UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from -- to -- .
Commission file number 0-12638
F&M BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1316473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Thomas Johnson Drive
Frederick, Maryland 21702
(Address of principal executive offices) (zip code)
301-694-4000
(Registrant's telephone number, including area code)
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 outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $5 par value, 5,997,011 shares outstanding as of October 31, 1997.
Exhibit index located on page 25.
<PAGE>
F&M BANCORP
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets (Unaudited),
September 30, 1997 and 1996 and December 31, 1996 2
Consolidated Statements of Income (Unaudited),
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited), Nine Months Ended September 30, 1997
and Twelve Months Ended December 31, 1996 6
Notes to Consolidated Financial Statements (Unaudited) 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 24
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (Unaudited)
F&M Bancorp and Subsidiaries
<CAPTION>
(Dollars in thousands, September 30 September 30 December 31
except per share amounts) 1997 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 30,225 $ 37,055 $ 33,762
Interest-bearing deposits with banks 6,238 2,921 4,943
---------- ---------- ----------
Total cash and cash equivalents 36,463 39,976 38,705
---------- ---------- ----------
Loans held for sale 54 433 309
---------- ---------- ----------
Investment securities
Held-to-maturity, fair value
$104,143, $115,525, and
$100,201, respectively 102,796 115,906 99,503
Available-for-sale, at fair value 141,073 122,874 146,308
---------- ---------- ----------
Total investment securities 243,869 238,780 245,811
---------- ---------- ----------
Loans, net of unearned income 714,029 659,945 670,269
Less: Allowance for credit losses (9,837) (9,700) (9,639)
---------- ---------- ----------
Net loans 704,192 650,245 660,630
---------- ---------- ----------
Bank premises and equipment, net 25,306 24,142 25,231
Other real estate owned 6,388 7,413 7,457
Interest receivable 7,644 6,578 6,701
Intangible assets 3,636 4,312 3,945
Other assets 17,549 16,839 17,062
---------- ---------- ----------
Total assets $1,045,101 $ 988,718 $1,005,851
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 108,704 $ 109,750 $ 108,101
Interest-bearing 701,530 680,589 686,649
---------- ---------- ----------
Total deposits 810,234 790,339 794,750
Federal funds purchased and
securities sold under agreements
to repurchase 44,732 35,509 41,876
Other short-term borrowings 55,728 48,329 57,411
Long term borrowings 23,819 11,908 6,686
Accrued interest and other liabilities 11,056 10,537 11,668
---------- ---------- ----------
Total liabilities 945,569 896,622 912,391
---------- ---------- ----------
Shareholders' equity
Common stock, par value $5 per share;
authorized 50,000,000 shares;
issued and outstanding 5,989,464
shares (1), 5,674,213 shares, and
5,678,564 shares, respectively 29,947 28,371 28,393
Surplus 36,627 29,060 29,148
Retained earnings 32,802 35,424 36,113
Net unrealized gain (loss) on
securities available for sale 156 (759) (194)
---------- ---------- ----------
Total shareholders' equity 99,532 92,096 93,460
---------- ---------- ----------
Total liabilities and shareholders'
equity $1,045,101 $ 988,718 $1,005,851
========== ========== ==========
(1) Restated to reflect 5% stock dividend paid August 8, 1997.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
F&M BANCORP and Subsidiaries
<CAPTION>
Nine months ended Three months ended
(Dollars in thousands September 30 September 30
except per share amounts) 1997 1996 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $45,007 $41,759 $15,519 $14,214
Interest and dividends on investment
securities
Taxable 8,263 7,572 2,979 2,662
Tax-exempt 2,555 2,737 828 899
Interest on deposits with banks 184 186 86 27
Interest on federal funds sold 37 426 13 30
------- ------- ------- -------
Total interest income 56,046 52,680 19,425 17,832
------- ------- ------- -------
Interest Expense(1)
Interest on deposits 20,819 20,990 7,091 6,926
Interest on federal funds purchased
and securities sold under
agreements to repurchase 1,656 1,339 582 491
Interest on Federal Home Loan Bank
borrowings 2,784 1,529 1,128 621
Interest on other short-term borrowings 67 53 23 19
------- ------- ------- -------
Total interest expense 25,326 23,911 8,824 8,057
------- ------- ------- -------
Net interest income 30,720 28,769 10,601 9,775
Provision for credit losses 1,350 900 450 300
------- ------- ------- -------
Net interest income after provision
for credit losses 29,370 27,869 10,151 9,475
------- ------- ------- -------
Noninterest Income
Trust income 1,834 1,304 654 448
Service charges on deposit accounts 3,890 3,414 1,328 1,173
Gains (losses) on sales of securities 5 (55) 3 --
Gains on sales of loans 185 231 81 47
Gains on sales of property 18 172 3 42
Gain on sale of merchant services 900 -- 900 --
Other operating income 3,440 3,027 1,031 1,077
------- ------- ------- -------
Total noninterest income 10,272 8,093 4,000 2,787
------- ------- ------- -------
Noninterest Expenses
Salaries and employee benefits 14,133 12,913 4,887 4,489
Occupancy and equipment expense 4,455 3,959 1,561 1,360
Other operating expense 8,023 9,761 2,677 3,924
------- ------- ------- -------
Total noninterest expenses 26,611 26,633 9,125 9,773
------- ------- ------- -------
Income before provision for
income taxes 13,031 9,329 5,026 2,489
Provision for income taxes 3,972 2,339 1,591 587
------- ------- ------- -------
Net Income $ 9,059 $ 6,990 $ 3,435 $ 1,902
======= ======= ======= =======
Earnings per Common Share
Based on weighted average shares
outstanding of 5,977,814 for
1997, 5,953,513 for 1996 (1) $ 1.52 $ 1.17 $ 0.57 $ 0.32
======= ======= ======= =======
Dividends per Share (1) $ 0.64 $ 0.46 $ 0.22 $ 0.15
======= ======= ======= =======
(1) Restated to reflect 5% stock dividend paid August 8, 1997.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
F&M BANCORP and Subsidiary
<CAPTION>
Nine Months Ended
September 30
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,059 $6,990
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 1,350 900
Depreciation and amortization 1,958 1,582
Amortization of intangibles 386 468
Net premium amortization on investment securities 364 501
Increase in interest receivable (943) (15)
Increase in interest payable 239 46
Deferred income tax benefit 62 140
Accretion of net loan origination fees 6 101
Loss on sales of property (18) (172)
Gain (loss) on sales/calls of securities (5) 55
Decrease in loans held for sale 255 841
Increase (decrease) in other assets (841) (3,789)
Increase (decrease) in other liabilities (851) 441
-------- --------
Net cash provided by operating activities 11,021 8,089
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities to be
held to maturity (6,251) (30,029)
Purchases of investment securities
available for sale (90,921) (40,640)
Proceeds from calls of securities
held to maturity 250 --
Proceeds from sales/calls of securities
available for sale 11,879 --
Proceeds from maturing securities
available for sale 84,600 51,867
Proceeds from maturing securities
held to maturity 2,590 3,730
Net increase in loans (44,918) (34,940)
Purchases of premises and equipment (2,064) (5,273)
Proceeds from sales of property 774 128
Other investing activities 345 1,775
-------- --------
Net cash used in investing activities (43,716) (53,382)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits,
interest-bearing checking, savings and
money market accounts 4,210 1,819
Net increase in certificates of deposit 11,274 3,910
Net increase (decrease) in securities sold
under agreements to repurchase 2,856 (4,649)
Net increase (decrease) in long-term borrowings 17,133 (364)
Net increase (decrease) in other short-term
borrowings (1,683) 29,352
Cash dividends paid (3,819) (2,755)
Dividend reinvestment plan (72) (19)
Proceeds from issuance of common stock 554 219
-------- --------
Net cash provided by financing activities 30,453 27,513
-------- --------
Net decrease in cash and cash equivalents (2,242) (17,780)
Cash and cash equivalents at beginning of period 38,705 57,756
-------- --------
Cash and cash equivalents at end of period $ 36,463 $ 39,976
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 25,087 $ 23,851
Cash payments for income tax 3,754 3,507
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available
for sale, net of deferred income taxes
payable (benefits) 350 740
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF
<CAPTION>
CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
F&M BANCORP and Subsidiary
Net
Unrealized
Gain
(Loss) on
Securities
(Dollars in thousands Common Retained Available
except per share amounts) Stock Surplus Earnings for Sale Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $28,304 $28,811 $31,304 $ (18) $88,401
Net income -- -- 8,611 -- 8,611
Dividend reinvestment plan -- -- (25) -- (25)
Stock options exercised
(25,133 shares) 126 377 -- -- 503
Cash dividends paid
($.61 per share) -- -- (3,640) -- (3,640)
Stock consolidation for options
exercised (7,448 shares) (37) (40) (137) -- (214)
Fair value adjustment for
securities available
for sale, net -- -- -- (176) (176)
------- ------- ------- ------- -------
Balance at December 31, 1996 $28,393 $29,148 $36,113 $ (194) $93,460
Net income -- -- 9,059 -- 9,059
Dividend reinvestment plan -- -- (72) -- (72)
5% Stock dividend (283,322)(1) 1,416 7,013 (8,429) -- --
Cash dividends paid
($.64 per share) -- -- (3,819) -- (3,819)
Stock options exercised
(30,040 shares) 150 481 -- -- 631
Stock consolidation for options
exercised (2,462 shares) (12) (15) (50) -- (77)
Fair value adjustment for
securities available
for sale, net -- -- -- 350 350
------- ------- ------- ------- -------
Balance at September 30, 1997 $29,947 $36,627 $32,802 $ 156 $99,532
======= ======= ======= ======= =======
(1) 5% stock dividend paid August 8, 1997.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
The foregoing financial statements are unaudited; however, in the opinion of
management, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the financial statements have been
included. A summary of F&M Bancorp's ("Bancorp's") significant accounting
policies is set forth in Note 1 to the consolidated financial statements in
it's Annual Report on Form 10-K for the year ended December 31, 1996.
