SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 0-22345
------------------------------
SHORE BANCSHARES, INC.
109 North Commerce Street
Post Office Box 400
Centreville, Maryland 21617-0400
Telephone: (410) 758-1600
IRS Employer Identification Number: 52-1974638
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock,
Par Value $0.01
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
______ ______
Indicate the number of shares of outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
As of August 7, 1998, there were 2,014,848 shares of
Common Stock $0.01 Par Value outstanding.
This is the only class of outstanding shares.
<PAGE>
SHORE BANCSHARES, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets -June 30, 1998 and December 31, 1997
Statements of Income -- Three months ended June 30, 1998 and 1997 and
the six months ended June 30, 1998 and 1997.
Statements of Cash Flows -- Six months ended June 30, 1998 and 1997 and
the twelve months ended December 31, 1997
Notes to Financial Statements - June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
SHORE BANCSHARES, INC.
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in thousands 1998 1997
(Unaudited)
------------- --------------
<S><C>
ASSETS
Cash and due from banks $ 5,702 $ 5,092
Federal funds sold 9,664 3,504
Securities (Note 2)
Held to Maturity 38,756 39,298
Available for Sale 9,295 9,444
Loans, less allowance for credit losses (Note 3 and 4) 105,238 107,764
Premises and fixed assets 3,356 3,259
Investments in unconsolidated subsidiaries 1,192 1,187
Accrued interest receivable 1,385 1,476
Goodwill 2,013 2,088
Net deferred taxes and other assets 2,050 2,003
-------- --------
TOTAL ASSETS $178,651 $175,115
======== ========
LIABILITIES
Deposits
Non-interest bearing demand $ 18,123 $ 17,727
Interest bearing transaction 20,114 19,176
Savings and money market 37,653 37,575
Time, $100,000 or more 13,801 13,474
Other time 59,144 57,861
-------- --------
Total deposits 148,835 145,813
-------- --------
Long term debt (Note 5) 5,000 5,000
Accrued interest payable 190 189
Other liabilities 568 598
-------- --------
5,758 5,787
-------- --------
Total liabilities 154,593 151,600
-------- --------
COMMITMENTS
EQUITY CAPITAL
Common stock, par value $.01; authorized
10,000,000 shares, issued and outstanding
2,014,848 shares 20 10
Surplus 10,064 10,064
Retained earnings 14,009 13,480
Accumulated other comprehensive income (35) (39)
-------- --------
Total stockholders' equity 24,058 23,515
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,651 $175,115
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
SHORE BANCSHARES, INC.
<TABLE>
<CAPTION>
(UNAUDITED) Quarter Six Months Quarter Six Months
Dollars in thousands except per share data Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1998 1997 1997
---------------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fee income on loans $2,382 $4,820 $2,439 $4,400
Interest and dividends on securities
Taxable securities 565 1,127 556 1,083
Tax-exempt securities 119 241 105 212
Interest on federal funds sold 129 223 45 136
---------------------------------------------------------------
Total interest income 3,195 6,411 3,145 5,831
---------------------------------------------------------------
INTEREST EXPENSE
Interest on certificates of deposit
of $100,000 or more 190 375 200 410
Interest on other deposits 1,190 2,372 1,187 2,124
Interest on long term debt 71 142 - -
---------------------------------------------------------------
Total interest expense 1,451 2,889 1,387 2,534
---------------------------------------------------------------
NET INTEREST INCOME 1,744 3,522 1,758 3,297
Provision for credit losses --- --- --- ---
---------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 1,744 3,522 1,758 3,297
---------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 176 335 168 329
Other noninterest income 58 107 33 61
Gains (losses) on securities - - 4 8
---------------------------------------------------------------
Total noninterest income 234 442 205 398
---------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 526 1,118 546 1,058
Expenses of premises and fixed assets 144 316 114 265
Other noninterest expense 457 966 466 852
---------------------------------------------------------------
Total noninterest expense 1,127 2,400 1,126 2,175
---------------------------------------------------------------
INCOME BEFORE TAXES 851 1,564 837 1,520
Applicable income taxes 291 542 295 535
---------------------------------------------------------------
NET INCOME $ 560 $1,022 $ 542 $ 985
===============================================================
Basic earnings per common share $ 0.28 $ 0.51 $ 0.27 $ 0.49
Diluted earnings per common share 0.28 0.51 0.27 0.49
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SHORE BANCSHARES, INC.
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Dollars in thousands Stock Surplus Earnings Income Total
------------- ----------- ------------- -------------- -----------
<S><C>
Balance at January 1, 1998 $ 10 $ 10,064 $13,480 ($39) $ 23,515
Comprehensive income:
Net income 1,022 1,022
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale
securities, net of reclassification adjustment 4 4
-----------
Other comprehensive income 4
-----------
Comprehensive income 1,026
Two-for-one stock split effected in the
form of a 100% stock dividend 10 (10) 0
Cash dividends declared ($.24 per
common share)* (483) (483)
------------- ----------- ------------- -------------- -----------
Balance at June 30, 1998 20 10,064 14,009 (35) 24,058
============= =========== ============= ============== ===========
</TABLE>
*Restated for two-for-one stock split effected in the form of a 100% stock
dividend
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
SHORE BANCSHARES, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
1998 1997 1997
--------------------------------------------------------
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,022 $ 2,370 $ 985
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 151 424 102
Equity in net earnings of unconsolidated subsidiaries - (73) -
Provision for credit losses, net (18) (115) (91)
Deferred income tax benefits (7) 265 -
Net (gains) losses on disposal of assets - 40 (8)
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable 91 10 9
(Increase) decrease in other assets (35) (1,346) (853)
Increase (decrease) in interest payable 1 (118) 22
Increase (decrease) in other liabilities (30) (89) 82
------------------------------------------------------
Net cash provided by operating activities 1,175 1,368 248
------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of held-to-maturity securities 15,944 16,221 3,055
Proceeds from maturities of available-for-sale securities 99 1,081 5,884
Proceeds from sale of available-for-sale securities - 3,373 3,373
Purchases of held-to-maturity securities (15,269) (22,899) (3,294)
Purchases of available-for-securities - (1,693) (5,645)
Net (increase) decrease in loans 2,544 46 693
Purchase of premises and equipment (262) (1,276) (690)
Proceeds from sale of premises and equipment - - -
Aquisition, net of cash aquired - (2,799) (2,799)
------------------------------------------------------
Net cash provided by (used in) investing activities 3,056 (7,946) 577
------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in demand, interest-bearing
transaction, and savings deposits 1,412 6,923 2,772
Increase (decrease) in time deposits 1,610 (6,034) (2,180)
Proceeds from long-term debt - 5,000 -
Cash dividends paid (483) (977) (463)
------------------------------------------------------
Net cash provided by (used in) financing activities 2,539 4,912 129
------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 6,770 (1,667) 954
Cash and cash equivalents, beginning 8,596 10,263 10,263
------------------------------------------------------
Cash and cash equivalents, ending $ 15,366 $ 8,596 $ 11,217
======================================================
Supplementary cash flow information:
Interest paid $ 2,745 $ 5,417 $ 2,511
Income taxes paid $ 592 $ 1,120 $ 282
</TABLE>
All dollar amounts in thousands
<PAGE>
Note 1 - Financial Information
The unaudited interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10Q. In the opinion of management,
all necessary adjustments have been made for a fair presentation of financial
position and results of operations for the periods presented. Operating results
for the six month period ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1998. For
further information, refer to the audited consolidated financial statements and
footnotes included in the 1997 Annual Report to Shareholders and Form 10.
New Accounting Standard
During the first quarter 1998, Shore Bancshares, Inc. adopted FASB Statement no.
130 Reporting Comprehensive Income. Statement no. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income discloses certain financial information that historically has not been
recognized in the calculation of net income.
