 3/11/99 By: /s/ Reese F. Cropper, Jr.
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: 3/11/99 By: /s/ James R. Bergey, Jr.
James R. Bergey, Jr.
Director
Date: 3/11/99 By: /s/ James R. Bergey, Sr.
James R. Bergey, Sr.
Executive Vice President
Date: 3/11/99 By: /s/ Richard L. Bunting
Richard L. Bunting
Director
Date: 3/11/99 By: /s/ John H. Burbage, Jr.
John H. Burbage, Jr.
Director
Date: 3/11/99 By: /s/ Reese F. Cropper, Jr.
Reese F. Cropper, Jr.
President and Chief Executive Officer
Date: 3/11/99 By: /s/ Hale Harrison
Hale Harrison
Director
Date: 3/11/99 By: /s/ Gerald T. Mason
Gerald T. Mason
Director
Date: 3/11/99 By: /s/ Joseph E. Moore
Joseph E. Moore
Director
Date: 3/11/99 By: /s/ Horace D. Quillin, Sr.
Horace D. Quillin, Sr.
Director
Date: 3/11/99 By: /s/ Michael L. Quillin
Michael L. Quillin
Director
Date: 3/11/99 By: /s/ Hugh F. Wilde, Sr.
Hugh F. Wilde, Sr.
Director
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1998
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Financial Statements
December 31, 1998
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 in stockholders' equity 4
Consolidated statements of cash flows 5-6
Notes to consolidated financial statements 7-23
Company Information
Officers and Managers for 1999 24
Locations 25
Board of Directors for the Maryland Bank 26
Board of Directors for the Delaware Bank 27
Management Discussion and Analysis 28-29
Average Balances and Yields for 1998 30
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, 1998, 1997, and
1996, 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, 1998, 1997,
and 1996, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for organization costs in 1998.
/s/ Rowles & Company, LLP
Salisbury, Maryland
January 5, 1999
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Consolidated Balance Sheets
December 31,
1998 1997 1996
Assets
Cash and due from banks 12157944 9150979 9802923
Federal funds sold 33337435 20207703 14000000
Interest-bearing deposits 1228000 1229000 1423000
Investment securities
available for sale 2997137 2573450 2360400
Investment securities held
to maturity (approximate market
value of $80,848,955,
$63,457,503, and $62,789,427) 80275711 63249260 62610242
Loans, less allowance for
credit losses of $2,080,358,
$2,080,798, and $2,040,475 139757463 147190832 149059660
Premises and equipment 5530566 4152389 3473786
Accrued interest income 1869686 1790423 1626619
Intangible assets 10603 107476 66812
Deferred income taxes 67354 104061 154323
Other assets 231351 137039 63200
277463250 249892612 244640965
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing 36648979 33093588 31837470
Interest bearing 193968706 173699610 172460336
230617685 206793198 204297806
Accrued interest payable 456133 433344 428451
Accrued income taxes 0 21527 81197
Obligations under capital lease 0 61720 126611
Other liabilities 46233 5806 7827
231120051 207315595 204941892
Stockholders' equity
Common stock, par value $1 per
share; authorized 2,000,000
shares; issued and outstanding
1,620,000 shares in 1998,
810,000 shares in 1997 and 1996 1620000 810000 810000
Additional paid in capital 17290000 17290000 17290000
Retained earnings 26954680 24120666 21372763
45864680 42220666 39472763
Accumulated other
comprehensive income 478519 356351 226310
46343199 42577017 39699073
277463250 249892612 244640965
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,
1998 1997 1996
Interest and dividend revenue
Loans, including fees 12383846 12793350 12314677
U. S. Treasury and agency securities 3483434 2856937 2583671
State and municipal securities 489430 486343 554258
Federal funds sold and securities
purchased under agreements to resell 1411818 1213039 1259685
Time certificates of deposit 104224 69397 95268
Equity securities 15890 13200 12870
Total interest and dividend
revenue 17888642 17432266 16820429
Interest expense
Deposit interest 6334931 5965863 6089613
Other 0 1820 3798
Total interest expense 6334931 5967683 6093411
Net interest income 11553711 11464583 10727018
Provision for credit losses 1175 50000 193000
Net interest income after
provision for credit losses 11552536 11414583 10534018
Other operating revenue
Service charges on deposit accounts 691945 607647 567154
Other noninterest revenue 304243 245631 224151
Total other operating revenue 996188 853278 791305
Other expenses
Salaries 2468954 2291375 2109328
Employee benefits 583582 466490 463900
Occupancy 351601 366170 363175
Furniture and equipment 483506 450593 417582
Other operating 1431860 1065408 960765
Total other expenses 5319503 4640036 4314750
Income before income taxes and
cumulative effect of a change 7229221 7627825 7010573
in accounting method
Income taxes 2472274 2692922 2474932
Income before cumulative effect
of a change in accounting method 4756947 4934903 4535641
Cumulative effect of a change in the
method of accounting for
organization costs, net
of taxes of $30,875 -59933 0 0
Net income 4697014 4934903 4535641
Earnings per common share
Income before cumulative effect of a
change in accounting method 2.94 3.05 2.80
Cumulative effect of a change in the
method of accounting for
organization costs, net of taxes -0.04 0 0
Earnings per common share 2.90 3.05 2.80
The accompanying notes are an integral part of these financial statements.