Certain reclassifications to prior year balances have been made in the
accompanying consolidated financial statements to make disclosures consistent
with those of the current year.
On November 15, 1996, Bancorp acquired all of the outstanding capital stock of
Home Federal Corporation, Hagerstown, Maryland, in a tax-free transaction. Home
Federal Corporation merged with and into Bancorp. This transaction was
accounted for as a "pooling of interests." Accordingly, the consolidated
financial statements for the period ended September 30, 1996 have been restated
to include the accounts of Home Federal Corporation and its subsidiaries.
Note 2. Investment Securities
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
September 30, 1997
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 76,890 $ 244 $ 52 $ 77,082
Obligations of states and
political subdivisions 2,563 14 -- 2,577
Mortgage-backed securities 51,751 268 112 51,907
- -------------------------------------------------------------------------------
Total debt securities 131,204 526 164 131,566
Equity securities 9,507 -- -- 9,507
- -------------------------------------------------------------------------------
Total available-for-sale: 140,711 526 164 141,073
- -------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 11,958 36 24 11,970
Obligations of states and
political subdivisions 67,804 1,220 43 68,981
Mortgage-backed securities 23,034 179 21 23,192
- -------------------------------------------------------------------------------
Total held-to-maturity 102,796 1,435 88 104,143
- -------------------------------------------------------------------------------
Total investment securities $243,507 $1,961 $252 $245,216
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
September 30, 1996
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 56,888 $ 27 $ 426 $ 56,489
Obligations of states and
political subdivisions 10,243 159 1 10,401
Mortgage-backed securities 46,995 75 761 46,309
- -------------------------------------------------------------------------------
Total debt securities 114,126 261 1,188 113,199
Equity securities 9,675 -- -- 9,675
- -------------------------------------------------------------------------------
Total available-for-sale: 123,801 261 1,188 122,874
- -------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 6,946 32 64 6,914
Obligations of states and
political subdivisions 61,170 798 391 61,577
Mortgage-backed securities 47,790 45 801 47,034
- -------------------------------------------------------------------------------
Total held-to-maturity 115,906 875 1,256 115,525
- -------------------------------------------------------------------------------
Total investment securities $239,707 $1,136 $2,444 $238,399
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31, 1996
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 69,883 $ 112 $ 146 $ 69,849
Obligations of states and
political subdivisions 8,545 116 -- 8,661
Mortgage-backed securities 62,042 155 435 61,762
- -------------------------------------------------------------------------------
Total debt securities 140,470 383 581 140,272
Equity securities 6,036 -- -- 6,036
- -------------------------------------------------------------------------------
Total available-for-sale: 146,506 383 581 146,308
- -------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies 11,949 58 13 11,994
Obligations of states and
political subdivisions 62,336 1,038 214 63,160
Mortgage-backed securities 25,218 71 242 25,047
- -------------------------------------------------------------------------------
Total held-to-maturity 99,503 1,167 469 100,201
- -------------------------------------------------------------------------------
Total investment securities $246,009 $1,550 $1,050 $246,509
===============================================================================
</TABLE>
Bancorp classifies its investments in debt and equity securities into two
categories: held-to-maturity and available-for-sale. Securities classified as
held-to-maturity are those debt securities that Bancorp has both the positive
intent and ability to hold to maturity. These securities are carried at cost,
adjusted for amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income using the interest method.
Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that Bancorp intends to hold
for an indefinite period of time but not necessarily to maturity. These
securities may be sold as part of its asset/liability management strategy, or
in response to significant movements in interest rates, liquidity needs,
regulatory capital considerations, and other similar factors. These securities
are carried at fair value, with any unrealized gains and losses reported as a
separate component of shareholders' equity, net of the related deferred tax
effect.
Regardless of the classification, dividend and interest income, including
amortization of premiums and accretion of discounts arising at acquisition, is
included in interest income in the consolidated statements of income. Realized
gains and losses, if any, determined based on the adjusted cost of the specific
securities sold, are reported as a separate line item in noninterest income in
the consolidated statements of income.
The amortized cost and estimated fair values of investments at September 30,
1997 by contractual maturity are shown below. Expected maturities may differ
from contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
(in thousands) Cost Value
- --------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Within 1 year $ 27,007 $ 27,014
After 1 but within 5 years 16,449 16,477
After 5 years but within 10 years 35,997 36,168
Mortgage-backed securities 51,751 51,907
Equity securities 9,507 9,507
- --------------------------------------------------------------------------
Total available-for-sale 140,711 141,073
- --------------------------------------------------------------------------
Held-to-maturity:
Within 1 year 2,165 2,184
After 1 but within 5 years 38,386 39,033
After 5 years but within 10 years 38,545 39,058
After 10 years 666 676
Mortgage-backed securities 23,034 23,192
- --------------------------------------------------------------------------
Total held-to-maturity 102,796 104,143
- --------------------------------------------------------------------------
Total investment securities $243,507 $245,216
==========================================================================
</TABLE>
The amortized cost of investment securities pledged to secure public deposits,
securities sold under repurchase agreements, Federal Home Loan Bank advances,
and for other purposes as required and permitted by law, totaled $120,804,000
at September 30, 1997.
Note 3. Loans
Loans, net of unearned income, consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
September 30, December 31,
- -------------------------------------------------------------------------------
(In thousands) 1997 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $ 30,537 $ 28,330 $ 29,571
Secured by farmland 6,468 6,713 6,864
Residential mortgage 186,040 178,948 183,035
Other mortgage 138,310 126,326 129,308
Agricultural 677 1,207 977
Commercial and industrial loans 77,081 57,687 62,288
Consumer 270,707 256,099 253,454
Other loans 4,209 4,635 4,772
- -------------------------------------------------------------------------------
Totals $714,029 $659,945 $670,269
===============================================================================
</TABLE>
Loans to states, political subdivisions, and industrial revenue bonds are
included in all other loans in the schedule above and in total loans in the
statement of condition.
The allowance for credit losses is maintained at a level which, in management's
opinion, is considered adequate to provide for possible loan losses on loans
currently held in the loan portfolio.
Note 4. Bank Premises and Equipment
Investments in bank premises and equipment are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
September 30, December 31,
- -------------------------------------------------------------------------------
(In thousands) 1997 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises and land $22,814 $22,311 $ 22,786
Furniture and equipment 18,013 16,063 17,280
Leasehold improvements 1,762 1,695 1,696
- -------------------------------------------------------------------------------
42,589 40,069 41,762
Less accumulated depreciation
and amortization (17,283) (15,927) (16,531)
- -------------------------------------------------------------------------------
Net premises and equipment $25,306 $24,142 $ 25,231
===============================================================================
</TABLE>
Note 5. Future Changes in Accounting Principles
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share. It is
effective for financial statements issued for periods ending after December 15,
1997. Earlier application is not permitted. The effect of this statement is not
expected to materially affect Bancorp's consolidated financial statement.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". The overall objective of this statement is to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The statement is effective for
all periods ending after December 15, 1997. Subsequent to the effective date,
all prior-period amounts are required to be restated to conform to the
provisions of this statement.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their products
and services, the geographic areas in which they operate, and their major
ustomers. This statement is effective for all periods ending after December 15,
1997. Subsequent to the effective date, all prior-period amounts are required to
be restated to conform to the provisions of this statement.
Bancorp is currently evaluating the impact of Statement No. 130 and Statement
No. 131 on its consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
F&M Bancorp's net income, including special items, for the third quarter of
1997, was $3,435,000 or 57 cents per share compared with $1,902,000 or 32 cents
per share for the same period last year, an increase of 80.6 percent. Per share
amounts reported previously have been restated to give effect to the 5% stock
dividend paid in August, 1997. Return on average assets and return on average
equity were 1.32 percent and 13.98 percent, respectively, in the third quarter
of 1997 compared with 0.78 percent and 8.27 percent, respectively, in the same
period last year. Special items recorded in the third quarter of 1997 included a
$900,000 pre-tax gain on the sale of credit card merchant processing, or eight
cents per share, and a pre-tax charge for merger-related expense of $231,000, or
two cents per share, related to the November 1996 acquisition of Home Federal
Corporation. Special items recorded in the third quarter of 1996 included
$1,222,000 in pre-tax Savings Association Insurance fund assessments, or 13
cents per share, and pre-tax merger-related expenses of $176,000, or one cent
per share. Net income before special items was $3,024,000 or 51 cents per share
for the third quarter of 1997 compared with net income before special items of
$2,760,000 or 46 cents per share for the third quarter of 1996, an increase of
9.6 percent.
