<PAGE>
- --------------------------------------------------------------------------------
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 June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK ($5 PAR VALUE)
(Title of class)
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 [ ]
Common Stock of 9,353,334 shares outstanding as of July 30, 1999.
Exhibit index on page 31.
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<PAGE>
F&M BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Consolidated Balance Sheets,
June 30, 1999 and 1998 (Unaudited) and December 31, 1998........................................................ 3
Consolidated Statements of Income and Comprehensive Income (Unaudited),
Three and Six Months Ended June 30, 1999 and 1998............................................................... 5
Consolidated Statements of Changes in Shareholders' Equity (Unaudited),
Six Months Ended June 30, 1999 and Twelve Months Ended December 31, 1998........................................ 7
Consolidated Statements of Cash Flows (Unaudited),
Six Months Ended June 30, 1999 and 1998......................................................................... 8
Notes to Consolidated Financial Statements (Unaudited).......................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 18
Quantitative and Qualitative Disclosures About Market Risk...................................................... 29
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................................... 31
Signatures...................................................................................................... 33
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1999 1998 1998
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 36,487 $ 44,641 $ 47,330
Federal funds sold 33,405 10,590 11,652
Interest-bearing deposits with banks 5,758 6,987 16,737
- -----------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 75,650 62,218 75,719
- -----------------------------------------------------------------------------------------------------------------------------
Loans held for sale 1,095 4,631 4,810
- -----------------------------------------------------------------------------------------------------------------------------
Investment securities:
Available-for-sale, at fair value 322,412 271,434 322,651
Held-to-maturity, fair value $104,440,
$91,361 and $100,478, respectively 104,680 89,876 98,231
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 427,092 361,310 420,882
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 897,857 878,573 891,741
Less: Allowance for credit losses (12,457) (12,408) (12,817)
- -----------------------------------------------------------------------------------------------------------------------------
Net loans 885,400 866,165 878,924
- -----------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, net 30,942 32,050 31,184
Other real estate owned 1,305 2,228 1,705
Interest receivable 9,735 9,535 9,478
Intangible assets 7,126 7,219 6,875
Other assets 23,990 20,094 20,105
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $1,462,335 $1,365,450 $1,449,682
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
June 30, June 30, December 31,
1999 1998 1998
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 141,605 $ 143,547 $ 152,076
Interest-bearing 1,018,539 943,296 986,118
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 1,160,144 1,086,843 1,138,194
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 57,869 50,599 57,626
Other short-term borrowings 1,971 8,903 14,776
Long-term borrowings 98,764 75,984 94,246
Accrued interest and other liabilities 13,627 14,205 14,016
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,332,375 1,236,534 1,318,858
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, par value $5 per share;
authorized 50,000,000 shares;
issued and outstanding 8,755,531
shares, 8,352,320 shares, and
8,680,908 shares, respectively 43,778 41,762 43,405
Surplus 63,100 63,273 61,980
Retained earnings 13,670 11,598 25,220
Stock dividend distributable 14,347 12,491 ---
Accumulated other comprehensive (loss) income (4,935) (208) 219
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 129,960 128,916 130,824
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,462,335 $1,365,450 $1,449,682
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 18,523 $ 19,236 $ 37,172 $ 38,717
Interest and dividends on investment securities:
Taxable 4,471 3,998 8,803 7,754
Tax-exempt 1,466 1,081 2,938 2,144
Interest on deposits with banks 277 142 565 261
Interest on federal funds sold 145 204 193 460
- ------------------------------------------------------------------------------------------------------
Total interest income 24,882 24,661 49,671 49,336
- ------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 9,824 9,619 19,550 18,999
Interest on federal funds purchased and
securities sold under agreements to repurchase 576 560 1,121 1,109
Interest on Federal Home Loan Bank borrowings 1,329 1,321 2,693 2,734
Interest on other short-term borrowings 11 62 29 96
- ------------------------------------------------------------------------------------------------------
Total interest expense 11,740 11,562 23,393 22,938
- ------------------------------------------------------------------------------------------------------
Net interest income 13,142 13,099 26,278 26,398
Provision for credit losses 325 525 850 1,156
- ------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 12,817 12,574 25,428 25,242
- ------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust income 747 686 1,510 1,377
Service charges on deposit accounts 1,549 1,542 2,964 3,027
Insurance income 571 601 1,178 1,277
Gains (Losses) on sales of securities (1) (14) (1) 738
Gains on sales of loans 231 705 353 1,160
Other operating income 1,178 1,773 2,636 2,839
- ------------------------------------------------------------------------------------------------------
Total noninterest income 4,275 5,293 8,640 10,418
- ------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Salaries 5,040 5,316 10,027 10,811
Pension and other employee benefits 1,184 1,554 2,186 2,674
Occupancy and equipment expense 1,852 2,013 3,685 3,996
Other operating expense 3,943 3,762 7,170 7,030
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 12,019 12,645 23,068 24,511
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 5,073 5,222 11,000 11,149
Provision for income taxes 1,283 1,436 3,030 3,174
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,790 $ 3,786 $ 7,970 $ 7,975
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized losses on securities $ (3,843) $ (26) $ (5,153) $ (1,048)
Reclassification adjustment for gains (losses)
included in net income (1) (9) (1) 487
- ------------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income (3,844) (35) (5,154) (561)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) income $ (54) $ 3,751 $ 2,816 $ 7,414
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE-BASIC (1)
Based on weighted average shares outstanding
of 9,179,310 for 1999, 9,090,021 for 1998 $.41 $.42 $.87 $.88
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE-DILUTED (1)
Based on weighted average shares outstanding
of 9,239,489 for 1999, 9,204,440 for 1998 $.41 $.41 $.86 $.87
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends per Share (1) $.26 $.24 $.52 $.48
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Restated for 5% Stock Dividend paid July 28, 1999.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Accumulated
Stock Other
Common Retained Dividend Comprehensive
(Dollars in thousands except per share amounts) Stock Surplus Earnings Distributable Income (Loss) Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $41,622 $49,640 $34,020 -- $ 353 $125,635
Net income -- -- 13,092 -- -- 13,092
Dividend reinvestment plan -- -- (121) -- -- (121)
Cash dividends paid ($1.01 per share) -- -- (9,190) -- -- (9,190)
Stock consideration for options exercised
(3,217 shares) (16) (19) (90) -- -- (125)
Stock options exercised 285 1,382 -- -- -- 1,667
Stock dividend (302,819 shares) 1,514 10,977 (12,491) -- -- --
Other comprehensive income -- -- -- -- (134) (134)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $43,405 $61,980 $25,220 -- $219 $130,824
Net income -- -- 7,970 -- -- 7,970
Dividend reinvestment plan -- -- (20) -- -- (20)
Cash dividends paid ($.52 per share) -- -- (4,892) -- -- (4,892)
Stock consideration for options exercised
(11,554 shares) (58) (50) (261) -- -- (369)
Stock options exercised (86,287 shares) 431 1,170 -- -- -- 1,601
Stock dividend declared (1) -- -- (14,347) 14,347 -- --
Other comprehensive income -- -- -- -- (5,154) (5,154)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $43,778 $63,100 $13,670 $14,347 $(4,935) $129,960
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 5% Stock Dividend paid July 28, 1999
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,970 $ 7,975
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 850 1,156
Provision for other real estate owned -- 2
Depreciation and amortization 1,568 1,054
Amortization of intangibles 528 534
Net premium amortization on investment securities 453 121
(Increase) decrease in interest receivable (257) 11
Increase in interest payable 1,577 332
Deferred income tax benefit -- (187)
Accretion of net loan origination fees 91 599
Gain on sales of property (3) (862)
(Gain) Loss on sales/calls of securities 1 (738)
Decrease in loans held for sale 3,715 1,299
(Increase) decrease in other assets 498 (1,417)
Decrease in other liabilities (1,966) (1,053)
Other -- 118
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,025 8,944
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities to be held-to-maturity (12,494) (6,303)
Purchases of investment securities available-for-sale (97,477) (188,073)
Proceeds from calls of securities held-to-maturity -- 8,924
Proceeds from sales/calls of securities available-for-sale 1,109 63,881
Proceeds from maturing securities available-for-sale 87,894 84,187
Proceeds from maturing securities held-to-maturity 5,865 2,309
Net (increase) decrease in loans (8,512) 5,009
Purchases of premises and equipment (1,326) (521)
Proceeds from sales of property 400 3,851
Other investing activities (779) 733
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,320) (26,003)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits, interest-bearing
checking, savings and money market accounts 22,123 17,339
Net increase (decrease) in certificates of deposit (173) 16,112
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 243 5,548
Net increase (decrease) in long-term borrowings 4,518 (41,830)
Net increase (decrease) in other short-term borrowings (12,805) 25,602
Cash dividends paid (4,892) (5,032)
Dividend reinvestment plan (20) (18)
Proceeds from issuance of common stock 1,232 888
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,226 18,609
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (69) 1,550
Cash and cash equivalents at beginning of period 75,719 60,668
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $75,650 $62,218
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $21,816 $22,452
Cash payments for income tax 3,531 3,457
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available for sale,
net of income taxes (5,154) (561)
Net transfer to real estate owned held for sale from loans receivable -- 705
</TABLE>
9
<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 and subsidiaries' ("Bancorp's")
significant accounting policies is set forth in Note 1 to the consolidated
financial statements in its Annual Report on Form 10-K for the year ended
December 31, 1998.
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.
NOTE 2. ACQUISITIONS
On July 15, 1999, Bancorp consummated a merger with Potomac Basin Group
Associates, Inc. (Potomac Basin), in a tax-free exchange of shares accounted
for as a pooling-of-interests. Potomac Basin is a Beltsville, MD-based,
full-line independent insurance agency specializing in corporate employee
benefit plans.
On June 18, 1999, Bancorp, through its subsidiary, Farmers & Mechanics
National Bank (the "Bank"), purchased certain assets and liabilities
associated with the Fairfield, PA office of Farmers Bank, a First Maryland
Bancorp bank. Under the terms of the agreement, the Bank assumed
responsibility for services related to checking, savings and certificates of
deposit products totaling $10.8 million and purchased the branch office and
real estate located at 20 East Main Street, Fairfield, PA.
On May 31, 1998, Bancorp acquired Keller-Stonebraker Insurance, Inc. ("K-S"),
Hagerstown, MD, in a tax-free exchange of shares accounted for as a
pooling-of-interests. K-S operates as an independent, wholly owned subsidiary
of the Bank and provides a full line of consumer and commercial business
insurance products through offices in Hagerstown, Cumberland, MD and Keyser,
WV. Consumer insurance products include annuities, homeowners, automobile,
life and personal umbrellas. Commercial business products include property
and casualty packages, workers' compensation, bonds, professional liability,
umbrella, and 401(k) and other benefit plans.
On November 30, 1998, Bancorp completed the acquisition of Monocacy
Bancshares, Inc. and its commercial banking subsidiary, Taneytown Bank &
Trust Company, Taneytown, MD, in a tax-free exchange of shares accounted for
as a pooling-of-interests. Under the terms of the merger agreement, Taneytown
Bank was merged with and into the Bank at closing, increasing the Bank's
assets by approximately $304 million, loans by approximately $167 million,
and deposits by approximately $244 million.
