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
of Easton, Maryland, 18 East Dover Street, Easton, Maryland 21601 at 11:00 a.m.,
local time, on Wednesday, April 26, 2000, for the following purposes:
1. To elect four Class II Directors to the Company's Board of Directors to
serve until the 2003 Annual Meeting.
2. 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 1, 2000, will be
entitled to notice of and to vote at the meeting. This proxy statement is
accompanied by the Company's 1999 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. Proposal 1 requires 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 24, 2000
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
2000 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.
The Annual Meeting of Stockholders will be held on Wednesday, April 26, 2000 at
11:00 a.m., local time, at the offices of The Talbot Bank of Easton, Maryland,
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 24, 2000.
Holders of record at the close of business on March 1, 2000 (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 1,193,333 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 Proposal 1 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 elect four Class II Directors
to the Company's Board of Directors to serve until the 2003 Annual Meeting.
ELECTION OF DIRECTORS (Proposal 1)
By resolution of a majority of the entire Board of Directors, the number of
Directors constituting the Board is fixed at 13. At the 1998 Annual Meeting,
Directors were elected into three classes, as nearly equal in number as
possible, with respect to the time for which the Directors may hold office.
Directors are elected to hold office for a term of
<PAGE>
three years, and one class of Director expires each year. The terms of Directors
of Class II expire this year. Directors of Class III will hold office until the
2001 Annual Meeting of Stockholders and Directors of Class I will hold office
until the 2002 Annual Meeting of Stockholders. In each case, Directors are
elected until their successors are duly elected and qualify.
The Directors of Class II, therefore, are up for election at this Annual
Meeting. The Company's President is a member of Class III, and the Company's
Vice President is a member of Class II. The following nominees for Directors of
Class II, their ages as of the Record Date, their principal occupations and
business experience for the past five years, and certain other information are
set forth below.
- --------------------------------------------------------------------------------
NOMINEES FOR CLASS II DIRECTORS
(New Term Will Expire in 2003)
- --------------------------------------------------------------------------------
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Gary L. Fairbank 63 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 62 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,
President of the Oxford Town Council, and an
owner of Oxford Spirits. Prior to 1997 he
was the co-owner of the Washington Street
Pub.
Richard C. Granville 57 Mr. Granville has served as a Director of the
Company since its formation in 1997 and of
the Bank since 1994. He is an investor and
was the President of Celeste Industries
Corporation of Easton, Maryland through
January, 2000.
Jerome M. McConnell 53 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.
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. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES.
The following tables contain information regarding Directors of other
Classes whose terms do not expire in 2000, including the Directors' ages as of
the Record Date, and their principal occupations and business experience for the
past 5 years.
Page 2
<PAGE>
- --------------------------------------------------------------------------------
CLASS III DIRECTORS
(Term Expires in 2001)
- --------------------------------------------------------------------------------
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Shari L. McCord 43 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 87 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 retired.
David L. Pyles 55 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 52 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 and Owner
of Spurry & Associates, Inc.
W. Moorhead Vermilye 59 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.
- --------------------------------------------------------------------------------
CLASS I DIRECTORS
(Term Expires in 2002)
- --------------------------------------------------------------------------------
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Herbert L. Andrew, III 63 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
served on the Talbot County Council from
1994 to 1998.
Blenda W. Armistead 48 Ms. Armistead has served as a Director of the
Company since its formation in 1997 and of the
Bank since 1992. She is an investor, and the
former County Manager of Talbot County.
Ms. Armistead is currently serving as the
Interim Health Officer of Talbot County.
Page 3
<PAGE>
Lloyd L. Beatty, Jr. 47 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, Principal in Beatty, Satchell &
Company, LLC, and President of Darby Advisors,
Inc.
Donald D. Casson 70 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.
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.
The Company has no standing committees. The Bank has 5 standing committees
of the Board of Directors as of December 31, 1999. 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 1999.
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 1999.
The Bank's Audit Committee consists of 3 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 1999 the Audit Committee held 6 meetings.
The Bank's Nominating Committee consists of Mr. Vermilye and 4
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 Nominating Committee met twice in
1999. 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.
Page 4
<PAGE>
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 Personnel Committee met 3 times in 1999.
