<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 March 31, 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 8,753,026 shares outstanding as of April 30, 1999.
Exhibit index on page 30.
<PAGE>
F&M BANCORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets,
March 31, 1999 and 1998 (Unaudited) and December 31, 1998........................................................3
Consolidated Statements of Income and Comprehensive Income (Unaudited),
Three Months Ended March 31, 1999 and 1998.......................................................................5
Consolidated Statements of Changes in Shareholders' Equity (Unaudited),
Three Months Ended March 31, 1999 and Twelve Months Ended December 31, 1998......................................7
Consolidated Statements of Cash Flows (Unaudited),
Three Months Ended March 31, 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......................................................27
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders......................................................29
Item 6. Exhibits and Reports on Form 8-K.......................................................................30
Signatures......................................................................................................32
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, March 31, December 31,
1999 1998 1998
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 43,104 $ 39,727 $ 47,330
Federal fund sold 22,713 29,888 11,652
Interest-bearing deposits with banks 20,815 6,624 16,737
------------ ------------- -------------
Total cash and cash equivalents 86,632 76,239 75,719
------------ ------------- -------------
Loans held for sale 1,111 6,345 4,810
------------ ------------- -------------
Investment securities:
Available-for-sale, at fair value 313,332 247,741 322,651
Held-to-maturity, fair value $104,588,
$93,825 and $100,478, respectively 102,713 92,007 98,231
------------ ------------- -------------
Total investment securities 416,045 339,748 420,882
------------ ------------- -------------
Loans, net of unearned income 886,714 876,115 891,741
Less: Allowance for credit losses (12,888) (12,354) (12,817)
------------ ------------- -------------
Net loans 873,826 863,761 878,924
------------ ------------- -------------
Bank premises and equipment, net 30,771 32,641 31,184
Other real estate owned 1,306 5,453 1,705
Interest receivable 10,489 8,533 9,478
Intangible assets 6,669 7,310 6,875
Other assets 24,162 16,490 20,105
------------ ------------- -------------
Total assets $1,451,011 $1,356,520 $1,449,682
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
March 31, March 31, 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 $ 145,515 $ 142,869 $ 152,076
Interest-bearing 995,992 929,609 986,118
------------ ------------- -------------
Total deposits 1,141,507 1,072,478 1,138,194
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 58,568 44,705 57,626
Other short-term borrowings 1,667 19,547 14,776
Long-term borrowings 99,182 79,096 94,246
Accrued interest and other liabilities 17,833 12,394 14,016
------------ ------------- -------------
Total liabilities 1,318,757 1,228,220 1,318,858
------------ ------------- -------------
SHAREHOLDERS' EQUITY
Common stock, par value $5 per share;
authorized 50,000,000 shares;
issued and outstanding 8,741,278
shares, 8,646,182 shares, and
8,680,908 shares, respectively 43,706 42,048 43,405
Surplus 62,869 49,815 61,980
Retained earnings 26,770 36,610 25,220
Accumulated other comprehensive (loss) income (1,091) (173) 219
------------ ------------- -------------
Total shareholders' equity 132,254 128,300 130,824
------------ ------------- -------------
Total liabilities and shareholders' equity $1,451,011 $1,356,520 $1,449,682
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarter ended
March 31,
(Dollars in thousands, except per share amounts) 1999 1998
-------- --------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $18,649 19,481
Interest and dividends on investment securities:
Taxable 4,339 3,984
Tax-exempt 1,465 835
Interest on deposits with banks 288 119
Interest on federal funds sold 48 256
-------- --------
Total interest income 24,789 24,675
-------- --------
INTEREST EXPENSE
Interest on deposits 9,726 9,380
Interest on federal funds purchased and
securities sold under agreements to repurchase 545 549
Interest on Federal Home Loan Bank borrowings 1,364 1,413
Interest on other short-term borrowings 18 34
-------- --------
Total interest expense 11,653 11,376
-------- --------
Net interest income 13,136 13,299
Provision for credit losses 525 631
-------- --------
Net interest income after provision
for credit losses 12,611 12,668
-------- --------
NONINTEREST INCOME
Trust income 763 691
Service charges on deposit accounts 1,415 1,485
Insurance income 607 676
Gains on sales of securities -- 752
Gains on sales of loans 122 455
Other operating income 1,458 1,066
-------- --------
Total noninterest income 4,365 5,125
-------- --------
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
Quarter ended
March 31,
(Dollars in thousands, except per share amounts) 1999 1998
-------- --------
<S> <C> <C>
NONINTEREST EXPENSE
Salaries 4,987 5,495
Pension and other employee benefits 1,002 1,120