10
<PAGE>
NOTE 3. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------
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 $ 113,000 $ 23 $ 2,535 $ 110,488
Obligations of states and political subdivisions 38,629 449 1,385 37,693
Other debt securities 12,636 34 -- 12,670
Mortgage-backed securities 147,527 20 4,419 143,128
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities 311,792 526 8,339 303,979
Equity securities 18,700 -- 267 18,433
- -----------------------------------------------------------------------------------------------------------------------------
Total available-for-sale 330,492 526 8,606 322,412
- -----------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Obligations of states and political subdivisions 93,062 777 1,084 92,755
Mortgage-backed securities 11,618 99 32 11,685
- -----------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 104,680 876 1,116 104,440
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities $435,172 $1,402 $9,722 $426,852
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------
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 $132,953 $ 327 $ 154 $ 133,126
Obligations of states and political subdivisions 21,757 166 3 21,920
Other debt securities 31,139 158 57 31,240
Mortgage-backed securities 56,661 -- 417 56,244
- -----------------------------------------------------------------------------------------------------------------------------
Total debt securities 242,510 651 631 242,530
Equity securities 29,178 -- 274 28,904
- -----------------------------------------------------------------------------------------------------------------------------
Total available-for-sale 271,688 651 905 271,434
- -----------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies 985 15 -- 1,000
Obligations of states and political subdivisions 70,956 1,327 30 72,253
Mortgage-backed securities 17,935 173 -- 18,108
- -----------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 89,876 1,515 30 91,361
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities $361,564 $ 2,166 $935 $362,795
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
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 $ 118,271 $ 618 $ 110 $ 118,779
Obligations of states and political subdivisions 41,590 554 233 41,911
Other debt securities 2,328 9 -- 2,337
Mortgage-backed securities 140,374 275 485 140,164
- -----------------------------------------------------------------------------------------------------------------------------
Total-debt securities 302,563 1,456 828 303,191
Equity securities 19,727 -- 267 19,460
- -----------------------------------------------------------------------------------------------------------------------------
Total available-for-sale 322,290 1,456 1,095 322,651
- -----------------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Obligations of states and political subdivisions 83,757 2,166 140 85,783
Mortgage-backed securities 14,474 221 -- 14,695
- -----------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity 98,231 2,387 140 100,478
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities $420,521 $3,843 $ 1,235 $423,129
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Bancorp classifies its investments in debt and equity securities in 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,
are included in interest income in the consolidated statements of income and
comprehensive 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 and
comprehensive income.
13
<PAGE>
The amortized cost and estimated fair values of investments at June 30, 1999
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>
Estimated
Amortized Fair
(in thousands) Cost Value
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Available-for-sale:
Within 1 year $24,212 $24,232
After 1 but within 5 years 55,518 54,786
After 5 years but within 10 years 72,637 70,767
After 10 years 11,898 11,065
Mortgage-backed securities 147,527 143,129
Equity securities 18,700 18,433
- ----------------------------------------------------------------------------------------
Total available-for-sale 330,492 322,412
- ----------------------------------------------------------------------------------------
Held-to-maturity:
Within 1 year 7,088 7,133
After 1 but within 5 years 33,296 33,825
After 5 years but within 10 years 23,250 23,257
After 10 years 29,428 28,540
Mortgage-backed securities 11,618 11,685
- ----------------------------------------------------------------------------------------
Total held-to-maturity 104,680 104,440
- ----------------------------------------------------------------------------------------
Total investment securities $435,172 $426,852
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
The carrying value 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
$153.5 million at June 30, 1999.
14
<PAGE>
NOTE 4. LOANS
Loans, net of unearned income, consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
- ------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $54,164 $ 67,223 $ 61,328
Secured by farmland 5,784 8,252 8,452
Residential mortgage 266,226 247,878 265,394
Other mortgage 203,067 181,620 198,131
Agricultural 732 587 560
Commercial and industrial loans 101,260 104,424 92,091
Consumer 257,238 260,375 257,968
Other loans 9,386 8,214 7,817
- ------------------------------------------------------------------------------------------
Totals $897,857 $878,573 $891,741
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
Loans to states and political subdivisions and industrial revenue bonds are
included in all other loans in the schedule above and in total loans in the
balance sheet.
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 5. BANK PREMISES AND EQUIPMENT
Investments in bank premises and equipment are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
- ------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises and land $29,432 $29,061 $28,978
Furniture and equipment 24,096 23,785 24,224
Leasehold improvements 3,014 2,923 2,908
- ------------------------------------------------------------------------------------------
56,542 55,769 56,110
Less accumulated depreciation
and amortization (25,600) (23,719) (24,926)
- ------------------------------------------------------------------------------------------
Net premises and equipment $30,942 $32,050 $31,184
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
NOTE 6. COMPREHENSIVE INCOME
Bancorp adopted Financial Accounting Standards Board ("FASB") Statement No.
130, "Reporting Comprehensive Income," effective January 1, 1998. Other
comprehensive income consists entirely of unrealized gains (losses) on
available-for-sale securities. Income taxes allocated to other comprehensive
income amounted to benefits of $2.4 million and $22 thousand for the second
quarter of 1999 and 1998, respectively and benefits of $3.2 million and $353
thousand for the six months ended June 30, 1999 and 1998, respectively.
NOTE 7. EARNINGS PER SHARE
Earnings per share ("EPS") data is computed and presented in accordance with
FASB Statement No. 128, "Earnings Per Share." As prescribed by the Statement,
the presentation of primary EPS has been replaced with the dual presentation
of basic and diluted EPS. FBasic EPS excludes dilution and is computed by
dividing net income available to common shareholders ("numerator") by the
weighted-average number of common shares outstanding for the period after
giving retroactive effect to stock dividends and stock splits
("denominator"). Diluted EPS reflects the potential dilution that could occur
if outstanding stock options or other contracts to issue common stock, if
any, were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of Bancorp. Diluted
EPS is equal to the numerator divided by the denominator plus the dilutive
effect of outstanding stock options.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, Quarter Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $7,970 $7,975 $3,790 $3,786
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Basic EPS
Shares 9,179,310 9,090,021 9,198,689 9,095,718
EPS $0.87 $0.88 $0.41 $0.42
Dilutive Shares
Stock options 60,179 114,419 55,521 118,215
EPS $0.01 $0.01 $ -- $0.01
Diluted EPS
Shares including options 9,239,489 9,204,440 9,254,210 9,213,933
EPS $0.86 $0.87 $0.41 $0.41
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8. FUTURE CHANGES IN ACCOUNTING PRINCIPLES
In June, 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities", which calls for derivatives to be
recognized in the consolidated balance sheet at fair value and for subsequent
changes in fair value to be recognized in the consolidated statement of
income and comprehensive income. However, because non-derivative and
non-financial transactions are still measured using a mix of historical and
current prices, the Statement retains special accounting for gains and losses
when derivatives are used in qualifying hedges of assets, liabilities, and
future transactions. The Statement unifies qualifying criteria for hedges
involving all types of derivatives, requiring that a company document,
designate, and assess the effectiveness of its hedges. For hedges that meet
the Statement's criteria, the derivative's gains and losses will be allowed
to offset gains and losses on, or forecasted cash flows of, the hedged item.
16
<PAGE>
Among a number of other provisions, the Statement will also allow entities to
reclassify available-for-sale and held-to-maturity securities without calling
into question management's intent for the remainder of its securities
portfolios.
For calendar-year companies such as Bancorp, the Statement will take effect
beginning January 1, 2001. Historically, Bancorp has not made use of hedges
and other financial derivatives and is unable to predict the impact, if any,
that the application of Statement No. 133 will have upon consolidated
financial statements issued after 2000.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
F&M Bancorp's net income for the second quarter of 1999 was $3.790 million,
or $0.41 basic earnings per share, a decrease of 2% compared with earnings
before special items of $3.867 million, or $0.42 basic earnings per share,
for the second quarter of 1998. Per share amounts reported previously have
been restated to give effect to a 5% stock dividend declared in June 1999 and
the acquisitions of Keller-Stonebraker, Inc., completed in May 1998, and
Monocacy Bancshares, Inc., completed in November 1998, both accounted for as
a pooling-of-interests. Including special items, net income of $3.790 million
for the second quarter of 1999 increased slightly from $3.786 million for the
second quarter of 1998. Second quarter 1999 earnings were favorably impacted
by a decrease in the provision for credit losses of $200 thousand, or 38%, as
well as a decrease in noninterest expense of $626 thousand, or 5%, compared
to the second quarter of last year. These decreases were offset by declines
in gains on sales of loans of $474 thousand, or 67%, and nonrecurring gains
on sales of real property of $395 thousand, or 100%, when compared to the
second quarter of 1998. Returns on average assets and average equity were
1.05% and 11.46%, respectively, for the second quarter of 1999 compared with
1.12% and 11.75%, respectively, for the second quarter of 1998.
For the six months ended June 30, 1999 compared with June 30, 1998, net
income including special items decreased 0.1% to $7.970 million, or $0.87
basic earnings per share, from $7.975 million, or $0.88 basic earnings per
share. Returns on average assets and average equity were 1.11% and 12.12%,
respectively, for the first half of 1999 compared with 1.20% and 12.63%,
respectively, for the first six months of 1998.
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, representing approximately 75%
of gross revenue through the first six months of 1999. Net interest income is
influenced by a number of external economic and competitive factors such as
Federal Reserve Board monetary policy and its influence on market interest
rates; loan demand and competition from nonbank lenders; and competition with
investment managers, brokerage firms and investment bankers for consumer and
commercial business assets that might otherwise be deposited in banks.
Internal factors impacting levels and changes in net interest income are
attributed to Bancorp's interest rate risk management policies, which address
a variety of issues including loan and deposit pricing strategies, funding
alternatives, and maturity schedules. Bancorp has not made use of
derivatives, interest rate hedges, or similar instruments or transactions to
manage interest rate risk.
Average balances and rates for each major category of interest-earning assets
and interest-bearing liabilities for the second quarter and year-to-date
periods are presented on a comparative basis in Table 1. Net interest income
on a taxable-equivalent basis increased by 2%, or $245 thousand for the
second quarter of 1999, compared to the second quarter of 1998, and 1%, or
$302 thousand for the first six months of 1999, compared to the first six
months of 1998. Average earning assets increased 8% for the second quarter
and first six months of 1999 compared with the same periods in 1998. Average
loan growth slowed to less than 1% for the quarter and six months ended June
30, 1999 as compared to last year. The average balance in the investment
portfolio increased $84.3 million for the quarter and $85.6 million for the
six months partially in recognition of expected loan demand. The yield on
earning assets across all sectors decreased 46 basis points to 7.59% and 49
basis points to 7.67% for the three and six months ended June 30, 1999,
respectively, compared with the same periods last year.