Net income year-to-date through September 30, 1997, including special items, was
$9,059,000 or $1.52 per share compared with $6,990,000 or $1.17 per share for
the first nine months of last year, an increase of 29.6 percent. Return on
average assets and return on average equity were 1.20 percent and 12.74 percent,
respectively, for the first nine months of 1997 compared with 0.98 percent and
10.35 percent, respectively, for the same period last year. Net income before
special items year-to-date was $8,648,000, or $1.45 per share, for 1997, an
increase of 8.0 percent compared with net income before special items of
$8,008,000, or $1.34 per share, for the same period last year. The year-to-
date return on assets before special items increased to 1.14 percent from 1.12
percent last year, while the return on equity before special items rose to 12.17
percent for the first nine months of 1997 from 11.86 percent for the first three
quarters of 1996.
Results of Operations
Net Interest Income
Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
principal source of Bancorp's earnings. Net interest income is impacted by
changes in the volume and mix of earning assets and funding sources, market
interest rates, monetary policy of the Federal Reserve Board and other factors.
Average balances and rates for major categories of interest-earning assets and
interest-bearing liabilities for the three- and nine-month periods ended
September 30, 1997 and September 30, 1996 are presented on a year-to-year
comparative basis in Table 1. Net interest income on a taxable-equivalent basis
increased $781,000 or 7.6 percent compared with the third quarter of last year.
The primary reason for the increase was the increase in the volume of loans
complimented by an increase in the average rate earned on the loan portfolio.
Average earning assets increased $64,774,000 or 7.2 percent for the third
quarter of 1997 compared with the third quarter of 1996. Loan demand continues
to be strong, resulting in an increase in the average loan portfolio balance of
$53,108,000 or 8.2 percent. The average balance in the investment portfolio
increased $7,758,000 or 3.2 percent as the result of a balance sheet strategy
developed to further leverage Bancorp's strong capital position and to increase
interest income. The average investment in short-term funds, consisting of
federal funds sold and interest-bearing deposits, also increased. Interest-
bearing deposits increased $21,409,000 or 3.2 percent. Growth in interest
checking, our least expensive source of interest-bearing funds, reached 13.7
percent as a result of new product introductions and innovations which attracted
customers to both retail and commercial accounts. Interest-bearing time deposits
grew $16,841,000 or 4.8 percent as the overall rate paid on these accounts
declined four basis points compared with the same quarter last year. Both
average money market savings and basic savings declined compared with the third
quarter of 1996. Additional funding was provided through borrowed funds,
principally Federal Home Loan Bank advances, which increased $36,975,000 when
compared with the third quarter of 1996. This increase was due in part to the
balance sheet strategy mentioned above and in part to fund the increase in the
loan portfolio that was not funded by deposits.
The average rate on earning assets increased seven basis points to 8.22 percent
compared with the third quarter of last year, and the average rate paid on
interest-bearing liabilities increased six basis points to 4.26 percent. The
increase in the earning rate was attributable to the growth in the loan
portfolio which changed the mix of earning assets from lower yielding
investments to higher yielding loans. Loan rates increased five basis points
compared with the third quarter of last year, and rates on taxable investments
increased 29 basis points while rates on tax-exempt investments declined 20
basis points.
Deposit rates declined four basis points overall, with savings and interest
checking rates declining nine basis points each, representing a total of
$222,013,000 in average deposits or almost one-third of Bancorp's total average
deposit base. Rates on all categories of deposits declined compared with the
third quarter of last year. The average rate paid on borrowed funds increased 34
basis points.
The net interest margin, the ratio of taxable-equivalent net interest income to
earning assets, was unchanged from the year-ago third quarter, which is related
to the relative stability of market interest rates for the comparable periods
and the effectiveness of balance sheet management strategies.
Net interest income year-to-date increased $1,837,000 or 6.1 percent compared
with the first nine months of last year primarily as a result of the increase in
loan volume which increased interest income. Average loans increased 8.8 percent
for the first nine months of 1997 compared with the first nine months of 1996,
principally in indirect consumer loans and commercial lending. Average earning
assets increased 5.7 percent, and interest-bearing liabilities increased 6.4
percent, primarily through the use of borrowed funds, which helped to fund loan
growth and to leverage our equity capital.
The average rate on earning assets for the first three quarters of 1997
increased three basis points to 8.22 percent compared with the year earlier
level of 8.19 percent. The average rate paid on interest-bearing liabilities
declined two basis points to 4.22 percent compared with the rate paid for the
first three quarters of last year. The increase in interest income from higher
loan volume and the reduction in the average rate on liabilities served to
increase the net interest margin one basis point compared with last year.
Table 1. Consolidated Average Balances, Interest and Average Rates
(Taxable Equivalent Basis)
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
YTD YTD
Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term funds $ 6,897 $ 221 4.27% $ 14,585 $ 612 5.59%
- -------------------------------------------------------------------------------
Total investment
securities -
Tax-exempt(1) 69,532 3,871 7.42 72,318 4,147 7.65
- -------------------------------------------------------------------------------
Total investment
securities - Taxable 171,016 8,263 6.44 165,452 7,572 6.10
- -------------------------------------------------------------------------------
Total investment
securities 240,548 12,134 6.73 237,770 11,719 6.57
- -------------------------------------------------------------------------------
Total loans 687,718 45,108 8.77 632,232 41,880 8.85
- -------------------------------------------------------------------------------
Total interest-
earning assets 935,163 57,463 8.22 884,587 54,211 8.19
- -------------------------------------------------------------------------------
Total noninterest-
earning assets 77,501 72,649
- -------------------------------------------------------------------------------
TOTAL ASSETS $1,012,664 $957,236
===============================================================================
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Savings $ 115,260 $ 2,176 2.52% $121,052 $ 2,372 2.62%
Interest checking 104,448 1,550 1.98 94,979 1,472 2.07
Money market savings 113,755 2,576 3.03 114,160 2,600 3.04
Total time deposits 359,853 14,517 5.39 351,066 14,546 5.53
- -------------------------------------------------------------------------------
Total interest-bearing
deposits 693,316 20,819 4.01 681,257 20,990 4.12
- -------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased
and securities sold
under agreements to
repurchase 43,246 1,656 5.12 36,460 1,339 4.91
Other short-term
borrowings 54,054 2,349 5.81 23,936 1,057 5.90
- -------------------------------------------------------------------------------
Total short-term
borrowings 97,300 4,005 5.50 60,396 2,396 5.30
- -------------------------------------------------------------------------------
Long-term borrowings 11,520 502 5.83 12,175 525 5.76
- -------------------------------------------------------------------------------
Total borrowed funds 108,820 4,507 5.54 72,571 2,921 5.38
- -------------------------------------------------------------------------------
Total interest-bearing
liabilities 802,136 25,326 4.22 753,828 23,911 4.24
- -------------------------------------------------------------------------------
Noninterest-bearing
liabilities
Demand deposits 104,227 102,933
Other liabilities 11,256 10,270
Shareholders' equity 95,045 90,205
- -------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $1,012,664 $957,236
===============================================================================
NET INTEREST INCOME * $32,137 $30,300
===============================================================================
NET INTEREST SPREAD 4.00% 3.95%
===============================================================================
NET INTEREST MARGIN AS A
PERCENT OF EARNING ASSETS 4.59% 4.58%
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
QTD QTD
Average Average Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Short-term funds 8,764 99 4.48 4,856 57 4.67
- -------------------------------------------------------------------------------
Total investment
securities -
Tax-exempt(1) 68,176 1,255 7.36 71,995 1,361 7.56
- -------------------------------------------------------------------------------
Total investment
securities - Taxable 182,111 2,979 6.54 170,534 2,662 6.25
- -------------------------------------------------------------------------------
Total investment
securities 250,287 4,234 6.77 242,529 4,023 6.64
- -------------------------------------------------------------------------------
Total loans 700,498 15,548 8.81 647,390 14,253 8.76
- -------------------------------------------------------------------------------
Total interest-
earning assets 959,549 19,881 8.22 894,775 18,333 8.15
- -------------------------------------------------------------------------------
Total noninterest-
earning assets 76,778 75,222
- -------------------------------------------------------------------------------
TOTAL ASSETS $1,036,327 $969,997
===============================================================================
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Savings $ 114,798 $ 721 2.49% $120,198 $ 781 2.58%
Interest checking 107,215 523 1.94 94,323 482 2.03
Money market
savings 112,701 859 3.02 115,625 886 3.05
Total time deposits 364,982 4,988 5.42 348,141 4,777 5.46
- -------------------------------------------------------------------------------
Total interest-bearing
deposits 699,696 7,091 4.02 678,287 6,926 4.06
- -------------------------------------------------------------------------------
Borrowed funds
Federal funds purchased
and securities sold
under agreements to
repurchase 44,189 582 5.22 39,747 490 4.90
Other short-term
borrowings 55,641 844 6.02 33,637 488 5.77
- -------------------------------------------------------------------------------
Total short-term
borrowings 99,830 1,426 5.66 73,384 978 5.30
- -------------------------------------------------------------------------------
Long-term borrowings 22,437 307 5.43 11,908 153 5.11
- -------------------------------------------------------------------------------
Total borrowed funds 122,267 1,733 5.62 85,292 1,131 5.28
- -------------------------------------------------------------------------------
Total interest-bearing
liabilities 821,963 8,824 4.26 763,579 8,057 4.20
- -------------------------------------------------------------------------------
Noninterest-bearing
liabilities
Demand deposits 106,144 104,910
Other liabilities 10,705 10,027
Shareholders' equity 97,515 91,481
- -------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY $1,036,327 $969,997
===============================================================================
NET INTEREST INCOME * $11,057 $10,276
===============================================================================
NET INTEREST SPREAD 3.96% 3.95%
===============================================================================
NET INTEREST MARGIN AS A
PERCENT OF EARNING ASSETS 4.57% 4.57%
===============================================================================
</TABLE>
* Based on an effective federal tax rate of 34% for 1997 and 1996.