The Company holds securities classified as available-for-sale, which have
unrealized gain of $6 thousand before tax during the second quarter of 1998. The
after tax gain of $4 thousand is reflected in the Consolidated Statement of
Shareholders' Equity.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SECURITIES
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------------------------------
<S><C>
U.S. Treasury securities $ 6,976 $ 7,025
U.S. Government agency and
corporation obligations issued by
U.S. Government sponsored $ 27,462 $ 27,474
agencies
Securities issued by states and
political subdivisions in the U.S.
a.General obligations 9,926 10,059
b.Revenue obligations 1,348 1,360
Mortgage-backed securities 20 22 266 275
Equity Securities
a. Investments in Mutual Funds 1,045 927
b. Other equity securites with
readily determinable fair values
c. All other equity securities 1,068 1,068
------------------------------------------------------
TOTAL SECURITIES $ 38,756 $ 38,915 $ 9,355 $ 9,295
======================================================
PLEDGED SECURITIES $14,358
=============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------------------------------------------
<S><C>
U.S. Treasury securities $ 6,966 $ 7,014
U.S. Government agency and
corporation obligations issued by
U.S. Government sponsored $ 29,064 $ 29,086 100 100
agencies
Securities issued by states and
political subdivisions in the U.S.
a.General obligations 9,221 9,378
b.Revenue obligations 989 1,007
Mortgage-backed securities 24 27 365 374
Equity Securities
a. Investments in Mutual Funds 1,010 888
b. Other equity securites with
readily determinable fair values
c. All other equity securities 1,068 1,068
------------------------------------------------------
TOTAL SECURITIES $ 39,298 $ 39,498 $ 9,509 $ 9,444
======================================================
PLEDGED SECURITIES $17,338
==============
</TABLE>
All dollar amounts in thousands
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE - 3 LOANS AND LEASE FINANCING RECEIVABLES
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31
1998 1997
-------------------- -------------------
<S><C>
Loans secured by real estate
a. Construction and land development $ 3,950 $ 2,866
b. Secured by farmland (including farm
residential and other improvements) 4,547 4,282
c. Secured by 1-4 family residential properties
1. Revolving, open end loans 2,720 1,703
2. All others
(a) Secured by first liens 62,688 68,772
(b) Secured by junior liens 3,332 3,855
d. Secured by multi-family (5 or more)
residential properties
e. Secured by nonfarm nonresidential
properties 14,037 12,871
Loans to finance agricultural production and
other loans to farmers 2,173 1,322
Commercial and industrial loans 6,318 7,027
Loans to individuals for household, family,
and other personal expenditures (includes
purchased paper)
a. Credit card and related plans 78 81
b. Other 6,828 6,500
Obligations (other than securities) of states and
political subdivisions in the U.S. - 13
Other loans
a. Loans for purchasing or carrying securities
(secured and unsecured)
b. All other loans 34 42
Less any unearned income on loans 81 166
-------------------- -------------------
Total loans and leases, net of unearned income 106,624 109,168
Less allowance for loan and lease losses 1,386 1,404
-------------------- -------------------
Total loans and leases, net of unearned income
and allowance for loan and lease losses $ 105,238 $ 107,764
==================== ===================
</TABLE>
All dollar amounts in thousands
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE - 4 CHARGE OFFS AND RECOVERIES AND CHANGE IN
ALLOWANCE FOR LOAN AND LEASE LOSSES
(UNAUDITED)
I. CHARGE-OFFS AND RECOVERIES ON LOANS AND LEASES
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
Charge-offs Recoveries Charge-offs Recoveries
---------------------------------- ----------------------------------
<S><C>
1. Real estate loans $ - $ - $ 22 $ -
2. Installment loans 45 13 99 40
3. Credit cards and
related plans 5 - - -
4. Commercial (time and
demand) and all other
loans - 19 37 4
---------------------------------- ----------------------------------
6. Total $ 50 $ 32 $ 158 $ 44
================================== ==================================
</TABLE>
II. CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<S><C>
1. Balance at end of previous period $ 1,404 $ 1,503
2. Recoveries 32 44
3. Charge-offs (50) (158)
4. Provision for loan and lease losses - -
5. Allowance aquired - 15
----------------- -----------------
6. Balance at end of period $ 1,386 $ 1,404
================= =================
7. Net charge-offs $ 18 $ 114
8. Average daily loan balance 107,511 103,742
9. Ratio-net of charge offs to
average loans outstanding 0.02% 0.11%
</TABLE>
All dollar amounts in thousands
<PAGE>
Note 5 - Other Borrowed Funds
As of September 30, 1997, the Bank had received a convertible advance
from the Federal Home Loan Bank in the amount of $5,000,000 at an interest rate
of 5.66% which is due September 24, 2002. The Bank has pledged mortgage loans as
collateral on this advance.
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES
<TABLE>
<CAPTION>
YTD 6/30/98 YTD 6/30/97
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S><C>
ASSETS
Interest Earning assets:
Money market investments:
Federal funds sold 7,846,609 222,600 5.72% 5,158,390 136,148 5.32%
Investment Securities:
U.S. Treasury securities
and obligations of U.S.
government agencies 33,023,916 1,036,243 6.33% 32,007,965 1,017,136 6.41%
Obligations of States and
political subdivisions 10,476,219 365,159 7.03% 8,400,276 321,106 7.71%
Taxable Municipals 512,815 20,242 7.96% 512,815 20,242 7.96%
All other investment securities 1,703,870 62,273 7.37% 2,417,445 36,685 3.06%
Federal Reserve Bank stock 302,250 9,068 6.05% 302,250 9,068 6.05%
....................................... ......................................
Total investment securities 46,019,070 1,492,985 6.54% 43,640,751 1,404,237 6.49%
Loans - net of unearned income
Commercial loans 9,279,504 448,802 9.75% 9,271,536 450,485 9.80%
Installment loans 5,546,947 277,798 10.10% 5,209,275 260,686 10.09%
Mortgage loans 92,684,611 4,057,409 8.83% 84,443,987 3,647,302 8.71%
....................................... ......................................
Total loans 107,511,062 4,784,009 8.97% 98,924,798 4,358,473 8.88%
....................................... ......................................
TOTAL INTEREST EARNING ASSETS 161,376,741 6,499,594 8.12% 147,723,939 5,898,858 8.05%
Cash and due from banks 4,175,857 3,897,486
Other assets 9,661,600 7,520,827
Allowance for loan and lease losses (1,392,369) (1,469,286)
....................................... ......................................
TOTAL ASSETS 173,821,829 157,672,966
======================================= ======================================
LIABILITIES
Interest-bearing liabilities
Other Borrowed Funds 5,003,729 142,396 5.74% - -
Super NOW accounts 17,216,218 238,767 2.80% 16,371,886 243,319 3.00%
Money market deposit accounts 19,225,171 320,652 3.36% 20,225,294 334,063 3.33%
Time, $100,000 or more 12,157,097 325,789 5.40% 14,231,866 374,028 5.30%
Other time deposits 45,186,175 1,200,360 5.36% 37,439,886 965,186 5.20%
IRA deposits 15,567,253 391,076 5.07% 14,440,251 380,247 5.31%
Savings deposits 17,752,436 269,824 3.07% 15,349,455 236,788 3.11%
....................................... ......................................
TOTAL INTEREST BEARING LIABILITIES 132,108,079 2,888,864 4.41% 118,058,638 2,533,631 4.33%
Demand deposits 16,994,953 15,491,419
Other liabilities 994,495 1,703,748
....................................... ......................................
Total liabilities 150,097,527 135,253,805
Stockholders' equity 23,724,302 22,419,161
....................................... ......................................
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 173,821,829 157,672,966
======================================= ======================================
Net interest income & interest rate spread 3,610,730 3.71% 3,365,227 3.72%
Net interest income as a % of earning assets 4.36% 4.44%
======================================= ======================================
</TABLE>
1. All amounts are reported on a tax equivalent basis computed using the
statutory federal income tax rate of 34%, exclusive of the alternative
minimum tax rate and non deductible interest expense.
2. Loan fee income is included in interest income for each loan catagory and
yields are stated to include all.
3. Balances of nonaccrual loans and related income have been included for
computational purposes.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion is designed to provide a better understanding of the
financial position of Shore Bancshares, Inc., and should be read in conjunction
with the December 31, 1997 audited consolidated financial statements and notes.
ORGANIZATIONAL BACKGROUND
On July 1, 1996, Shore Bancshares, Inc. (the Company) commenced
operations as the parent company of its sole subsidiary, The Centreville
National Bank of Maryland (the Bank) which has conducted the business of banking
since 1876. Since the Bank is the primary possession of the Company, the assets
and liabilities of the Company are made up almost entirely of the assets and
liabilities of the Bank. The same is true for the income and expense of the
Company. All data for the periods on and after July 1996 is presented in this
analysis in consolidated form and is compared to like data for the Bank for
prior years, restated to reflect the exchange of shares of Bank common stock for
Company shares.
Effective April 1, 1997, The Centreville National Bank of Maryland
completed its merger with Kent Savings and Loan Association, F.A. (Kent Savings)
of Chestertown, Maryland. The transaction was accounted for as a purchase and,
therefore, results of operations for Kent Savings subsequent to March 31, 1997
are included in the consolidated statements of income and cash flows from date
of acquisition.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported $1,022 thousand in net income for the six months
ended June 30, 1998 or $.51 per share compared to the six months ended June 30,
1997 with net income of $985 thousand or $.49 per share. Net income in 1998
increased $37 thousand or 3.7% over the same period in 1997. The improvement was
attributable to the $225 thousand or 6.8% growth in net interest income, the
Company's major income component. June 30, 1998 net income includes six months
net interest earnings on assets acquired in the Kent Savings merger. The June
30, 1997 net interest income includes three months earnings on assets acquired
in the April 1, 1997 merger. Year to date net income absorbed on going
non-interest expense associated with the merger of Kent Savings including
goodwill amortization as well as increased depreciation expense for the
renovation of the Centreville office. Despite a relatively unchanged net
interest spread, net interest income as a percent of earning assets of 4.36%
decreased .08% as of June 30, 1998 compared to the same period in 1997, which
reflects a growth in earning assets at a faster rate than the growth in interest
earnings.