18
<PAGE>
Table 1. Consolidated Average Balances, Interest and Average Rates (Taxable
Equivalent Basis)
<TABLE>
<CAPTION>
June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
QTD Average Average QTD Average Average
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Short-term funds $ 41,008 $ 422 4.12% $ 29,976 $ 345 4.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities: (1)
Tax-exempt(2) 130,313 2,222 6.82 90,992 1,638 7.20
Taxable 298,891 4,471 5.98 253,872 3,998 6.30
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 429,204 6,693 6.24 344,864 5,636 6.54
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net, including loans held for sale 886,873 18,573 8.40 883,335 19,284 8.76
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets and average yield 1,357,085 25,688 7.59 1,258,175 25,265 8.05
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 96,580 95,423
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,453,665 $1,353,598
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings $ 152,582 $ 883 2.32% $157,863 $ 999 2.54%
Checking 157,778 954 2.43 139,741 900 2.58
Money market accounts 177,063 1,235 2.80 143,409 987 2.76
Certificates of deposit 520,055 6,752 5.21 494,670 6,733 5.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,007,478 9,824 3.91 935,683 9,619 4.12
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 55,944 576 4.13 44,469 560 5.05
Other short-term borrowings 7,209 93 5.17 31,236 411 5.28
- ------------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 63,153 669 4.25 75,705 971 5.14
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term borrowings 93,351 1,247 5.36 63,939 972 6.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 156,504 1,916 4.91 139,644 1,943 5.58
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities and
average rate incurred 1,163,982 11,740 4.05 1,075,327 11,562 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
Demand deposits 141,962 135,488
Other liabilities 15,016 13,573
Shareholders' equity 132,705 129,210
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $1,453,665 $1,353,598
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $13,948 $13,703
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.54% 3.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.12% 4.37%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Table 1. (continued) Consolidated Average Balances, Interest and Average Rates
(Taxable Equivalent Basis)
<TABLE>
<CAPTION>
June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
YTD Average Average YTD 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 $ 35,133 $ 758 4.32% $ 24,643 $ 721 5.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities: (1)
Tax-exempt(2) 129,018 4,452 6.90 91,224 3,249 7.12
Taxable 293,848 8,803 5.99 246,011 7,754 6.30
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 422,866 13,255 6.27 337,235 11,003 6.53
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net, including loans held for sale 890,146 37,272 8.44 886,868 38,804 8.82
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets and average yield 1,348,145 51,285 7.67 1,248,746 50,528 8.16
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 95,928 95,129
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,444,073 $1,343,875
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings $ 151,949 $ 1,757 2.33% $158,677 $ 1,980 2.52%
Checking 153,310 1,815 2.39 138,325 1,778 2.59
Money market accounts 170,437 2,391 2.83 140,043 1,885 2.71
Certificates of deposit 521,343 13,587 5.26 491,997 13,356 5.47
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 997,039 19,550 3.95 929,042 18,999 4.12
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 54,274 1,121 4.17 44,513 1,109 5.02
Other short-term borrowings 7,535 197 5.27 39,179 1,077 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 61,809 1,318 4.30 83,692 2,186 5.27
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term borrowings 96,259 2,525 5.29 59,748 1,753 5.92
- ------------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds 158,068 3,843 4.90 143,440 3,939 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities and
average rate incurred 1,155,107 23,393 4.08 1,072,482 22,938 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES
Demand deposits 141,697 133,748
Other liabilities 14,705 10,355
Shareholders' equity 132,564 127,290
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $1,444,073 $1,343,875
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $27,892 $27,590
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.59% 3.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.17% 4.46%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average Balances and the related average rate are based on amortized
cost.
(2) Based on an effective federal tax rate of 35% for 1999 and 1998.
20
<PAGE>
Average interest-bearing deposits increased $71.8 million, or 8%, and $68.0
million, or 7%, for the three and six month periods, respectively, over last
year. Growth occurred in nearly all deposit products, with the exception of
basic savings. Additional long-term funding was provided principally by
Federal Home Loan Bank advances, which increased $29.4 million, or 46%, for
the quarter and $36.5 million, or 61%, year-to-date as compared to last year.
Challenged by the decline in market interest rates between the comparable
periods, and low growth in loans, the net interest margin, which is the ratio
of taxable-equivalent net interest income to average earning assets,
decreased 25 basis points to 4.12% and 29 basis points to 4.17% for the
three-and six-month periods ended June 30, 1999.
PROVISION FOR CREDIT LOSSES.
Bancorp decreased the provision for credit losses by 38% to $325 thousand for
the second quarter of 1999 compared with $525 thousand for the second quarter
of 1998. For the six-month period ended June 30, 1999, the provision
decreased $306 thousand or 26% as compared to last year. The decreases were
attributed to an improvement in credit quality.
NONINTEREST INCOME.
Total noninterest income decreased 19% to $4.3 million for the quarter ended
June 30, 1999 compared with $5.3 million for the quarter ended June 30, 1998.
An increase in trust income of $61 thousand, or 9%, over the second quarter
of last year was effectively negated by decreases in insurance income of $30
thousand, or 5%, and other operating income of $595 thousand, or 34%, as
compared to the second quarter of 1998. Gains on sales of loans decreased
$474 thousand, or 67%, for the second quarter of 1999 compared with the same
quarter last year due to the more favorable rate environment and high
refinance activity that occurred the second quarter of 1998. Other operating
income for the quarter ended June 30, 1998 included a $395,000 nonrecurring
gain on the sale of real property.
For the comparable six month periods, total noninterest income declined by
17% to $8.6 million for 1999 from $10.4 million for 1998. Excluding gains of
$738 thousand from the sales of securities realized in 1998, which are
considered a special item, noninterest income decreased 11%. Trust and
investment management income increased $133 thousand, or 10%, relating to
growth in managed assets. Insurance income decreased $99 thousand, or 8%, and
service charges on deposit accounts decreased $63 thousand, or 2%, for the
six months ended June 30, 1999 as compared to last year. Gains on the sales
of loans decreased to $353 thousand for the first six months of 1999, down
70% from $1.2 million for the same period in 1998 related to the same factors
described for the quarter. Other operating income decreased 7% at June 30,
1999 compared to the first six months of last year. Excluding the
aforementioned $395 thousand gains on the sale of real property in 1998,
other operating income increased 8% over last year.
NONINTEREST EXPENSE.
Total noninterest expense decreased 5% to $12.0 million for the second
quarter of 1999 compared with $12.6 million for the second quarter of last
year. Salaries and benefits decreased $646 thousand, or 9%, and occupancy and
equipment expense decreased $161 thousand, or 8%, due largely to synergies
realized through recent acquisitions. Other operating expense increased $181
thousand, or 5% compared to the second quarter of last year. Bancorp's
efficiency ratio (the ratio of adjusted noninterest expense to the sum of net
interest income on a tax equivalent basis and recurring noninterest income)
increased to 64.7% for the quarter ended June 30, 1999 from 63.3% for the
quarter ended June 30, 1998.
21
<PAGE>
For the comparable six-month periods, total noninterest expense decreased 6%
to $23.1 million at June 30, 1999. Salaries and benefits expense decreased to
$12.2 million at June 30, 1999 versus $13.5 million at June 30, 1998, a
decline of 9%. Occupancy and equipment expense fell $311 thousand, or 8% for
the comparable six-month periods. Other operating expense increased $140
thousand, or 2% to $7.2 million for the six months ended June 30, 1999 from
$7.0 million for the same period last year. For the year-to-date periods, the
efficiency ratio declined to 61.9% for 1999 compared with 63.4% for 1998,
largely reflecting improved control of operating expenses.
INCOME TAXES.
The provision for income taxes declined 11% to $1.283 million for the second
quarter of 1999, from $1.436 million for the second quarter of 1998. 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. The effective tax rate for the
second quarter of 1999 and 1998 was 25% and 28%, respectively. Income tax
expense differs from the amount computed at statutory rates primarily due to
tax-exempt interest from certain loans and investment securities. For the six
months ended June 30, 1999 and 1998, the effective tax rate was 28%.
22
<PAGE>
NONPERFORMING ASSETS
Table 2 summarizes Bancorp's nonperforming assets and contractually past-due
loans. Through asset resolutions and sales, total nonperforming assets at
June 30, 1999 declined $5.2 million compared with year-earlier levels and
declined $1.8 million since year-end 1998. Loans past due 90 days or more as
to interest or principal increased $1.4 million compared with prior year
levels and increased $513 thousand since year-end. Although there is no
direct correlation between nonperforming loans and ultimate loan losses, an
analysis of nonperforming loans may provide some indication of the quality of
the loan portfolio.
POTENTIAL PROBLEM LOANS
At June 30, 1999, Bancorp had $19.4 million in loans to borrowers who were
currently experiencing financial difficulties such that management had
reasonable concerns that such loans might become contractually past due or be
classified as a nonperforming asset.
These loans are subject to the same close attention and regular credit
reviews as extended to loans past due 90 days or more and nonperforming
assets. At December 31, 1998, potential problem loans totaled $23.1 million.
Loans to borrowers who may not be able to meet the contractual terms of their
obligations because of uncertainties pertaining to their state of readiness
for year 2000 issues is disclosed under the caption, Year 2000 Computer
Readiness.
TABLE 2. NONPERFORMING ASSETS AND CONTRACTUALLY PAST-DUE LOANS
<TABLE>
<CAPTION>
June 30, December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans(1) $ 2,751 $ 6,979 $ 4,196
Other real estate owned net of valuation allowance(2) 1,305 2,228 1,705
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 4,056 $ 9,207 $ 5,901
- -----------------------------------------------------------------------------------------------------------------------------------
Loans past due 90 or more days as to interest or principal(3) $ 2,504 $ 1,101 $ 1,991
- -----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans to total loans 0.31% 0.79% 0.47%
Nonperforming assets to total loans and other real estate owned 0.45% 1.05% 0.66%
Nonperforming assets to total assets 0.28% 0.67% 0.41%
Allowance for credit losses times nonperforming loans 4.53x 1.78x 3.05x
Allowance for credit losses times nonperforming assets 3.07x 1.35x 2.17x
</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.
23
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level, which in
management's judgement, is adequate to absorb losses inherent in the loan
portfolio. The adequacy of the allowance for credit losses is reviewed
regularly by management. Additions to the allowance are made by charges to
the provision for credit losses. On a quarterly basis, a comprehensive review
of the adequacy of the allowance is performed considering factors such as
historical relationships among loans outstanding, loss experience,
delinquency levels, individual loan reviews, and evaluation of the present
and future local and national economic environment. While management believes
the allowance for credit losses is adequate at June 30, 1999, the estimate of
losses and related allowance are subject to change due to economic and other
uncertainties inherent in the estimation process.
As reflected in Table 3, the allowance for credit losses as a percentage of
loans decreased to 1.39% as of June 30, 1999 from 1.41% at June 30, 1998. Net
loan charge-offs during the first six months of 1999 increased by $393,000.
Bancorp had loans amounting to approximately $1.2 million and $5.2 million at
June 30, 1999 and June 30, 1998, respectively, that were specifically
classified as impaired and included in nonaccrual loans in Table 3. The
average balance of impaired loans for the six and three-month periods ended
June 30, 1999 and June 30, 1998 amounted to $1.9 million and $1.6 million,
and $2.1 million and $2.8 million, respectively. Cash receipts for these same
periods were $1.5 million and $1.1 million for 1999 and $414 thousand and
$239 thousand for 1998. Of these receipts, $37 thousand was recognized as
interest income for the six months ended June 30, 1999. All other cash
receipts were applied to the principal balance of the impaired loans. There
was no specific allowance for credit losses related to these impaired loans
at June 30, 1999. The specific allowance for credit losses related to
impaired loans at June 30, 1998 was $957,000.
24
<PAGE>
TABLE 3. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Period ended
- -----------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average loans outstanding less average unearned income (1) $891,397 $879,015 $875,196
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses at beginning of year $12,817 $ 12,069 $ 12,069
- -----------------------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate 373 385 1,053
Commercial and industrial 131 75 273
Consumer 1,702 1,938 4,010
- -----------------------------------------------------------------------------------------------------------------------------
Total loans charged-off 2,206 2,398 5,336
- -----------------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate 9 257 430
Commercial and industrial 12 80 104
Consumer 975 1,244 2,494
- -----------------------------------------------------------------------------------------------------------------------------
Total recoveries 996 1,581 3,028
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs 1,210 817 2,308
- -----------------------------------------------------------------------------------------------------------------------------
Provisions for credit losses 850 1,156 3,056
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses at end of period $12,457 $ 12,408 $ 12,817
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net charge-offs to average loans outstanding, annualized 0.27% 0.18% 0.26%
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses to period-end loans 1.39% 1.41% 1.44%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Exclusive of loans held for sale.