Calvin B. Taylor Bank, Inc.
and Subsidiaries
Statement of Changes in Stockholders' Equity
Accumulated
other
Common Stock Undivided compre- Compre-
hensive hensive
Shares Par Value Surplus profits income income
Balance,
December 31, 1995 810000 810000 17290000 18538122 322955
Net income 0 0 0 4535641 0 4535641
Unrealized gain on
investment securities
available for sale net
of income taxes 0 0 0 0 -96645 -96645
Comprehensive income 4438996
Cash dividend,
$1.05 per share 0 0 0 -1701000 0
Balance,
December 31, 1996 810000 810000 17290000 21372763 226310
Net income 0 0 0 4934903 0 4934903
Unrealized gain on
investment securities
available for sale net
of income taxes 0 0 0 0 130041 130041
Comprehensive income 5064944
Cash dividend,
$1.35 per share 0 0 0 -2187000 0
Balance,
December 31, 1997 810000 810000 17290000 24120666 356351
Net income 0 0 0 4697014 0 4697014
Unrealized gain on
investment securities
available for sale net
of income taxes 0 0 0 0 122168 122168
Comprehensive income 4819182
Stock split effected
in the form of a 100%
stock dividend 810000 810000 0 -810000 0
Cash dividend,
$.65 per share 0 0 0 -1053000 0
Balance,
December 31, 1998 1620000 1620000 17290000 26954680 478519
The accompanying notes are an integra part of these financial statements.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
1998 1997 1996
Cash flows from operating activities
Interest received 17484837 16835399 16187302
Fees and commissions received 996155 856139 761379
Interest paid -6312142 -5962790 -6121182
Cash paid to suppliers and employees -4932100 -4297300 -3979974
Income taxes paid -2556102 -2885011 -3049058
4680648 4546437 3798467
Cash flows from investing activities
Proceeds from maturities
of investment securities 45815000 33192000 43555000
Purchase of investment
securities held to maturity -62741560 -33399142 -52501096
Certificates of deposits
purchased, net of maturities 1000 194000 586000
Loans made, net of principal
collected 7435183 1818828 -12933022
Other real estate purchased
at foreclosure -39000 0 0
Purchases of and deposits on
premises, equipment, software,
and other intangibles -1724341 -1039865 -437851
Proceeds from sale of equipment 0 0 17125
-11253718 765821 -21713844
Cash flows from financing activities
Net increase (decrease) in
Time deposits 6675598 -1673740 2732698
Other deposits 17148889 4169132 -1274980
Payments on capital lease -61720 -64891 -66900
Dividends paid -1053000 -2187000 -1701000
22709767 243501 -310182
Net increase (decrease) in cash and
cash equivalents 16136697 5555759 -18225559
Cash and cash equivalents
at beginning of year 29358682 23802923 42028482
Cash and cash equivalents
at end of year 45495379 29358682 23802923
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,
1998 1997 1996
Reconciliation of net income
to net cash provided by
operating activities
Net income 4697014 4934903 4535641
Adjustments to reconcile
net income to net cash
provided by operating activities
Depreciation and
amortization 437177 347663 346078
Provision for credit losses 1175 50000 193000
Deferred income taxes -40160 -31560 -65410
Amortization of premiums
and accretion of discounts,
net -324542 -433063 -456727
(Gain) loss on disposition
of assets 5860 0 -12287
Decrease (increase) in
Accrued interest
receivable -79263 -163804 -176400
Other assets -55313 -100904 -33119
Increase (decrease) in
Accrued interest payable 22789 4893 -27771
Accrued income taxes -21527 -59670 -508716
Other liabilities 37438 -2021 4178
4680648 4546437 3798467
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 other subsidiary,
Calvin B. Taylor Bank of Delaware, is a financial institution operating
primarily in Sussex County, Delaware. The Banks offer 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 Banks also offer
credit card services and discount brokerage services through correspondents.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions may affect the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Principles of consolidation
The consolidated financial statements of Calvin B. Taylor Bankshares, Inc.
include the accounts of its wholly owned 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 and federal funds sold. 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. Securities classified as available-for-
sale are recorded at fair value.
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.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Intangible assets
In 1998, the Company adopted Statement of Position 98-5 of the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants, Reporting on the Costs of Start-up Activities, which requires
that start-up costs and organization costs be expensed as incurred. During
1998, the Company wrote off organization costs, all of which were incurred
prior to 1998. Prior to 1998, organization costs were amortized over five
years.
The Company amortizes software costs over their useful lives using the
straight-line method.
Loans and allowance for credit losses
Loans are stated at face value less the allowance for credit loses.
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 1,620,000 shares outstanding,
giving retroactive effect to the stock dividend paid.
2. Comprehensive Income
The Bank adopted Statement No. 130 of the Financial Accounting Standards
Board Reporting Comprehensive Income in 1998. Comprehensive income includes
net income and the unrealized gain on investment securities held for sale.
The statement of changes in Stockholders' Equity has been restated to
include comprehensive income for the years ended December 31, 1997 and 1996.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
3. Cash and Due From Banks
The Company 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
$26,371,278 for 1998, $21,777,954 for 1997, and $24,057,839 for 1996.