NET INTEREST INCOME and NET INTEREST MARGIN
Net interest income is the principal source of earnings for a banking
company. It represents the difference between interest and fees earned on the
loan and investment portfolios
Page 1
<PAGE>
and the interest paid on deposits. The quarter ended June 30, 1998 has been
characterized by relatively stable interest rates at the Bank level subsequent
to decreases in loan and deposit rates recognized early in the first quarter. As
a result of balance sheet growth, resulting primarily from the Kent purchase,
the Bank's net interest income, on a fully tax-equivalent basis, increased in
the first six months of 1998 compared to the same period in 1997. Net interest
income (on a tax equivalent basis) for June 30, 1998 increased by $245 thousand
or 7.3% compared to the six months ended June 30, 1997.
Interest rate spread is the difference between the average yield on
interest earning assets and the average rate paid on interest bearing
liabilities (deposits). Interest rate spread for the six months ended June 30,
1998 and 1997 was 3.71%, and 3.72%, respectively. Interest rate spread in 1998
decreased slightly at the end of the second quarter compared to the same period
in 1997 resulting from an increased yield on average earning assets of .07% and
an increase in yield of average interest bearing liabilities at a faster rate by
.08%. This is also a decrease from the March 31, 1998 interest rate spread of
3.83%. A change in the mix of the balance sheet accounted for the decrease in
interest rate spread when comparing the second quarters of 1998 and 1997. A
review of average earning assets shows 63.5% increase in earnings on federal
funds because of a .40% yield increase and a 52.1% increase in average balance.
The average balance in municipal bonds increased $2.1 million which provide a
higher tax equivalent yield than U.S. Treasuries and government agency bonds
which grew only $1.0 million. Despite loan rate decreases early in 1998 loan
yield has grown in comparison to June 30, 1997 by .09%. This second quarter loan
yield increase is a decrease from the .15% increase noted in comparing the first
quarter 1997 and 1998. The reduction in loan rates and loans refinanced with the
Bank or to the secondary market are reflected in earnings. As of June 30, 1998
total loans as a percentage of total assets has decrease 4.2%. Those funds have
been shifted to lower yielding federal funds and investment securities. Average
balances in each loan category have increased adding to total interest income.
Deposits have seen a change in mix as well. Other Time and IRA deposits average
balances have increased. These are more "costly" deposits that account for some
of the increased deposit interest expense. Despite lowering deposit rates early
in 1998 the change in deposit mix provided higher yields on deposits as of June
30, 1998 than they were the previous year.
Interest rate spread of 3.71% has decreased comparing June 30, 1998
to a spread of 3.82% at December 31, 1997. Yield on average earning assets has
decreased .05% primarily as a result of a lower yield on investments, loans and
a shift in balance sheet mix from higher yielding loans to lower yielding
investments and federal funds. Deposit yields have also increased primarily as a
result in increased cost of funds for time deposits. The increased yield on
interest bearing liabilities was assisted by additional cost of borrowed funds
at a higher rate than other interest bearing liabilities.
Net interest margin decrease comparing June 30, 1998 to June 30, 1997
from 4.44% to 4.36%. Net interest margin is calculated as tax equivalent net
interest income divided by average earning assets and represents the net yield
on its earning assets. The net interest margin reflected a growth in earning
assets at a faster rate than the growth in earnings. See the table 1 titled
"Average Balances, Yields and Rates" for additional information.
Management and the Board of Directors monitor interest rates
on a regular basis to assess the Company's competitive position and to maintain
a reasonable and profitable interest
Page 2
<PAGE>
rate spread. The Company also considers the maturity distribution of loans,
investments, and deposits and its effect on net interest income as interest
rates rise and fall over time.
PROVISION and ALLOWANCE FOR CREDIT LOSSES
As of the quarter ended June 30, 1998 and 1997, the Company recorded
net charge offs of $18 thousand and $91 thousand, respectively compared to net
charge offs of $114 thousand for the year ended December 31, 1997. Internal loan
review, in particular, has been effective in identifying problem credits and in
achieving timely recognition of potential and actual losses within the loan
portfolio. Improved overall credit quality and increased collection efforts have
also contributed to the immaterial amount of net charge offs in 1998 and for the
year ended December 31, 1997.
Gross charge offs as of June 30, 1998 amounted to $50 thousand, $109
thousand for the same period in 1997 and $158 thousand for the year ended 1997,
the majority of which were installment loans. Efforts to collect charged off
loans continue and are evidenced by recoveries totaling $32 thousand in the
second quarter of 1998, $18 thousand for the same six months in 1997 and $44
thousand for the year ended December 31, 1997.
The provision for credit losses has followed the same general trend as
the amount of charge offs. No provision for credit losses was charged to expense
in 1997 nor to date in 1998. The allowance for credit losses is maintained at a
level believed adequate by management to absorb estimated probable credit
losses. Management's quarterly evaluation of the adequacy of the allowance is
based on analysis of the loan portfolio and its known and inherent risks,
assessment of current economic conditions, diversification and size of the
portfolio, adequacy of the collateral, past and anticipated loss experience and
the amount of non-performing loans. The allowance for credit losses has remained
relatively unchanged despite the increase in outstanding loan balances. The
allowance for credit losses of $1.4 million as of June 30, 1998 and December 31,
1997 represents 1.30% and 1.29%, respectively of gross loans. As of June 30,
1997, the $1.4 million allowance for credit losses reflected 1.3% of gross
loans. Analysis by loan review supports adequacy of the allowance. The unchanged
percentage of allowance to outstanding loans reflects improvements in credit
quality achieved through better credit underwriting and more aggressive
collection efforts. In management's opinion, the allowance for credit losses is
adequate as of June 30, 1998.
See Notes 3 and 4 in the Notes to Financial Statements.
NON-INTEREST INCOME AND EXPENSE
As of June 30, 1998 non-interest income reflects $44 thousand increase compared
to June 30, 1997 primarily resulting from a $15 thousand gain on life insurance
and $16 thousand in ATM surcharges implemented in February 1998. Non-interest
expense as of June 30, 1998 increased $225 thousand or 10.3% compared to the
same period last year. A portion of the increase reflects $60 thousand increase
in salaries and benefit costs associated with the addition of Kent Branch staff
in the second quarter of 1997 verses six months of 1998 and increased pay rates
and employee
Page 3
<PAGE>
insurance premiums when comparing June 30, 1998 to June 30, 1997. Premise and
fixed asset expenses increased $51 thousand as of June 30, 1998 compared to the
same period in 1997 primarily as a result of overhead of the Kent Branch
acquired in the purchase of Kent Savings and Loan Association as well as the
increased cost of depreciation and facility costs for the renovated Commerce
Street office. The $114 thousand increase in other non-interest expense in the
first six months of 1998 compared to the same period in 1997 includes the
amortization of intangibles which increased as goodwill from the merger is
amortized over 15 years. In the first six months of 1998 costs have been added
as the Company has invested in additional marketing programs and staff training
programs. Data processing costs have also increased to as a result of the
additional customers acquired in the Kent Savings merger.
INVESTMENT SECURITIES
Investment securities classified as available-for-sale are held for an
indefinite period of time and may be sold in response to changing market and
interest rate conditions as part of the asset/liability management strategy.
Available-for-sale securities are carried at market value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity net of income taxes. Investment securities classified as
held-to-maturity are those that management has both the positive intent and
ability to hold to maturity, and are reported at amortized cost. The Company
does not currently follow a strategy of making securities purchases with a view
to near-term sales, and, therefore, does not own trading securities, nor are
derivatives used as investments. The Company manages the investment portfolios
within policies which seek to achieve desired levels of liquidity, manage
interest rate sensitivity risk, meet earnings objectives, and provide required
collateral support for deposit activities.
Total investment securities amounted to $48.0 million and $48.7 million
as of June 30, 1998 and December 31, 1997, respectively. The net decreased level
of investments in securities resulted primarily from securities called in the
first quarter as a result of the bond market offering lower interest rates. The
funds were primarily reinvested in federal funds and continue to be reinvested
in federal funds, loans and some investment securities. Excluding the U.S.
Government and U.S. Government sponsored agencies, the Company had no
concentrations of investment securities from any single issuers that exceeded
10% of stockholders' equity.
See Note 2 in the Notes to Financial Statements.