(1) Based on amortized cost (i.e. excludes mark-to-market adjustments).
Management continually monitors Bancorp's balance sheet to insulate net interest
income from significant swings caused by interest rate volatility using the
concept of natural hedges, a process of adjusting balance sheet
positions having individual interest rate risks to control the net interest rate
risk as a whole. Derivative financial instruments such as futures, forwards,
swaps, option contracts, or other financial instruments with similar
characteristics are not currently used. As market rates change, corresponding
changes in asset mix, funding sources and pricing are considered to avoid a
negative impact on net interest income.
Bancorp measures the interest rate sensitivity of its assets and liabilities on
the basis of when they will reprice as opposed to when they can reprice. Since
it is difficult to predict the movement of interest rates, management's
objective is to maintain a relatively balanced sensitivity position, while not
foregoing any opportunity to benefit from current rate conditions. As indicated
in Table 2, Bancorp had a cumulative net liability sensitive position of
$106,858,000 within one year September 30, 1997. This position indicated that
Bancorp had the potential for decreased earnings if market interest rates were
to rise in the next twelve months.
Due to inherent limitations in this traditional gap analysis technique for
measuring interest rate sensitivity, management also employs more sophisticated
interest sensitivity measurement tools to analyze the volatility of net interest
income as a result of changes in interest rates. Simulation models are used to
subject the current repricing gap positions to rising and falling interest rates
in increments of 100, 200, and 300 basis points, and to forecast how net
interest income varies under alternative interest rate and business activity
scenarios. The effects of changes in interest rates on the market value of
assets, liabilities, and off-balance-sheet contracts are also measured. At
September 30, 1997, the changes in net interest income and/or market value
calculated under these alternative methods were within limits established by
Bancorp's Board of Directors.
TABLE 2. INTEREST RATE SENSITIVITY ANALYSIS AT SEPTEMBER 30, 1997 (1)
<TABLE>
<CAPTION>
1-90 91-180 181-365 1-3 3-5 Beyond
(In thousands) days days days years years 5 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-
earning Assets:
Interest-bearing
deposits
with banks $ 6,238 $ -- $ -- $ -- $ -- $ -- $ 6,238
Investment
securities (2) 32,311 14,214 23,024 94,886 32,872 37,057 234,364
Loans, net 134,765 71,471 127,906 205,872 111,828 40,314 692,156
-------- -------- -------- -------- -------- -------- --------
Total $173,314 $ 85,685 $150,930 $300,758 $144,700 $ 77,371 $932,758
======== ======== ======== ======== ======== ======== ========
Interest-bearing
Liabilities:
Deposits $136,084 $ 89,879 $185,408 $194,578 $ 84,911 $ 10,670 $701,530
Short-term
borrowings 85,096 -- 15,364 -- -- -- 100,460
Long-term
borrowings -- -- 4,956 -- 18,724 139 23,819
-------- -------- -------- -------- -------- -------- --------
Total $221,180 $ 89,879 $205,728 $194,578 $103,635 $ 10,809 $825,809
======== ======== ======== ======== ======== ======== ========
Interest
Sensitivity
Gap:
Period $(47,866)$ (4,194)$(54,798)$106,180 $ 41,065 $ 66,562 $106,949
Cumulative (47,866) (52,060)(106,858) (678) 40,387 106,949 --
</TABLE>
(1) Excludes nonaccrual loans and other nonrate-sensitive assets.
(2) Reflects fair value adjustments for securities available for sale.
Noninterest Income.
Noninterest income, including special items, increased $1,213,000 or 43.5
percent for the third quarter of 1997 compared with the third quarter of 1996.
Excluding the $900,000 gain on the sale of credit card merchant processing,
noninterest income increased $313,000 or 11.2 percent. Two major sources of
noninterest income increased as management's strategic emphasis on new sources
of revenue and innovative marketing and distribution of products and services
continued to develop revenue enhancement opportunities: trust income, which
included a relatively large estate settlement fee, increased $206,000 or 46.0
percent compared with the third quarter of 1996, and service charges on deposit
accounts increased $155,000 or 13.2 percent.
Year-to-date noninterest income, including the gain on the sale of credit card
merchant processing, increased $2,179,000 or 26.9 percent compared with the
first nine months of 1996. Excluding special items, noninterest income year-to-
date increased $1,224,000 or 15.0 percent. Trust income and deposit service
charges increased 40.6 percent and 13.9 percent, respectively. The increase in
trust income also reflects strong growth in financial planning services and
assets under management. Deposit service fees increased as a result of pricing
initiatives, product innovation, information technology , and market
segmentation strategies which are producing anticipated returns.
Noninterest Expenses.
Noninterest expenses decreased $647,000 or 6.6 percent compared with the third
quarter of last year. Included in this decrease were special items recorded in
each of the corresponding periods. Special items recorded in the third quarter
of 1997 included $231,000 in contractual obligations related to the merger with
Home Federal Corporation in November 1996, and, in the third quarter of 1996,
included $1,222,000 in Savings Association Insurance Fund assessments and merger
related expenses of $176,000. Excluding these charges, noninterest expenses for
the third quarter of 1997 increased $519,000 or 6.2 percent. Salaries and
benefits, excluding special items, increased $167,000 or 3.7 percent largely due
to merit-based compensation increases. Occupancy and equipment expense increased
$201,000 or 14.8 percent, reflecting the completion of the addition to the
corporate headquarters building in the fourth quarter of 1996 and investments in
technology which have enhanced customer service. Other operating expenses,
exclusive of special items, increased $151,000 or 6.0 percent.
Year-to-date noninterest expenses decreased $22,000 or 0.1 percent, including
special items, compared with the first nine months of 1996. Excluding special
items, noninterest expenses increased $1,350,000 or 5.4 percent. Excluding
special items, salaries and benefits increased 7.7 percent largely due to merit-
based compensation increases and included personnel expenses associated with the
operation of a de-novo branch office opened in March 1996. Occupancy and
equipment expenses increased 12.5 percent from year earlier totals due to
corporate expansion and technology investments mentioned above. Other operating
expenses, excluding special items, declined $135,000 or 1.7 percent for the
nine-month period.
Income Taxes.
The provision for income taxes increased $1,004,000 compared with the third
quarter of last year. Tax expense varies from one period to the next with
changes in the level of income before taxes, changes in the amount of tax-exempt
income, and the relationship of these changes to each other. Year-to-date, the
provision for income taxes was $1,633,000 ahead of the same period last year.
Bancorp's effective tax rate for the third quarter and year-to-date 1997 was
31.7 percent and 30.5 percent, respectively. For the third quarter and year-to-
date last year, the effective tax rate was 23.6 percent and 25.1 percent,
respectively. Bancorp's income tax expense differs from the amount computed at
statutory rates primarily due to tax-exempt interest from certain loans and
investment securities. As net income increased from 1996 to 1997 and the
percentage of tax-exempt interest declined relative to net income, the effective
tax rate increased.
NONPERFORMING ASSETS
Table 3 summarizes Bancorp's nonperforming assets and contractually past due
loans. Total nonperforming assets at September 30, 1997 have declined $2,718,000
compared with year earlier levels and have declined $2,419,000 since year-end.
Loans past due 90 or more days as to interest or principal reflected a
$1,103,000 decrease compared with prior year levels and have decreased
$1,305,000 since year-end. Although there is no direct correlation between
nonperforming loans and ultimate loan losses, an analysis of the nonperforming
loans may provide some indication of the quality of the loan portfolio.
Management believes that the amounts of its nonperforming loans and past due
loans are modest in relation to the loan portfolio.
POTENTIAL PROBLEM LOANS
At September 30, 1997, Bancorp had performing loans amounting to $11,340,000
that were identified as potential problem loans because the borrowers were
currently experiencing financial difficulties such that management had concerns
that such loans might, in the future, become classified as nonaccrual or
delinquent. At December 31, 1996, potential problem loans totaled $20,579,000.
The decrease in the amount of these loans during 1997 is a reflection of an
improvement in credit quality. As of September 30, 1997, management does not
believe that these loans present any significant risk of loss.
Bancorp had loans amounting to approximately $4,274,000 and $6,287,000 at
September 30, 1997 and September 30, 1996, respectively, that were specifically
classified as impaired and included in non-accrual loans in Table 3. The average
balance of impaired loans for the nine and three months ended September 30, 1997
and 1996 amounted to $5,638,000 and $5,016,000, $5,039,000 and $5,101,000,
respectively. Cash receipts for these same periods were $2,879,000 and
$1,746,000 for 1997 and $865,000 and $137,000 for 1996. All cash receipts were
applied to reduce the principal balance of those impaired loans and no interest
income was recognized. The specific allowance for credit losses related to these
impaired loans was $440,000 and $132,000, at September 30, 1997 and September
30, 1996, respectively.