Occupancy and equipment expense 1,833 1,983
Other operating expense 3,227 3,268
-------- --------
Total noninterest expense 11,049 11,866
-------- --------
Income before provision for income taxes 5,927 5,927
Provision for income taxes 1,747 1,738
-------- --------
Net Income $ 4,180 $ 4,189
-------- --------
-------- --------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized losses on securities $ (1,310) $ (1,022)
Reclassification adjustment for gains included
in net income -- 496
-------- --------
Other comprehensive income (loss) (1,310) (526)
-------- --------
Comprehensive income $2,870 $3,663
-------- --------
-------- --------
EARNINGS PER COMMON SHARE-BASIC
Based on weighted average shares outstanding
of 8,714,829 for 1999, 8,639,374 for 1998 $.48 $.48
-------- --------
-------- --------
EARNINGS PER COMMON SHARE-DILUTED
Based on weighted average shares outstanding
of 8,776,901 for 1999, 8,745,994 for 1998 $.48 $.48
-------- --------
-------- --------
Dividends per Share $.27 $.24
-------- --------
-------- --------
</TABLE>
6
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
(Dollars in thousands except per share amounts) Stock Surplus Earnings Income (Loss) Total
-------- -------- --------- ------------- ---------
<S> <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 ($1.06 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 $130,824
Net income -- -- 4,180 -- 4,180
Dividend reinvestment plan -- -- (10) -- (10)
Cash dividends paid ($.27 per share) -- -- (2,360) -- (2,360)
Stock consideration for options exercised
(11,554 shares) (58) (50) (260) -- (368)
Stock options exercised (71,924 shares) 359 939 -- -- 1,298
Other comprehensive income -- -- -- (1,310) (1,310)
-------- -------- --------- ------------- ---------
BALANCE AT MARCH 31, 1999 $43,706 $62,869 $26,770 $(1,091) $132,254
-------- -------- --------- ------------- ---------
-------- -------- --------- ------------- ---------
</TABLE>
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,180 $ 4,189
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 525 631
Provision for other real estate owned -- 1
Depreciation and amortization 775 954
Amortization of intangibles 267 265
Net premium amortization on investment securities 253 81
(Increase) decrease in interest receivable (1,011) 1,012
Increase in interest payable 1,170 402
Deferred income tax benefit -- (80)
Amortization of net loan origination costs 200 561
Gains on sales of property (3) --
Gain on sales/calls of securities -- (710)
(Increase) decrease in loans held for sale 3,699 (814)
Increase in other assets (3,173) (1,097)
Increase in other liabilities 2,647 21
Other -- (33)
--------- --------
Net cash provided by operating activities 9,529 5,383
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities to be held-to-maturity (7,582) (4,434)
Purchases of investment securities available-for-sale (16,492) (120,930)
Proceeds from calls of securities held-to-maturity -- 7,310
Proceeds from sales/calls of securities available-for-sale 1,109 75,561
Proceeds from maturing securities available-for-sale 22,357 34,257
Proceeds from maturing securities held-to-maturity 3,001 --
Net decrease in loans 4,373 5,150
Purchases of premises and equipment (362) (207)
Proceeds from sales of property 399 --
Other investing activities (61) (4,255)
--------- --------
Net cash provided by (used in) investing activities 6,742 (7,548)
--------- --------
--------- --------
</TABLE>
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
F&M BANCORP AND SUBSIDIARIES (CONT.)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(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 4,498 18,351
Net increase (decrease) in certificates of deposit (1,185) 3,377
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 942 (346)
Net increase in long-term borrowings 4,936 22,071
Net decrease in other short-term borrowings (13,109) (24,518)
Cash dividends paid (2,360) (1,728)
Dividend reinvestment plan (10) (9)
Proceeds from issuance of common stock 930 576
--------- --------
Net cash provided (used) by financing activities (5,358) 17,774
--------- --------
Net increase in cash and cash equivalents 10,913 15,609
Cash and cash equivalents at beginning of period 75,719 60,630
--------- --------
Cash and cash equivalents at end of period $86,632 $76,239
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $10,483 $11,059
Cash payments for income tax 1 3
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available for sale,
net of income taxes (1,310) (526)
</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. PENDING ACQUISITIONS
On April 1, 1999, Bancorp announced that it had signed a letter of intent to
acquire Potomac Basin Group Associates, Inc., a Beltsville, MD-based, full-line
independent insurance agency specializing in corporate employee benefit plans.
The proposed transaction is intended to be consummated as a statutory merger
resulting in a tax-free exchange of stock. Details of the transaction, which is
subject to approval by the boards of directors of both companies and by the
shareholders of Potomac Basin, will be set forth in a definitive agreement
expected to be executed within 60 days. If approved, the transaction is
anticipated to close in the second quarter of 1999.
