SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Talbot Bancshares, Inc.
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
|_| Fee paid previously with preliminary materials: N/A
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of TALBOT BANCSHARES, INC.
Notice is hereby given that the Annual Meeting of Stockholders of
Talbot Bancshares, Inc. (the "Company") will be held at the offices of The
Talbot Bank, 18 East Dover Street, Easton, Maryland, 21601 at 11:00 a.m., local
time, on Wednesday, April 22, 1998, for the following purposes:
1. To elect four Class I Directors to the Company Board of
Directors to serve until the 1999 Annual Meeting.
2. To elect four Class II Directors to the Company Board of
Directors to serve until the 2000 Annual Meeting.
3. To elect five Class III Directors to the Company Board of
Directors to serve until the 2001 Annual Meeting.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on March 23, 1998, will
be entitled to notice of and to vote at the meeting. This proxy statement is
accompanied by the Company's 1997 Annual Report to Stockholders.
All stockholders are cordially invited to attend the meeting in person.
Those who cannot attend are urged to sign, date and mail promptly the enclosed
proxy in the envelope provided for that purpose. Proposals 1, 2, and 3 require
the affirmative vote of holders of a majority of the shares of common stock
present and voting. Whether you own a few or many shares, your proxy is
important in fulfilling this requirement. Returning your proxy does not deprive
you of your right to attend the meeting and to vote your shares in person.
By Order of the Board of Directors,
W. Moorhead Vermilye
President
March 30, 1998
18 East Dover Street, Easton, Maryland 21601
---------------------------------------------------------
410-822-1400 / Fax 410-820-7180
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TALBOT BANCSHARES, INC.
18 EAST DOVER STREET
EASTON, MARYLAND 21601
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the stockholders of Talbot
Bancshares, Inc. (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be voted at the Annual Meeting of
Stockholders to be held on Wednesday, April 22, 1998 at 11:00 a.m., local time,
at the offices of The Talbot Bank, 18 East Dover Street, Easton, Maryland,
21601, and at any adjournments thereof. The expense of preparing, printing, and
mailing the proxies and solicitation materials will be borne by the Company. In
addition to solicitations by mail, the Company may solicit proxies in person or
by telephone, and arrange for brokerage houses and other custodians, nominees,
and fiduciaries to send proxies and proxy material to their principals at the
expense of the Company. The approximate date on which this proxy statement and
attached form of proxy is mailed to stockholders is March 30, 1998.
Holders of record at the close of business on March 23, 1997 (the
"Record Date") of outstanding shares of the Company's common stock, par value
$.01 per share ("Common Stock"), are entitled to notice of and to vote at the
meeting. As of the Record Date, the number of shares of outstanding Common Stock
entitled to vote is 1,189,610 shares. Each share of stock is entitled to one
vote. Shares represented by any proxy properly executed and received pursuant to
this solicitation will be voted in accordance with the directions of the
stockholder; if no direction is given, the proxy will be voted for approval of
Proposals 1, 2, and 3 and in the discretion of the holders of the proxies as to
any other matters that may properly come before the meeting. The proxy may be
revoked by a stockholder at any time prior to its use by execution of another
proxy bearing a later date, or by written notice delivered to W. Moorhead
Vermilye, President of the Company, at the Company's address or at the meeting.
The Company's address is 18 East Dover Street, Easton, Maryland 21601
(410-822-1400). The Company is the parent bank holding company to the Talbot
Bank of Easton, Maryland (the "Bank"), a Maryland commercial bank. In 1997, the
Company exchanged each share of the Bank's common stock for two shares of the
Common Stock of the Company.
Holders of Common Stock will be asked to (1) elect four Class I
Directors to the Company Board of Directors to serve until the 1999 Annual
Meeting; (2) elect four Class II Directors to the Company Board of Directors to
serve until the 2000 Annual Meeting; (3) elect five Class III Directors to the
Company Board of Directors to serve until the 2001 Annual Meeting.