The total number of meetings of the Board of Directors of the Company,
including regularly scheduled and special meetings, which were held in 1999 was
12. The total number of meetings of the Board of Directors of the Bank,
including regularly scheduled and special meetings, which were held in 1999 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. Myers attended 61% of the
Board and 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 $200 per meeting attended. Directors are compensated once for attendance at
jointly held meetings.
Total Director fees paid to Directors during 1999 were $100,200. In
addition, $55,000 was accrued for the Directors' retainers for 1999. Mr. Andrew
also received fees of $7,950 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 the Record Date, and includes 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.
Page 5
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number of Shares Percent
Beneficially of Class
Owned Beneficially
Owned
Name
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Herbert L. Andrew, III 19,147 (1) 1.54%
Blenda W. Armistead 1,462 (2) .12%
Lloyd L. Beatty, Jr. 2,192 (3) .18%
Donald D. Casson 10,990 (4) .87%
Gary L. Fairbank 3,882 (5) .31%
Ronald N. Fox 8,904 (6) .72%
Richard C. Granville 30,608 (7) 2.47%
Jerome M. McConnell 15,776 (8) 1.27%
Shari L. McCord 119 (9) .01%
William H. Myers 45,000 (10) 3.63%
David L. Pyles 24,454 (11) 1.97%
Christopher F. Spurry 1,000 (12) .08%
W. Moorhead Vermilye 42,875 (13) 3.46%
All Directors/Executive
Officers as a Group (16 Persons)
221,328 17.85%
Other Persons
- -------------
Nicholas F. Brady
82,554 6.66%
Total
303,882 24.51%
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 18,019 shares held jointly with Mr. Andrew's spouse, and 128
shares held by the Bank as Custodian for his IRA.
(2) Includes 200 shares held by Ms. Armistead's spouse, 244 shares held by the
Bank as Custodian for her IRA, 518 shares held by the Bank as Custodian
for her spouse's IRA, and 300 shares held by her spouse as Custodian of a
MUTMA for her daughter.
(3) Includes 242 shares held by the Bank as Custodian for Mr. Beatty's IRA,
200 shares held in a brokerage account for another IRA, 320 shares held by
Beatty, Satchell & Company, LLC 401(k) plan FBO Mr. Beatty, 1,130 shares
held jointly with his spouse, and 200 shares held by his spouse.
(4) Includes 2,365 shares held by the Bank as Custodian for Mr. Casson's IRA,
334 shares held by his spouse, and 2,740 shares held by the Bank as
Custodian for his spouse's IRA.
(5) Includes 1,000 shares held jointly with Mr. Fairbank's spouse, 2,126
shares held in a brokerage account for his IRA, and 300 shares held by the
Bank as custodian for his IRA.
(6) Includes 132 shares held by the Bank as Custodian for Mr. Fox's IRA,
and 132 shares held by the Bank as Custodian for his spouse's IRA.
Page 6
<PAGE>
(7) Includes 5,668 shares held by the Bank as Custodian for Mr.
Granville's IRA.
(8) Includes 3,176 shares held by the Bank's 401(k) plan, and 12,500 stock
options.
(9) Includes 119 shares held by the Bank as Custodian for Ms. McCord's IRA.
(10) Includes 45,000 shares held by the Talbank Family Limited Partnership.
(11) Includes 2,000 shares held by Mr. Pyles' spouse.
(12) Includes 500 shares held by the Bank as Custodian for Mr. Spurry's IRA,
and 300 shares held jointly with his spouse.
(13) Includes 1,406 shares held by the Bank as Custodian for Mr. Vermilye's
IRA, 6,577 shares held by the Bank's 401(k) plan, 25,000 stock options,
and 692 shares held by his spouse.
EXECUTIVE COMPENSATION
The following table summarizes the remuneration earned in 1999 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 $100,000. All remuneration
earned prior to the Company's formation is for services provided solely to the
Bank.