TABLE 3. NONPERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1997 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming Assets:
Nonaccrual loans(1) $ 5,929 $ 7,622 $ 7,281
Other real estate owned net of
valuation allowance(2)(4) 6,388 7,413 7,457
- -------------------------------------------------------------------------------
Total nonperforming assets $12,317 $15,035 $14,738
- -------------------------------------------------------------------------------
Loans past due 90 or more days
as to interest or principal(3) $ 915 $ 2,018 $ 2,220
- -------------------------------------------------------------------------------
Nonperforming loans to period-end loans 0.83% 1.15% 1.09%
Nonperforming assets to period-end
loans and other real estate owned 1.71% 2.25% 2.17%
Period-end allowance for credit
losses times nonperforming loans 1.66x 1.27x 1.32x
Period-end allowance for credit
losses times nonperforming assets 0.80x 0.65x 0.65x
</TABLE>
(1) Loans are placed on nonaccrual status when, in the opinion of
management, reasonable doubt exists as to the full, timely collection of
interest or principal or a specific loan meets the criteria for nonaccrual
status established by regulatory authorities. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed against current period interest income. No interest is taken into
income on nonaccrual loans unless received in cash or until such time the
borrower demonstrates sustained performance over a period of time in
accordance with contractual terms.
(2) Other real estate owned includes: banking premises no longer used
for business purposes and real estate acquired by foreclosure (in partial or
complete satisfaction of debt) or otherwise surrendered by the borrower to
Bancorp's possession. Other real estate owned is recorded at the lower of cost
or fair value on the date of acquisition or transfer from loans. Write-downs
to fair value at the date of acquisition are charged to the allowance for
credit losses. Subsequent to transfer, these assets are adjusted through a
valuation allowance to the lower of the net carrying value or the fair value
(net of estimated selling expenses) based on periodic appraisals.
(3) Nonaccrual loans are not included.
(4) Consists principally of the real estate held in a limited partnership
and includes minority interests totaling $940,000, $772,000, and $838,000 at
September 30, 1997, September 30, 1996 and December 31, 1996, respectively.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses was $9,837,000 or 1.4 percent of loans
outstanding as of September 30, 1997 compared with $9,639,000 or 1.4 percent of
loans outstanding as of December 31, 1996 and $9,700,000 or 1.5 percent of loans
outstanding as of September 30, 1996. The provision for credit losses was
$450,000 for the third quarter of 1997 and $300,000 for the third quarter of
1996. Net charge-offs for the third quarter were $344,000 compared with $470,000
for the third quarter of last year and $1,152,000 year-to-date this year
compared with $996,000 year-to-date last year. As reflected in Table 4, net
charge-offs as a percent of total average loans were 0.17 percent year-to-date
compared with 0.16 percent for the same period last year.
TABLE 4. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Period ended
- -------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands) 1997 1996 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Average loans outstanding
less average unearned income(1) $687,717 $631,563 $640,148
===============================================================================
Allowance for credit losses
at beginning of year $ 9,639 $ 9,796 $ 9,796
- -------------------------------------------------------------------------------
Charge-offs
Real estate 134 92 303
Commercial and industrial 24 10 10
Consumer 3,126 2,538 3,609
- -------------------------------------------------------------------------------
Total loans charged-off 3,284 2,640 3,922
- -------------------------------------------------------------------------------
Recoveries
Real estate 360 195 247
Commercial and industrial 1 2 2
Consumer 1,771 1,447 1,994
- -------------------------------------------------------------------------------
Total recoveries 2,132 1,644 2,243
- -------------------------------------------------------------------------------
Net charge-offs 1,152 996 1,679
- -------------------------------------------------------------------------------
Additions charged to operating expense 1,350 900 1,522
- -------------------------------------------------------------------------------
Allowance for credit losses
at end of period $ 9,837 $ 9,700 $ 9,639
===============================================================================
Ratio of net charge-offs to
average loans outstanding 0.17% 0.16% 0.26%
===============================================================================
</TABLE>
(1) Exclusive of loans held for sale.
TABLE 5. ALLOCATION OF ALLOWANCES FOR CREDIT LOSSES
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1996
- -------------------------------------------------------------------------------
% Gross % Gross % Gross
(Dollars in thousands) Amount Loans(1) Amount Loans(1) Amount Loans(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate
Construction and
land development $1,679 4.3% $1,684 4.3% $1,821 4.4%
Residential mortgage 595 26.0 452 27.1 510 27.4
Other mortgage 1,402 19.4 1,730 19.1 1,765 19.3
Commercial and industrial 588 10.8 1,525 8.7 830 9.3
Consumer 3,944 37.9 2,844 38.9 2,757 37.8
Unallocated 1,629 1.6 1,465 1.9 1,956 1.8
- -------------------------------------------------------------------------------
Total allowance for
credit losses $9,837 100.0% $9,700 100.0% $9,639 100.0%
===============================================================================
</TABLE>
(1) Excludes loans held for sale.
Table 5 presents an allocation of the allowance for credit losses to various
loan categories. This allocation does not limit the amount of the allowance
available to absorb losses from any type of loan and should not be viewed as an
indicator of the specific amount or specific loan categories in which future
charge-offs may ultimately occur.
CAPITAL RESOURCES
Shareholders' equity totaled $96,949,000 at September 30, 1997, an increase of
3.7 percent compared with the 1996 year end level of $93,460,000 and an increase
of 6.9 percent from the year earlier level of $90,706,000. The fair value of the
available-for-sale portfolio has increased $350,000 (net of deferred taxes)
since year end. Capital levels are considered sufficient to absorb anticipated
future price volatility in the available-for-sale portfolio.
Bancorp's risk-based capital and leverage capital ratios continue to exceed
regulatory guidelines as of September 30, 1997, as follows:
TABLE 6. CAPITAL RATIOS
<TABLE>
<CAPTION>
Risk-based Capital
-------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- --------
<S> <C> <C> <C>
Actual 12.75% 13.97% 9.34%
Minimum 4.00% 8.00% 3.00%
------ ------ -----
Excess 8.75% 5.97% 6.34%
====== ====== =====
</TABLE>
Fair value adjustments to shareholders' equity for changes in the fair value of
securities classified as available-for-sale are excluded from the calculation of
these capital ratios in accordance with regulatory guidelines.
PART II - Other Information
Item 6 Exhibits and Reports on Form 8-K Page
(a) Exhibits
3.2 By-Laws of F&M Bancorp.......................................24
4 Description of Common Stock..................................36
11 Statement Re: Computation of per share earnings.............41
27 Financial Data Schedule......................................42
(b) No reports on Form 8-K were filed by the Corporation during the quarter
ended September 30, 1997.
Items 1 through 5 have been omitted since the item is either inapplicable or the
answer is negative.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F&M BANCORP
-----------
(Registrant)
November 14, 1997 /s/David L. Spilman
- ----------------- ----------------------------
Date DAVID L. SPILMAN
TREASURER
<PAGE>
Exhibit 3.2
F&M BANCORP
BY-LAWS
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, at such time and on such date during the 31-day period
commencing on the second Tuesday of April in each year as shall be determined
by the Board of Directors. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between annual
meetings, a special meeting of the stockholders may be called by the Chairman of
the Board or the President or by a majority of the Board of Directors by vote at
a meeting or in writing (addressed to the Secretary of the Corporation) with or
without a meeting. Special meetings of the stockholders shall be called by the
Secretary at the request of the stockholders only on the written request of
stockholders entitled to cast at least a majority of all the votes entitled to
be cast at the meeting and then only as may be required by law. At a special
meeting of stockholders, only such business shall be conducted as shall be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors. In the absence of such designation, the meetings shall be held at the
main office of the Corporation.
SECTION 1.04. Notice of Meetings; Waiver of Notice. Not less than ten nor
more than 90 days before each stockholders' meeting, the Secretary shall give
written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a special
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to him
or her, left at his or her residence or usual place of business, or mailed to
him or her at his or her address as it appears on the records of the
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he or she before or after the meeting signs
a waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy. A meeting of
stockholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
SECTION 1.05. Quorum; Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06. Adjournments. A meeting of stockholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date. Any
business which might have been transacted at the meeting as originally notified
may be deferred and transacted at any such adjourned meeting at which a quorum
shall be present.
SECTION 1.07. General Right to Vote; Proxies. Unless the Charter provides
for a greater or lesser number of votes per share or limits or denies voting
rights, each outstanding share of stock, regardless of class, is entitled to one
vote on each matter submitted to a vote at a meeting of stockholders. In all
elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock the stockholder
owns of record either in person or by proxy. A stockholder may sign a writing
authorizing another person to act as proxy. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing the writing or causing
the stockholder's signature to be affixed to the writing by any reasonable
means, including facsimile signature. A stockholder may authorize another person
to act as proxy by transmitting, or authorizing the transmission of, a telegram,
cablegram, datagram, or other means of electronic transmission to the person
authorized to act as proxy or to a proxy solicitation firm, proxy support
service organization, or other person authorized by the person who will act as
proxy to receive the transmission. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date. A proxy is revocable by a stockholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is coupled with an interest. A proxy may be made
irrevocable for so long as it is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted under
the proxy or another general interest in the Corporation or its assets or
liabilities.
SECTION 1.08. List of Stockholders. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.09. Conduct of Business. Nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving notice provided for in Section 1.11, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in Section 1.11. The chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in this Section
and Section 1.11 and, if any proposed nomination or business is not in
compliance with this Section and Section 1.11, to declare that such defective
nomination or proposal be disregarded.