ELECTION OF DIRECTORS
By resolution of a majority of the entire Board of Directors, the
number of Directors constituting the Board is fixed at 13. For purposes of this
first Annual Meeting, Directors have been divided into three classes, as nearly
equal in number as possible, with respect to the time for which the Directors
may hold office. Directors of Class I will hold office for one year or until the
first annual election following their election. Directors of Class II will hold
office for two years or until the second annual election following their
election. Directors of Class III will hold office for three years or until the
third annual election
<PAGE>
following their election. In each case, Directors are elected until their
successors are duly elected and qualify. At each future annual meeting, the
successors of the class of Directors whose term expires at that time will be
elected to hold office for a term of three years, so that the term of office of
one class of Director will expire in each year. All 13 Directors are, therefore,
up for election at this first Annual Meeting. The Company's President is
proposed to be elected to Class III, and the Company's Executive Vice President
is proposed to be elected to Class II.
The names of the nominees for each class, their ages as of March 23,
1998, their principal occupations and business experience for the past five
years, and certain other information are set forth below.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
NOMINEES TO CLASS I
- -------------------------------------------------------------------------------------------------------------------
Name Age Information Regarding Nominees
---- --- ------------------------------
<S> <C>
Herbert L. Andrew, III 61 Mr. Andrew has served as a Director of the Company since its
formation in 1997 and of the Bank since 1977. He is a farmer
and was elected to the Talbot County Council in 1994.
Blenda W. Armistead 46 Ms. Armistead has served as a Director of the Company since
its formation in 1997 and of the Bank since 1992. She is the
County Manager of Talbot County.
Lloyd L. Beatty, Jr. 45 Mr. Beatty has served as a Director of the Company since its
formation in 1997 and of the Bank since 1992. He is a
Certified Public Accountant and Principal of Beatty, Satchell &
Company, L.L.C.
Donald D. Casson 68 Mr. Casson has served as a Director of the Company since its
formation in 1997 and of the Bank since 1983. He is a
Certified Public Accountant and real estate broker.
- --------------------------------------------------------------------------------------------------------------------------
NOMINEES TO CLASS II
- --------------------------------------------------------------------------------------------------------------------------
Name Age Information Regarding Nominees
---- --- ------------------------------
Gary L. Fairbank 61 Mr. Fairbank has served as a Director of the Company since its
formation in 1997 and of the Bank since 1985. He is the
owner of Fairbank Tackle.
Ronald N. Fox 60 Mr. Fox has served as a Director of the Company since its
formation in 1997 and of the Bank since 1981. He is an
investor. Prior to 1997 he was the co-owner and an employee
of the Washington Street Pub.
Richard C. Granville 55 Mr. Granville has served as a Director of the Company since
its formation in 1997 and of the Bank since 1994. He is the
President of Celeste Industries Corporation of Easton,
Maryland.
Page 2
<PAGE>
Jerome M. McConnell 51 Mr. McConnell has served as a Director of the Company since
its formation in 1997 and of the Bank since 1990. He has been
the Vice President of the Company since its formation, and
Executive Vice President of the Bank since 1989.
- --------------------------------------------------------------------------------------------------------------------------
NOMINEES TO CLASS III
- --------------------------------------------------------------------------------------------------------------------------
Name Age Information Regarding Nominees
---- --- ------------------------------
Shari L. McCord 41 Ms. McCord has served as a Director of the Company since
its formation in 1997 and of the Bank since 1995. She is the
President of Chesapeake Travel Services, Inc. of Easton,
Maryland.
William H. Myers 85 Mr. Myers has served as a Director of the Company since its
formation in 1997 and of the Bank since 1948 and as
Chairman of the Board since 1995. He is a farmer.