25
<PAGE>
Table 4 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.
TABLE 4. ALLOCATION OF ALLOWANCES FOR CREDIT LOSSES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
% 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 $1,201 6.0% $2,347 7.7% $1,767 6.9%
Residential mortgage 633 29.7 551 28.2 920 29.8
Other mortgage 2,983 22.6 3,252 20.7 3,419 22.2
Commercial and industrial 1,474 11.3 1,274 11.9 1,764 10.3
Consumer 2,845 28.7 3,553 29.6 3,599 28.9
Unallocated 3,321 1.7 1,431 1.9 1,348 1.9
- --------------------------------------------------------------------------------------------------------------------------------
Total allowance for credit losses $12,457 100.0% $12,408 100.0% $12,817 100.0%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes loans held for sale.
YEAR 2000 COMPUTER READINESS
This disclosure is provided pursuant to the Securities and Exchange
Commission's Interpretation entitled "Disclosure of Year 2000 Issues and
Consequences by Public Companies, Investment Advisors, Investment Companies
and Municipal Securities Issuers" effective August 4, 1998.
The Year 2000 issue arose because many existing date-sensitive computer
programs, hardware, software, and other devices relying on imbedded chip
technology do not recognize a year that begins with "2" because traditional
programming has been limited to utilization of a two-digit code for a year
(such as "98" for the year 1998). F&M Bancorp and its subsidiaries have
undertaken to review their operating and information technology systems and
other mechanical equipment such as elevators to identify systems in which the
Year 2000 issue exists and to undertake the necessary renovation or
replacement of these systems so that the companies will continue to operate
as usual after January 1, 2000.
In July 1997, F&M Bancorp established a Year 2000 issue task team comprised
of representatives across functional lines representing all of its
subsidiaries. The Year 2000 issue task team developed a Year 2000 issue
assurance plan to coordinate and direct its efforts. The plan was approved by
the board of directors on September 11, 1997. The task team provides
quarterly reports to the board outlining the status of its efforts and its
anticipated work in the coming quarter.
The assurance plan is composed of five phases: 1) awareness; 2) assessment;
3) renovation; 4) validation; and, 5) implementation, which mirror
guidelines developed by the Federal Financial Institutions Examination
Council (FFIEC) to deal with the Year 2000 issue. The assurance plan
includes a timeline for completion of all tasks identified. As of June
30, 1999, all critical tasks are current according to the timeline.
Activities under each of the phases are ongoing as new vendor and customer
relationships are created.
26
<PAGE>
The task team has received guidance from various regulators including the
Office of the Comptroller of the Currency (OCC), Securities and Exchange
Commission (SEC), Office of Thrift Supervision (OTS), and FFIEC.
The task team established a program to educate all associates regarding the
Year 2000 issue both for internal systems and as the issue may affect
customers. Education of customers is continuing through periodic information
in the form of brochures, seminars, a toll free information line, a web page,
and participation in community forums. Both activities are consistent with
the Year 2000 customer communication outline issued by the FFIEC on February
17, 1999.
All vendors who supply hardware, software and/or services of any type which
may be affected by this issue have been identified and contacted. A total of
four hundred eighty-eight (488) products and services are represented by this
vendor listing and have been categorized as either mission critical (those
that directly impact daily operations), concern (those that can be replaced
with manual processes), or low priority (little or no impact on daily
operations). Vendors have been surveyed as to their Year 2000 issue
readiness. The task team has confirmed vendor responses by testing products
and services where possible to verify their readiness.
Of the one hundred twenty-four (124) products and services identified as
mission critical:
A. Forty-two (42) are not date sensitive and are deemed Year 2000
issue ready.
B. Nineteen (19) cannot be tested internally. The progress of these
service providers' efforts addressing the Year 2000 issue are being
closely monitored. All nineteen (19) advise that their products
and/or services are either Year 2000 issue ready now or will be in
advance of January 1, 2000. Examples of products and/or services that
are not capable of internal testing include utilities and
communications services.
C. Sixty-three (63) have been successfully tested.
Bancorp relies on Kirchman Corporation's Dimension 3000 software for
maintaining customer accounting records. Kirchman is a provider of accounting
systems for more than 1,000 banking clients worldwide. Kirchman's internal
methodologies addressing Year 2000 issues have been reviewed and have
received ITAA*2000 certification by the Information Technology Association of
America, an independent non-profit organization. Further, Kirchman systems
have passed all internal tests, and testing is complete.
The task team has developed procedures for assessing Year 2000 issue risk for
its funds providers including, depositors, which are intended to manage and
limit potential risks associated with large or significant concentrations of
retail and commercial deposits. The Year 2000 issue readiness of providers of
lines of credit have been reviewed.
The task team has also established procedures, utilizing the standard risk
classifications employed to manage credit risk, for reviewing the Year 2000
issue readiness of borrowers. Loan relationships with balances exceeding
$250,000, or which are particularly computer reliant, have been reviewed.
Four (4) relationships totaling $748,328 have been risk rated "watch" and
represent the total value of relationships adversely risk rated because of
Year 2000 issue risk.
Bancorp's existing contingency plan has been enhanced to provide responses
for Year 2000 issues. The contingency planning committee adopted the five
phase model as recommended by the FFIEC and OCC advisory letter 98-7 and had
an updated plan by December 31, 1998, as required by the regulators. Testing
of business resumption plans was substantially complete at March 31, 1999.
27
<PAGE>
To date, Bancorp has spent a total of $197,000 addressing Year 2000 issues
and anticipates additional out-of-pocket expenses of $243,000 to complete.
Work is done predominantly by existing associates as part of their normal
work responsibilities. Bancorp does not separately track these internal costs
which are principally payroll related. Costs for dealing with Year 2000
issues are being provided from operating revenues.
Bancorp believes its efforts, and those of its third-party providers, will
effectively address Year 2000 issues before January 1, 2000. Because Bancorp
is so reliant on third-party providers (whose products and services cannot be
effectively tested such as utilities and telecommunications services) for
support, Bancorp's normal business operations could be disrupted in the event
one or more third-party providers fail to provide products and services as
contracted. The most reasonably likely worst case Year 2000 issue scenario
identified to date involves Bancorp's inability, for short periods, to
provide services to customers. The worst case scenario is mitigated somewhat
by an ability to manually process customer transactions, by the geographic
penetration of our branch network, and by alternative service delivery
methods, which include both proprietary and network ATMs, PC banking,
telephone banking, and Express Bank, Bancorp's full-service mobile branch.
Power and telecommunication services are critical, but might be interrupted
for only a part of the branch network. Bancorp has a generator to provide
power to operate computer systems and, by contract, has geographically remote
facilities served by alternative sources of power to process work, if needed.
Longer periods of disruption could affect Bancorp's ability to develop new
business and could increase costs of operation and decrease revenues. Bancorp
determined, in the most recent quarter, to purchase five (5) additional
generators for placement strategically in its branch network. The generators
will enhance Bancorp's ability to conduct business as usual in any natural
disaster, in addition to any Year 2000 issue related power outage.
CAPITAL RESOURCES
Shareholders' equity totaled $130.0 million at June 30, 1999, a decrease of
1% compared with the 1998 year-end level of $130.8 million, and an increase
of 1% from the year earlier level of $128.9 million. The fair value of the
available-for-sale portfolio declined $5.2 million (net of deferred taxes)
since year-end, reflecting the negative impact of higher market interest
rates. Capital levels were 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 June 30, 1999, as follows:
TABLE 5. CAPITAL RATIOS
<TABLE>
<CAPTION>
Risk-based Capital
- ------------------------------------------------------------------------------
Tier 1 Total Leverage
Capital Capital Ratio
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual 13.39% 14.64% 8.89%
Regulatory Minimum 4.00% 8.00% 3.00%
- ------------------------------------------------------------------------------
Excess 9.39% 6.64% 5.89%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</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.
28
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is defined as the future changes in market prices that increase
or decrease the value of financial instruments, i.e. cash, investments,
loans, deposits and debt. Included in market risk are interest rate risk,
foreign currency exchange rate risk, commodity price risk, and other relevant
market risks. Bancorp's primary source of market risk is interest rate risk.
Market risk-sensitive financial instruments are entered into for purposes
other than trading.
Interest rate risk refers to the exposure of Bancorp's earnings and capital
to changes in interest rates. The magnitude of the effect of changes in
market rates depends on the extent and timing of such changes and on
Bancorp's ability to adjust. The ability to adjust is controlled by the time
remaining to maturity on fixed-rate obligations, the contractual ability to
adjust rates prior to maturity, competition, and customer actions.
There are several common sources of interest rate risk that must be
effectively managed if there is to be minimal impact on Bancorp's earnings
and capital. Re-pricing risk arises largely from timing differences in the
pricing of assets and liabilities. Reinvestment risk refers to the
reinvestment of cash flows from interest payments and maturing assets at
lower rates. Basis risk exists when different yield curves or pricing indices
do not change at precisely the same time or in the same magnitude such that
assets and liabilities with the same maturity are not all affected equally.
Yield curve risk refers to unequal movements in interest rates across a full
range of maturities.
In determining the appropriate level of interest rate risk, Bancorp considers
the impact on earnings and capital of the current outlook on interest rates,
potential changes in interest rates, regional economies, liquidity, business
strategies, and other factors. To effectively measure and manage interest
rate risk, traditional cumulative gap and simulation analysis are used to
determine the impact on net interest income and the market value of portfolio
equity ("MVE"). Bancorp attempts to manage interest rate sensitivity on the
basis of when assets and liabilities WILL reprice as opposed to when they CAN
reprice.
Cumulative gap analysis presents the net amount of assets and liabilities
that will most likely reprice through specified periods if there are no
changes in balance sheet mix. Using that analysis, the effect of changes in
market interest rates, both rising and falling, on net interest income can be
calculated. Because of inherent limitations in traditional cumulative gap
analysis, however, ALCO also employs more sophisticated interest rate risk
measurement techniques. Simulation analysis is used to subject the current
re-pricing conditions to rising and falling interest rates in increments and
decrements of 100, 200, and 300 basis points, and to determine how net
interest income varies under alternative interest rate and business activity
scenarios. ALCO also measures the effects of changes in interest rates on the
MVE, i.e. the net present value of all the future cash flows from Bancorp's
financial instruments expressed as the percentage change in portfolio value
of equity for any given change in prevailing interest rates. Table 6 presents
Bancorp's MVE at June 30, 1999.
29
<PAGE>
TABLE 6. Effects of Changes in Interest Rates on MVE at June 30, 1999
<TABLE>
<CAPTION>
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Percent Change
-------------------------------------------
Hypothetical
Market Value Change Hypothetical
Change in of Portfolio Increase Increase Board
Interest Rates Equity (Decrease) (Decrease) Limit(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
300 bp rise $ 105,925 $ (27,814) (20.8)% (30.0)%
200 bp rise 114,553 (19,186) (14.3) (20.0)
100 bp rise 123,676 (10,063) (7.5) (10.0)
Base scenario 133,739 -- -- --
100 bp decline 144,048 10,309 7.7 (10.0)
200 bp decline 155,049 21,310 15.9 (20.0)
300 bp decline 166,835 33,096 24.7 (30.0)
</TABLE>
(1) Established by Bancorp's Board of Directors
Computations of prospective effects of hypothetical interest rate changes are
based on many assumptions, including relative levels of market interest
rates, loan prepayments and changes in deposit levels. They are not intended
to be a forecast and should not be relied upon as indicative of actual
results. Further, the computations do not contemplate certain actions that
management could take in response to changes in interest rates. At June 30,
1999 and 1998, the changes in net interest income and or MVE calculated under
these alternative methods were within limits established by the Board of
Directors and monitored by ALCO.