Banks are required to carry noninterest-bearing cash reserves at specified
percentages of deposit balances. The Company's normal amount of cash on
hand and on deposit with other banks is sufficient to satisfy the reserve
requirements.
4. Investment Securities
Investment securities are summarized as follows:
Amortized Unrealized Unrealized Market
December 31, 1998 cost gains losses value
Available for sale
U.S. Treasury 1993174 487625 0 2480799
Equity 224363 291975 0 516338
2217537 779600 0 2997137
Held to maturity
U.S. Treasury 64826398 504666 14311 65316753
U.S. Government agency
obligations 1000000 157 469 999688
State and municipal 14449313 87156 3955 14532514
80275711 591979 18735 80848955
December 31, 1997
Available for sale
U.S. Treasury 1992885 317115 0 2310000
Equity 0 263450 0 263450
1992885 580565 0 2573450
Held to maturity
U.S. Treasury 53890145 175832 3052 54062925
State and municipal 9359115 40321 4858 9394578
63249260 216153 7910 63457503
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Investment Securities (Continued)
Amortized Unrealized Unrealized Market
cost gains losses value
December 31, 1996
Available for sale
U.S. Treasury 1991698 133302 0 2125000
Equity 0 235400 0 235400
1991698 368702 0 2360400
Held to maturity
U.S. Treasury 47191104 160982 19461 47332625
State and municipal 15419138 42037 4373 15456802
62610242 203019 23834 62789427
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, 1998 December 31, 1997 December 31, 1996
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
Available for sale due
After ten years 1993174 2480799 1992885 2310000 1991698 2125000
Held to maturity due
In one year or less 33406599 33531104 40640738 40725433 29582902 29606635
After one year
through five years 46869112 47317851 22608522 22732070 33027340 33182792
80275711 80848955 63249260 63457503 62610242 62789427
Pledged securities 5094242 5150876 5494785 5531876 6751564 6920996
Investments are pledged to secure deposits of federal and local governments.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses
Major classifications of loans are as follows:
1998 1997 1996
Demand and time 16253621 13237003 16481935
Mortgage 118837336 129549396 127381520
Construction 1795952 1372853 2277132
Installment 4950912 5112378 4959548
141837821 149271630 151100135
Allowance for credit losses 2080358 2080798 2040475
Loans, net 139757463 147190832 149059660
The rate repricing distribution of the loan portfolio follows:
1998 1997 1996
Immediately 136750569 144169000 145893311
Within one year 522434 427141 734733
Over one to five years 4223521 4122176 3911648
Over five years 341297 553313 560443
141837821 149271630 151100135
Outstanding loan commitments and letters of credit are as follows:
1998 1997 1996
Loan commitments
Construction and land development 1470375 2616516 6948259
Other 6012019 1981942 4500515
7482394 4598458 11448774
Standby letters of credit
Secured by deposits 1200650 1021080 1020467
Other 187215 98000 141650
1387865 1119080 1162117
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans and Allowance for Credit Losses (Continued)
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 Company's exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contract amount of the commitment. In 1998, management provided an
allowance of $2,989 for losses the Company may incur by the funding of these
commitments.
The Company makes loans to customers located primarily in the Delmarva
region. Although the loan portfolio is diversified, its performance will be
influenced by the economy of the region.
Transactions in the allowance for credit losses were as follows:
1998 1997 1996
Beginning balance 2080798 2040475 1858991
Provision charged to operations 1175 50000 193000
Recoveries 14479 8878 11479
2096452 2099353 2063470
Loans charged off 13105 18555 22995
2083347 2080798 2040475
Less allowance relating to
loan commitments 2989 0 0
Ending balance 2080358 2080798 2040475
Amounts past due 90 days or more, and still accruing interest, and
nonaccrual loans are as follows:
December 31, 1998 December 31, 1997 December 31, 1996
90 days 90 days 90 days
or more Non-accrual or more Non-accrual or more Non-accrual
Demand and time 303500 0 1645 0 54000 0
Mortgage 194622 0 201047 0 244748 66587
Installment 6887 0 12671 0 20413 607
505009 0 215363 0 319161 67194
Interest not accrued
on nonaccrual loans 0 0 896
Management has identified no impaired loans at December 31, 1998, 1997,
and 1996.
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 1998 1997 1996
Computer software 3 - 5 years 159388 159388 159388
Other acquisition costs 3 - 25 years 1718 1718 1718
Organization costs 5 years 0 110831 51918
161106 271937 213024
Accumulated amortization 150503 164461 146212
Net intangible assets 10603 107476 66812
Amortization expense 96873 18249 18368
As a result of adopting Statement of Position 98-5, Reporting on the
Costs of Start-up Activities, during 1998 the Company wrote off organization
costs totaling $90,808.