<TABLE>
<CAPTION>
====================================================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation All
Annual Compensation Other
Compensation
($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary ($) Bonus ($) Other Annual Compen-sOptions/
Position Ended ($)(1) SARs
(#)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Moorhead Vermilye 1999 $170,000 $85,000 $4,846 5,000 $26,800
President and CEO 1998 $164,000 $81,000 $4,421 0 $26,560
1997 $157,500 $78,000 $4,502 0 $26,489
- ------------------------------------------------------------------------------------------------------------------------------------
Jerome M. McConnell 1999 $115,000 $42,000 $3,257 2,500 $4,600
Exec. Vice President 1998 $112,000 $40,000 $2,915 0 $4,480
1997 $110,000 $37,500 $2,514 0 $4,400
====================================================================================================================================
</TABLE>
(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 issued under the Company 1999 Stock
Option Plan.
(3) Represents Bank matching contributions under the 401(k) and deferred
compensation plans.
Page 7
<PAGE>
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 1999 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, 1999 Actuarial Valuation of the
Plan:
Name and Principal Years Annual Benefit Percentage
Position of Service at Retirement Vested
-------- ---------- ------------- ------
Mr. Vermilye 12 $21,180 100
President and CEO
Mr. McConnell 10 $10,805 100
Executive Vice President
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.
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 1999, the Bank
made matching contributions to the Plan on behalf of Messrs. Vermilye and
McConnell of $6,800 and $4,600, 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 1999,
the Bank made contributions to the Plan totalling $112,000. Contributions
allocated to W. Moorhead Vermilye and Jerome M. McConnell were $13,600 and
$10,386, respectively.
Page 8
<PAGE>
Stock Option Plans
The Company's Board of Directors and Stockholders adopted the 1999 Stock
Option Plan and has reserved 85,000 shares of common stock of the Company for
issuance upon the grant and exercise of options under the plan. Unless extended
or earlier terminated by the Board, no options under this plan may be granted
after April 28, 2009. The purpose of the 1999 Stock Option Plan is to provide
incentives for executive officers and key employees of the Company, the Bank,
and their subsidiaries and to provide an additional means of attracting and
retaining competent personnel. No options were exercised under this plan during
1999.
The Company has a 1995 Employee Stock Option Plan and has reserved 40,000
shares of Common Stock for issuance under the plan (as adjusted for the
Company's 2 for 1 share exchange), and 800 shares are currently available under
the plan. The 1995 Employee Stock Option Plan provides for the granting of
incentive and nonqualified stock options to certain key employees of the
Company. No options under this plan may be granted after January 11, 2005.
Options to purchase 31 shares were exercised during 1999, none of which were
exercised by a named executive officer of the Company.
The following table sets forth certain information relating to options
granted to the named executives during 1999:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------
Potential Realized
Percent of Value At Assumed
Number of Total Annual Rates Of Stock
Securities Options/SARs Exercise Price Appreciation
Underlying Granted To or Base For Option Term
---------- ---------- ------- ---------------
Option/SARs Employees In Price Expiration
Name Granted (#) Fiscal Year ($/S) Date 5% ($) 10% ($)
---- ----------- ----------- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Mr. Vermilye 5,000 53% $55.00 12/1/2009 $172,946 $438,279
President and CEO
Mr. McConnell 2,500 27% $55.00 12/1/2009 $86,473 $219,140
Executive Vice
President
</TABLE>
The following table sets forth certain information relating to the number
and value of underlying unexercised stock options held by the named executives
as of December 31, 1999.
Page 9
<PAGE>
<TABLE>
<CAPTION>
Aggregated 1999 Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End Fiscal Year-End ($)(1)
-------------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mr. Vermilye 25,000 0 $705,000 $0
President and CEO
Mr. McConnell 12,500 0 $352,500 $0
Executive Vice
President
</TABLE>
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1999 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,
1999 of $57 per share.
Upon exercise of options granted under the 1995 Plan, 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 Company 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 1996, 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, 1999.
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 totaled $320,341 for 1999.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Personnel Committee submits the following report which addresses
executive compensation policies of the Company for 1999.
The Personnel Committee of the Board of Directors (the "Committee") sets
guidelines for the Chief Executive Officer and other executive officers of the
Company. Compensation guidelines are designed to provide compensation at levels
sufficient to attract and retain highly qualified individuals. It is the
Committee's belief that in such a complex and competitive industry as banking,
success is dependent on retaining such leadership.