Bancorp, through its subsidiary, Farmers & Mechanics National Bank (the "Bank"),
announced on April 23, 1999 that it has agreed to purchase certain assets and
liabilities associated with the Fairfield, PA. office of Farmers Bank, a First
Maryland Bancorp bank. Under the terms of the agreement, which is contingent
upon regulatory approval, the Bank will assume responsibility for services
related to checking, savings and certificates of deposit products totaling over
$13.5 million and will purchase the branch office and real estate located at 20
East Main Street, Fairfield, PA.
NOTE 3. ACQUISITIONS
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>
Both acquisitions are accounted for as poolings-of-interests.
NOTE 4. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
March 31, 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 $ 120,490 $ 210 $ 755 $ 119,945
Obligations of states and political subdivisions 38,634 736 368 39,002
Other debt securities 11,047 15 79 10,983
Mortgage-backed securities 126,474 119 1,442 125,151
---------- ---------- ----------- ----------
Total debt securities 296,645 1,080 2,644 295,081
Equity securities 18,518 -- 267 18,251
---------- ---------- ----------- ----------
Total available-for-sale 315,163 1,080 2,911 313,332
---------- ---------- ----------- ----------
Held-to-maturity:
Obligations of states and political subdivisions 89,847 1,872 223 91,496
Mortgage-backed securities 12,866 226 -- 13,092
---------- ---------- ----------- ----------
Total held-to-maturity 102,713 2,098 223 104,588
---------- ---------- ----------- ----------
Total investment securities $417,876 $3,178 $3,134 $417,920
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
March 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 $117,635 $ 357 $ 152 $ 117,840
Obligations of states and political subdivisions 18,692 144 -- 18,836
Other debt securities 16,984 -- 26 16,958
Mortgage-backed securities 75,912 227 451 75,688
---------- ---------- ----------- ----------
Total debt securities 229,223 728 629 229,322
Equity securities 18,696 -- 277 18,419
---------- ---------- ----------- ----------
Total available-for-sale 247,919 728 906 247,741
---------- ---------- ----------- ----------
Held-to-maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies 980 17 -- 997
Obligations of states and political subdivisions 70,911 1,656 18 72,549
Mortgage-backed securities 20,116 163 -- 20,279
---------- ---------- ----------- ----------
Total held-to-maturity 92,007 1,836 18 93,825
---------- ---------- ----------- ----------
Total investment securities $339,926 $ 2,564 $924 $341,566
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</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.
The amortized cost and estimated fair values of investments at March 31, 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.
13
<PAGE>
<TABLE>
<CAPTION>
Amortized Fair
(in thousands) Cost Value
--------- ---------
<S> <C> <C>
Available-for-sale:
Within 1 year $15,782 $15,828
After 1 but within 5 years 57,000 56,934
After 5 years but within 10 years 78,448 78,451
After 10 years 18,941 18,717
Mortgage-backed securities 126,474 125,151
Equity securities 18,518 18,251
--------- ---------
Total available-for-sale 315,163 313,332
--------- ---------
Held-to-maturity:
Within 1 year 7,018 7,069
After 1 but within 5 years 29,852 30,752
After 5 years but within 10 years 26,555 27,343
After 10 years 26,422 26,332
Mortgage-backed securities 12,866 13,092
--------- ---------
Total held-to-maturity 102,713 104,588
--------- ---------
Total investment securities $417,876 $417,920
--------- ---------
--------- ---------
</TABLE>
The amortized cost of investment securities pledged to secure public deposits,
securities sold under repurchase agreements, Federal Home Loan Bank advances,
and for other purposes as required and permitted by law, totaled $150.6 million
at March 31, 1999.
14
<PAGE>
NOTE 5. LOANS
Loans, net of unearned income, consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
------------------------- ------------
(In thousands) 1999 1998 1998
---------- --------- ------------
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $56,641 $ 68,580 $ 61,328
Secured by farmland 5,837 8,398 8,452
Residential mortgage 263,933 254,566 265,394
Other mortgage 203,297 173,955 198,131
Agricultural 766 622 560
Commercial and industrial loans 94,606 97,639 92,091
Consumer 252,110 269,156 257,968
Other loans 9,524 3,199 7,817
---------- --------- ------------
Totals $886,714 $876,115 $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 6. BANK PREMISES AND EQUIPMENT
Investments in bank premises and equipment are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------------- ------------
(In thousands) 1999 1998 1998
---------- --------- ------------
<S> <C> <C> <C>
Bank premises and land $29,256 $29,245 $28,978
Furniture and equipment 23,514 23,546 24,224
Leasehold improvements 3,004 2,923 2,908
---------- --------- ------------
55,774 55,714 56,110
Less accumulated depreciation
and amortization (25,003) (23,073) (24,926)
---------- --------- ------------
Net premises and equipment $30,771 $32,641 $31,184
---------- --------- ------------
---------- --------- ------------
</TABLE>
15
<PAGE>
NOTE 7. 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 $824 thousand and $331 thousand for the first quarter of 1999 and
1998, respectively.