LOAN PORTFOLIO
The Bank is actively engaged in originating loans to customers in Queen
Anne's, Caroline, Kent and Talbot Counties. The Company has policies and
procedures designed to mitigate credit risk and to maintain the quality of the
loan portfolio. These policies include underwriting standards for new credits as
well as the continuous monitoring and reporting of asset quality and the
adequacy of the allowance for credit losses. These policies, coupled with
continuous training efforts, have provided effective checks and balances for the
risk associated with the lending process. Lending authority is based on the
level of risk, size of the loan and the experience of the lending officer. Total
loans as of June 30, 1998 have decreased $2.5 million
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<PAGE>
dollars since December 31, 1997. The decrease is attributed to loans refinancing
to the secondary market at the lower rates offered by the market as well as pay
downs of a number of lines of credit. Officer calling programs, new product
development, reduction in loan rates, and increased marketing efforts are being
implemented to combat the loan runoff. Note 3 "Summary of Loan Portfolio"
presents the composition of the Company's loan portfolio by significant
concentration. The Company had no loan concentrations exceeding 10% of total
loans which are not otherwise disclosed.
The Company's policy is to make the majority of its loan commitments in
the market area it serves. This tends to reduce risk because management is
familiar with the credit histories of loan applicants and has an in-depth
knowledge of the risk to which a given credit is subject. The Company had no
foreign loans in its portfolio as of June 30, 1998.
It is the policy of the Bank to place a loan in non-accrual status
whenever there is substantial doubt about the ability of a borrower to pay
principal or interest on any outstanding credit. Management considers such
factors as payment history, the nature of the collateral securing the loan and
the overall economic situation of the borrower when making a non-accrual
decision. Non-accrual loans are closely monitored by management . A non-accruing
loan is restored to current status when the prospects of future contractual
payments are no longer in doubt. At June 30, 1998 and December 31, 1997, $49
thousand and $199 thousand, respectively, of non-accrual loans were secured by
collateral with an estimated value of $343 thousand as of June 30, 1998 and $1.1
million as of December 31, 1997. At June 30, 1998, the Bank had troubled debt
restructurings of $876 and $3.3 million in loans on the watch list for which
payments were current, but the borrowers have the potential for experiencing
financial difficulties. These loans are subject to on going management attention
and their classifications are reviewed regularly.
DEPOSITS
Deposit liabilities reflected 2.1% increase in the first six months of
1998 compared to December 31, 1997. Interest bearing transactions and time
account deposits were the main sources of deposit growth. The addition of the
Kent branch market, competitive time deposit rates, new NOW account product
features, and marketing efforts have contributed to the growth in these
products. The Company continues to experience strong competition from other
commercial banks, credit unions, the stock market and mutual funds. The Company
has no foreign banking offices.
OTHER BORROWED FUNDS
Other borrowed funds consist of an advance from the Federal Home Loan
Bank of $5,000,000 at the end of the third quarter of 1997. These funds were
utilized for securities purchases. See Note 5 in the Notes to Financial
Statements.
LIQUIDITY MANAGEMENT
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Liquidity describes the ability of Shore Bancshares, Inc. and its
subsidiary, The Centreville National Bank of Maryland to meet financial
obligations that arise out of the ordinary course of business. Liquidity is
primarily needed to meet borrowing and deposit withdrawal requirements of the
customers of the Bank and to fund current and planned expenditures. The Company
maintains its asset liquidity position internally through short term
investments, the maturity distribution of the investment portfolio, loan
repayments and income from earning assets. A substantial portion of the
investment portfolio contains readily marketable securities that could be
converted to cash immediately. Refer to Note 2 in the Consolidated Financial
Statements for a table reflecting the Bank's security portfolio's estimated fair
value. On the liability side of the balance sheet, liquidity is affected by the
timing of maturing liabilities and the ability to generate new deposits or
borrowings as needed. Other sources, not currently in use, are available through
borrowings from the Federal Reserve Bank and from lines of credit approved at
correspondent banks. As discussed above, an additional source is the Federal
Home Loan Bank from which a $5,000,000 advance was outstanding at June 30, 1998.
During the first six months of 1998 calls of investment securities, decreases in
the loan portfolio and an increase in deposit liabilities have provided for the
Company's higher liquidity position. Management knows of no trend or event which
will have a material impact on the Bank's ability to maintain liquidity at
satisfactory levels.
MARKET RISK MANAGEMENT
Market risk is the risk of loss that arises from changes in interest
rates, foreign currency exchange prices, commodity prices, equity prices, and
other market changes that affect market sensitive financial instruments. The
Company's subsidiary's, The Centreville National Bank of Maryland, risk is
composed primarily of interest rate risk, which is the exposure of the Bank's
earnings and capital arising from future interest rate changes. This risk is a
normal part of the banking business because assets and liabilities do not
reprice at the same rate, nor do they move to the same degree as rates change.
In addition, the maturity distribution of the Bank's assets and liabilities do
not match for given periods of time. The Bank's Board of Directors has adopted
an Asset Liability Management Policy, which is administered by the Asset
Liability Committee of the Board of Directors. The Committee is responsible for
monitoring the Bank's interest rate sensitivity position and recommending
policies to the Board of Directors to limit exposure to interest rate risk while
maximizing net interest income.
The Bank uses earnings simulation modeling and internal calculation to
measure the effect specific rate changes would have on one year of net interest
income. Key assumptions include calls and maturities of investment securities,
depositors' rate sensitivity, maturity dates of fixed rate loans and investment
securities and repricing date of variable rate loans. As with any method of
gauging risk, there are inherent shortcomings and actual results may deviate
significantly from assumptions used in the model. Actual results will differ
from simulated results due to timing, magnitude and frequency of interest-rate
changes as well as changes in market conditions and management strategies. At
June 30, 1998 the Bank's estimated earnings sensitivity profile reflected a
modest sensitivity to interest rate changes. Based on an assumed 100 basis point
immediate change in interest rates the Bank's net interest income would decrease
by $42 thousand if rates were to increase by that amount and would increase $100
thousand if rates would decline a similar amount.
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<PAGE>
CAPITAL RESOURCES AND ADEQUACY
Total stockholders' equity increased $543 thousand or 2.3% in 1998 to
$24.0 million as of June 30, 1998 from $23.5 million at December 31, 1997.
Earnings of $1,022 thousand were the primary contributor to this increase. The
change in unrealized gain (loss) on investments classified as available for sale
accounted for a $4 thousand increase and dividends paid reduced stockholders'
equity $483 thousand.
One measure of capital adequacy is the leverage capital ratio which is
calculated by dividing average total assets for the most recent quarter into
Tier 1 capital. The regulatory minimum for this ratio is 4%. The leverage
capital ratio at the Company level at June 30, 1998 was 12.72% and at December
31, 1997 was 12.23%.
Another measure of capital adequacy is the risk based capital ratio or
the ratio of total capital to risk adjusted assets. Total capital is composed of
both core capital (Tier 1) and supplemental capital (Tier 2) including
adjustments for off balance sheet items such as letters of credit and taking
into account the different degrees of risk among various assets. Regulators
require a minimum total risk based capital ratio of 8%. The Company's ratio at
June 30, 1998 was 24.03% and at December 31, 1997 was 23.61%. According to FDIC
capital guidelines, the Company is considered to be "Well Capitalized."
Building and technological improvements begun in 1997 were completed in
1997. Renovations at the Commerce street location are significantly complete.
The remaining phase is replacing the lighting and flooring and will be completed
in 1998. Cost estimates have not yet been finalized.
On December 5, 1996 the Bank entered into an agreement to acquire Kent
Savings and Loan Association, F.A.(Kent Savings) of Chestertown, Maryland. The
merger transaction was accounted for as a purchase. Under the terms of the
agreement, the Bank paid approximately $5,100,000 for all of the outstanding
shares of Kent Savings resulting in $2.1 million in goodwill to be amortized
over 15 years. The Kent Savings shareholders met on March 17, 1997 and approved
the merger. The effective date of the merger was April 1, 1997.
On March 3, 1998 the Board of Directors also approved a 2 for 1 stock
split in the form of a 100% stock dividend to be distributed on March 31, 1998
to shareholders of record on March 10, 1998. Total capital did not change as a
result of the transaction, nor were the Company's capital ratios impacted in a
negative manner.
Management knows of no other trend or event which will have a material
impact on capital.
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<PAGE>
FUTURE TRENDS
The Year 2000 (Y2K) issue is a potential problem that is facing all
users of automated information systems and equipment. The concern is that many
computers and equipment are based on two digits for the year of the transaction
(for example "97") rather than a full four digits. These systems may not operate
effectively when the last two digits become "00", as occurs on January 1, 2000.
This could result in a systems failure or miscalculations, causing disruptions
in operations, the inability to process transactions or engage in similar normal
business activity. This is not just a banking problem, as corporations and
business around the world are similarly impacted.
To mitigate the effects of the Y2K issue, the Company's subsidiary, The
Centreville National Bank of Maryland, adopted a plan and formed an internal
task force to identify and assess impact of the Year 2000 issues, test the
systems, and determine and implement the needed changes. The Bank is
coordinating its efforts with other entities with which it interacts including
suppliers, customers, creditors, borrowers and financial service organizations.