7. Premises and Equipment
A summary of premises and equipment and the related depreciation is as
follows:
Estimated useful life 1998 1997 1996
Land 2506475 1882545 991013
Premises 5-50 years 4253722 3451955 3437718
Furniture and equipment 5-40 years 2875819 2294630 2212325
Property held under
capital lease 5 years 0 329303 329303
9636016 7958433 6970359
Accumulated depreciation 4105450 3806044 3496573
Net premises and equipment 5530566 4152389 3473786
Depreciation expense 340304 329414 327710
The Company leased data processing equipment under a capital lease that
expired in 1998. The interest rate on the capital lease was imputed based
on the Company's incremental borrowing rate at the inception of the lease.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
8. Deposits
Major classifications of interest-bearing deposits are as follows:
1998 1997 1996
Money market and Supernow 57683937 55482239 53907865
Savings and NOW 66606783 55214983 53876343
Other time 69677986 63002388 64676128
193968706 173699610 172460336
Included in other time deposits are certificates of deposit of $100,000 or
more with the following maturities:
Three months or less 3962747 1490525 2244402
Over three through twelve months 9453247 5653695 6110871
Over one through five years 1181142 1203917 1049940
14597136 8348137 9405213
Interest expense 646110 506234 428182
9. Other Operating Expenses
The components of other operating expenses follow:
1998 1997 1996
Amortization of intangible assets 6064 18249 18368
Advertising 141736 117356 124635
Business and product development 118252 14000 0
Courier service 78900 66615 66910
Deposit insurance 19499 31666 2000
Director fees 71170 64352 61200
Dues, donations, and subscriptions 64451 58658 41384
Freight 60697 47145 28604
Liability insurance 68460 56172 52068
Postage 154295 150210 153123
Professional fees 82128 63194 53864
Stationery and supplies 266527 163105 139428
Telephone 72682 61145 65388
Teller machine fees 84720 65207 53197
Miscellaneous 142279 88334 100596
1431860 1065408 960765
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes
The components of income tax expense are as follows:
1998 1997 1996
Current
Federal 2218578 2346813 2134931
State 262981 377669 405411
2481559 2724482 2540342
Deferred -40160 -31560 -65410
2441399 2692922 2474932
The components of the deferred tax benefit are as follows:
Provision for credit losses -400 -15574 -70207
Pension expense 0 1795 1974
Depreciation -7511 -16247 -1351
Discount accretion -12412 11470 269
Health insurance premium deposits 4837 -13350 0
Organization costs -24674 0 0
Nonaccrual loans 0 346 3905
-40160 -31560 -65410
The components of the net deferred tax assets are as follows:
Deferred tax asset
Allowance for credit losses 562773 562373 546799
Health insurance premium deposits 8513 13350 0
Organization costs 24674 0 0
Nonaccrual loans 0 0 346
595960 575723 547145
Deferred tax liabilities
Depreciation 204771 212282 228529
Pension 13973 13973 12178
Discount accretion 8781 21193 9723
Unrealized gain on securities
available for sale 301081 224214 142392
528606 471662 392822
67354 104061 154323
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:
1998 1997 1996
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) in tax rate
resulting from
Tax-exempt income -2.2 -1.9 -2.4
State income taxes net of federal
income tax benefit 2.4 3.2 3.7
34.2 % 35.3 % 35.3 %
11. Lease Commitments
The Company 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
1999 16495
2000 13162
2001 13162
2002 13162
55981
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 Company.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
12. Pension Plan
The Company 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 Company'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:
1998 1997 1996
Change in plan assets
Fair value of plan assets
at beginning of year 2219851 2004200 1799123
Actual return on plan assets 204505 180123 165889
Employer contribution 97000 94000 84061
Benefits paid -66754 -58472 -44873
Fair value of plan at end of year 2454602 2219851 2004200
Change in benefit obligation
Benefit obligation at
beginning of year 2310520 2080175 1890146
Service cost 85189 82851 81063
Interest cost 159684 143866 130838
Benefits paid -66754 -58472 -44873
Actuarial gain 30221 62100 23001
Benefit obligation at end of year 2518860 2310520 2080175
Funded status -64258 -90669 -75975
Unamortized prior service cost 60703 70821 80939
Unrecognized net (gain) loss 23164 29610 -4250
Unamortized net obligation from transition 22016 26418 30820
Prepaid pension expense included
in other assets 41625 36180 31534
Net pension expense includes
the following components:
Service cost 85189 82851 81063
Interest cost 159684 143866 130838
Actual return on assets -204505 -180123 -165889
Amortization of unrecognized
prior service cost 10118 10118 10118
Amortization of transition obligations 4402 4402 4402
Deferred loss 36667 28240 18598
Net pension expense 91555 89354 79130
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
12. Pension Plan (Continued)
Assumptions used in the accounting for net pension expense were:
1998 1997 1996
Discount rates 6.75% 7.00% 7.00%
Rates of increase in compensation levels 5.75% 6.00% 6.00%
Long-term rate of return on assets 7.50% 7.50% 8.00%
13. Fair Value of Financial Instruments
The estimated fair values of the Company'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.