NOTE 8. 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. Basic 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>
For the Three Months Ended March 31,
(Dollars in thousands except per share amounts) 1999 1998
---------- ----------
<S> <C> <C>
Net income $4,180 $4,189
---------- ----------
---------- ----------
Basic EPS
Shares 8,714,829 8,639,374
EPS $0.48 $0.48
Dilutive Shares
Stock options 62,072 106,620
EPS -- --
Diluted EPS
Shares including options 8,776,901 8,745,994
EPS $0.48 $0.48
</TABLE>
NOTE 9. 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, 2000. 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 1999.
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 first quarter of 1999 was $4.180 million, or
$0.48 basic earnings per share, an increase of 13% compared with earnings before
special items of $3.711 million, or $0.42 basic earnings per share, for the
first quarter of 1998. Per share amounts reported previously have been restated
to give effect to a 5% stock dividend declared in June 1998 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 $4.180 million for the first quarter of
1999 decreased slightly from $4.189 million, or $0.48 basic earnings per share
for the first quarter of 1998. Special items, consisting entirely of net gains
on sales of securities, increased prior period earnings by $478 thousand after
tax, or $0.06 per share. First quarter 1999 earnings were favorably impacted by
a decrease in noninterest expense of $817 thousand, or 7%, compared to the first
quarter of 1998. This reduction largely reflects the benefits of synergies from
recent acquisitions. Also impacting first quarter 1999 earnings was a reduction
in the provision for credit losses of $106 thousand or 17% compared to first
quarter of 1998.
Returns on average assets and average equity were 1.18% and 12.80%,
respectively, for the first quarter of 1999 compared with 1.13% and 11.91%,
respectively, before special items and 1.27% and 13.44% after special items for
the first quarter 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 three 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 first quarter are presented on a
year-to-year comparative basis in Table 1. Net interest income on a
taxable-equivalent basis increased slightly by $57 thousand, compared with the
first quarter of last year. Average earning assets increased $95.5 million, or
8%, for the first quarter of 1999 compared with the first quarter of 1998. Loan
demand was slow, resulting in only a slight increase in the average loan
portfolio balance of $7.2 million, or .8%. The average balance in the investment
portfolio increased $87.0 million as Bancorp positioned itself to meet
forecasted loan demand. The yield on earning assets across all sectors decreased
forty-nine basis points to 7.75% compared with the first quarter of last year.
Average interest-bearing deposits increased $65.3 million or 7%. Growth occurred
in nearly all deposit products assisted by the introduction of new deposit
products and pricing methods throughout the last twelve months. Additional
funding was provided principally by Federal Home Loan Bank advances, which
increased $38.4 million or 70% compared with the first quarter of 1998.
18
<PAGE>
Table 1. Consolidated Average Balances, Interest and Average Rates (Taxable
Equivalent Basis)
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------------------------------------
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 $ 29,246 $ 336 4.60% $ 27,920 $ 376 5.39%
------------ ----------- --------- ------------ ---------- --------
Investment securities: (1)
Tax-exempt (2) 127,709 2,230 6.98 91,460 1,611 7.05
Taxable 288,749 4,332 6.00 237,988 3,756 6.31
------------ ----------- --------- ------------ ---------- --------
Total investment securities 416,458 6,562 6.30 329,448 5,367 6.52
------------ ----------- --------- ------------ ---------- --------
Loans, net, including loans held for sale 893,455 18,699 8.49 886,262 19,520 8.93
------------ ----------- --------- ------------ ---------- --------
Total interest-earning assets and average yield 1,339,159 25,597 7.75 1,243,630 25,263 8.24
------------ ----------- --------- ------------ ---------- --------
TOTAL NONINTEREST-EARNING ASSETS 95,919 93,216
------------ ------------
Total assets $1,435,078 $1,336,846
------------ ------------
------------ ------------
LIABILITIES
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Savings $ 151,308 $ 874 2.34% $157,585 $ 981 2.52%
Checking 148,794 861 2.35 137,630 878 2.59
Money market accounts 163,738 1,156 2.86 136,641 898 2.67
Certificates of deposit 522,644 6,835 5.30 489,295 6,623 5.49
------------ ----------- --------- ------------ ---------- --------
Total interest-bearing deposits 986,484 9,726 4.00 921,151 9,380 4.13
------------ ----------- --------- ------------ ---------- --------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 52,659 545 4.20 43,819 549 5.08
Other short-term borrowings 13,606 184 5.48 47,370 666 5.70