30
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Articles of Incorporation of F&M Bancorp with all
Articles of Amendment. Filed as Exhibit 3.1 to the
company's quarterly report on Form 10-Q for the period
ended September 30, 1997 and incorporated herein by
reference.
3.2 By-Laws of F&M Bancorp with all amendments. Filed as
Exhibit 3.2 to the Company's quarterly report on Form
10-Q for the period ended September 30, 1997 and
incorporated herein by reference.
4. Description of F&M Bancorp common stock and rights of
security holders. Filed as Exhibit 4 to the Company's
quarterly report on Form 10-Q for the period ended
September 30, 1997 and incorporated herein by
reference.
10.1 1983 Stock Option Plan of F&M Bancorp as amended in
April, 1996. Filed as Exhibit 10.1 to Registration
Statement on Form S-8 (File #002-88390) and
incorporated herein by reference.
10.2 Unfunded Deferred Compensation Plan for Non-Employee
Directors of F&M Bancorp as amended and restated
effective August 18, 1998. Filed as Exhibit 10.2 to the
Company's annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.3 Farmers and Mechanics National Bank Executive
Supplemental Income Plan as amended and restated
effective August 18, 1998. Filed as Exhibit 10.3 to the
Company's annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.4 F&M Bancorp Employee Stock Purchase Plan. Filed as
Prospectus to Registration Statement on Form S-8 (File
#33-39941) and incorporated herein by reference.
10.5 F&M Bancorp Dividend Reinvestment and Stock Purchase
Plan. Filed as Prospectus to Registration Statement on
Form S-3 (File #33-39940) and incorporated herein by
reference.
10.6 1995 Stock Option Plan of F&M Bancorp. Filed as Exhibit
10.1 to Registration Statement on Form S-8 (File
#333-02433) and incorporated herein by reference.
10.7 Employment Agreement between F&M Bancorp, Home Federal
Savings Bank and Richard W. Phoebus, Sr. Filed as
Exhibit 10.7 to the Company's annual report on Form
10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.8 Employment Agreement between F&M Bancorp, Home Federal
Savings Bank and Steven G. Hull. Filed as Exhibit 10.8
to the Company's annual report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by
reference.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.9 Employment Agreement between F&M Bancorp, Home Federal
Savings Bank and Salvatore M. Savino. Filed as Exhibit
10.9 to the Company's annual report on Form 10-K for
the year ended December 31, 1996 and incorporated
herein by reference.
10.10 Employment Agreement between F&M Bancorp, Home Federal
Savings Bank and Celia S. Ausherman. Filed as Exhibit
10.10 to the Company's annual report on Form 10-K for
the year ended December 31, 1996 and incorporated
herein by reference.
10.11 Form of F&M Bancorp stock options substituted for Home
Federal Corporation stock options granted under the
Home Federal Corporation 1988 Stock Option and Stock
Appreciation Rights Plan filed as Exhibit 99.3 to
Registration Statement on Form S-8 (File #333-16709)
and incorporated herein by reference.
10.12 Form of F&M Bancorp stock options substituted for
Monocacy Bancshares, Inc. stock options granted under
the Monocacy Bancshares, Inc. 1994 Stock Incentive Plan
and the Monocacy Bancshares, Inc. 1997 Independent
Director Stock Option Plan. Filed as an exhibit hereto
and incorporated herein by reference.
10.13 F&M Bancorp Executive Deferred Compensation Plan
adopted April 21, 1998. Filed as Exhibit 10.13 to the
Company's annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.14 F&M Bancorp Change in Control Employment Agreement.
Filed as an exhibit hereto and incorporated herein by
reference.
10.15 Employment Agreement for Michael K. Walsch dated as of
July 31,1998. Filed as Exhibit 10.15 to the Company's
annual report on Form 10-K for the year ended December
31, 1998 and incorporated herein by reference.
10.16 Supplemental Retirement Plan Agreement dated November
17, 1994 by and between Taneytown Bank & Trust Company
and Michael K. Walsch. Filed as Exhibit 10.16 to the
Company's annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.17 Taneytown Bank & Trust Company Key Employee life
insurance program. Filed as Exhibit 10.17 to the
Company's annual report on Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference.
10.18 Home Federal Corporation Deferred Compensation Plan
for Non-Employee Directors. Filed as Exhibit 10.18 to
the Company's annual report on Form 10-K for the year
ended December 31, 1998 and incorporated herein by
reference.
10.19 F&M Bancorp 1999 Employee Stock Option Plan. Filed as
Exhibit 10.19 on Form 10-Q for the quarterly period
ended March 31, 1999 and incorporated herein by
reference.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.20 F&M Bancorp 1999 Stock Option Plan for Non-Employee
Directors. Filed as Exhibit 10.20 on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated
herein by reference.
11. Statement re: computation of per share earnings. Filed
as an exhibit hereto and incorporated herein by
reference.
27. Financial Data Schedule. Filed as an exhibit hereto and
incorporated herein by reference.
</TABLE>
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C>
1. No reports on Form 8-K were filed by the Corporation during
the quarter ended June 30, 1999.
</TABLE>
Under Part II, items 1 through 3 and item 5 have been omitted since the item
is either inapplicable or the answer is negative.
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)
August 16, 1999 /s/ David L. Spilman
--------------------- ---------------------------
Date DAVID L. SPILMAN
TREASURER
33
<PAGE>
EXHIBIT 10.12
F&M BANCORP
CONVERSION OF MONOCACY BANCSHARES, INC. STOCK OPTIONS HELD BY DIRECTORS
(DATE)
Pursuant to Section 1.5 of the Agreement and Plan of Merger (the
"Plan") dated as of September 4, 1998, by and between F&M Bancorp ("F&M
Bancorp") and Monocacy Bancshares, Inc. ("Monocacy"), F&M Bancorp hereby grants
to you substitute stock options as set forth below. Such substitute stock
options shall be subject to the terms and conditions as set forth in the
Monocacy Bancshares, Inc.1997 Independent Directors' Stock Option Plan, attached
hereto as Exhibit A.
Each Monocacy stock option held by you is hereby converted into an F&M
Bancorp stock option which entitles you to purchase a number of shares of F&M
Bancorp Common Stock equal to the number of shares of Monocacy Common Stock (as
to each whole share) which could have been purchase under each Monocacy stock
option multiplied by the Exchange Ratio (as defined in the Plan) rounded down to
the nearest whole share. The per share exchange price of each F&M Bancorp stock
option granted hereunder shall be equal to the price per share set forth in each
Monocacy stock option divided by the Exchange Ratio (as defined in the Plan),
rounded up to the nearest whole cent.
CONVERSION CALCULATION:
Exchange Ratio: 1.251
Director:
MONOCACY STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
- ------------- -------------- ------------------------------
<S> <C> <C>
</TABLE>
F&M BANCORP SUBSTITUTE STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
- ------------- -------------- ------------------------------
<S> <C> <C>
</TABLE>
IN WITNESS WHEREOF, having been duly authorized, we have signed this
document as of the _________ day of _____________, 1999.
F&M Bancorp
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
34
<PAGE>
EXHIBIT "1"
MONOCACY BANCSHARES, INC.
1997 INDEPENDENT DIRECTOR'S STOCK OPTION PLAN
STOCK OPTION AGREEMENT
A STOCK OPTION for a total of five thousand (5,000) shares of common
stock, par value $5.00 per share, of Monocacy Bancshares, Inc., a Maryland
business corporation (herein the "Corporation") is hereby granted to
__________________ (herein the "Director"), subject in all respects to the terms
and provisions of Monocacy Bancshares, Inc. 1997 Independent Directors' Stock
Option Plan (herein the "Plan"), dated April 28, 1997, which has been adopted by
the Corporations' shareholders and which is incorporated herein by reference.
The "Option Price" as determined under paragraphs 4 and 6 of the Plan is
$___________ per share.
1. This Option shall vest and become exercisable in accordance with the
following schedule:
<TABLE>
<CAPTION>
Period From Option Vested Number of
Grant Date Percentage Shares Vested
------------------ ---------- -------------
<S> <C> <C>
Less Than 1 Year 25% 1,250
1 Year But Less Than 2 Years 50% 2,500
2 Years But Less Than 3 Years 75% 3,750
3 or More Years 100% 5,000
</TABLE>
Notwithstanding the foregoing, the Option shall vest and become immediately
exercisable upon the occurrence of an event constituting a Change in
Control if the Option has been outstanding for at least six (6) months
after the Option Grant Date. Vesting shall cease on the date on which the
Optionee ceases to serve as a Director, except as provided in the Plan and
Section 4 of this Agreement.
2. METHOD OF EXERCISE OF OPTION. The Option may be exercised (in full or
in part) by delivery of a written notice to the Corporation at its
principal executive office, accompanied by payment of the Option Price
for the Shares as to which such Option is exercised. The Option Price
of each Share as to which this Option is exercised shall be paid in
full at the time of exercise (i) in cash, (ii) by surrender of Shares
owned by the Optionee exercising the Option having a fair market value
on the date of exercise equal to the aggregate Option Price, or (iii)
any combination thereof.
3. WITHHOLDING. Upon exercise of all or any part of this Option, the
Optionee shall make arrangements with the Corporation for the
withholding of any applicable federal, state and local income taxes.
The Director may elect to satisfy such withholding obligations in any
manner permitted under the Plan.
4. EXPIRATION DATE. Subject to earlier termination as provided in the
Plan or this Agreement, this Option shall expire ten (10) years after
the Option Grant Date. Unless the Optionee ceases to be a Director
after the Optionee attains his or her mandatory retirement age (as
defined in the corporation's bylaws) or on account of the Optionee's
death or Disability, vesting of the Option shall cease on the date on
which the Optionee ceases to be a Director and the Option shall
terminate on the date which is three (3) months after the date on
which the Optionee ceases to be a Director. In the event of death or
disability, the Option shall terminate two (2) years after the date
on which the Optionee ceases to be a Director.
35
<PAGE>
5. AGREEMENT TO TERMS OF PLAN. By signing this Agreement, the Optionee
accepts the Option subject to the terms and conditions of the Plan
and this Agreement. Unless otherwise provided in this Agreement,
capitalized terms used in this Agreement shall have the meanings set
forth in the Plan. As provided in the Plan, this Agreement shall be
governed by, and construed in accordance with the laws of the State
of Maryland.
6. RECEIPT OF PROSPECTUS. By signing this Agreement, the Optionee
acknowledged receipt of the Prospectus filed by the Corporation with
the Securities and Exchange Commission under the Securities Act of
1933.
Dated: April 28, 1997
ATTEST: MONOCACY BANCSHARES, INC.
________________________________ By: _____________________________
Brian M. Etzler, Secretary Frank W. Neubauer, President
The Optionee acknowledges receipt of a copy of the Plan, and represents
that he or she is familiar with the terms and provisions thereof. The Optionee
hereby accepts this Option subject to all the terms and provisions of the Plan.
Dated : April 28, 1997
__________________________
Optionee
36
<PAGE>
EXHIBIT A
MONOCACY BANCSHARES, INC.
1997 INDEPENDENT DIRECTORS' STOCK OPTION PLAN
1. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is to
advance the development, growth and financial condition of Monocacy
Bancshares, Inc. and its subsidiaries (the "Corporation"), by
providing incentives through participation in the appreciation of
capital stock of the Corporation so as to secure, retain and motivate
members of the Corporation's Board of Directors (the "Board") who are
not officers and employees of the Corporation or any subsidiary
thereof ("non-employee directors"). This Plan shall be interpreted
and implemented in a manner so that non-employee directors will
not fail, by reason of this Plan or their participation in it, to be
"disinterested persons" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Exchange Act") as to
any employee benefit plan of the Corporation or its affiliates.