The Bank's primary supplier of data processing services also has adopted a Year
2000 plan and timetable. Based on assessments made to date, the total cost of
the project is estimated to be approximately $170 thousand and may be as low as
$100 thousand, which is being funded through operating cash flows. The majority
of the cost is attributable to the purchase of equipment and software to replace
those systems which cannot be made Year 2000 compliant. The equipment and
software will be capitalized. Additional costs including staff time will be
expensed in the normal course of business and will not have a material impact on
the Company's results of operations, liquidity, capital resources or financial
condition.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the market risk of the Company's financial
instruments, see "Management Discussion and Analysis of Results of Operation and
Financial Condition - Market Risk Management." The Company's principal market
risk exposure is to interest rates.
Page 8
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to and approved by stockholders,
through the solicitation of proxies or otherwise, at the Annual Meeting of
Stockholders held on April 21, 1998:
(a) The following persons were elected to serve as directors of the
Company for a one-year term until the next annual meeting of the
Stockholders following election and until their successors are duly
elected and qualified. Results were as follows:
<TABLE>
<CAPTION>
Affirmative Votes Negative Votes Votes Abstaining
----------------- -------------- ----------------
<S><C>
Sydney G. Ashley 813,141 1,792 0
J. Robert Barton 814,869 64 0
Paul M. Bowman 814,869 64 0
David C. Bryan 814,869 64 0
Daniel T. Cannon 814,869 64 0
B. Vance Carmean, Jr. 814,869 64 0
Mark M. Freestate 810,261 4,672 0
Neil R. LeCompte 814,869 64 0
Susanne K. Nuttle 814,869 64 0
Jerry R. Pierson 814,869 64 0
Wm. Maurice Sanger 813,141 1.792 0
Walter E. Schmidt 814,869 64 0
</TABLE>
(b) Approval of the Articles of Amendment and Restatement for:
A) An amendment to stagger the terms of Directors and to provide
that Directors be removed only for cause, subject to regular Board
elections.
Affirmative Votes Cast: 761,631
Negative Votes Cast: 7,344
Abstained: 10,468
(B) An amendment to set maximum limits on the number of Directors.
<PAGE>
Affirmative Votes Cast: 769,645
Negative Votes Cast: 3,744
Abstained: 6,054
(C) An amendment to require 80% stockholder approval for future
changes to new Article FIFTH.
Affirmative Votes Cast: 759,934
Negative Votes Cast: 11,090
Abstained: 8,419
(D) An amendment concerning Board evaluation of factors for
changes in control.
Affirmative Votes Cast: 749,002
Negative Votes Cast: 11,258
Abstained: 19,183
(E) Other technical and clarifying amendments.
Affirmative Votes Cast: 756,065
Negative Votes Cast: 3,210
Abstained: 20,168
(c) Approval of the 1998 Stock Option Plan (the Option Plan), which
reserves 80,000 shares of Common Stock of the Company for issuance upon
the exercise of options granted under the Option Plan. The purpose of
the Option Plan is to provide incentives for the directors, executive
officers and key employees of the Company, the Bank and their
subsidiaries and to provide an additional means of attracting and
retaining competent personnel. Unless otherwise authorized by the
Company Board, options to purchase not more than 16,000 shares may be
granted under the Option Plan in any calendar year.
Affirmative Votes Cast: 755,162
Negative Votes Cast: 10,644
Abstained: 13,637
(d) Approval of the 1998 Stock Purchase Plan (the Purchase Plan), which
reserves 20,000 shares of Common Stock of the Company for issuance upon
the exercise of options granted under the Purchase Plan. The purpose of
the Purchase Plan is to provide eligible employees of the Company, the
Bank and their subsidiaries the ability to acquire an interest in the
Company and to provide an additional means of attracting and retaining
competent personnel. Unless otherwise authorized by the Company Board,
options to purchase not more than 4,000 shares may be granted under the
Purchase Plan in any calendar year.
Affirmative Votes Cast: 759,950
Negative Votes Cast: 9,012
Abstained: 10,481
(e) Stegman and Company, P.A. were appointed to serve as the Company's
independent auditors for the fiscal year ending December 31, 1998.
Affirmative Votes Cast: 808,017
Negative Votes Cast: ----
Abstained: 6,916
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. EXHIBIT INDEX
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
(2.1) Plan of Reorganization and Agreement to Merge dated March 15,
1996, is incorporated by reference from the Company's Form 10, filed with the
Commission on April 3, 1997 and Form 10/A, filed with the Commission on May 30,
1997 (Registration No. 0-22345).
(2.2) Merger Agreement dated December 5, 1996 among Kent Savings and
Loan Association, F.A., The Centreville National Bank of Maryland, and the
Company is incorporated by reference from the Company's Form 10, filed with the
Commission on April 3, 1997 and Form 10/A filed with the Commission on May 30,
1997 (Registration No. 0-22345).
(3) Charter and Bylaws
(3.1) Articles of Amendment and Restatement of the Company are filed
electronically here within via Edgar.
(3.2) Bylaws of the Company as amended and restated are filed
electronically here within via Edgar.
(13) 1997 Annual Report filed with the Commission on March 30, 1998
(Registration No. 0-22345).
(16) Letter re: Change in Certifying Accountants is incorporated by
reference from the Company's Form 10, filed with the Commission on April 3,
1997, and Form 10/A, filed with the Commission on May 30, 1997 (Registration No.
0-22345)
(21) List of Subsidiaries is incorporated by reference from the
Company's Form 10, filed with the Commission on April 3, 1997, and Form 10/A,
filed with the Commission on May 30, 1997 (Registration No. 0-22523).
(27) Financial Data Schedule is filed electronically herewith via
EDGAR.
B. REPORTS ON FORM 8-K
None
<PAGE>
SHORE BANCSHARES, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
Shore Bancshares, Inc., a Maryland corporation (hereinafter called the
"Corporation"), having its principal office in Centreville, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
SECTION I. The Corporation desires to completely amend and restate its
Charter by striking all paragraphs of the Articles of Incorporation and
amendments thereto, and inserting in lieu thereof the following:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is: SHORE BANCSHARES, INC.
SECOND: The purposes for which the Corporation is formed are
to engage in any lawful act or activities permitted by a corporation organized
under the laws of the State of Maryland.
THIRD: The post office address of the principal office of the
Corporation in this State is 109 North Commerce Street, P.O. Box 400,
Centreville, Maryland 21617. The name and post office address of the resident
agent of the Corporation in this State are Daniel T. Cannon, 109 North Commerce
Street, P.O. Box 400, Centreville, Maryland 21617. Said resident agent is an
individual and a citizen of this State who resides in this State.
FOURTH: The total number of shares of stock which the
Corporation has authority to issue is Ten Million (10,000,000) shares of common
stock, $.01 par value per share, for an aggregate par value of One Hundred
Thousand Dollars ($100,000).
FIFTH: The number of Directors of the Corporation shall be not
less than three (3) nor more than twenty-five (25). The number of Directors may
be increased or decreased in accordance with the Bylaws of the Corporation. The
Directors shall be divided into three classes with respect to the time for which
they shall hold office. Directors of Class I shall hold office for one year or
until the first annual meeting of stockholders following their election;
Directors of Class II shall hold office for two years or until the second annual
meeting of stockholders following their election; and Directors of Class III
shall hold office for three years or until the third annual meeting of
stockholders following their election; and in each case until their successors
are elected and qualify. At each future annual meeting of stockholders, the
successors to the Class of Directors whose term shall expire at that time shall
be elected to hold office for a term of three years, so that the term of office
of one Class of Directors shall expire in each year. The provisions of this
Article Fifth may not be amended or modified unless such amendment or
modification is authorized by the Board of Directors and approved by holders of
80% of the stock of the Corporation entitled to vote on the matter. As of the
date hereof, the Directors of the Corporation are: Sydney G. Ashley, J. Robert
Barton, Paul M. Bowman, David C. Bryan, Daniel T. Cannon, B. Vance Carmean, Jr.,
Mark M. Freestate, Neil R. LeCompte, Susanne K. Nuttle, Jerry F. Pierson, Wm.
Maurice Sanger, and Walter E. Schmidt.
SIXTH: The following provisions are hereby adopted for the
purposes of describing the rights and powers of the Corporation and of the
Directors and stockholders:
(a) The Board of Directors of the Corporation is
hereby empowered to authorize the issuance from time to time of shares of stock
of any class, whether now or hereafter authorized, and securities convertible
into shares of its stock of any class whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable, subject to such
limitations and restrictions, if any, as may be set forth in the Bylaws of the
Corporation.
(b) The Board of Directors of the Corporation may
classify or reclassify any unissued shares by fixing or altering in any one or
more respects, from time to time, before issuance of such shares, the
preferences, rights, voting powers, restrictions and qualifications of, the
dividends on, the times and prices of redemption of, and the conversion rights
of, such shares.