SECTION 1.10. Conduct of Voting. At all meetings of stockholders, unless
the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies, the acceptance or rejection of votes and procedures for the
conduct of business not otherwise specified by these By-Laws, the Charter or
law, shall be decided or determined by the chairman of the meeting. The Board of
Directors, in its discretion, or the officer of the Corporation presiding at a
meeting of stockholders, in his or her discretion, may require that any votes
cast at such meeting shall be cast by written ballot. If ordered by the Board of
Directors or the chairman of the meeting, the voting upon any election or
question shall be conducted by one or more inspectors of election. In such
event, the Board of Directors by resolution or the Chairman or President shall
appoint one or more inspectors of election to act at such meeting and to make a
written report thereof. One or more other persons may be designated as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is present, ready and willing to act at such meeting of stockholders,
the chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers, employees
or agents of the Corporation. Each inspector, before entering upon the discharge
of his or her duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector shall have the duties prescribed by law and shall
take charge of the polls and, when the vote is completed, shall make a
certificate of the result of the vote taken and of such other facts as may be
required by law.
SECTION 1.11. Stockholder Proposals. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the
Corporation (other than proposals made under Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), including any proposal
relating to the nomination of a director to be elected to the Board of Directors
of the Corporation, the stockholders must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not less than 90 days nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the tenth day, following the day on notice of the date of the annual
meeting was mailed or public announcement of the date of such meeting is made,
whichever first occurs. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made;
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of stock of the Corporation which are owned beneficially and of record
by such stockholders and such beneficial owner; (d) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder; and, (e) a representation that such stockholder intends to
appear in person or by proxy at the annual meeting to bring such business before
the meeting.
SECTION 1.12. Informal Action by Stockholders. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The number of directors of the
Corporation shall be 16, which number may be increased or decreased by at least
two-thirds of the directors then in office, but shall never be less than the
minimum number permitted by the General Laws of the State of Maryland now or
hereafter in force.
SECTION 2.03. Age Limitation of Directors. No person, except a person who
was a director of Farmers and Mechanics National Bank on March 11, 1975, shall
be eligible to stand for election as a director after attaining seventy (70)
years of age.
SECTION 2.04. Election and Tenure of Directors. The directors shall be
divided into three classes as nearly equal in number as possible. At each
successive annual meeting of stockholders, the holders of stock present in
person or by proxy at such meeting and entitled to vote thereat shall elect
members of each successive class to serve for three year terms and until their
successors are elected and qualify. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class shall, subject to Section 2.06, hold office for
a term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director.
SECTION 2.05. Removal of Director. Any director or the entire Board of
Directors may be removed only in accordance with the provisions of the Charter.
SECTION 2.06. Vacancy on Board. Subject to the rights of the holders of
any class of stock separately entitled to elect one or more directors, the
stockholders may elect a successor to fill a vacancy on the Board of Directors
which results from the removal of a director. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. Subject to the
rights of the holders of any class of stock separately entitled to elect one or
more directors, a majority of the remaining directors, whether or not sufficient
to constitute a quorum, may fill a vacancy on the Board of Directors which
results from any cause except an increase in the number of directors, and a
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his or her successor is elected and qualifies.
SECTION 2.07. Regular Meetings. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business; and in the event that no other time is designated by the stockholders,
the Board of Directors shall meet at 2:00 p.m. on the date of such stockholders
meeting or immediately following the close of such meeting, whichever is later,
on the day of such meeting. Such first regular meeting shall be held at the
principal office of the Corporation. No notice of such first meeting shall be
necessary if held as hereinabove provided. Any other regular meeting of the
Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.
SECTION 2.08. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.09. Notice of Meeting. Except as provided in Section 2.07, the
Secretary shall give notice to each director of each regular and special meeting
of the Board of Directors. The notice shall state the time and place of the
meeting. Notice is given to a director when it is delivered personally to him,
sent by mail, telephone, telegram, facsimile, or other electronic means by which
receipt of notice can be verified, at least one day before the day of the
meeting. Unless the By-Laws or a resolution of the Board of Directors provides
otherwise, the notice need not state the business to be transacted at or the
purposes of any regular or special meeting of the Board of Directors. No notice
of any meeting of the Board of Directors need be given to any director who
attends except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not lawfully
called or convened, or to any director who, in writing executed and filed with
the records of the meeting either before or after the holding thereof, waives
such notice. Any meeting of the Board of Directors, regular or special, may
adjourn from time to time to reconvene at the same or some other place, and no
notice need be given of any such adjourned meeting other than by announcement.
SECTION 2.10. Action by Directors. Unless statute or the Charter or By-
Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
SECTION 2.11. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.12. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors will appoint from among
its members an Executive Committee, Compensation Committee, Audit Committee,
Nominating Committee, and may appoint such other committees deemed necessary,
composed of two or more directors and delegate to these committees any of the
powers of the Board of Directors, except the power to authorize dividends on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend these By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock providing for or establishing a method
or procedure for determining the maximum number of shares to be issued, a
committee of the Board, in accordance with that general authorization or any
stock option or other plan or program adopted by the Board of Directors, may
authorize or fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee shall function in
accordance with the charter established by that committee and ratified by the
Board of Directors. Regular meetings of each committee shall be held at such
time as provided for herein and upon such notice as the committee shall
determine. Special meetings of each committee may be held at any time and place
upon the call of the Chairman of the Board, the President, the Chairman of the
committee, or any two other members of the committee, and upon such notice as
the committee may prescribe. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. Minutes of meetings of each committee shall be
available to the Board of Directors. The members of a committee may conduct any
meeting thereof by conference telephone in accordance with the provisions of
Section 2.11.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee
acting under this Section that it shall be to the advantage of the Corporation
to resume the conduct and management of its affairs and business under all the
other provisions of these By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Officers. The Corporation shall have a President, Secretary,
and Treasurer who will be elected by the Board of Directors. The Corporation may
also have a Chairman of the Board and/or a Vice Chairman, if elected by the
directors, one or more Vice-Presidents, one or more Assistant Vice-Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other assistant and subordinate officers as are elected by the Board of
Directors or appointed by the President. A person may hold more than one office
in the Corporation but may not serve concurrently as both President and
Vice-President of the Corporation. The Chairman of the Board and/or Vice
Chairman shall be a director, and the other officers may be directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. He or she shall have and may
exercise such powers as are from time to time assigned by the Board of
Directors.
SECTION 4.03. Vice Chairman of the Board. The Vice Chairman of the Board,
if one be elected, shall in the absence of the Chairman of the Board and the
President preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. He or she shall have and may
exercise such powers as are from time to time assigned by the Board of
Directors.
SECTION 4.04. President. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the stockholders and of the Board of
Directors at which he or she shall be present; shall have general charge and
supervision of the assets and affairs of the Corporation; may sign and execute,
in the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, unless the Board of Directors so
empowers another, shall perform such duties as are customarily performed by the
chief executive officer of a corporation, and may perform such other duties as
are from time to time assigned by the Board of Directors.
SECTION 4.05. Vice-Presidents. The Vice-President or Vice-Presidents, at
the request of the President or in his or her absence or during his or her
inability to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice-President, the President or the Board of Directors may
determine which one or more of the Vice-Presidents shall perform any of such
duties or exercise any of such functions; otherwise any of the Vice-Presidents
may perform any of such duties or exercise any of such functions. The Vice-
President or Vice-Presidents shall have such other powers and perform such other
duties, and have such additional descriptive designations in their titles (if
any), as are from time to time assigned to them by the Board of Directors or the
President.
SECTION 4.06. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he or she shall see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by law;
he or she shall be custodian of the records of the Corporation; he or she shall
witness all documents on behalf of the Corporation, the execution of which is
duly authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same; and, in general, he or she shall perform all duties customarily performed
by a secretary of a corporation, and shall perform such other duties and have
such other powers as are from time to time assigned to him or her by the Board
of Directors or the President.
SECTION 4.07. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he or she shall perform all the duties customarily
performed by a treasurer of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors or the President.
SECTION 4.08. Compensation. The Board of Directors shall have power (which
power will be delegated to the Compensation Committee, if one is formed) to fix
the salaries and other compensation and remuneration, of whatever kind, of
officers of the Corporation. To the extent the Compensation Committee does not
establish salaries for officers, the President will fix salaries for all other
officers and employees of the Corporation and all subsidiaries.
SECTION 4.09. Tenure and Removal of Officers. All officers serve at the
pleasure of the Board of Directors. The Board of Directors may remove an officer
or agent at any time and may delegate this power to the chief executive officer.
ARTICLE V.
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he or she holds in
the Corporation. Each stock certificate shall include on its face the name of
the corporation that issues it, the name of the stockholder or other person to
whom it is issued, and the class of stock and number of shares it represents. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the President, or a
Vice-President, and countersigned by the Secretary, an Assistant Secretary, the
Treasurer, or an Assistant Treasurer. Each certificate may be sealed with the
actual corporate seal or a facsimile of it or in any other form and the
signatures may be either manual or facsimile signatures. A certificate is valid
and may be issued whether or not an officer who signed it is still an officer
when it is issued. It shall also include on its face or back (a) a statement of
any restrictions on transferability and (b) a statement which provides in
substance that the Corporation will furnish to any stockholder on request and
without charge a full statement of the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the stock
of each class which the Corporation is authorized to issue, of the differences
in the relative rights and preferences between the shares of each series of a
preferred or special class in series which the Corporation is authorized to
issue, to the extent they have been set, and of the authority of the Board of
Directors to set the relative rights and preferences of subsequent series of a
preferred or special class of stock and any restrictions on transferability.
Such request may be made to the Secretary or to its transfer agent. A
certificate may not be issued until the stock represented by its is fully paid.