2. TERM. The Plan shall become effective as of the date the Corporation's
stockholders duly approved the Plan (the "Effective Date"). If the
Plan is so approved, it shall continue in effect until any stock
options granted under the Plan either have lapsed or been exercised,
satisfied or canceled according to their terms under the Plan.
3. STOCK. The shares of stock that may be issued under the Plan shall
not exceed, in the aggregate, sixty thousand (60,000) shares of the
Corporation's common stock, par value $5.00 per share (the "Stock").
The aggregate amount of Stock under the Plan may be adjusted
pursuant to paragraph 10. Such shares of Stock may be either
authorized and unissued shares of Stock, or authorized shares of
Stock issued by the Corporation and subsequently reacquired by it as
treasury stock. Under no circumstances shall any fractional shares
of Stock be issued under the Plan. The Corporation shall reserve and
keep available, and shall duly apply for any requisite governmental
authority to grant the stock options under this Plan, and issue or
sell the number of shares of Stock needed to satisfy the requirements
of the Plan while in effect. The Corporation's failure to obtain
any such governmental authority deemed necessary by the Corporation's
legal counsel for the proper grant of the stock options under this
Plan and/or the issuance and sale of Stock under the Plan shall
relieve the Corporation of any duty, or liability for the failure to
grant the stock options under this Plan and/or issue or sell the
Stock as to which such authority has not been obtained.
4. STOCK OPTIONS. Stock options shall be granted under the Plan to all
current non-employee directors of the Corporation, and any
non-employee director, other than current or prior members of the
Board, who become a member of the Board at any time within a five (5)
year period after the Effective Date (such directors shall be
referred to under this Plan as a "Director"). Every stock option
granted to a Director shall be exercisable during his or her lifetime
only by the Director, and shall not be salable, transferable or
assignable by the Director except by his or her Will or pursuant to
applicable laws of descent and distribution. Commencing on the
Effective Date, or in the case of a Director, who becomes a member of
the Board at any time within a five (5) year period after the
Effective Date, commencing on the date he or she is elected or
appointed to the Board, a Director shall be granted a stock option
to purchase five thousand (5,000) shares of Stock (the "Stock Option")
under the following terms and conditions:
(a) The time period during which any Stock Option is exercisable
shall be ten (10) years after the date the Stock Option is
granted to the Director. However, no option may be exercised
after the expiration of its term or after the date set forth in
subsections (b), (c) or (d) below, if earlier. Options are
exercisable only to the extent they are vested.
(b) If the Optionee ceases to be a Director after attaining
mandatory retirement age (as defined in the Corporation's
By-Laws) or on account of death or disability, all outstanding
options granted to such Optionee shall vest and the Optionee
(or the Optionee's legatees or distributees or the personal
representative of the Director's estate, in the event of the
Optionee's death) may exercise the Optionee's outstanding
options at any time until the first of the following to occur
(1) that date that is two years after the date on which the
Optionee ceases to be a Director or (2) the date on which such
outstanding options expire according to their terms.
37
<PAGE>
(c) If an Optionee ceases to be a Director for any reason other
than described in subsection (b) above, the Director may
exercise his or her outstanding options to the extent vested at
any time (subject to the limitations of subsection (f) below)
until the first of the following to occur (1) the date that is
three months after the date on which the Optionee ceases to be
a Director or (2) the date on which such outstanding options
expire according to their terms.
(d) If an Optionee dies after the Optionee ceases to be a Director,
but within the time period during which his or her outstanding
Options are still exercisable, the Optionee's outstanding
Options may be exercised by his or her legatees or distributees
or the personal representative of his or her estate. Such
outstanding Options may be exercised at any time (subject to the
limitations of subsection (f) below) until the first of the
following to occur (1) the date that is two years after the date
on which the Optionee ceases to be a Director or (2) the date on
which such outstanding Options expire according to their terms.
(e) The purchase price of a share of Stock subject to a Stock Option
shall be the fair market value of the Stock as determined under
paragraph 6 hereof.
(f) Options are exercisable only to the extent they are vested, and
no option may be exercised during the first six months after
the Option Grant Date, unless the Optionee dies or becomes
disabled (as determined under Title II of the Social Security
Act, 42 U.S.C. Sections 301 et seq.) before the expiration of the
six-month period. The Stock Option shall be made by a written
agreement attached hereto as Exhibit "1", which written agreement
contains the vesting schedule of the Stock Option, as follows:
<TABLE>
<CAPTION>
Period From Option Vested Number of
Grant Date Percentage Shares Vested
------------------ ---------- -------------
<S> <C> <C>
Less Than 1 Year 25% 1,250
1 Year But Less Than 2 Years 50% 2,500
2 Years But Less Than 3 Years 75% 3,750
3 or More Years 100% 5,000
</TABLE>
5. EXERCISE. Except as otherwise provided in the Plan, the Stock Option
may be exercised in whole or in part by giving written notice
thereof to the Secretary of the Corporation, or his or her designee,
identifying the Stock Option being exercised, the number of shares of
Stock with respect thereto, and other information pertinent to the
exercise of the Stock Option. The purchase price of the shares of
Stock with respect to which a Stock Option is exercised shall be
paid with the written notice of exercise, either in cash or in Stock
which has been held by the Director for at least six (6) months at
its then current fair market value, or in any combination thereof.
Funds received by the Corporation from the exercise of any Stock
Option shall be used for its general corporate purposes. The number
of shares of Stock subject to a Stock Option shall be reduced by
the number of shares of Stock with respect to which the Director has
exercised rights under the Stock Option.
If the Corporation or its stockholders execute an agreement to dispose
of all or substantially all of the Corporation's assets or capital
stock by means of sale, merger, consolidation, reorganization,
liquidation or otherwise, as a result of which the Corporation's
stockholders as of immediately before such transaction will not
own at least fifty percent (50%) of the total combined voting power
of all classes of voting capital stock of the surviving entity
(be it the Corporation or otherwise) immediately after the
consummation of such transaction, thereupon any and all Stock Options
with the Director would be entitled to receive under the Plan shall
be immediately granted to the Director until the consummation of such
transaction, or if not consummated, until the agreement therefore
expires or is terminated, in which case thereafter all Stock Options
shall be treated as if said agreement never had been executed. If
during any period of two (2) consecutive years, the individuals who
at the beginning of such period constituted the Board, cease for any
reason to constitute at least a majority of the Board, unless the
election of each director of the Board, who was not a director of
the Board at the beginning of such period, was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of such period, thereupon any and all Stock
Options which the Director would be entitled to receive under the
Plan shall be immediately granted to the Director. If there is an
actual, attempted or threatened change in the ownership of at least
twenty-five percent (25%) of any classes of voting capital stock of
the Corporation through the acquisition of, or an offer to acquire
such percentage of the Corporation's voting capital stock by an
person or entity, or persons or entities acting in concert or as
a group, and such acquisition or offer has not been duly
38
<PAGE>
approved by the Board, thereupon any and all Stock Options which the
Director would be entitled to receive under the Plan shall be
immediately granted.
6. VALUE. Where used in the Plan, the "fair market value" of Stock shall
mean and be determined as follows (i) in the event that the Stock is
listed on an established exchange, the closing price of the Stock on
the date when the Stock Option is granted to the Director (the
"Relevant Date") or, if no trade did occur on that day, on the next
preceding day on which a trade occurred; or (ii) in the event that
the Stock is not listed on an established exchange, but is then
quoted on the National Association of Security Dealers Automated
Quotation System ("NASDAQ"), the average of the average of the closing
bid and asked quotations of the Stock for the five (5) trading days
immediately preceding the Relevant Date. In either case, in the event
that no closing bid or asked quotation is available on one (1) or
more of such trading days, the fair market value shall be determined
by reference to the five (5) trading days immediately preceding the
Relevant Date on which closing bid and asked quotations are available.
7. CONTINUED RELATIONSHIP. Nothing in the Plan or any Stock Option shall
confer upon any Directors or any right to continue his or her
relationship with the Corporation as a director, or limit or affect
any rights, powers or privileges that the Corporation or it affiliates
may have to supervise, discipline and terminate such Director, and
the relationships thereof.
8. GENERAL RESTRICTIONS. Each Stock Option shall be subject to the
requirement and provision that if at any time the Board determines it
necessary or desirable as a condition of or in consideration of
making such Stock Option, or the purchase or issuance or Stock
thereunder, (a) the listing, registration or qualification of the
Stock subject to the Stock Option, or the Stock Option itself, upon
any securities exchange or under any federal or state securities or
other laws, (b) the approval of any governmental authority, or (c) an
agreement by the Director with respect to disposition of any Stock
(including without limitation that at the time of the Director's
exercise of the Stock Option, any Stock thereby acquired is being and
will be acquired solely for investment purposes and without any
intention to sell or distribute such Stock), then such Stock Option
shall not be consummated in whole or in part unless such listing,
registration, qualification, approval or agreement shall have been
appropriately effected or obtained to the satisfaction of the Board
and legal counsel for the Corporation. Notwithstanding anything to
the contrary herein, a Director shall not sell, transfer or otherwise
dispose of any shares of Stock acquired pursuant to a Stock Option
unless at least six (6) months have elapsed from the date the Stock
Option was granted, the election of such transaction is made at least
six months following the date of the Director's most recent
"opposite-way election" under any plan of the Corporation or the
transaction is otherwise made in accordance with Section 16 of the
Exchange Act, as the same may be amended, if at the time of such
disposition the Director is subject to Section 16 of the Exchange Act.
9. RIGHTS. Except as otherwise provided in the Plan, the Director shall
have the rights as a holder of the Stock subject thereto unless and
until one or more certificates for the shares of such Stock are
issued and delivered to the Director. No adjustments shall be made
for dividends, either ordinary or extraordinary, or any other
distributions with respect to Stock, whether made in cash, securities
or other property, or any rights with respect thereto, for which the
record date is prior to the date that any certificates for Stock
subject to a Stock Option are issued to the Director pursuant to his
or her exercise thereof. No Stock Option, or the grant thereof, shall
limit or affect the right or power of the Corporation or its
affiliates to adjust, reclassify, recapitalize, reorganize or
otherwise change its or their capital or business structure, or to
merge, consolidate, dissolve, liquidate or sell any or all of its or
their business, property or assets.
10. ADJUSTMENTS. In the event that the shares of Common Stock of the
Corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Corporation or of other securities of the
Corporation or of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise) or if the number of such shares
of stock shall be increased through the payment of a stock dividend,
then, there shall be substituted for or added to each share of stock
of the Corporation which was theretofore appropriated, or which
thereafter may become subject to an option under the Plan, the number
and kind of shares of stock or other securities into which each
outstanding share of the stock of the Corporation shall be so changed
or for which each such share shall be exchanged or to which each such
shares shall be entitled, as the case may be. Outstanding Options
shall also be appropriately amended as to price and other terms, as
may be necessary to reflect the foregoing events. If there shall be
any other change in the number or kind of the outstanding shares of
the
39
<PAGE>
stock of the Corporation, or of any stock or other securities in
which such stock shall have been changed, or for which it shall have
been exchanged, and if a majority of the disinterested members of
the Board shall, in its sole discretion, determine that such change
equitably requires an adjustment in any Option which was theretofore
granted or which may thereafter be granted under the Plan, then such
adjustment shall be made in accordance with such determination.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge, to consolidate, to dissolve, to
liquidate or to sell or transfer all or any part of its business or
assets.
A dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving
Corporation, shall cause each outstanding Option to terminate, except
to the extent to the extent that another corporation may and does in
the transaction assume and continue to the Option or substitute its
own options.
Fractional shares resulting from any adjustment in Options pursuant
to this Article 10 may be settled as a majority of the disinterested
members of the Board or the Committee (as the case may be) shall
determine.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by a
majority of the disinterested members of the Board., whose
determination in that respect shall be final, binding and conclusive.
Notice of any adjustments shall be given by the Corporation to each
holder of an Option which shall be so adjusted.
11. FORFEITURE. Notwithstanding anything to the contrary in this Plan,
if the involved Director has been engaged in fraud, embezzlement,
theft, commission of a felony, or dishonesty in the course of his or
her relationship with the Corporation or its affiliates that has
damaged them, or that the Director has disclosed trade secrets of the
Corporation or its affiliates, the Director shall forfeit all rights
under and to all unexercised Stock Options, and all exercised Stock
Options under which the Corporation has not yet delivered
certificates for shares of Stock (as the case may be), and all rights
to receive Stock Options shall be automatically canceled.
12. MISCELLANEOUS. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation, including but not
limited to the Internal Revenue Code of 1986 and the Exchange Act,
both as amended, shall include any subsequently enacted or promulgated
section or provision of law, rule or regulation, as the case may be,
of similar import. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or any successor rule
that may be promulgated by the Securities and Exchange Commission.
To the extent any provision of this Plan fails to so comply, it shall
be deemed null and void, to the extent permitted by applicable law,
subject to the provisions of paragraph 13 below. Where used in this
Plan: the plural shall include the singular, and unless the context
otherwise clearly requires, the singular shall include the plural;
and, the term "affiliates" shall mean each and every subsidiary of
the Corporation. The captions of the numbered paragraphs contained
in this Plan are for convenience only, and shall not limit or affect
the meaning, interpretation or construction of any of the provisions
of the Plan.
13. AMENDMENT. The Plan may not be amended, suspended or terminated
except as may be provided for herein, or as may be required under
the provisions of the Internal Revenue Code of 1986, as amended, and
Section 16 of the Exchange Act, and the rules and regulations
thereunder. If any provision of the Plan would cause a non-employee
director not to be a "disinterested person" within the meaning of
Rule 16b-3 under the Exchange Act as then applicable to any employee
benefit plan of the Corporation, such provision shall be construed
or deemed amended to the extent necessary to preserve such
non-employee director's status as a "disinterested person".
14. TAXES. The issuance of shares of Stock under the Plan shall be subject
to any applicable taxes or other laws or regulations of the United
States of America and any state or local authority having jurisdiction
thereover.
40
<PAGE>
EXHIBIT 10.12
F&M BANCORP
CONVERSION OF MONOCACY BANCSHARES, INC. STOCK OPTIONS HELD BY EMPLOYEES
(DATE)
Pursuant to Section 1.5 of the Agreement and Plan of Merger (the
"Plan") dated as of September 4, 1998, by and between F&M Bancorp ("F&M
Bancorp") and Monocacy Bancshares, Inc. ("Monocacy"), F&M Bancorp hereby grants
to you substitute stock options as set forth below. Such substitute stock
options shall be subject to the terms and conditions as set forth in the
Monocacy Bancshares, Inc.1994 Stock Incentive Plan, attached hereto as Exhibit
A.
Each Monocacy stock option held by you is hereby converted into an F&M
Bancorp stock option which entitles you to purchase a number of shares of F&M
Bancorp Common Stock equal to the number of shares of Monocacy Common Stock (as
to each whole share) which could have been purchased under each Monocacy stock
option multiplied by the Exchange Ratio (as defined in the Plan) rounded down to
the nearest whole share. The per share exchange price of each F&M Bancorp stock
option granted hereunder shall be equal to the price per share set forth in each
Monocacy stock option divided by the Exchange Ratio (as defined in the Plan),
rounded up to the nearest whole cent.
CONVERSION CALCULATION:
Exchange Ratio: 1.251
Employee:
MONOCACY STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
- ------------- -------------- ------------------------------
<S> <C> <C>
</TABLE>
F&M BANCORP SUBSTITUTE STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
- ------------- -------------- ------------------------------
<S> <C> <C>
</TABLE>
IN WITNESS WHEREOF, having been duly authorized, we have signed this
document as of the ______ day of ______________, 1999.
F&M Bancorp
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.14
AGREEMENT
BETWEEN
F&M BANCORP
FARMERS & MECHANICS NATIONAL BANK
AND
-------------------------
AGREEMENT, dated as of the 18th day of August 1998, between F&M
Bancorp, a Maryland corporation, Farmers & Mechanics National Bank, a national
bank (together or separately hereinafter referred to as the "Employers") and
_____________________ (the "Executive").
WITNESSETH:
WHEREAS, the Executive is presently an executive officer of the
Employers; and
WHEREAS, the Employers desire to be ensured of the Executive's
continued active participation in the business of the Employers; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Employers and in consideration of the Executive's agreeing to remain in the
employ of the Employers, the parties desire to specify the severance benefits
which shall be due the Executive in the event that the Executive's employment
with the Employers is terminated under specified circumstances detailed herein:
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the
meanings set forth below for the purposes of this Agreement:
(a) Average Annual Compensation. The Executive's "Average Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of compensation paid to the Executive by the Employers or any subsidiary
thereof during the three consecutive calendar years preceding the Date of
Termination which yield the highest such average. If the Executive has worked
for less than three consecutive calendar years, the "Average Annual
Compensation" shall mean the sum of total compensation received, divided by the
number of months worked, and multiplied by 12. Alternatively, at the Executive's
election, the Executive's compensation for the 12 calendar months prior to the
Change-In-Control may be used to constitute "Average Annual Compensation."
Compensation shall include base salary and bonuses under the Incentive
Compensation Program originally adopted in 1996 and any other employee benefit
plans of the Employers. Compensation shall not include fringe benefits such as
automobiles or other perquisites, but shall include any pre-tax reduction for
contributions to any tax qualified retirement plan, deferred compensation plan,
or flexible benefits plan.
(b) Cause. Cause shall mean (i) the willful and continued failure by
the Executive to substantially perform the Executive's duties with the Employers
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness) after a written demand for substantial performance
is delivered to the Executive by the Board of Directors of F&M Bancorp, which
demand specifically identifies the manner in which the Board of Directors of F&M
42
<PAGE>
Bancorp believes that the Executive has not substantially performed the
Executive's duties or (ii) the engaging by the Executive in conduct which is
demonstrably and materially injurious to the Employers or their subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act, or failure to act, was
in the best interest of the Employers.
(c) Change-in-Control of the Employers. Change-in-Control shall be
deemed to have occurred if the event set forth in any one of the following
paragraphs shall have occurred relative to either or both of the Employers:
(i) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the
Employers (not including in the securities
beneficially owned by such Person any securities
acquired directly from the Employers or their
Affiliates) representing 25% or more of the combined
voting power of the Employers' then outstanding
securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction
described in clause (A) of paragraph (iii) below; or
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving on the Board; individuals who, on the date
hereof, constitute the Board and any new director
(other than a director whose initial assumption of office is
in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating
to the election of directors of the Employers) whose
appointment or election by the Board or nomination for
election by the Employers' shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors
on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(iii) there is consummated a merger or consolidation of the
Employers or any direct or indirect subsidiary of the
Employers with any other corporation, other than (A) a
merger or consolidation which would result in the voting
securities of the Employers outstanding immediately prior to
such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof),
in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of
the Employers or any subsidiary of the Employers, at least
60% of the combined voting power of the securities of the
Employers or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Employers (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Employers (not including
in the securities Beneficially Owned by such Person any
securities acquired directly from the Employers or their
Affiliates) representing 25% or more of the combined voting
power of the Employers' then outstanding securities.
(iv) the shareholders of the Employers approve a plan of
complete liquidation or dissolution of the Employers
or there is consummated an agreement for the sale or
disposition by the Employers of all or substantially
all of the Employers' assets, other than a sale or
disposition by the Employers of all or substantially
all of the Employers' assets to an entity, at least
60% of the combined voting power of the voting
securities of which are owned by shareholders of the
Employers in substantially the same proportions as
their ownership of the Employers immediately prior to
such sale;
(v) the Employers ceases to own, directly or indirectly,
securities of any subsidiary representing 50% or more
of the combined voting power of the subsidiary's then
outstanding securities; or
(vi) there is consummated an agreement for the sale or
disposition by the Employers of all or substantially
all of a subsidiary's assets, other than a sale or
disposition by the Employers of all or substantially
all of the subsidiary's assets to an entity, at least
60% of the combined voting power of the voting securities of
which are owned by shareholders of the Employers in
substantially the same proportions as their ownership of
the subsidiary immediately prior to such sale; provided
however, that such a sale or disposition should only be
effective for those Executives, if any, employed by the
subsidiary whose assets are so sold or otherwise disposed
of, and not all participating Executives.
43
<PAGE>
"Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
"Beneficial Owner" shall have the meaning set forth
in Rule 13d-3 under the Exchange Act. "Board" shall
mean the boards of directors of either or both of the
Employers as applicable. "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended from
time to time. "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Employers or
any of their subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee
benefit plan of the Employers or any of their
Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of the Employers in
substantially the same proportions as their ownership
of stock of the Employers.
A "Potential Change-in-Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs
shall have occurred:
(i) the Employers enter into an agreement, the consummation of
which would result in the occurrence of a Change-in-Control;
(ii) the Employers or any Person publicly announces an
intention to take or to consider taking actions
which, if consummated, would constitute a
Change-in-Control;
(iii) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Employers
representing 15% or more of either the then
outstanding shares of common stock of the Employers
or the combined voting power of the Employers' then
outstanding securities (not including in the
securities beneficially owned by such Person any
securities acquired directly from the Employers or
their affiliates); or
(iv) the Board adopts a resolution to the effect that a
Potential Change-in-Control has occurred.
(d) CODE. Code shall mean the Internal Revenue Code of 1986,
as amended.
(e) DATE OF TERMINATION. "Date of Termination" shall mean:
(i) if the Executive's employment is terminated for Cause or
for Disability, the date specified in the Notice of Termination, and (ii) if the
Executive's employment is terminated for any other reason, the date on which a
Notice of Termination is given or as specified in such Notice.
(f) DISABILITY. Termination by the Employers of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the applicable long-term disability plan maintained by the Employers or, if no
such plan applies, which would qualify the Executive for disability benefits
under the Federal Social Security System.
(g) GOOD REASON. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive based on:
(i) without the Executive's express written consent, the
assignment by the Employers to the Executive of any duties which are materially
inconsistent with the Executive's positions, duties, responsibilities and status
with the Employers immediately prior to a Change-in-Control of the Employers, or
a material change in the Executive's reporting responsibilities, titles or
offices as an employee and as in effect immediately prior to such a
Change-in-Control, or any removal of the Executive from or any failure to
re-elect or re-appoint the Executive to any of such responsibilities, titles or
offices, except in connection with the termination of the Executive's employment
for Cause, Disability or Retirement or as a result of the Executive's death or
by the Executive other than for Good Reason, or assignment by the Employers to
the Executive of duties which cannot effectively be performed at the Bank's
principal office at Frederick County, Maryland, (ii) without the Executive's
express written consent, a reduction by the Employers in the Executive's
compensation as in effect on the date of the Change-in-Control of the Employers
or as the same may be increased from time to time thereafter, (iii) without the
Executive's express written consent, a failure by the Employers to provide the
Executive with the same fringe benefits that were provided to the Executive
immediately prior to a Change-in-Control of the Employers, or with a package of
fringe benefits (including paid vacations) that, though one or more of such
benefits may vary from those in effect immediately prior to such
Change-in-Control, is substantially comparable in all material respects to such
fringe benefits taken as a whole, (iv) any purported termination of the
Executive's employment for
44
<PAGE>
Cause, Disability or Retirement which is not effected pursuant to a Notice of
Termination satisfying the requirements of paragraph (i) below; or (v) the
failure by the Employers to obtain the assumption of and agreement to perform
this Agreement by any successor as contemplated in Section 6 hereof.