(c) The Corporation reserves the right to amend its
Charter so that such amendment may alter the contract rights, as expressly set
forth in the Charter, of any outstanding stock, and any objecting stockholder
whose rights may or shall be thereby substantially adversely affected shall not
be entitled to demand and receive payment of the fair value of his stock.
The enumeration and definition of a particular power
of the Board of Directors included in the foregoing is for descriptive
purposes only and shall in no way limit or restrict the terms of any other
clause of this or any other Article of these Articles of Incorporation, or in
any manner exclude or limit any powers conferred upon the Board of Directors
under the Maryland General Corporation Law ("MGCL") now or hereafter in force.
SEVENTH: The Directors of the Corporation shall consider all
factors they deem relevant in evaluating any proposed offer for the Corporation
or any of its stock, any proposed merger or consolidation of the Corporation or
subsidiary of the Corporation with or into another entity, any proposal to
purchase or otherwise acquire all or substantially all the assets of the
Corporation or any subsidiary of the Corporation, and any other business
combination (as such term is defined in the MGCL). The Directors shall evaluate
whether the proposal is in the best interests of the Corporation and its
subsidiaries by considering the best interests of the stockholders and other
factors the Directors determine to be relevant, including the social, legal and
economic effects on employees, customers, depositors, and communities served by
the Corporation and any subsidiary of the Corporation. The Directors shall
evaluate the consideration being offered to the stockholders in relation to the
then current market value of the Corporation and its subsidiaries, the then
current market value of the stock of the Corporation or any subsidiary in a
freely negotiated transaction, and the Directors' judgment as to the future
value of the stock of the Corporation as an independent entity.
EIGHTH: No Director or officer of the Corporation shall be
liable to the Corporation or to its stockholders for money damages except (i) to
the extent that it is proved that such Director or officer actually received an
improper benefit or profit in money, property or services, for the amount of the
benefit or profit in money, property or services actually received, or (ii) to
the extent that a judgment or other final adjudication adverse to such Director
or officer is entered in a proceeding based on a finding in the proceeding that
such Director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. No amendment of these Articles of Incorporation or repeal of any
of its provisions shall limit or eliminate the benefits provided to directors
and officers under this provision with respect to any act or omission which
occurred prior to such amendment.
SECTION II. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter of the Corporation in
effect upon acceptance of these Articles of Amendment and Restatement (the
"Articles") for record by the State Department of Assessments and Taxation of
Maryland, and upon such acceptance these Articles shall constitute the entire
Charter of the Corporation and supersede all prior Charter papers.
-2-
<PAGE>
SECTION III. The foregoing complete Amendment and Restatement of the
Charter of the Corporation includes amendments to the Charter duly advised by
the Board of Directors and approved by the stockholders of the Corporation in
the manner required for a Charter amendment under the Charter and By-laws of the
Corporation and the laws of the State of Maryland.
SECTION IV. (a) The Board of Directors of the Corporation at a
meeting held on March 17, 1998 adopted a resolution in which was set forth the
foregoing complete Amendment and Restatement of the Articles of Incorporation,
declaring that said Amendment and Restatement were advisable, and directing that
they be submitted to the stockholders of the Corporation for their
consideration.
(b) The stockholders of the Corporation approved the
complete Amendment and Restatement of the Articles of the Corporation as
hereinabove set forth at a meeting of the stockholders held on April 21, 1998.
-3-
<PAGE>
IN WITNESS WHEREOF, Shore Bancshares, Inc. has caused these Articles of
Amendment and Restatement to be signed and acknowledged in its name and on its
behalf by its President and witnessed and attested by its Secretary on this 21st
day of April, 1998, and they acknowledged the same to be the act of said
Corporation, and that to the best of their knowledge, information and belief,
all matters and facts stated herein are true in all material respects and that
this statement is made under the penalties of perjury.
ATTEST: SHORE BANCSHARES, INC.
/s/ Maryland Catherine Quimby By: /s/ Daniel T. Cannon (SEAL)
_____________________________ ____________________
Mary Catherine Quimby, Secretary Daniel T. Cannon, President
-4-
<PAGE>
SHORE BANCSHARES, INC.
BY-LAWS
AS AMENDED AND RESTATED
April 21, 1998
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on a day duly designated by the
Board of Directors in the month of April in each year, for the purpose of
electing directors to succeed those whose terms shall have expired as of the
date of such annual meeting, and for the transaction of such other corporate
business as may come before the meeting.
SECTION 2. Special Meetings. Special meetings of the
stockholders may be called at any time for any purpose or purposes by the
Chairman, the President, or by a majority of the Board of Directors, and shall
be called by the Chairman, the President, or Secretary, or any director of the
Corporation upon the request in writing of holders of a majority of all the
shares outstanding and entitled to vote on the business to be transacted at such
meeting. Such request shall state the purpose or purposes of the meeting. The
person to whom such request was made shall provide an estimate of the cost of
the mailing and, upon payment of such cost, the notice of the meeting shall be
mailed by the Corporation.
If the person to whom such request in writing is made shall
fail to issue a call for such meeting within ten (10) days after receipt of such
request, then a majority of the Board of Directors or the stockholders owning of
record a majority in amount of the stock of the Corporation, issued, outstanding
and entitled to vote, may do so by giving ten (10) days' prior written notice of
the time, place and object of the meeting in the manner set forth in Article I,
Section 4 hereof. Business transacted at all special meetings of stockholders
shall be confined to the purpose or purposes stated in the notice of the
meeting.
SECTION 3. Place of Holding Meetings. All meetings of
stockholders shall be held at the principal office of the Corporation or
elsewhere in the United States as designated by the Board of Directors.
SECTION 4. Notice of Meetings. Written notice of each meeting
of the stockholders shall be mailed, postage pre-paid by the Secretary, to each
stockholder entitled to vote thereat at the stockholder's post office address,
as it appears upon the books of the Corporation, at least ten (10) days but not
more than ninety (90) days before, the meeting. Each such notice shall state the
place, day, and hour at which the meeting is to be held and, in the case of any
special meeting, shall state briefly the purpose or purposes thereof.
SECTION 5. Quorum. The presence in person or by proxy of the
holders of record of a majority of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote thereat shall constitute
a quorum at all meetings of the stockholders, except as otherwise provided by
law, by the Articles of Incorporation or by these By-laws. If less than a quorum
shall be in attendance at the time for which the meeting shall have been called,
the meeting may be adjourned from time to time by a majority vote of the
stockholders present or represented, without any notice other than by
announcement at the meeting, until a quorum shall attend. At any adjourned
meeting at which a quorum shall attend, any business may be
<PAGE>
transacted which might have been transacted if the meeting had been held as
originally called.
SECTION 6. Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board of Directors or, if the Chairman is
not present, the President of the Corporation, or if the President is not
present, by a Vice President, or, if none of said officers is present, by a
chairman to be elected at the meeting. The Secretary of the Corporation, or if
the Secretary is not present, any Assistant Secretary shall act as Secretary of
such meetings; in the absence of the Secretary and any Assistant Secretary, the
presiding officer may appoint a person to act as Secretary of the meeting.
SECTION 7. Voting. At all meetings of stockholders, every
stockholder entitled to vote thereat shall have one (l) vote for each share of
stock standing in the stockholder's name on the books of the Corporation on the
date for the determination of stockholders entitled to vote at such meeting.
Such vote may be either in person or by proxy appointed by an instrument in
writing subscribed by such stockholder or the stockholder's duly authorized
attorney, bearing a date not more than eleven (11) months prior to said meeting,
unless said instrument provides for a longer period. Such proxy shall be dated,
but need not be sealed, witnessed or acknowledged. All elections shall be had
and all questions shall be decided by a majority of the votes cast at a duly
constituted meeting, except as otherwise provided by law, in the Articles of
Incorporation or by these By-laws.
If the chairman of the meeting shall so determine, a vote by
ballot may be taken upon any election or matter, and the vote shall be so taken
upon request of the holders of a majority of the stock entitled to vote on such
election or matter. In either of such events, the proxies and ballots shall be
received and be taken in charge and all questions touching the qualification of
voters and the validity of proxies and the acceptance or rejection of votes,
shall be decided by the tellers. Such tellers shall be appointed by the Board of
Directors prior to the meeting.
ARTICLE II
Board of Directors
------------------
SECTION 1. General Powers. The property and business of the
Corporation shall be managed by the Board of Directors of the Corporation.
SECTION 2. Number of Directors. The number of directors shall
be three (3) or such other number, but not less than three (3) nor more than
twenty-five (25), as may be designated from time to time by resolution of a
majority of the entire Board of Directors.
SECTION 3. Election and Term of Office. The Board of Directors
shall be divided into classes as described in the Articles of Incorporation.
Each Director shall hold office until the expiration of the term for which the
Director is elected, except as otherwise stated in these Bylaws, and thereafter
until his or her successor has been elected and qualifies. Election of Directors
need not be by written ballot, unless required by these Bylaws.