David L. Pyles 53 Mr. Pyles has served as a Director of the Company since its
formation in 1997 and of the Bank since 1989. He is an
investor. Prior to 1996, Mr. Pyles was the President of Pyles
Lincoln Mercury, Inc.
Christopher F. Spurry 50 Mr. Spurry has served as a Director of the Company since its
formation in 1997 and of the Bank since 1995. He is the
President of Spurry & Associates, Inc.
W. Moorhead Vermilye 57 Mr. Vermilye has served as a Director of the Company since
its formation in 1997 and of the Bank since 1977. He has
been the President of the Company since its formation,
President of the Bank since 1988, and Chief Executive Officer
of the Bank since 1993.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION
OF THE ABOVE NOMINEES.
The election of directors requires the affirmative vote of holders of a
majority of the shares of Common Stock present and voting. A quorum for the
Annual Meeting consists of a majority of the issued and outstanding shares of
Common Stock present in person or by proxy and entitled to vote, and directors
are elected by a plurality of the votes of the shares present in person or by
proxy and entitled to vote. Consequently, withholding of votes, abstentions and
broker non-votes with respect to shares otherwise present at the Annual Meeting
in person or by proxy will have no effect on the outcome of this vote.
During the past year the Bank has had banking transactions in the
ordinary course of its business with its directors, officers and owners of 5% or
more of the outstanding Common Stock and with their associates on substantially
the same terms, including interest rates, collateral, and repayment terms on
loans, as those prevailing at the same time for comparable transactions with
others. The extensions of credit by the Bank to these persons have not and do
not currently involve more than the normal risk of collectability or present
other unfavorable features.
Page 3
<PAGE>
The Company has no standing committees. The Bank has five standing
committees of the Board of Directors as of December 31, 1997. The Bank's
Executive Committee consists of Messrs. Vermilye, Andrew, Fox, McConnell, Pyles
and Ms. Armistead. The Committee has the authority to exercise the powers of the
Board in the management of the business and affairs of the Bank, subject to
subsequent revision or alteration of any such action by the Board of Directors
of the Bank. The Executive Committee meets every Wednesday, other than on
Wednesdays on which regularly scheduled Board meetings are held. Although not
required, it is common practice that all Board members attend these meetings.
The Executive Committee met 40 times during 1997.
The Bank's Loan Committee consists of Messrs. Vermilye, McConnell,
Casson, Fox, Granville and McCord. The Loan Committee meets to evaluate loan
requests which require Board approval prior to the next regularly scheduled
meeting of the Board of Directors. The Loan Committee meets jointly with the
Executive Committee each Wednesday, other than on Wednesdays on which regularly
scheduled Board meetings are held. As with the Executive Committee, all Board
members typically attend these meetings. The Loan Committee met 40 times during
1997.
The Bank's Audit Committee consists of three non-management Directors
(Messrs. Casson, Fox and Pyles). The Committee meets with the Bank's independent
accountants to review whether satisfactory accounting procedures are being
followed and with the Bank's internal auditor to ensure internal accounting
controls are adequate. During 1997 the Committee held four meetings.
The Bank's Nominating Committee consists of Mr. Vermilye and four
non-management Directors (Messrs. Andrew, Fairbank, Myers and Ms. Armistead).
The basic function of this Committee is the recommendation to the Board of those
persons to be designated as Board nominees for election to the Board by the
stockholders at their Annual Meeting. The Committee met twice in 1997. According
to the Company's Bylaws, nominations by stockholders may be made by written
request to the Secretary of the Company received not less than 90 days nor more
than 120 days prior to the date fixed for the meeting. As described further in
the Company's Bylaws, the notice must set forth (i) all information relating to
such proposed nominee that is required to be disclosed in solicitation in
Regulation 14A of the Securities Exchange Act of 1934, as amended (including the
nominee's written consent); and (ii) certain other information provided by the
stockholder, including the name and address and the class and number of shares
of the Company's stock that is beneficially owned by the stockholder.