------------ ----------- --------- ------------ ---------- --------
Total short-term borrowings 66,265 729 4.46 91,189 1,215 5.40
------------ ----------- --------- ------------ ---------- --------
Long-term borrowings 93,458 1,198 5.20 55,040 781 5.75
------------ ----------- --------- ------------ ---------- --------
Total borrowed funds 159,723 1,927 4.89 146,229 1,996 5.54
------------ ----------- --------- ------------ ---------- --------
Total interest-bearing liabilities 1,146,207 11,653 4.12 1,067,380 11,376 4.32
------------ ----------- --------- ------------ ---------- --------
NONINTEREST-BEARING LIABILITIES
Demand deposits 141,431 130,960
Other liabilities 15,018 12,125
Shareholders' equity 132,422 126,381
------------ ------------
Total liabilities and equity $1,435,078 $1,336,846
------------ ------------
------------ ------------
Net interest income $13,944 $13,887
----------- ----------
----------- ----------
Net interest spread 3.63% 3.92%
--------- --------
--------- ---------
Net interest margin 4.22% 4.53%
--------- --------
--------- --------
</TABLE>
(1) Average Balances and the related average rate are based on amortized costs.
(2) Based on an effective federal tax rate of 35% for 1999 and 1998.
19
<PAGE>
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 31
basis points to 4.22% compared with the first quarter of last year.
PROVISION FOR CREDIT LOSSES.
Bancorp decreased the provision for credit losses by 17% to $525 thousand for
the first quarter of 1999 compared with $631 thousand for the first quarter of
1998. The decrease is largely attributable to an improvement in credit quality.
NONINTEREST INCOME.
Noninterest income decreased $760 thousand, or 15%, for the first quarter of
1999 compared with the first quarter of 1998. Excluding gains from sales of
securities realized in 1998, which are considered a special item, noninterest
income decreased $22 thousand. Increases in trust income of $72 thousand or
10% over first quarter 1998 were effectively offset by decreases in service
charges on deposit accounts of $70 thousand or 5% below the first quarter of
1998. Gains on sales of loans decreased $333 thousand for the first quarter
of 1999 compared with the same quarter last year due to the more favorable
rate environment and high refinance activity that occurred the first quarter
of 1998.
NONINTEREST EXPENSE.
Noninterest expense decreased $817 thousand, or 7%, for the first quarter of
1999 compared with the first quarter of last year. Salaries and benefits
decreased $626 thousand, or 9%, largely due to synergies being realized through
recent acquisitions. Occupancy and equipment expense decreased $150 thousand, or
8%. Other operating expense decreased $41 thousand, or 1%. 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) declined from
63.6% for the period ended March 31, 1998, to 59.2% for the period ended March
31, 1999, largely evidencing improved control of operating expenses.
INCOME TAXES.
The provision for income taxes increased to $1.747 million for the first quarter
of 1999, from $1.738 million for the first 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. Bancorp's effective tax rate for the first quarter of
1999 and 1998 was 29%. Bancorp's income tax expense differs from the amount
computed at statutory rates primarily due to tax-exempt interest from certain
loans and investment securities.
NONPERFORMING ASSETS
Table 3 summarizes Bancorp's nonperforming assets and contractually past-due
loans. Through asset resolutions and sales, total nonperforming assets at March
31, 1999 declined $8.0 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 $2.0 million compared with prior year levels and
increased $1.4 million since year-end.
20
<PAGE>
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 March 31, 1999, Bancorp had $24.0 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. This amount includes $5.1 million in 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 as disclosed under the caption, Year 2000 Computer Readiness,
which follows.
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.
TABLE 3. NONPERFORMING ASSETS AND CONTRACTUALLY PAST-DUE LOANS
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------- ------------
(Dollars in thousands) 1999 1998 1998
--------- --------- ------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans(1) $ 3,795 $ 6,648 $ 4,196
Other real estate owned net of valuation allowance(2) 355 5,453 1,705
--------- --------- -----------
Total nonperforming assets $ 4,150 $12,101 $ 5,901
--------- --------- -----------
Loans past due 90 or more days as to interest or principal(3) $ 3,345 $ 1,308 $ 1,991
--------- --------- -----------
Nonperforming loans to total loans 0.43% 0.76% 0.47%
Nonperforming assets to total loans and other real estate owned 0.47% 1.37% 0.66%
Nonperforming assets to total assets 0.29% 0.83% 0.41%
Allowance for credit losses times nonperforming loans 3.40x 1.86x 3.05x
Allowance for credit losses times nonperforming assets 3.11x 1.02x 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.