SECTION 4. Nomination of Directors. Nomination for election of
members of the Board of Directors may be made by the Board of Directors or by
any stockholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of Directors. Notice by a stockholder of
intention to make any nominations shall be made in writing and shall
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<PAGE>
be delivered or mailed to the Chairman of the Board or the President of the
Corporation not less than 120 days nor more than 180 days prior to the date of
the meeting of stockholders called for the election of Directors which, for
purposes of this provision, shall be deemed to be on the same date as the annual
meeting of stockholders for the preceding year. Such notification shall contain
the following information to the extent known by the notifying stockholder (a)
the name and address of each proposed nominee; (b) the principal occupation of
each proposed nominee; (c) the number of shares of capital stock of the
Corporation owned by each proposed nominee; (d) the name and residence address
of the notifying stockholder; (e) the number of shares of capital stock of the
Corporation owned by the notifying stockholder; (f) the consent in writing of
the proposed nominee as to the proposed nominee's name being placed in
nomination for Director; and (g) all information relating to such proposed
nominee that would be required to be disclosed by Regulation 14A under the
Securities Exchange Act of 1934, as amended, and Rule 14a-11 promulgated
thereunder, assuming such provisions would be applicable to the solicitation of
proxies for such proposed nominee. Nominations not made in accordance herewith
shall be disregarded and, upon the chairman's instructions, the teller shall
disregard all votes cast for each such nominee.
SECTION 5. Vacancies. In the case of any vacancy in the Board
of Directors through death, resignation, disqualification, removal or other
cause, the remaining directors, by affirmative vote of the majority thereof, may
elect a successor to hold office for the unexpired portion of the term of a
director whose place shall be vacant, and until the election of his successor,
or until he shall be removed, prior thereto by an affirmative vote of the
holders of a majority of the stock.
Similarly and in the event of the number of directors being
increased as provided in these By-laws, the additional directors so provided for
shall be elected by the directors already in office, and shall hold office until
the next annual meeting of stockholders and thereafter until his or their
successors shall be elected.
A director of the Corporation may only be removed during the
director's term of office for cause, which means a final unappealable criminal
conviction of a felony, unsound mind, adjudication of bankruptcy, or action that
causes material injury to the Corporation, by the affirmative vote of a majority
of the entire Board of Directors of the Corporation (exclusive of the director
being considered for removal) or by the affirmative vote of a majority of the
outstanding capital stock of the Corporation entitled to vote for the election
of directors. Stockholders shall not have the right to remove directors without
such cause. Any attempt or special meeting of stockholders to remove a director
for cause shall be permitted only after notice to the director describing the
specific charges constituting cause thereunder, and a hearing at which the
director has a full opportunity to refute the charges.
SECTION 6. Place of Meeting. The Board of Directors may hold
their meetings and have one or more offices, and keep the books of the
Corporation, either within or outside the State of Maryland, at such place or
places as they may from time to time determine by resolution or by written
consent of all the directors. The Board of Directors may hold their meetings by
conference telephone or other similar electronic communications equipment in
accordance with the provisions of Maryland General Corporation Law.
SECTION 7. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by resolution of the Board, provided that notice of every
resolution of the Board fixing or changing
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<PAGE>
the time or place for the holding of regular meetings of the Board shall be
mailed to each director at least three (3) days before the first meeting held in
pursuance thereof. The annual meeting of the Board of Directors shall be held
immediately following the annual stockholders' meeting at which a Board of
Directors is elected. Any business may be transacted at any regular meeting of
the Board.
SECTION 8. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman, or the
President, and must be called by the Chairman, the President or the Secretary
upon written request of a majority of the Board of Directors, by mailing the
same at least two (2) days prior to the meeting, or by personal delivery,
facsimile transmission, telegraphing or telephoning the same on the day before
the meeting, to each director; but such notice may be waived by any director.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at any special meeting. At any meeting at which every director shall
be present, even though without notice, any business may be transacted and any
director may in writing waive notice of the time, place and objects of any
special meeting.
SECTION 9. Quorum. A majority of the whole number of directors
shall constitute a quorum for the transaction of business at all meetings of the
Board of Directors, but, if at any meeting less than a quorum shall be present,
a majority of those present may adjourn the meeting from time to time, and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or by the Corporation's Articles of Incorporation
or by these By-laws.
SECTION 10. Compensation of Directors. Directors may receive a
fixed sum and expenses for attendance at regular and special meetings and
committee meetings, or any combination of the foregoing as may be determined
from time to time by the Board of Directors, and nothing contained herein shall
be construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefore.
SECTION 11. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in the resolution, shall have and may
exercise the powers of the Board of Directors, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. Such committee or
committees shall have such names as may be determined from time to time by
resolution adopted by the Board of Directors.
ARTICLE III
Officers
--------
SECTION 1. Election, Tenure, and Compensation. The officers of
the Corporation shall be a Chairman, a President, one or more Vice-Presidents
(if so elected by the Board of Directors), a Secretary, and a Treasurer, and
such other officers as the Board of Directors from time to time may consider
necessary for the proper conduct of the business of the Corporation. The
officers shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. The Chairman and the
President shall be directors and the other officers may, but need not be,
directors. Any two or more of the above
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<PAGE>
officers, except those of President and Vice President, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required by law or by these By-laws
to be executed, acknowledged or verified by any two or more officers. The
compensation or salary paid all officers of the Corporation shall be fixed by
resolutions adopted by the Board of Directors.
Except where otherwise expressly provided in a contract duly
authorized by the Board of Directors, all officers and agents of the Corporation
shall be subject to removal at any time by the affirmative vote of a majority of
the whole Board of Directors, and all officers, agents, and employees, other
than officers appointed by the Board of Directors, shall hold office at the
discretion of the Board of Directors or of the officers appointing them.
SECTION 2. Powers and Duties of the Chairman. The Chairman
shall preside at all meetings of the stockholders and of the Board of Directors
unless the Board of Directors shall, by a majority vote of a quorum thereof
elect an individual other than the Chairman to preside at meetings of the Board
of Directors. The Chairman shall be ex-officio a member of all the standing
committees. The Chairman shall do and perform such other duties as may, from
time to time, be assigned to the Chairman by the Board of Directors.
SECTION 3. Powers and Duties of the President. The President
shall be the chief executive officer of the Corporation and shall have general
charge and control of all its business affairs and properties. The President may
sign and execute all authorized bonds, contracts or other obligations in the
name of the Corporation. The President shall have the general powers and duties
of supervision and management usually vested in the office of President of a
corporation. The President shall do and perform such other duties as may, from
time to time, be assigned to the President by the Board of Directors.
SECTION 4. Powers and Duties of the Vice President. The Board
of Directors may elect one or more Vice Presidents. Any Vice President (unless
otherwise provided by resolution of the Board of Directors) may sign and execute
all authorized bonds, contracts, or other obligations in the name of the
Corporation. Each Vice President shall have such other powers and shall perform
such other duties as may be assigned to the Vice President by the Board of
Directors or by the Chairman or the President. In case of the absence or
disability of the President, the duties of that office shall be performed by any
Vice President, and the taking of any action by such Vice President in place of
the President shall be conclusive evidence of the absence or disability of the
President.
SECTION 5. Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors and all other
notices required by law or by these By-laws, and in case of the Secretary's
absence or refusal or neglect to do so, any such notice may be given by any
person thereunto directed by the Chairman or the President, or by the directors
or stockholders upon whose written requisition the meeting is called as provided
in these By-laws. The Secretary shall record all the proceedings of the meetings
of the stockholders and of the directors in books provided for that purpose, and
shall perform such other duties as may be assigned to him by the directors, the
Chairman, or the President. The Secretary shall have custody of the seal of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman, or the President, and attest
the same. In general, the Secretary shall perform all the duties generally
incident to the office of Secretary, subject to the control of the Board of
Directors, the Chairman, and the President.
-5-
<PAGE>
SECTION 6. Treasurer. The Treasurer shall have custody of all
the funds and securities of the Corporation, and shall keep full and accurate
account of receipts and disbursements in books belonging to the Corporation. The
Treasurer shall deposit all moneys and other valuables in the name and to the
credit of the Corporation in such depository or depositories as may be
designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements. The Treasurer shall render to the Chairman, the President and the
Board of Directors, whenever any of them so requests, an account of all
transactions as Treasurer and of the financial condition of the Corporation.
The Treasurer shall give the Corporation a bond, if required
by the Board of Directors, in a sum, and with one or more sureties, satisfactory
to the Board of Directors, for the faithful performance of the duties of the
office and for the restoration to the Corporation in case of the Treasurer's
death, resignation, retirement or removal from office of all books, papers,
vouchers, moneys, and other properties of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
The Treasurer shall perform all the duties generally incident
to the office of the Treasurer, subject to the control of the Board of
Directors, the Chairman, and the President.