SECTION 5.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. Record Dates or Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.06, more than 90 days before the
date on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least ten days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock ledger
which contains the name and address of each stockholder and the number of shares
of stock of each class which the stockholder holds. The stock ledger may be in
written form or in any other form which can be converted within a reasonable
time into written form for visual inspection. The original or a duplicate of the
stock ledger shall be kept at the offices of a transfer agent for the particular
class of stock, or, if none, at the principal office in the State of Maryland or
the principal executive offices of the Corporation.
SECTION 5.05. Certification of Beneficial Owners. The Board of Directors
may adopt by resolution a procedure by which a stockholder of the Corporation
may certify in writing to the Corporation that any shares of stock registered in
the name of the stockholder are held for the account of a specified person other
than the stockholder. The resolution shall set forth the class of stockholders
who may certify; the purpose for which the certification may be made; the form
of certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board considers necessary or desirable.
On receipt of a certification which complies with the procedure adopted by the
Board in accordance with this Section, the person specified in the certification
is, for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any transfer agent, officer, or
officers of the Corporation. In their discretion, the Board of Directors or such
officer or officers may require the owner of the certificate to give bond, with
sufficient surety, to indemnify the Corporation against any loss or claim
arising as a result of the issuance of a new certificate. In their discretion,
the Board of Directors or such officer or officers may refuse to issue such new
certificate save upon the order of some court having jurisdiction in the
premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for the
payment of money, notes and other evidences of indebtedness, issued in the name
of the Corporation, shall, unless otherwise provided by resolution of the Board
of Directors, be signed by the Chairman of the Board, President, a Vice-
President, the Treasurer, the Secretary, or other assistant or subordinate
officers.
SECTION 6.02. Annual Statement of Affairs. The President shall prepare
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after the meeting, placed on
file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01. Procedure. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be reimbursed by the Corporation. It shall
be a defense to any action for advance for expenses that (a) a determination has
been made that the facts then known to those making the determination would
preclude indemnification or (b) the Corporation has not received both (i) an
undertaking as required by law to repay such advances in the event it shall
ultimately be determined that the standard of conduct has not been met and (ii)
a written affirmation by the Indemnified Party of such Indemnified Party's good
faith belief that the standard of conduct necessary for indemnification by the
Corporation has been met.
SECTION 7.02. Exclusivity, Etc. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. The Corporation shall not be liable
for any payment under this By-Law in connection with a claim made by a director
or officer to the extent such director or officer has otherwise actually
received payment under insurance policy, agreement, vote or otherwise, of the
amounts otherwise indemnifiable hereunder. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this By-
Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of such director
or officer or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision hereof
is in force.
SECTION 7.03. Severability; Definitions. The invalidity or
unenforceability of any provision of this Article VIII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this By-
Law" in this Article VIII means this Article VIII in its entirety.
ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of the Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of these By-Laws
shall be kept at the principal office of the Corporation.
SECTION 8.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
(seal) adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.04. Voting Stock in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.05. Communication. Any notice or other document which is
required by these By-Laws to be mailed shall be considered personally delivered
when sent by United States mail, facsimile, or other electronic means.
SECTION 8.06. Execution of Documents. All instruments or documents may
executed, acknowledged, verified, delivered, or accepted on behalf of the
Corporation by the President. The President may grant specific or general
authority relating to any signing, execution, acknowledgment, verification,
delivery, or acceptance on behalf of the Corporation to other officers,
employees, or agents.
SECTION 8.07. Amendments. These By-Laws may be altered or repealed, in
whole or in part, and new by-laws may be adopted, (a) at a meeting of
stockholders duly called for such purpose pursuant to a majority of all the
votes cast at such meeting if a quorum is present; provided, however, that
notwithstanding the foregoing, any amendment to, repeal of or adoption of any
provision of these By-Laws by the stockholders of the Corporation which is
inconsistent with the purposes or effects of Article SEVENTH of the Charter
(including, without limitation, paragraph (a) thereof) or subparagraph (7) of
Article EIGHTH of the Charter or the last subparagraph of Article EIGHTH of the
Charter shall require the affirmative vote of not less than 80% of the aggregate
votes entitled to be cast thereon (considered for this purpose as a single
class), by vote at such a meeting, or (b) by the Board of Directors, at any
regular or special meeting thereof.
<PAGE>
Exhibit 4
F&M BANCORP
Description of Common Stock
The following paragraphs summarize certain provisions of Maryland General
Corporation Law ("MGCL"), the Federal banking law, and the Charter and By-Laws
of F&M Bancorp (the "Company") as they relate to the Common Stock of the
Company. The summary does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland and Federal law and to the
Company's Charter and By-Laws for complete information.
Capital Stock
The total number of shares of stock of all classes which the Company has
authority to issue is 50,000,000 shares of capital stock (par value $5.00 per
share), amounting in aggregate par value to $250,000,000. All of such shares are
currently classified as Common Stock (the "Common Stock"). The Board of
Directors may classify and reclassify any unissued shares of capital stock into
other classes or series of capital stock (including Preferred Stock) by setting
or changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of such shares of capital
stock. No shares of capital stock are now classified as Preferred Stock.
Common Stock
A holder of Common Stock has one vote for each share held by him on all
matters submitted to a vote of stockholders and, subject to the voting rights,
if any, of the holders of Preferred Stock, if any, the exclusive voting power
for all purposes is vested in the holders of the Common Stock. Holders of Common
Stock do not have the right of cumulative voting in the election of directors.
The Common Stock has no conversion rights and is not subject to redemption. A
stockholder of the Company has no preemptive rights to subscribe for additional
shares of stock or other securities of the Company except as may be granted by
the Board of Directors.
Subject to applicable law and the rights of the holders of Preferred Stock, if
any, the holders of Common Stock of the Company are entitled to receive, pro
rata, dividends when, as, and if declared by the Board of Directors from funds
legally available therefor. The ability of the Company to pay dividends to its
stockholders is limited primarily by the ability of the Company's primary
subsidiaries, Farmers and Mechanics National Bank and Home Federal Savings Bank,
(collectively, "the Banks") to pay dividends to the Company. In the event of any
liquidation, dissolution or winding up of the Company, after payment or
providing for the payment of all liabilities and amounts due the holders of
Preferred Stock, if any, the holders of Common Stock are entitled to share
ratably in all the remaining assets.
Board of Directors
The Company's Charter provides that the number of directors of the Company
shall be 16 and thereafter may be increased or decreased pursuant to the By-Laws
of the Company, but shall never be less than the minimum number (generally three
directors) permitted by the MGCL. The Charter of the Company has classified the
Board of Directors into three classes of roughly equal size which serve for
three year terms, with one class being elected each year. Subject to the rights
of the holders of Preferred Stock, if any, to elect one or more directors, the
stockholders may elect a successor to fill a vacancy on the Board of Directors,
resulting from the removal of a director subject to the rights of the holders of
Preferred Stock if any, to elect one or more directors, director elected by the
stockholders to fill a vacancy resulting from the removal of a director serves
for the balance of the term of the removed director then remaining. A majority
of the remaining directors, whether or not sufficient to constitute a quorum,
may fill a vacancy on the Board of Directors which results from any cause except
an increase in the number of directors, and a majority of the entire Board of
Directors may fill a vacancy which results from an increase in the number of
directors. A director elected by the Board of Directors to fill a vacancy serves
until the next annual meeting of stockholders and until his successor is elected
and qualifies.
Removal of Directors
The Charter of the Company provides that, subject to the rights of the holders
of Preferred Stock, if any, any director may be removed only for cause and then
only by the affirmative vote of at least 80% of the votes entitled to be cast in
the election of directors. If a stockholder were to obtain 80% of the shares of
Common Stock of the Company outstanding, he would be able to repeal this
provision, remove all the current directors and elect directors of his choice.
If a stockholder were to obtain 50% or more, but less than 80%, of the shares of
Common Stock of the Company outstanding, because of the structure of the Board
of Directors of the Company, he would be unable to elect a majority of the Board
of Directors until the second annual meeting of stockholders after his
acquisition.
Limited Liability and Indemnification of Directors and Officers of the Company
As permitted by the MGCL, the Company has Charter provisions limiting the
personal liability of directors and officers for money damages to the fullest
extent permitted by Maryland law except that such Charter provisions do not
limit liability (a) for, and to the extent of, actual receipt of an improper
benefit in money, property, or services or (b) in respect of any adjudication
based upon a finding of active and deliberate dishonesty which was material to
the cause of action adjudicated. The Charter provisions do not affect potential
liability of directors and officers to third parties, such as creditors of the
Company.
As permitted by the MGCL, the Company's Charter obligates the Company to
indemnify its directors and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding to the maximum
extent permitted by Maryland law. The Company's By-Laws also contain
indemnification provisions. The MGCL permits a corporation to indemnify its
directors and officers, among others, against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their service
in those or other capacities, unless it is established that the act or omission
of the director or officer was material to the matter giving rise to such
proceeding and either was committed in bad faith, or (ii) was the result of
active and deliberate dishonesty, or (iii) the director or officer actually
received an improper personal benefit in money, property or services, or (iv) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful.
Stockholder Proposals
Generally, for any stockholder proposal to be presented in connection with an
annual meeting of stockholders of the Company, including any proposal relating
to the nomination of a director to be elected to the Board of Directors, the By-
Laws of the Company require the stockholder to submit written notice of the
proposal to the Company generally not less than 90 nor more than 120 days in
advance of the first anniversary of the preceding year's annual meeting.