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
21
<PAGE>
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 March 31, 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 4, the allowance for credit losses as a percentage of
loans increased to 1.45% as of March 31, 1999 from 1.41% at March 31, 1998.
Total loans charged-off during the first quarter 1999 decreased by $50,000
principally attributed to improved credit quality.
Bancorp had loans amounting to approximately $2.2 million and $4.5 million at
March 31, 1999 and March 31, 1998, respectively, that were specifically
classified as impaired and included in nonaccrual loans in Table 3. The average
balance of impaired loans for the three months ended March 31, 1999 and 1998
amounted to $2.3 million and $4.2 million, respectively. Cash receipts for these
same periods were $303 thousand and $181 thousand, respectively. Of these
receipts, $37 thousand was recognized as interest income during the three months
ended March 31, 1999. All other cash receipts were applied to reduce the
principal balance of the impaired loans. The specific allowance for credit
losses related to these impaired loans was $122 thousand and $778 thousand, at
March 31, 1999 and March 31, 1998, respectively.
22
<PAGE>
TABLE 4. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Period ended
----------------------------------------------
March 31, December 31,
(Dollars in thousands) 1999 1998 1998
-------- -------- ------------
<S> <C> <C> <C>
Average loans outstanding less average unearned income (1) $892,056 $880,880 $875,196
-------- -------- ------------
-------- -------- ------------
Allowance for credit losses at beginning of year $12,817 $ 12,069 $ 12,069
-------- -------- ------------
Charge-offs:
Real estate 91 108 1,053
Commercial and industrial 2 -- 273
Consumer 923 958 4,010
-------- -------- ------------
Total loans charged-off 1,016 1,066 5,336
-------- -------- ------------
Recoveries:
Real estate 2 84 430
Commercial and industrial 2 -- 104
Consumer 558 636 2,494
-------- -------- ------------
Total recoveries 562 720 3,028
-------- -------- ------------
Net charge-offs 454 346 2,308
-------- -------- ------------
Provisions for credit losses 525 631 3,056
-------- -------- ------------
Allowance for credit losses at end of period $12,888 $ 12,354 $ 12,817
-------- -------- ------------
-------- -------- ------------
Net charge-offs to average loans outstanding, annualized 0.20% 0.16% 0.26%
-------- -------- ------------
-------- -------- ------------
Allowance for credit losses to period-end loans 1.45% 1.41% 1.44%
-------- -------- ------------
-------- -------- ------------
</TABLE>
(1) Exclusive of loans held for sale.
Table 5 presents an allocation of the allowance for credit losses to various
loan categories. This allocation does not limit the amount of the allowance
available to absorb losses from any type of loan and should not be viewed as an
indicator of the specific amount or specific loan categories in which future
charge-offs may ultimately occur.
23
<PAGE>
TABLE 5. ALLOCATION OF ALLOWANCES FOR CREDIT LOSSES
<TABLE>
<CAPTION>
March 31, 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 $1,541 6.4% $2,385 7.8% $1,767 6.9%
Residential mortgage 523 29.8 672 29.1 920 29.8
Other mortgage 3,103 22.9 2,912 19.9 3,419 22.2
Commercial and industrial 1,347 10.7 1,182 11.1 1,764 10.3
Consumer 3,157 28.4 3,831 30.8 3,599 28.9
Unallocated 3,217 1.8 1,372 1.3 1,348 1.9
-------- ---------- ------- -------- ------- --------
Total allowance for credit losses $12,888 100.0% $12,354 100.0% $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 March 31, 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.
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.
24
<PAGE>
The task team established a program to educate all associates regarding the Year
2000 issue both for internal systems and as the problem may affect customers.
Education of customers is continuing through periodic information in the form of
brochures, seminars, a toll free information line, our 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 ninety-eight (498) 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-five (125) products and services identified as mission
critical:
A. Thirty-six (36) are not date sensitive and are deemed Year 2000
issue ready.
B. Twenty-six (26) cannot be tested internally. The progress of these
service providers' efforts addressing the Year 2000 issue are being
closely monitored. All twenty-six (26) 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.
Thirteen (13) relationships totaling $3,034,765 have been risk rated "watch" two
(2) totaling $394,579 have been risk rated "OLEM" and two (2) totaling
$2,243,328 have been risk rated "substandard". The total value of these
seventeen (17) relationships is $5,672,672.
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.
To date, Bancorp has spent a total of $183,000 addressing Year 2000 issues and
anticipates additional out-of-pocket expenses of $123,000 to complete. Work is
done predominantly by existing associates as part of their
25
<PAGE>
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, our 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, a
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.