The Bank's Personnel Committee consists of Messrs. Andrew, Beatty,
Fairbank, Fox and Pyles. The Committee is responsible for determining executive
compensation and promotions. The Committee met four times in 1997.
The total number of meetings of the Board of Directors of the Company,
including regularly scheduled and special meetings, which were held in 1997 was
seven. The total number of meetings of the Board of Directors of the Bank,
including regularly scheduled and special meetings, which were held in 1997 was
12. No Director during the last full fiscal year attended fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors (held
during the period for which that person has been Director); and (2) the total
number of meetings held by all committees of the Board on which that person
served (during the period served), except that Mr. Pyles attended 69% of the
Committee meetings in which he is a member. Outside Directors receive an annual
retainer of $5,000 per year for serving on the Company and Bank Board, plus $150
per meeting attended. Directors are compensated once for attendance at jointly
held meetings.
Page 4
<PAGE>
Total Director's fees paid to Directors during 1997 were $76,500. In
addition, $55,000 was accrued for the Director's retainers for 1997. Mr. Andrew
also received fees of $7,350 for inspections of real property in connection with
the monitoring of construction loans.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table reflects the beneficial ownership of Common Stock
by executive officers, directors and by stockholders known to management to own
beneficially 5% or more of Common Stock as of March 23, 1998, and include all
shares of Common Stock that may be acquired by such persons within 60 days of
the Record Date. Unless otherwise indicated below, each person specified below
has sole investment and voting power (or shares such power with his or her
spouse) with regard to the shares set forth in the following table. The address
of each of the persons named below is the address of the Company.
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
Number of Percent
Shares of Class
Beneficially Beneficially
Name Owned Owned
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Herbert L. Andrew, III 18,672 (1) 1.52%
Blenda W. Armistead 1,262 (2) .10%
Lloyd L. Beatty, Jr. 2,092 (3) .17%
Donald D. Casson 9,390 (4) .77%
Gary L. Fairbank 3,282 (5) .27%
Ronald N. Fox 8,904 (6) .73%
Richard C. Granville 30,208 (7) 2.46%
Jerome M. McConnell 13,015 (8) 1.06%
Shari L. McCord 100 (9) .01%
William H. Myers 45,000 3.67%
David L. Pyles 24,454 (10) 1.99%
Christopher F. Spurry 632 (11) .05%
W. Moorhead Vermilye 37,437 (12) 3.05%
All Directors and Executive
Officers as a Group (16
Persons) 206,604 16.83%
Other Persons
Nicholas F. Brady 73,410 5.98%
Total 280,014 22.81%
- --------------------------------------------------------------------------------------------------
<FN>
(1) Includes 5,664 shares registered to Herbert L. Andrew, III and
Della M. Andrew as joint tenants with rights of survivorship,
11,880 shares registered to Herbert L. Andrew, III and Della
M. Andrew as tenants by the entirety, and 128 shares
registered to the Bank as Custodian for IRA of Herbert L.
Andrew, III.
Page 5
<PAGE>
(2) Includes 244 shares registered to the Bank as Custodian for
IRA of Blenda W. Armistead, 300 shares registered to Corrine
C. Armistead under MUTMA, 200 shares registered to Bruce C.
Armistead, 518 registered to the Bank as Custodian for Bruce
C. Armistead.
(3) Includes 242 shares registered to the Bank as Custodian for
IRA of Lloyd L. Beatty, Jr., 200 shares held in a brokerage
account for IRA of Lloyd L. Beatty, Jr., 220 shares registered
to Beatty, Satchell & Company, LLC 401(k) plan for the benefit
of Lloyd L. Beatty, Jr., 1,130 shares jointly owned by Lloyd
L. Beatty, Jr. and Nancy W. Beatty held in street name, and
200 shares registered to Nancy W. Beatty.