Such notice must state (a) as to any nominee for election as a director, all
information required by Regulation 14A under the Securities Exchange Act of
1934, as amended, (b) as to any other business, a brief description of the
business, the reason for conducting such business at the meeting and any
material interest in such business of such stockholder, (c) the identity of such
stockholder and the number of shares of stock owned by such stockholder, (d) a
description of all arrangements between such stockholder and any other person in
connection with such proposal and (e) a representation that such stockholder
intends to appear at the annual meeting to bring such business before the
meeting.
Amendments to By-Laws
The By-Laws of the Company may be amended (a) by the stockholders by the
affirmative vote of a majority of all votes cast at a meeting duly called for
such purpose at which a quorum is present, provided, that any amendment to the
By-Laws which is inconsistent with the purposes or effects of the Charter
provisions relating, among other things, to (i) the size of the Board of
Directors, (ii) appointment of directors to vacancies on the Board of Directors,
(iii) rights of holders of Preferred Stock, if any, to elect directors, (iv)
removal of directors, (v) classification of the Board of Directors and (vi)
business combinations shall require the affirmative vote of not less than 80% of
the aggregate votes entitled to be cast thereon, voting as a single class or (b)
by the Board of Directors
Amendments to Charter and Other Charter Provisions
The Charter of the Company may be amended by the affirmative vote of the
holders of a majority of the total number of shares of all classes outstanding
and entitled to vote on the matter, except an 80% vote is required to amend the
Charter (a) to make certain changes relating to the Board of Directors, (b) to
amend provisions relating to a change in control of the Company (described
below), and (c) to amend the provisions relating to amendment of the Charter.
The Charter provisions relating to limitations of liability and indemnification
may only be amended prospectively.
The Charter of the Company directs the Board of Directors, in connection with
the exercise of its business judgment when evaluating a transaction which may
involve a change in control of the Company, to give consideration to all
relevant factors, including, but not limited to, the long-term economic effects
on the Company and its stockholders; the social and economic effects on
employees, depositors, and other constituents of the Company and on the
communities is which the Company and its subsidiaries operate or are located;
the historical and current operating results or financial condition of the
Company; whether a more favorable price could be obtained in the future; the
reputation and business practices of the other party; an estimate the future
value of securities by the Company; and any antitrust or other legal or
regulatory issues raised by the transaction. The Charter of the Company
authorizes the Board of Directors to employ a broad range of defensive measures
to defeat an offer they believe should be opposed.
Business Combinations
The MGCL prohibits certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an "Interested Stockholder." Interested Stockholders are all
persons (a) who beneficially own 10% or more of the voting power of the
corporation's shares or (b) an affiliate or associate of the corporation who, at
any time within the two-year period prior to the date in question, was an
Interested Stockholder or an affiliate or an associate thereof. Such business
combinations are prohibited for five years after the most recent date on which
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by all holders of voting shares of the corporation,
and (b) 66 2/3% of the votes entitled to be cast by holders of voting shares of
the corporation other than voting shares held by the Interested Stockholder or
an affiliate or associate of the Interested Stockholder, with whom the business
combination is to be effected, unless, among other things, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved or exempted by
the Board of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. A Maryland corporation may adopt
an amendment to its charter electing not to be subject to the special voting
requirements of the foregoing legislation. Any such amendment would have to be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and 66 2/3% of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not Interested Stockholders. The Company has not adopted such an amendment
to its Charter, and no approval or exemption of the Board of Directors is
currently in effect.
Control Share Acquisitions
The MGCL provides that the "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. Control shares are shares of voting stock
which, if aggregated with all other shares of stock previously acquired by such
a person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (a) 20% or more
but less than 33 1/3%; (b) 33 1/3% or more but less than a majority; or (c) a
majority or more of all voting power. Control Shares do not include shares of
stock an acquiring person is entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means, subject to
certain exceptions, the acquisition of, ownership of or the power to direct the
exercise of voting power with respect to, control shares.
A person who has made or proposes to make a "control share acquisition," upon
satisfaction of certain conditions (including an undertaking to pay the
corporation's expenses of a special meeting), may compel the board of directors
to call a special meeting of stockholders to be held within 50 days of demand
therefore to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as permitted by the statute,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for "control shares" are approved at a stockholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a "control share acquisition".
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or by-laws of the corporation. There are no such provisions in
the Charter or By-Laws of the Company.
Federal Banking Regulations
Under the Bank Holding Company Act and the regulations promulgated thereunder
by the Federal Reserve Board, no company may acquire "control" of institutions
such as the Company without the prior approval of the Federal Reserve Board. The
ownership of, control of, holding with power to vote of or holding proxies
representing 25% or more of any class of voting securities is presumed to be a
"controlling" interest under the Bank Holding Company Act, and, depending upon
the circumstances, control may be found to exist below this level of ownership.
Any company acquiring such control would become a bank holding company, would be
subject to certain limitations and prohibitions on its operations, and would
become subject to registration, examination and regulation by the Federal
Reserve Board. The Federal Reserve Board may withhold approval of an application
to become a bank holding company on certain specified grounds.
The Federal Reserve Board has adopted a regulation pursuant to the Change in
Bank Control Act of 1978 which generally requires persons (except for
companies subject to the corresponding provisions of the Bank Holding Company
Act) who intend to acquire control of the Company to give 60 days' prior written
notice to the Federal Reserve Board. Control for the purpose of the regulation
is presumed in situations in which the acquiring party has voting control of at
least 25% of any class of the institution's voting stock or the power to direct
the management or policies of the institution. Control is presumed to exist when
the acquiring party has voting control of at least 10% of any class of the
institution's voting stock if (a) the institution's shares are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, or (b) the
acquiring party would be the largest stockholder of the institution. The statute
and related regulations authorize the Federal Reserve Board to disapprove the
proposed transaction on certain specified grounds.
Anti-Takeover Effect
The statutory, regulatory, Charter, and By-Law provisions mentioned above, may
make it more difficult and time consuming to change a majority of the Board of
Directors of the Company or otherwise gain control of the Company and thus
reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company. In some circumstances, certain stockholders may
consider these provisions to have disadvantageous effects. Takeover offers
are frequently made at prices above the market price of the target company's
stock. In addition, acquisitions of stock by persons attempting to acquire
control through market purchases may cause the market price of the target
company's stock to reach levels that are higher than would otherwise be the
case. The Company's Charter and By-Law provisions, as well as the statutory and
regulatory provisions mentioned above, may discourage any such acquisitions,
even though such acquisitions might be beneficial to the Company or its
stockholders. Accordingly, stockholders could be deprived of the opportunity to
sell their stock at prices in excess of current market prices which often
prevail as the result of such occurrences.
<PAGE>
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Month Period Ended, Quarter Ended
September 30, September 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per share:
Primary $1.50 $1.16 $0.57 $0.32
Fully diluted $1.50 $1.16 $0.57 $0.32
</TABLE>
Primary and fully diluted earnings per share are calculated using the following
number of adjusted weighted average shares outstanding:
<TABLE>
<CAPTION>
Nine Month Period Ended, Quarter Ended
September 30, September 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per share:
Primary $6,022,732 $6,001,333 $6,045,563 $5,988,740
Fully diluted $6,053,684 $6,001,240 $6,059,813 $5,994,730
</TABLE>
The weighted average number of shares outstanding is adjusted to recognize the
dilutive effect, if any, of outstanding employee stock options on both a
primary and fully diluted basis.
The calculations of earnings per share above are based on the weighted average
number of shares outstanding, adjusted for the 5% stock dividend paid August 8,
1997, including all common stock and common stock equivalents in conformity with
the instructions for Item 601 of Regulation S-K. The calculation of earnings per
share for financial reporting purposes is based on the weighted average number
of shares outstanding of 5,977,814 and 5,953,513 at September 30, 1997 and
September 30, 1996, respectively, without giving effect to the common stock
equivalents resulting from the assumed exercise of stock options, which do not
dilute earnings per share by more than 3 percent, in conformity with generally
accepted accounting principles.
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 30,225
<INT-BEARING-DEPOSITS> 6,238
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 141,073
<INVESTMENTS-CARRYING> 102,796
<INVESTMENTS-MARKET> 104,143
<LOANS> 714,029
<ALLOWANCE> 9,837
<TOTAL-ASSETS> 1,045,101
<DEPOSITS> 810,234
<SHORT-TERM> 100,460
<LIABILITIES-OTHER> 11,056
<LONG-TERM> 23,819
0
0
<COMMON> 29,947
<OTHER-SE> 69,585
<TOTAL-LIABILITIES-AND-EQUITY> 1,045,101
<INTEREST-LOAN> 45,007
<INTEREST-INVEST> 10,818
<INTEREST-OTHER> 221
<INTEREST-TOTAL> 56,046
<INTEREST-DEPOSIT> 20,819
<INTEREST-EXPENSE> 25,326
<INTEREST-INCOME-NET> 30,720
<LOAN-LOSSES> 1,350
<SECURITIES-GAINS> 5
<EXPENSE-OTHER> 8,023
<INCOME-PRETAX> 13,031
<INCOME-PRE-EXTRAORDINARY> 9,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,059
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
<YIELD-ACTUAL> 4.57
<LOANS-NON> 5,929
<LOANS-PAST> 915
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 11,340
<ALLOWANCE-OPEN> 9,639
<CHARGE-OFFS> 3,284
<RECOVERIES> 2,132
<ALLOWANCE-CLOSE> 9,837
<ALLOWANCE-DOMESTIC> 8,208
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,629
</TABLE>