CAPITAL RESOURCES
Shareholders' equity totaled $132.3 million at March 31, 1999, an increase of 1%
compared with the 1998 year-end level of $130.8 million, and an increase of 3%
from the year earlier level of $128.3 million. The fair value of the
available-for-sale portfolio declined $1.3 million (net of deferred taxes) since
year-end. 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 March 31, 1999, as follows:
TABLE 6. CAPITAL RATIOS
<TABLE>
<CAPTION>
Risk-based Capital
---------------------------------------------
Tier 1 Total Leverage
Capital Capital Ratio
------- ------- ---------
<S> <C> <C> <C>
Actual 13.03% 14.29% 8.89%
Regulatory Minimum 4.00% 8.00% 3.00%
------- ------- ---------
Excess 9.03% 6.29% 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.
26
<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 7 presents Bancorp's MVE at March 31,
1999.
27
<PAGE>
TABLE 7. Effects of Changes in Interest Rates on MVE at March 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
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> <C>
300 bp rise $ 108,052 $ (27,788) (20.5)% (30.0)%
200 bp rise 117,503 (18,337) (13.5) (20.0)
100 bp rise 126,414 (9,425) (6.9) (10.0)
Base scenario 135,840 -- -- --
100 bp decline 144,442 8,603 6.3 (10.0)
200 bp decline 153,697 17,857 13.1 (20.0)
300 bp decline 164,593 28,753 21.2 (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 March 31, 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.
28
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of F&M Bancorp was held April 20,
1999.
(b) Proxies for the annual meeting were solicited pursuant to Regulation
14A under the Securities and Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed in the
proxy statement, and all such nominees were re-elected.
(c) (1) Election of Directors
Elected to serve as directors until the 2002 annual meeting of stockholders:
<TABLE>
<CAPTION>
Name For Withheld Against
- ---------------------- --------- -------- -------
<S> <C> <C> <C>
John D. Brunk 5,969,769 198,323 --
Faye E. Cannon 5,975,927 192,165 --
Eric E. Glass 5,852,438 315,654 --
Donald R. Hull 5,934,057 234,035 --
H. Deets Warfield, Jr. 5,972,883 195,209 --
</TABLE>
(c) (2) The following documents were voted upon, approved, and adopted
at the annual meeting of shareholders on April 20, 1999:
(a) Proposed F&M Bancorp 1999 Employee Stock Option Plan.
For 4,365,945 Against 554,615 Abstain 112,743 Broker Non-Vote 1,134,789
--------- ------- ------- ---------
(b) Proposed F&M Bancorp 1999 Stock Option Plan for Non-Employee
Directors.
For 4,093,574 Against 795,495 Abstain 114,233 Broker Non-Vote 1,134,790
--------- ------- ------- ---------
29
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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.
30
<PAGE>
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 10K 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 From 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 an
exhibit hereto and incorporated herein by reference.
10.20 F&M Bancorp 1999 Stock Option Plan for Non-Employee Directors.
Filed as an exhibit hereto and incorporated herein by
reference.
31
<PAGE>
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.
(b) Reports on Form 8-K
1. A report on Form 8-K Item 5. Other event was filed on January
20, 1999 to publish 30 days of post-merger combined operations
to satisfy the risk-sharing rules set forth in SEC Accounting
Series Release 135. (File #000-12638).
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)
May 17, 1999 /s/ David L. Spilman
------------------------ ------------------------
Date DAVID L. SPILMAN
TREASURER
32
<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> <C>
</TABLE>
F&M BANCORP SUBSTITUTE STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
<S> <C> <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 10.12
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 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
Employee:
MONOCACY STOCK OPTIONS:
<TABLE>
<CAPTION>
SHARES SUBJECT
DATE OF GRANT TO OPTION EXPIRATION DATE EXERCISE PRICE
<S> <C> <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> <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
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
<PAGE>
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.
"Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
<PAGE>
"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 Cause, Disability or Retirement which is not effected
pursuant to a Notice of Termination satisfying the requirements of
<PAGE>
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
<PAGE>
hereunder in calculating the Excise Tax Payment, the Executive shall
repay to the Employers, within five (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.
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:
<PAGE>
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.
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.
<PAGE>
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
<PAGE>
SCHEDULE I TO
F&M BANCORP
CHANGE IN CONROL EMPLOYMENT AGREEMENT
The following persons participate in the F&M Bancorp Change in Control
Employment Agreement.