December 31, 1998 December 31, 1997 December 31, 1996
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
Financial assets
Cash and due
from banks 12157944 12284957 9150979 9263907 9802923 9887787
Federal funds sold 33337435 33337435 20207703 20207703 14000000 14000000
Interest-bearing
deposits 1228000 1236676 1229000 1238186 1423000 1433599
Investment
securities(total) 83272848 83846092 65822710 66030953 64970642 65149827
Loans, net 139757463 139771766 147190832 146996644 149059660 148899731
Accrued interest
receivable 1869686 1869686 1790423 1790423 1626619 1626619
Financial liabilities
Noninterest-bearing
deposits 36648979 36648979 33093588 33093588 31837470 31837470
Interest-bearing
deposits 193968706 194296343 173699610 173776507 172460336172641527
Obligation under
capital lease 0 0 61720 61720 126611 126611
Accrued interest
payable 456133 456133 433344 433344 428451 428451
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.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
13. Fair Value of Financial Instruments (Continued)
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 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 Company 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.
1998 1997 1996
Beginning balance 9466973 9482547 7178848
Advances 3034421 2651499 3328459
12501394 12134046 10507307
Repayments 3859858 2667073 1024760
Ending balance 8641536 9466973 9482547
The Company obtains legal services from a law firm in which one of the
principal attorneys is also a member of the 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.
15. Lines of Credit
The Company has available lines of credit, including overnight federal
funds, reverse repurchase agreements and letters of credit, totaling
$15,000,000, as of December 31, 1998, 1997, and 1996.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
16. 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
Company are as follows:
To Be Well
Actual Capital Adequacy Capitalized
Amount Ratio Amount Ratio Amount Ratio
(in thousands)
December 31, 1998
Total capital
(to risk-weighted assets) 47413 38.4% > 9873 > 8.0% > 12342 > 10.0%
Tier 1 capital
(to risk-weighted assets) 45864 37.2% > 4937 > 4.0% > 7405 > 6.0%
Tier 1 capital
(to average assets) 45864 17.5% > 10513 > 4.0% > 13142 > 5.0%
December 31, 1997
Total capital
(to risk-weighted assets) 43741 36.2% > 9680 > 8.0% > 12100 > 10.0%
Tier 1 capital
(to risk-weighted assets) 42221 34.9% > 4840 > 4.0% > 7260 > 6.0%
Tier 1 capital
(to average assets) 42221 16.7% > 10090 > 4.0% > 12612 > 5.0%
December 31, 1996
Total capital
(to risk-weighted assets) 40958 33.5% > 9776 > 8.0% > 12220 > 40.0%
Tier 1 capital
(to risk-weighted assets) 39431 32.3% > 4888 > 4.0% > 7332 > 6.0%
Tier 1 capital
(to average assets) 39431 15.8% > 9962 > 4.0% > 12453 > 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 Company's ability
to pay dividends and accept deposits, and may significantly affect the
operations of the Company.
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
17. 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 1998 1997 1996
Assets
Cash and due from banks 57056 255797 909975
Interest-bearing deposits 500000 500000 0
Securities available for sale 516338 263450 235400
Investment in subsidiary banks 43609263 40598524 38338929
Premises and equipment 1668338 874125 232156
Organization costs 0 90808 42400
Other assets 8721 2597 33087
Total assets 46359716 42585301 39791947
Liabilities and Stockholders' Equity
Liabilities
Accounts payable 0 0 1963
Deferred income taxes 16517 8284 90911
Total liabilities 16517 8284 92874
Stockholders' equity
Common stock, par value $1.00 per
share; authorized 2,000,000 shares;
issued and outstanding
1,620,000 shares in 1998, 810,000
shares in 1997 and 1996 1620000 810000 810000
Additional paid-in capital 17290000 17290000 17290000
Retained earnings 26954680 24120666 21372763
Accumulated other
comprehensive income 478519 356351 226310
Total stockholders' equity 46343199 42577017 39699073
Total liabilities and
stockholders' equity 46359716 42585301 39791947
Statements of Income
Years Ended December 31,
1998 1997 1996
Interest revenue 33467 30586 5228
Dividend revenue 15890 13200 9702
Dividends from subsidiary 1803000 5929000 2916000
Equity in undistributed
income of subsidiary 2906079 -1001768 1618986
Rental income 2700 1575 0
4761136 4972593 4549916
Expenses
Occupancy 8027 4476 51
Furniture and equipment 2280 2616 0
Other 65760 31406 17235
76067 38498 17286
Income before income taxes 4685069 4934095 4532630
Income taxes (benefit) -11945 -808 -3011
Net income 4697014 4934903 4535641
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Financial Information (Continued)
Years Ended December 31,
Statements of Cash Flows 1998 1997 1996
Cash flows from operating activities
Interest and dividends received 1852499 5728997 2930930
Rental payments received 2700 1575 0
Cash paid for operating expenses -35660 -27340 -7768
Income taxes refunded (paid) 808 3162 -150
1820347 5706394 2923012
Cash flows from investing activities
Organization costs 0 -58912 -51918
Organization costs reimbursed 58912 0 0
Purchase of premises and equipment -800637 -614660 -260119
Investment in new subsidiary 0 -3000000 0
Purchase of equity securities -224363 0 0
Purchase of certificate of deposit 0 -500000 0
-966088 -4173572 -312037
Cash flows from financing activities
Dividends paid -1053000 -2187000 -1701000
Net increase (decrease) in cash -198741 -654178 909975
Cash and equivalents at
beginning of year 255797 909975 0
Cash and equivalents at end of year 57056 255797 909975
Reconciliation of net income to net cash
provided by operating activities
Net income 4697014 4934903 4535641
Adjustments to reconcile net
income to net cash used in
operating activities
Undistributed net income
of subsidiary -2906079 1001768 -1618986
Noncash distribution from
subsidiary 0 -242000 0
Amortization and depreciation 38320 13121 9518
Increase (decrease) in other
liabilities -2784 -1963 0
Decrease (increase) in other assets -6124 565 -3161
1820347 5706394 2923012
Calvin B. Taylor Bankshares, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
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 Company has determined the scope of the Year 2000 issue as it relates to
the operation of the Banks. The internal systems have been tested and those
found not to be compliant will be compliant before the end of 1999.