Page 10
<PAGE>
The Committee considers salary increases and bonus payments for executive
officers of the Bank annually. Individual performance, as well as overall
financial performance of the Bank are considered by the Committee. Financial
performance indicators such as return on assets, and loan and deposit growth are
compared to the Board's approved business plan and to the performance of its
peer group. Other factors such as stock performance, regulatory capital strength
and asset quality are also considered.
Components of the Company's compensation program include:
Base Salaries--Base salaries are determined for executive officers
primarily based upon the evaluation of historical performance, degree of
responsibility and level of expertise. The Committee also has access to
published compensation data such as the Starkey & Beall Regional Financial
Industry Salary Survey.
Annual Bonuses--The Committee determines the amount of annual bonuses based
primarily on the overall performance of the Company measured by growth, return
on assets and net income. Bonuses are also awarded to other officers and
employees based on recommendations by supervisors.
Stock Option Plan--The Committee believes that granting stock options to
executive officers provides an incentive that is basic to the increase in
shareholder value. Stock option grants are discretionary and are limited by the
terms and conditions of the Company's 1995 and 1999 stock option plans.
The Committee believes 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 officer.
PERSONNEL COMMITTEE
By: Herbert L. Andrew, III
Lloyd L. Beatty, Jr.
Gary L. Fairbank
Ronald N. Fox
David L. Pyles
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. The Company believes that all of its
directors and executive officers complied in a timely manner with all filing
requirements applicable to them with respect to transactions during the fiscal
year ended December 31, 1999.
Page 11
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company and
the Bank:
<TABLE>
<CAPTION>
Position
Name In This Capacity Age Years Served
---- ---------------- --- ------------
<S> <C> <C>
W. Moorhead Vermilye Company President; Bank 59 12
President and Chief
Executive Officer
Jerome M. McConnell Company Vice President; 53 10
Bank Executive Vice
President
Susan E. Leaverton Secretary/Treasurer of the 36 7
Company; Bank Vice
President - Finance
G. Rodney Taylor Bank Senior Vice 58 17
President - Operations
Robert J. Meade Bank Vice President - 56 5
Human Resources
</TABLE>
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, 2000. Stegman & Company served as the Company's independent
auditor for 1999. 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.
PERFORMANCE GRAPH
The performance graph shown below compares the cumulative total return to
the Company's stockholders over the most recent 5-year period with both the
NASDAQ Composite index (reflecting 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.
Page 12
<PAGE>
\
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
TALBOT BANCSHARES, INC., NASDAQ COMPOSITE INDEX AND NASDAQ BANK
INDEX
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Period Ending
-------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Talbot Bancshares, Inc. 100.00 119.07 138.83 252.70 306.64 335.03
NASDAQ Bank Index 100.00 99.64 148.38 195.91 328.02 307.62
NASDAQ Composite (US) 100.00 97.74 138.24 170.03 208.75 557.26
</TABLE>
Assumes $100 invested on January 1, 1995 in the Company (or the predecessor Bank
prior to 1997), NASDAQ Composite Index and NASDAQ Bank Index.
FINANCIAL STATEMENTS
A copy of the Company's annual report containing audited financial
statements for the year ended December 31, 1999, 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.
Page 13
<PAGE>
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders' proposals for the 2000 Annual Meeting of Stockholders
pursuant to Rule 14a-8 of the Securities Exchange Act of 1934 must be received
at the Company's principal office not later than November 25, 2000 (120 days
before the date of mailing based on this year's proxy statement date) and meet
all other requirements for inclusion in the proxy statement. All other
stockholder proposals must be received by the Company at its principal office by
February 8, 2001 (45 days before the date of mailing based on this year's proxy
statement date).
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 24, 2000
Page 14
<PAGE>
TALBOT BANCSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Talbot Bancshares, Inc. (the "Company") 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 26, 2000, and at any and all adjournments and
postponements thereof:
1. ELECTION OF CLASS II NOMINEES FOR DIRECTOR
Class II Nominees (to hold office until 2003 Annual Meeting):
- -----------------
GARY L. FAIRBANK, RONALD N. FOX, RICHARD C. GRANVILLE, JEROME M. McCONNELL
FOR all of AGAINST all of
the Nominees the Nominees
[ ] [ ]
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE OUT THE
NOMINEE'S NAME.)
2. 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 ________________________________, 2000
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.