(4) Includes 2,240 shares registered to the Bank as Custodian for
IRA of Donald D. Casson, 334 registered to Sara Lou Casson,
and 2,590 registered to the Bank as Custodian for IRA of Sara
Lou Casson.
(5) Includes 1,000 shares registered to Gary L. Fairbank and Joyce
A. Fairbank and 1,826 shares held in a brokerage account for
IRA of Gary L. Fairbank.
(6) Includes 132 shares registered to the Company as Custodian for
IRA of Ronald N. Fox, and 132 shares registered to the Bank as
Custodian for IRA of Nancy E. Fox.
(7) Includes 5,668 shares registered to the Company as Custodian
for IRA of Richard C. Granville.
(8) Includes 2,915 shares registered to The Talbot Bank 401(k)
Plan and 10,000 stock options.
(9) Includes 100 shares registered to the Bank as Custodian for
IRA of Shari L. McCord.
(10) Includes 2,000 shares registered to Susan D. Pyles.
(11) Includes 500 shares registered to the Bank as Custodian for
IRA of Christopher F. Spurry.
(12) Includes 1,406 shares registered to the Bank as Custodian for
IRA of W. Moorhead Vermilye, 6,139 shares registered to The
Talbot Bank 401(k) Plan, 20,000 stock options, and 692 shares
registered to Sarah W. Vermilye.
</FN>
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's directors and executive officers and persons who own
more than 10% of the Common Stock file with the Securities and Exchange
Commission an initial report of beneficial ownership and subsequent reports of
changes in beneficial ownership of the Common Stock. To the Company's knowledge,
all reports required to be so filed by such person have been timely filed. The
Company believes that all of its directors and executive officers complied with
all filing requirements applicable to them with respect to transactions during
the fiscal year ended December 31, 1997.
EXECUTIVE COMPENSATION
The following table summarizes the remuneration earned in 1997 and the
prior two years by the President of the Company and the Bank, and any other
executive officer of the Company or the Bank who received cash compensation
during the preceding three fiscal years that exceeds $100,000. All remuneration
earned prior to the Company's formation in 1997 is for services provided to the
Bank.
Page 6
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
Compensa- All
tion Other
Compensation
($)(3)
------------------------------------------------------------------
Name and principal Year Salary ($) Bonus ($) Other Annual Options
position Ended Compensation SARs
($)(1) (#)(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Moorhead Vermilye 1997 162,225 78,000 4,502 0 26,489
President & CEO 1996 157,500 72,600 4,316 10,000 25,519
1995 151,758 67,600 4,230 10,000 5,309
- --------------------------------------------------------------------------------------------------------------------------
Jerome M. McConnell 1997 110,000 37,500 2,514 0 4,400
Executive Vice 1996 106,800 35,000 2,246 5,000 3,916
President 1995 102,767 30,000 2,688 5,000 3,767
==========================================================================================================================
<FN>
(1) Includes value of benefits from the Bank's life insurance
program, and tax "gross up" for use of a motor vehicle.
(2) Amount reflects the number of options and SARs issued under
the Talbot Bancshares, Inc. Employee Stock Option Plan.
(3) Represents Bank matching contributions under the 401(k) and
deferred compensation plans.
</FN>
</TABLE>
BENEFIT PLANS
Defined Benefit Pension Plan
Effective January 1, 1995 the bank froze its non-contributory Defined
Benefit Pension Plan so that no future benefits will accrue after that date. The
plan covered substantially all full time employees with more than six months of
service. The Plan is administered by a committee appointed by the Board of
Directors. The funded status of the plan is presented in Note 9 of the Notes to
Consolidated Financial Statements contained in the 1997 Annual Report. The
Bank's policy has been to fund the actuarially determined minimum annual
required amount.