SECTION 7. Assistant Secretary. The Board of Directors may
appoint an Assistant Secretary or more than one Assistant Secretary. Each
Assistant Secretary shall (except as otherwise provided by resolution of the
Board of Directors) have power to perform all duties of the Secretary in the
absence or disability of the Secretary and shall have such other powers and
shall perform such other duties as may be assigned by the Board of Directors,
the Chairman, or the President. In case of the absence or disability of the
Secretary, the duties of the office shall be performed by any Assistant
Secretary, and the taking of any action by any such Assistant Secretary in place
of the Secretary shall be conclusive evidence of the absence or disability of
the Secretary.
SECTION 8. Assistant Treasurer. The Board of Directors may
appoint an Assistant Treasurer or more than one Assistant Treasurer. Each
Assistant Treasurer shall (except as otherwise provided by resolution of the
Board of Directors) have power to perform all duties of the Treasurer in the
absence or disability of the Treasurer and shall have such other powers and
shall perform such other duties as may be assigned by the Board of Directors,
the Chairman or the President. In case of the absence or disability of the
Treasurer, the duties of the office shall be performed by any Assistant
Treasurer, and the taking of any action by any such Assistant Treasurer in place
of the Treasurer shall be conclusive evidence of the absence or disability of
the Treasurer.
ARTICLE IV
Capital Stock
-------------
SECTION 1. Issue of Certificates of Stock. The certificates
for shares of the stock of the Corporation shall be of such form not
inconsistent with the Certificate of Incorporation, or its amendments, as shall
be approved by the Board of Directors. All certificates
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<PAGE>
shall be signed by the Chairman, the President or by any Vice-President and
counter-signed by the Secretary, an Assistant Secretary, Treasurer or Assistant
Treasurer, and sealed with the seal of the Corporation. All certificates for
each class of stock shall be consecutively numbered. The name of the person
owning the shares issued and the address of the holder, shall be entered in the
Corporation's books. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificates representing the same number
of shares shall be issued until the former certificate or certificates for the
same number of shares shall have been so surrendered, and canceled, unless a
certificate of stock be lost or destroyed, in which event another may be issued
in its stead upon proof of such loss or destruction and the giving of a
satisfactory bond of indemnity not exceeding an amount double the value of the
stock. Both such proof and such bond shall be in a form approved by the general
counsel of the Corporation and by the Transfer Agent of the Corporation and by
the Registrar of the stock.
SECTION 2. Transfer of Shares. Shares of the capital stock of
the Corporation shall be transferred on the books of the Corporation only by the
holder thereof in person or by the holder's attorney upon surrender and
cancellation of certificates for a like number of shares as hereinbefore
provided.
SECTION 3. Registered Stockholders. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share in the name of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by the Laws of Maryland.
SECTION 4. Closing Transfer Books. The Board of Directors may
fix the period, not exceeding twenty (20) days, during which time the books of
the Corporation shall be closed against transfers of stock, or, in lieu thereof,
the directors may fix a date not less than ten (10) days nor more than sixty
(60) days preceding the date of any meeting of stockholders or any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the stockholders entitled to notice of and to vote at such
meeting or to receive such dividends or rights as the case may be; and only
stockholders of record on such date shall be entitled to notice of and to vote
at such meeting or to receive such dividends or rights as the case may be.
ARTICLE V
Bank Accounts and Loans
SECTION 1. Bank Accounts. Such officers or agents of the
Corporation as from time to time shall be designated by the Board of Directors
shall have authority to deposit any funds of the Corporation in such banks or
trust companies as shall from time to time be designated by the Board of
Directors and such officers or agents as from time to time authorized by the
Board of Directors may withdraw any or all of the funds of the Corporation so
deposited in any bank or trust or trust company, upon checks, drafts or other
instruments or orders for the payment of money, drawn against the account or in
the name or behalf of this Corporation, and made or signed by such officers or
agents; and each bank or trust company with which funds of the Corporation are
so deposited is authorized to accept, honor, cash and pay, without limit as to
amount, all checks, drafts or other instruments or orders for the payment of
money, when drawn, made or signed by officers or agents so designated by the
Board of Directors until written notice of the revocation of the authority of
such officers or agents by the Board of Directors shall have
-7-
<PAGE>
been received by such bank or trust company. There shall from time to time be
certified to the banks or trust companies in which funds of the Corporation are
deposited, the signature of the officers or agents of the Corporation so
authorized to draw against the same. In the event that the Board of Directors
shall fail to designate the persons by whom checks, drafts and other instruments
or orders for the payment of money shall be signed, as hereinabove provided in
this Section, all of such checks, drafts and other instruments or orders for the
payment of money shall be signed by the Chairman, the President or a Vice
President and counter-signed by the Secretary or Treasurer or an Assistant
Secretary or an Assistant Treasurer of the Corporation.
SECTION 2. Loans. Such officers or agents of the Corporation
as from time to time shall be designated by the Board of Directors shall have
authority to effect loans, advances or other forms of credit at any time or
times for the Corporation from such banks, trust companies, institutions,
corporations, firms or persons as the Board of Directors shall from time to time
designate, and as security for the repayment of such loans, advances, or other
forms of credit to assign, transfer, endorse, and deliver, either originally or
in addition or substitution, any or all stock, bonds, rights, and interests of
any kind in or to stocks or bonds, certificates of such rights or interests,
deposits, accounts, documents covering merchandise, bills and accounts
receivable and other commercial paper and evidences or debt at any time held by
the Corporation; and for such loans, advances, or other forms of credit to make,
execute and deliver one or more notes, acceptances or written obligations of the
Corporation on such terms, and with such provisions as to the security or sale
or disposition thereof as such officers or agents shall deem proper; and also to
sell to, or discount or rediscount with, such banks, trust companies,
institutions, corporations, firms or persons any and all commercial paper, bills
receivable, acceptances and other instruments and evidences of debt at any time
held by the Corporation, and to that end to endorse, transfer and deliver the
same. There shall from time to time be certified to each bank, trust company,
institution, corporation, firm or person so designated the signature of the
officers or agents so authorized; and each bank, trust company, institution,
corporation, firm or person is authorized to rely upon such certification until
written notice of the revocation by the Board of Directors of the authority of
such officers or agents shall be delivered to such bank, trust company,
institution, corporation, firm or person.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January of each year.
SECTION 2. Notices. Whenever, under the provisions of these
By-laws, notice is required to be given to any director, officer or stockholder,
unless otherwise provided in these By-laws, such notice shall be deemed given if
in writing, and personally delivered, or sent by telefax, or telegram, or by
mail, by depositing the same in a post office or letter box, in a postpaid
sealed wrapper, addressed to each stockholder, officer or director, as the case
may be, at such address as appears on the books of the Corporation, or in
default of any other address, to such director, officer or stockholder, at the
general post office in the Town of Centreville, Maryland, and such notice shall
be deemed to be given at the time the same is so personally delivered,
telefaxed, telegraphed or so mailed. Any stockholder, director or officer may
waive any notice required to be given under these By-laws.
-8-
<PAGE>
SECTION 3. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman, the President and the Vice President, or any
of them, shall have full power and authority on behalf of the Corporation to
attend and to vote and to grant proxies to be used at any meetings of
stockholders of any corporation in which the Corporation may hold stock.
ARTICLE VII
Amendment of By-laws
The Board of Directors and the stockholders shall each have
full power to amend, alter or repeal these By-laws, or any provision thereof,
and may from time to time make additional By-Laws. Any amendment to the By-Laws
by the stockholders shall be made at any annual meeting as part of the general
business of such meeting, or at any special meeting provided there was stated in
the notice of such meeting given to the stockholders the substance of such
proposed alteration or repeal.
ARTICLE VIII
Indemnification
SECTION 1. Definitions. As used in this Article VIII, any word
or words that are defined in Section 2-418 of the Corporations and Associations
Article of the Annotated Code of Maryland (the "Indemnification Section"), as
amended from time to time, shall have the same meaning as provided in the
Indemnification Section.
SECTION 2. Indemnification of Directors and Officers. The
Corporation shall indemnify and advance expenses to a director or officer of the
Corporation in connection with a proceeding to the fullest extent permitted by
and in accordance with the Indemnification Section. Notwithstanding the
foregoing, the Corporation shall be required to indemnify a director or officer
in connection with a proceeding commenced by such director or officer against
the Corporation or its directors or officers only if the proceeding was
authorized by the Board of Directors.
SECTION 3. Indemnification of Other Agents and Employees. With
respect to an employee or agent, other than a director or officer of the
Corporation, the Corporation may, as determined by and in the discretion of the
Board of Directors of the Corporation, indemnify and advance expenses to such
employees or agents in connection with a proceeding to the extent permitted by
and in accordance with the Indemnification Section.
END OF BY-LAWS
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and
Exchange Act of 1934, the Bank has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 12, 1998
SHORE BANCSHARES, INC.
/s/ Daniel T. Cannon
__________________________________
DANIEL T. CANNON
President
/s/ Carol I. Brownawell
__________________________________
CAROL I. BROWNAWELL
Treasurer
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