Management estimates that the cost of making all applications compliant in
1999 will be $30,000. During 1998, the Company incurred $44,898 of expense,
above the normal replacement costs, related to the Year 2000 compliance.
Management has contacted vendors and large customers to assess their
preparedness and expects no significant impact on the operations of the
Company.
19. Quarterly Results of Operations (Unaudited)
Three months ended
December 31, September 30, June 30, March 31,
1998
Interest revenue 4576668 4622908 4371535 4317531
Interest expense 1658061 1660900 1520731 1495239
Net interest income 2918607 2962008 2850804 2822292
Provision for loan losses 0 1175 0 0
Net income 1117550 1292315 1133473 1153676
Comprehensive income 1057343 1424048 1187829 1149962
Earnings per share 0.69 .80 .70 .71
1997
Interest revenue 4462491 4523650 4250828 4195297
Interest expense 1541685 1534663 1440196 1451139
Net interest income 2920806 2988987 2810632 2744158
Provision for loan losses 25000 0 25000 0
Net income 1282099 1352094 1114717 1185993
Comprehensive income 1384727 1414060 1149413 1116744
Earnings per share 0.79 0.84 0.69 0.73
1996
Interest revenue 4358710 4442713 3986962 4032044
Interest expense 1540696 1554252 1481600 1516863
Net interest income 2818014 2888461 2505362 2515181
Provision for loan losses 143000 25000 25000 0
Net income 1186056 1261815 1075940 1011830
Comprehensive income 1259294 1261618 1008673 909411
Earnings per share 0.73 0.78 0.66 0.63
OFFICERS AND MANAGERS for 1999
Reese F. Cropper, Jr. William L. Bundick
President & C.E.O. Manager of Pocomoke Branches
William H. Mitchell Nancy E. Bunting
Senior Vice President, Manager of 91st Street
C.F.O. & Cashier
Margaret Mudron Mary Kaye Case
Vice President Manager of East Berlin Branch
Taylor Bank of Delaware
Raymond M. Thompson Jennifer L. Figgs
Vice President Manager of West Ocean City Branch
Peggy Zellman-Welsh Brooks Gray
Vice President & Manager of Ocean Pines Branch
Manager of 20th Street Branch
D. Kenneth Bates Larry Shockley
Assistant Vice President Manager of North Ocean City/
Fenwick Branch
Tina G. Kolarik S. Michael Cylc
Assistant Vice President Assistant Manager of Pocomoke Branches
Barry R. Laws Mary Jane Groff
Assistant Vice President & Assistant Branch Manager
Manager of Snow Hill Branch East Pocomoke Branch
Richard M. Parrott Sandra H. Duncan
Assistant Vice President Account Processing Manager
Human Resources
William J. Burke Frances T. Phillips
Assistant Cashier & Manager of Data Processing
Director of Marketing
Gail T. Wainwright Raymond I. Robinson
Assistant Cashier & Security & Operations Officer
Manager of Consumer Loans
Kimberly L. Crouse
Compliance Officer/Information Processing
BANK LOCATIONS
MARYLAND
BERLIN
Main Office:
24 N. Main Street
Berlin, MD 21811
East Berlin Branch:
10524 Old Ocean City Boulevard
Berlin, MD 21811
**Ocean Pines Branch:
11003 Cathell Road
Berlin, MD 21811
OCEAN CITY
**20th Street Branch:
100 20th Street
Ocean City, MD 21842
North Ocean City/Fenwick Branch:
14200 Coastal Highway
Ocean City, MD 21842
**Mid-Ocean City Branch:
9105 Coastal Highway
Ocean City, MD 21842
**West Ocean City Branch:
9923 Golf Course Road
Ocean City, MD 21842
POCOMOKE
**East Pocomoke Branch:
2140 Old Snow Hill Road
Pocomoke, MD 21851
South Pocomoke Branch:
121 Ames Plaza
Pocomoke City, MD 21851
SNOW HILL
108 West Market Street
Snow Hill, MD 21863
DELAWARE
OCEAN VIEW
50 Atlantic Avenue
Ocean View, DE 19970
** ATM Locations
BOARD OF DIRECTORS
1998
James R. Bergey, Jr.
James R. Bergey, Sr.
Richard L. Bunting
John H. Burbage, Jr.
Reese F. Cropper, Jr.
Hale Harrison
Gerald T. Mason
Joseph E. Moore
Horace D. Quillin, Sr.
Michael L. Quillin
Hugh F. Wilde, Sr.