The following is based on the January 1, 1997 Actuarial Valuation of
the Plan:
<TABLE>
<CAPTION>
Name and Principal Years Annual Benefit Percentage
Position of Service at Retirement Vested
-------- ---------- ------------- ------
<S> <C> <C> <C>
Mr. Vermilye 10 $21,180 100
President and CEO
Mr. McConnell 8 $10,805 100
Executive Vice President
</TABLE>
401(k) Plan
The Bank's 401(k) Plan is administered by a committee appointed by the
Board of Directors and is available to eligible employees of the Bank who have
completed six months of service. Participants are required to contribute at
least 1% and not more than 15% of base salary.
Page 7
<PAGE>
The Bank provides employer matching contributions to each active
member's account for each year in an amount equal to 100% of the member's pay
reduction contributions up to 3% of base salary, plus 50% of contributions which
exceed 3% of base salary, up to 5% of base salary, with a maximum matching
contribution equal to the Maximum Annual Additions limit for that year. In 1997,
the Bank made matching contributions to the plan on behalf of Messrs. Vermilye
and McConnell of $6,489 and $4,400, respectively.
All employee contributions are immediately vested. Matching
contributions vest incrementally over a six year period. Pre-tax and matching
contributions may be withdrawn while a member is employed by the Bank if the
member has reached age 59-1/2, in circumstances of financial hardship or in
certain other circumstances pursuant to Plan restrictions.
Profit Sharing and Retirement Plan
Effective January 1, 1995 the Bank adopted the Profit Sharing and
Retirement Plan to replace the frozen Defined Benefit Plan. The Plan covers
substantially all full-time employees with more than six months of service. The
Bank makes discretionary contributions to the Plan based on profits.
Contributions to the Plan are allocated using an age-weighted formula. In 1997,
the Bank made contributions to the Plan totalling $100,000. Contributions
allocated to W. Moorhead Vermilye and Jerome M. McConnell were $14,108 and
$8,158, respectively.
Employee Incentive Stock Option Plan
The Company has an Employee Stock Option Plan and has reserved 20,000
shares of Common Stock for issuance thereunder. The Stock Option Plan provides
for the granting of incentive stock options and nonqualified stock options to
certain key employees of the Company. No options may be granted after January
11, 2005. No options were issued in 1997. Four hundred options were exercised
during 1997, none of which were exercised by an executive officer of the
Company. The following table sets forth certain information relating to the
number and value of underlying unexercised stock options held by the named
executives as of December 31, 1997.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1997 and 1997 Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options at
(#) Fiscal Year-End ($)(1)
------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Moorhead Vermilye 20,000 0 $445,000 $0
Jerome M. McConnell 10,000 0 $222,500 $0
<FN>
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per share
option exercise price and the fair market value of the shares at December 31,
1997 of $44.50 per share.
</FN>
</TABLE>
Upon exercise of all or a portion of these options, the Company shall
pay the Optionee a Tax Benefit Payment in an amount of U.S. dollars equal to the
number of shares as to which the option is being exercised, times the "Tax
Rate", times the difference between the per share fair market value at the time
of exercise and the per share option price. The Tax Rate shall be a percentage
designated by the
Page 8
<PAGE>
Committee to result in compensating the Optionee for the federal, state and
local income tax liability incurred by the Optionee by virtue of his exercise of
the option and the payment to him of the Tax Benefit Payment.
Deferred Compensation
During 1997, the Company adopted a supplemental deferred compensation
plan to provide retirement benefits to its President and Chief Executive
Officer. The plan calls for fixed annual payments of $20,000 vesting immediately
to be credited to the participant's account. Contributions to the plan totaled
$20,000 for the year ended December 31, 1997.
Bonus Plans
The Bank has a discretionary bonus plan whereby officers and employees
are awarded annual bonuses based upon individual merit and the Bank's financial
performance. Amounts accrued under the plan totalled $305,930 for 1997.