(h) IRS. IRS shall mean the Internal Revenue Service.
(i) NOTICE OF TERMINATION. Any purported termination by the Employers
for Cause, Disability or Retirement or by the Executive for Good Reason shall be
communicated by written "Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which:
(i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated, (iii) specifies a Date of
Termination, which shall be not less than thirty (30) nor more than ninety
(90) days after such Notice of Termination is given, except in the case of
the Employers' termination of Executive's employment for Cause, and (iv) is
given in the manner specified in Section 7 hereof.
2. BENEFITS UPON TERMINATION. If the Executive's employment by the
Employers shall be terminated subsequent to a Change-in-Control or Potential
Change-In-Control of the Employers (i) by the Employers other than for Cause,
Disability, or as a result of the Executive's death, or (ii) by the Executive
for Good Reason, then the Employers shall, subject to the provisions of
Section 3 hereof, if applicable, pay to the Executive, in a lump sum within
five (5) business days following the Date of Termination, a cash amount equal
to the sum of 3.0 times the Executive's Average Annual Compensation plus the
cash value of the Executive's unused vacation calculated by multiplying the
number of unused hours by the Executive's hourly compensation expressed as a
fraction the numerator of which is the Executive's Average Annual
Compensation and the denominator of which is 2080, plus a pro-rata bonus for
the year of termination based on the amount of the prior year's bonus
multiplied by the fraction of the year concluded between January 1 and the
Date of Termination.
3. EXCISE TAX PAYMENT PROVISION
A. 1. Whether or not the Executive becomes entitled to payments
under this Agreement, if any of the payments or benefits
received or to be received by the Executive in connection
with a Change-in-Control or the Executive's termination of
employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the
Employers, any Person whose actions result in a
Change-in-Control or any Person affiliated with the Employers
or such Person) (such payments or benefits, excluding
the Excise Tax Payment, being hereinafter referred to as
the "Total Payments") will be subject to any excise tax
imposed under Section 4999 of the Code (the "Excise Tax"),
the Employers shall pay to the Executive an additional
amount (the "Excise Tax Payment") equal to the Excise Tax
imposed.
2. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) all of the Total Payments shall be
treated as "parachute payments" (within the meaning of section
280G(b)(2) of the Code) unless, in the opinion of tax counsel
("Tax Counsel") reasonably acceptable to the Executive and
selected by the accounting firm which was, immediately prior
to the Change-in-Control, the Employers' independent auditor
(the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by
reason of section 280G(b)(4)(A) of the Code, (ii) all "excess
parachute payments" within the meaning of section 280G(b)(1)
of the Code shall be treated as subject to the Excise Tax
unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the
meaning of section 280G(b)(4)(B) of the Code) in excess of the
Base Amount (within the meaning of Section 280G(b)(3) of the
Code) allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value
of any noncash benefits or any deferred payment or benefit
shall be determined by the Auditor in accordance with the
principles of sections 280G(d)(3) and (4) of the Code.
3. In the event that the Excise Tax is finally determined to
be less than the amount taken into account hereunder in
calculating the Excise Tax Payment, the Executive shall repay
to the Employers, within five
45
<PAGE>
(5) business days following the time that the amount of
such reduction in the Excise Tax is finally determined,
the portion of the Excise Tax Payment attributable to
such reduction. In the event that the Excise Tax is
determined to exceed the amount taken into account
hereunder in calculating the Excise Tax Payment (including by
reason of any payment the existence or amount of which cannot
be determined at the time of the Excise Tax Payment), the
Employers shall make an additional Excise Tax Payment in
respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such
excess) within five (5) business days following the time that
the amount of such excess is finally determined. The Executive
and the Employers shall each reasonably cooperate with the
other in connection with any administrative or judicial
proceedings concerning the existence or amount of liability
for Excise Tax with respect to the Total Payments.
B. The payments provided in Section 3A. shall be made not later
than the fifth (5th) day following the Date of Termination;
PROVIDED, HOWEVER, that if the amounts of such payments
cannot be finally determined on or before such day, the
Employers shall pay to the Executive on such day an estimate
of the minimum amount of such payments to which the
Executive is clearly entitled and shall pay the remainder of
such payments (together with interest on the unpaid
remainder (or on all such payments to the extent the
Employers fails to make such payments when due) at 120% of
the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no
event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Employers
to the Executive, payable on the fifth (5th) business day
after demand by the Employers (together with interest
at 120% of the rate provided in section 1274(b)(2)(B) of the
Code.) At the time that payments are made under this
Agreement, the Employers shall provide the Executive
with a written statement setting forth the manner in which
such payments were calculated and the basis for such
calculations including, without limitation, any opinions or
other advice the Employers has received from Tax Counsel,
the Auditor or other advisors or consultants (and any such
opinions or advice which are in writing shall be attached
to the statement).
4. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employers pursuant to employee benefit plans
of the Employers or otherwise.
5. WITHHOLDING. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employers may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
6. ASSIGNABILITY. The Employers may assign this Agreement and their
rights hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which the Employers may hereafter merge or consolidate or to
which the Employers may transfer all or substantially all of their assets, if in
any such case said corporation, bank or other entity shall by operation of law
or expressly in writing assume all obligations of the Employers hereunder as
fully as if it had been originally made a party hereto, but may not otherwise
assign this Agreement or their rights hereunder. The Executive may not assign or
transfer this Agreement or any rights or obligations hereunder.
46
<PAGE>
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Employers: F&M Bancorp
Attn: Faye E. Cannon, President
P.O. Box 518
Frederick, Maryland 21705
To the Executive: ______________________
______________________
______________________
8. AMENDMENT; WAIVER. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Boards of Directors of the Employers to sign on
their behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
9. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Maryland.
10. NATURE OF EMPLOYMENT AND OBLIGATIONS.
(a) Nothing contained herein shall be deemed to create other than a
terminable at will employment relationship between the Employers and the
Executive, and the Employers may, subject to such other arrangements as may
exist between the Employers and the Executive, terminate the Executive's
employment at any time, subject to providing any payments specified herein in
accordance with the terms hereof.
(b) Nothing contained herein shall create or require the Employers to
create a trust of any kind to fund any benefits which may be payable hereunder,
and to the extent that the Executive acquires a right to receive benefits from
the Employers hereunder, such right shall be no greater than the right of any
unsecured general creditor of the Employers.
(c) The obligations of the Employers under the terms of this Agreement
shall be enforceable by the Executive on the basis of the respective Employers'
joint and severable liability.
11. TERM OF AGREEMENT. This Agreement shall terminate three (3) years
after the date first above written; provided that on or prior to the first
anniversary of the date first above written and each anniversary thereafter, the
Boards of Directors of the Employers shall consider (with appropriate corporate
documentation thereof, and after taking into account all relevant factors,
including Executive's performance as an employee) renewal of the term of this
Agreement for an additional one (1) year, and the term of this Agreement shall
be so extended unless the Boards of Directors of Employers do not approve such
renewal and provide written notice to the Executive, or the Executive gives
written notice to the Employers, thirty (30) days prior to the date of any such
anniversary, or such party's or parties' election not to extend the term beyond
their then scheduled expiration date; and provided further that, notwithstanding
the foregoing to the contrary, this Agreement shall be automatically extended
for an additional one (1) year upon a Change-in-Control of the Employers.
12. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
47
<PAGE>
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. REGULATORY PROHIBITION. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Employers and the Executive
hereunder shall be suspended or limited, as the case may be, in the event that
the FDIC prohibits or limits, by regulation or order, any payment hereunder
pursuant to Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
Attest: F&M BANCORP
______________________ By: _______________________
Faye E. Cannon, President
and Chief Executive Officer
Attest: FARMERS & MECHANICS
NATIONAL BANK
______________________ By: ________________________
Faye E. Cannon, President
and Chief Executive Officer
______________________ ________________________
Witness Executive
48
<PAGE>
SCHEDULE I TO
EXHIBIT 10.14
F&M BANCORP
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
The following persons participate in the F&M Bancorp Change in Control
Employment Agreement.
GORDON M. COOLEY
James L. Hogan
Karen L. Korrell
David L. Spilman
Alice E. Stonebreaker
49
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Earnings per share ("EPS") is calculated on a Basic EPS and Diluted EPS basis.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders (the numerator) by the weighted-average number of common
shares outstanding (the denominator) during the period. Income available to
common shareholders is Net Income in the table below and as reported in
Bancorp's income statement. No adjustments were required to net income for any
EPS calculations.
Diluted EPS is calculated by adjusting the denominator for all dilutive
potential common shares that were outstanding during the period. Bancorp had
stock options outstanding during the periods presented below which had a
dilutive effect on EPS. Therefore, the number of additional common shares that
would have been outstanding if the options had been exercised is added to the
denominator to arrive at the dilutive number of shares.
The calculations of earnings per share below are based on the weighted average
number of shares outstanding, adjusted for the 5% stock dividend paid July 28,
1999, including all common stock and common stock equivalents in conformity with
the instructions for Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) Six Month Period Ended Quarter Ended June 30,
1999 1998 1999 1998
------------------ ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Net income $ 7,970 $ 7,975 $ 3,790 $ 3,786
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Basic EPS:
Shares 9,179,310 9,090,021 9,198,689 9,095,718
EPS $ .87 $ .88 $ 0.41 $ 0.42
Dilutive shares:
Stock options 60,179 114,419 55,521 118,215
EPS $ 0.01 $ 0.01 $ -- $ 0.01
Diluted EPS:
Shares including options 9,239,489 9,204,440 9,254,210 9,213,933
EPS $ .86 $ .87 $ 0.41 $ 0.41
</TABLE>
50
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 36,487
<INT-BEARING-DEPOSITS> 5,758
<FED-FUNDS-SOLD> 33,405
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 322,412
<INVESTMENTS-CARRYING> 104,680
<INVESTMENTS-MARKET> 104,440
<LOANS> 897,857
<ALLOWANCE> 12,457
<TOTAL-ASSETS> 1,462,335
<DEPOSITS> 1,160,144
<SHORT-TERM> 59,840
<LIABILITIES-OTHER> 13,627
<LONG-TERM> 98,764
0
0
<COMMON> 43,778
<OTHER-SE> 86,182
<TOTAL-LIABILITIES-AND-EQUITY> 1,462,335
<INTEREST-LOAN> 37,172
<INTEREST-INVEST> 11,741
<INTEREST-OTHER> 758
<INTEREST-TOTAL> 49,671
<INTEREST-DEPOSIT> 19,550
<INTEREST-EXPENSE> 23,393
<INTEREST-INCOME-NET> 26,278
<LOAN-LOSSES> 850
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 23,068
<INCOME-PRETAX> 11,000
<INCOME-PRE-EXTRAORDINARY> 7,970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,970
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 4.17
<LOANS-NON> 2,751
<LOANS-PAST> 2,504
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 19,364
<ALLOWANCE-OPEN> 12,817
<CHARGE-OFFS> 2,206
<RECOVERIES> 996
<ALLOWANCE-CLOSE> 12,457
<ALLOWANCE-DOMESTIC> 9,136
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,321
</TABLE>