Senator George H. Bunting, Jr.
Taylor Bank of Delaware
DIRECTORS EMERITI
1998
Irvin C. Bainum
John H. Burbage, Sr.
John L. Donaway
C. Vincent Holland
Brice R. Phillips
William P. Phillips, Sr.
Dr. Francis J. Townsend, Jr.
EXECUTIVE COMMITTEE - 1998
Horace D. Quillin, Sr. - Chairman
James R. Bergey, Sr.
Richard L. Bunting
Reese F. Cropper, Jr.
CALVIN B. TAYLOR BANK OF DELAWARE
BOARD OF DIRECTORS
1998
James R. Bergey, Jr.
James R. Bergey, Sr.
George H. Bunting, Jr.
Richard L. Bunting
John H. Burbage, Jr.
Reese F. Cropper, Jr.
Hale Harrison
Gerald T. Mason
Joseph E. Moore
Horace D. Quillin, Sr.
Michael L. Quillin
Hugh F. Wilde, Sr.
OFFICERS
Reese F. Cropper, Jr., President
William H. Mitchell, Treasurer
Margaret M. Mudron, Vice President & Secretary
This statement has not been reviewed, or confirmed for accuracy or relevance,
by the Federal Deposit Insurance Corporation.
Calvin B. Taylor Bankshares, Inc.
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 "Maryland Bank"). The Maryland Bank was incorporated under the
laws of the State of Maryland on December 17, 1907. The Maryland Bank was
organized as a nonmember state bank under the laws of the State of Maryland.
Calvin B. Taylor Bank of Delaware (the "DE Bank") was incorporated under the
laws of the State of Delaware on September 18, 1997. The DE Bank was
organized as a nonmember state bank under the laws of the State of Delaware.
Calvin B. Taylor Bankshares, Inc. has acquired all of the capital stock of
Calvin B. Taylor Bank of Delaware also. Both Banks are 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 Banks offer 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 Banks
offer certain retirement account services, such as Individual Retirement
Accounts. The Banks also offer a full range of short- to medium-term
commercial and personal loans. The Banks also originate and hold or sell into
the secondary market fixed and variable rate mortgage loans and real estate
construction and acquisition loans. Other bank services include cash
management services, safe deposit boxes, travelers' checks, direct deposit
of payroll and social security checks, and automatic drafts for various
accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's financial
statements and related notes and other statistical information included
elsewhere herein.
Overview
Consolidated income of the Company is derived primarily from operations of
the Banks. The 1998 net income was $4,697,014 compared to $4,934,903 for
1997. Although the company experienced a lower net income, the Company
continued its history of above average earnings with a return on equity of
10.54% and return on assets of 1.78% for 1998.
Results of Operations
The Company reported net income of $4,697,014, or $2.90 per share, for the
year ended December 31, 1998, which was a decrease of $237,889, or -4.82%,
from the net income of $4,934,903, or $3.05 per share, for the year ended
December 31, 1997. These percentages are slightly down form the previous
year totals due to a market that drove the interest rates down causing lower
net asset yields.
Net interest income increased $89,128, or .77%, to $11,553,711 in 1998,
from $11,464,583 in 1997. This increase in net interest income was the
result of an increase in interest revenue of $422,909. Net interest income
increased primarily because the balance of interest-earning assets 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 yield on interest-earning assets decreased slightly to 7.36% in 1998, from
7.60% in 1997, while the combined yield on deposits and borrowed funds
decreased to 2.89% from 2.90% for the same period.
The provision for loan losses was $1,175 in 1998, a decrease of $48,825
from the $50,000 provision in 1997. The decreased provision is the result
of a $11,051 decrease in net charge-offs for 1998, creating a net recovery
of $1,374. During 1998, the Company had net recoveries of $1,374, which was
.001% of average loans while during 1997 there were net charge-offs of $9,677.
Noninterest income increased by 16.75% and noninterest expense increased by
14.64% during 1998, compared to 1997. These changes are due to service
charges on new product lines and the expenses incurred getting these product
lines to the public.
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, the funding sources, 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 1998 and 1997, 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 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 1998 was 4.80%
compared to 5.03% for 1997. Because most of the loans of the Bank are
written with a demand feature, the income of the Banks should not change
dramatically as interest rates change. Management of the Company expects to
maintain the net margin on interest-earning assets. The net margin may decline,
however, if competition increases, loan demand decreases, or the cost of funds
rises faster than the return on loans and securities. Although such
expectations are based on management's judgment, actual results will depend
on a number of factors that cannot be predicted with certainty, and fulfillment
of management's expectations cannot be assured.