EXECUTIVE COMPENSATION COMMITTEE REPORT
All compensation paid to the Company's executive officers is paid by
the Bank to those individuals in their capacities as executive officers of the
Bank. The Personnel Committee of the Bank's Board of Directors (the "Committee")
consists of Messrs. Andrew, Beatty, Fairbank, Fox and Pyles. The committee is
responsible for the Company's executive compensation program and for
administering the Company's Employee Stock Option Plan. The philosophy of the
Committee is to provide compensation at levels which enable the Company to
attract and retain highly qualified individuals to lead the Company in a complex
and competitive industry.
The Committee meets annually to consider salary increases and bonuses
for executive officers of the Bank. The Committee reviews individual performance
as well as the overall performance of the Company. Financial performance
indicators such as return on assets and loan and deposit growth are compared to
the Board's approved business plan for the year. In addition to historical
performance, future expectations and anticipated growth are considered.
Base Salaries. Base salaries are determined in comparison to the
average salaries for individuals in similar positions with similar levels of
responsibilities who are employed by other banking organizations of similar
size. The Company has access to published salary/compensation data and often
participates in salary surveys.
Annual Bonuses. The Committee determines the amount of bonuses which
should be paid based primarily upon the overall performance of the Company as
measured by its growth and return on assets.
Stock Option Program. Stock options are granted to provide a long-term
incentive opportunity that is directly linked to an increase in stockholder
value. Options are issued at market value on the date of grant and have a term
of ten years. There is no formal system employed in determining the number of
shares granted to any one individual. Previously granted options and the overall
performance of the Company are considered.
The Committee believes that the total compensation awarded to the
executive officers of the Company is consistent with the committee's objectives
and the individual performance of each executive
Page 9
<PAGE>
officer. For 1997 the Committee increased the CEO's and Executive Vice
President's base salary by 3.0% each. Annual bonuses paid to the CEO and
Executive Vice President for 1995, 1996 and 1997 ranged from 29.2% to 48.1%. The
annual bonus is directly related to individual and Company performance and can
vary significantly from year to year.
This report is provided as a summary of the current practices with
regard to executive compensation and has been reviewed and approved by the
Personnel Committee.
PERSONNEL COMMITTEE
By: Herbert L. Andrew, III
Lloyd L. Beatty, Jr.
Gary L. Fairbank
Ronald N. Fox
David L. Pyles
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company
and the Bank:
Position
Name In This Capacity Age Years Served
---- ---------------- --- ------------
W. Moorhead Vermilye Company President;
Bank President and 57 10
Chief Executive Officer
Jerome M. McConnell Company Vice President; 51 8
Bank Executive Vice
President
Susan E. Leaverton Secretary/Treasurer of 34 5
the Company; Bank Vice
President--Finance
G. Rodney Taylor Bank Senior Vice 56 15
President
Robert J. Meade Bank Vice President-- 54 3
Human Resources
All officers have served in their present capacity for the previous
five years except as follows: Ms. Leaverton was appointed Vice President in
1994. Prior to 1994, Ms. Leaverton served as the Internal Auditor of the Bank.
Prior to joining the Bank, Ms. Leaverton was employed in public accounting. Mr.
Meade joined the Bank in 1994 in his present capacity. Prior to joining the
Bank, Mr. Meade was employed by Cadmus Journal Services, Inc. as Director of
Human Resources. Each officer is reappointed on an annual basis by the Board of
Directors.
PERFORMANCE GRAPH
The performance graph shown below compares the cumulative total return
to the Company's stockholders over the most recent five-year period with both
the NASDAQ Composite index (reflecting
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overall stock market performance) and the NASDAQ Bank Index (reflecting changes
in banking industry stocks). Returns are shown on a total return basis, assuming
the reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
TALBOT BANCSHARES, INC., NASDAQ COMPOSITE INDEX AND NASDAQ BANK INDEX
PERFORMANCE GRAPH INSERTED HERE
Period Ending
-------------
Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- ----- -------- -------- -------- -------- -------- --------
Talbot Bancshares, Inc. 100.00 97.38 99.94 119.00 138.75 252.55
NASDAQ Bank Index 100.00 114.04 113.63 169.22 223.41 377.44
NASDAQ Composite (US) 100.00 114.80 112.21 158.70 195.19 239.65
Assumes $100 invested on January 1, 1993 in the Company (or the predecessor Bank
prior to 1997), NASDAQ Composite Index and NASDAQ Bank Index.
INDEPENDENT AUDITORS
The Board of Directors has engaged Stegman & Company, Certified Public
Accountants, to audit the books and accounts of the Company for the fiscal year
ending December 31, 1998. Stegman & Company served as the Company's independent
auditor for 1997. Stegman & Company has advised the Company that neither the
accounting firm nor any of its members or associates has any direct financial
interest in or any connection with the Company other than as independent public
auditors. A representative of Stegman & Company will be present at this year's
Annual Meeting and will respond to appropriate questions.
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FINANCIAL STATEMENTS
A copy of the Company's annual report containing audited financial
statements for the year ended December 31, 1997, accompanies this Proxy
Statement. A copy of Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained, without charge, upon written request to Susan E.
Leaverton, Secretary/Treasurer, Talbot Bancshares, Inc., 18 East Dover Street,
Easton, Maryland 21601.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders' proposals for the 1999 Annual Meeting must be received at
the Company's principal office not later than January 4, 1999.
OTHER BUSINESS
As of the date of this proxy statement, management does not know of any
other matters that will be brought before the meeting requiring action of the
stockholders. However, if any other matters requiring the vote of the
stockholders properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxies in accordance
with the discretion of management. The persons designated as proxies will also
have the right to approve any and all adjournments of the meeting for any
reason.
By Order of the Board of Directors,
W. Moorhead Vermilye
President
March 30, 1998
f5197b.600
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<PAGE>
TALBOT BANCSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Talbot Bancshares, Inc. hereby appoints W.
Moorhead Vermilye and Donald D. Casson, or either of them, the lawful attorneys
and proxies of the undersigned with full power of substitution to vote, as
designated below, all shares of capital stock of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders called to
convene on Wednesday, April 22, 1998, and at any and all adjournments and
postponements thereof:
1. ELECTION OF CLASS I DIRECTORS
Class I Nominees (to hold office until 1999 Annual Meeting):
HERBERT L. ANDREW, III, BLENDA W. ARMISTEAD, LLOYD L. BEATTY, JR., DONALD D.
CASSON
FOR the AGAINST the
Nominees Nominees
[ ] [ ]
2. ELECTION OF CLASS II DIRECTORS
Class II Nominees (to hold office until 2000 Annual Meeting):
GARY L. FAIRBANK, RONALD N. FOX, RICHARD C. GRANVILLE, JEROME M. MCCONNELL
FOR the AGAINST the
Nominees Nominees
[ ] [ ]
3. ELECTION OF CLASS III DIRECTORS
Class III Nominees (to hold office until 2001 Annual Meeting):
SHARI L. MCCORD, WILLIAM H. MYERS, DAVID L. PYLES, CHRISTOPHER F. SPURRY,
W. MOORHEAD VERMILYE
FOR the AGAINST the
Nominees Nominees
[ ] [ ]
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL IN PROPOSALS 1, 2, OR 3,
STRIKE OUT THE NOMINEE'S NAME.)
4. IN THEIR DISCRETION ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Shares represented by all properly executed proxies will be voted in accordance
with instructions appearing on the proxy. In the absence of specific
instructions, proxies will be voted for the directors named in the proxy
statement and in the best discretion of the proxy holders as to any other
matters.
Dated ____________________________, 1998
--------------------------------------
Signature
--------------------------------------
Signature
(Please sign as name(s) appear(s) on stock certificate. If jointly held, both
owners must sign. Executors, administrators, trustees or persons signing in such
capacity should so indicate.)
<PAGE>