Average Balances, Interest and Yields
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
Average Average
balance Interest Yield balance Interest Yield
Assets
Federal funds sold and
securities sold
under purchase
agreements 26,359,775 1,411,818 5.36% 21,772,942 1,213,039 5.57%
Interest bearing
deposits 1,248,049 70,757 5.67% 1,243,208 69,397 5.58%
Investment securities:
U.S. Treasury 60,151,499 3,468,511 5.77% 47,767,048 2,856,937 5.98%
U.S. Agency 272,603 14,923 5.74% - -
State and
municipal 12,353,098 710,258 5.75% 11,991,438 706,528 5.89%
Other 351,216 24,076 6.86% 249,030 20,000 8.03%
Total investment
securities 73,128,416 4,217,768 5.77% 60,007,516 3,583,465 5.97%
Loans:
Commercial 14,919,040 1,298,811 8.71% 15,039,707 1,272,668 8.46%
Mortgage 127,295,155 10,585,496 8.32% 131,512,234 11,012,492 8.37%
Consumer 5,019,523 512,712 10.21% 5,010,982 510,500 10.19%
Total loans 147,233,718 12,397,019 8.42% 151,562,923 12,795,660 8.44%
Allowance for
loan losses 2,086,253 - 2,053,552
Total loans, net
of allowance 145,147,465 12,397,019 8.54% 149,509,371 12,795,660 8.56%
Total interest-
earning assets 245,883,705 18,097,362 7.36% 232,533,037 17,661,561 7.60%
Noninterest-bearing
cash 10,887,288 - 9,997,110 -
Premises and
equipment 4,584,091 - 3,967,373 -
Other assets 2,112,827 - 1,839,672 -
Total assets 263,467,911 18,097,362 248,337,192 17,661,561
Liabilities and Stockholders' Equity
Interest-bearing Deposits
Savings and NOW
deposits 60,545,046 1,493,594 2.47% 53,793,965 1,389,996 2.58%
Money market and
supernow 57,902,148 1,530,457 2.64% 55,012,180 1,497,011 2.72%
Other time deposits 65,020,172 3,277,413 5.04% 62,944,109 3,078,856 4.89%
Total interest-bearing
deposits 183,467,366 6,301,464 3.43% 171,750,254 5,965,863 3.47%
Borrowed funds 10,822 - 80,743 1,820 2.25%
Total interest-bearing
liabilities 183,478,188 6,301,464 3.43% 171,830,997 5,967,683 3.47%
Noninterest-bearing
deposits 34,675,359 - 34,304,946 -
218,153,547 6,301,464 2.89% 206,135,943 5,967,683 2.90%
Other liabilities 748,148 - 738,550 -
Stockholders'
equity 44,566,216 - 41,462,699 -
Total liabilities
and stockholders'
equity 263,467,911 6,301,464 248,337,192 5,967,683
Net interest spread 3.93% 4.13%
Net interest income 11,795,898 11,693,878
Net margin on
interest-earning assets 4.80% 5.03%
Interest on tax-exempt securities, including dividends, are reported on
fully taxable equivalent basis.
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, a state bank chartered under the
laws of the State of Delaware.
EXHIBIT 21
FINANCIAL DATA SCHEDULE
Item December 31
Number 1998
9-03(1) Cash and due from banks 12157944
9-03(2) Interest-bearing deposits 1228000
9-03(3) Federal funds sold 33337435
9-03(4) Trading account assets
9-03(6) Investment and mortgage-backed securities
held for sale 2997137
9-03(6) Investment and mortgage-backed securities
held to maturity - carrying value 80275711
9-03(6) Investment and mortgage-backed securities
held to maturity - market value 80848955
9-03(7) Loans 139757463
9-03(7)(2) Allowance for losses 2080358
9-03(11) Total assets 277463250
9-03(12) Deposits 230617685
9-03(13) Short-term borrowings
9-03(15) Other liabilities 502366
9-03(16) Long-term debt
9-03(19) Preferred stock - mandatory redemption
9-03(20) Preferred stock - no mandatory redemption
9-03(21) Common stocks 1620000
9-03(22) Other stockholders' equity 44723199
9-03(23) Total liabilities and
stockholders' equity 277463250
EXHIBIT 21
FINANCIAL DATA SCHEDULE
(continued)
9-04(1) Interest and fees on loans 12383846
9-04(2) Interest and dividends on investments 3988754
9-04-(4) Other interest income 1482575
9-04-(5) Total interest income 17855175
9-04-(6) Interest on deposits 6301464
9-04-(9) Total interest expense 6301464
9-04-(10) Net interest income 11553711
9-04-(11) Provision for loan losses 1175
9-04-(13)(h) Investment securities gains/(losses) 0
9-04-(14) Other expenses 5319503
9-04(15) Income/loss before income tax 7229221
9-04(17) Income/loss before extraordinary items 4756947
9-04(18) Extraordinary items, less tax
9-04(19) Cumulative change in accounting principles -59933
9-04(20) Net income or loss 4697014
9-04(21) Earnings per share - primary 2.9
9-04(21) Earnings per share - full diluted 2.9
I.B.5 Net yield on interest earning assets 4.8 %
III.C.1(a) Loans on nonaccrual 0
III.C.1(b) Accruing loans past due 90 days or more 505008
III.C.1(c) Troubled debt restructuring 0
III.C.2 Potential problem loans 0
IV.A.1 Allowance for loan loss -
beginning of period 2080798
IV.A.2 Total chargeoffs 13105
IV.A.3 Total recoveries 14479
IV.A.4 Allowance for loan loss - end of period 2080358
IV.B.1 Loan loss allowance allocated
to domestic loans 1169740
IV.B.2 Loan loss allowance allocated to foreign loans
IV.B.3 Loan loss allowance - unallocated 910618
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