GORDON M. COOLEY
Karen L. Korrell
David L. Spilman
Alice E. Stonebreaker
<PAGE>
EXHIBIT 10.19
F&M BANCORP
PROPOSED 1999 EMPLOYEE STOCK OPTION PLAN
1. PURPOSES OF THE PLAN:
To advance the interests of F&M Bancorp (the "Corporation") and its
subsidiaries by assisting in attracting and retaining qualified employees and
providing them with increased motivation to exert their best efforts on behalf
of the Corporation and its subsidiaries.
2. ADMINISTRATION:
The Plan shall be administered by a committee (the "Committee")
consisting of not less than two directors of the Corporation to be appointed by
and to serve during the pleasure of the Board of Directors. The Committee shall
consist only of "disinterested persons" as that term is defined in Rule 16b-3 of
the Securities Exchange Act of 1934 (the "Exchange Act"). None of the Committee
members shall be eligible to participate in the Plan nor, during one year prior
to service as a member of the Committee, shall have been granted or awarded
equity securities pursuant to the Plan or any other plan of the Corporation or
any of its affiliates except as permitted by Rule 16b-3 under the Exchange Act.
The Committee shall select the particular employees to receive options from
among the senior management of the Corporation and its subsidiaries and shall
make all decisions concerning the timing, pricing and amount of options to be
granted. The Committee shall have full power to construe and interpret the Plan
and to promulgate such regulations with respect to the Plan as it may deem
desirable. The Committee shall report its deliberations to the Board of
Directors.
3. STOCK SUBJECT TO OPTION:
The shares to be issued upon exercise of options to be granted under
the Plan shall be 400,000 shares of the Common Stock (par value $5.00 per share)
of the Corporation (the "Common Stock") to be authorized by stockholders for
issuance under the Plan. In addition, any shares of Common Stock remaining
available for grant under the Corporation's Restated 1983 Stock Option Plan or
the Corporation's 1995 Stock Option Plan, or that become available for grant
under either such plan shall be available for grant under this Plan. If any
unexercised option terminates for any reason, the shares covered thereby shall
become available for grant of an option again.
4. ELIGIBILITY:
The individuals who shall be eligible to participate in the Plan shall
be such key employees (including officers and directors who are employees) of
the Corporation, or of any corporation (a "Subsidiary") in an unbroken chain of
corporations including the Corporation if, at the time of the granting of the
option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one or more of the other corporations in such chain.
5. TERMS AND CONDITIONS OF OPTIONS:
Options under this Plan are intended to be either incentive options
qualifying under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or non-statutory options not qualifying under any section of the
Code as the Committee may recommend in its discretion from time to time. All
options granted under this Plan shall be issued upon such terms and conditions
as the Committee may recommend and the Board of Directors may approve from time
to time, subject to the following provisions (which shall apply to both
incentive and non-qualified stock options unless otherwise indicated):
(a) OPTION PRICE. The option price per share with respect to each option
shall be not less than: (i) for incentive stock options, 100% of the fair
market value of the Common Stock on
<PAGE>
the date the option is granted; and (ii) for non-qualified stock options,
85% of the fair market value of the Common Stock on the date the option is
granted.
(b) NUMBER OF OPTIONS. The Corporation can grant an employee incentive
stock options to acquire Common Stock of any value, provided that the fair
market value (determined at the date of grant) of the stock subject to one
or more incentive stock options (under this Plan and all other plans of
the Corporation and its subsidiaries) first exercisable in any one
calendar year does not exceed $100,000 (determined at the date of grant).
If any incentive stock option granted under this Plan would cause such
dollar limit to be exceeded, then the excess portion of the incentive
stock option shall become exercisable in the next or succeeding calendar
year in which its exercisability would not violate the dollar limitation.
No options may be granted to any person who directly or indirectly owns
immediately prior to or immediately after the grant, in excess of 10% of
the Corporation's outstanding Common Stock. No option shall be an
incentive stock option unless so designated by the Committee at the time
of grant. Notwithstanding the foregoing, no employee shall be granted
options for more than 25,000 shares of Common Stock in any one calendar
year.
(c) EXERCISE OF OPTIONS.
(i) Except as provided in paragraph (ii) below, full payment
for shares acquired shall be made in cash or by certified check at or
prior to the time that an option, or any part thereof, is exercised.
The participant will have no rights as a stockholder until the
certificate for those shares as to which the option is exercised has
been issued by the Corporation. No option may be exercised during the
first year from the date of grant. Thereafter, options for 200 shares
or less shall be exercisable in full. Options for more than 200 shares
shall be exercisable to the extent of 25% after the expiration of one
year from the date of grant, to the extent of 50% after the expiration
of two years from the date of grant, to the extent of 75% after the
expiration of three years from the date of grant, and to the extent of
100% after the expiration of four years from the date of grant. The
Committee may impose resale restrictions on all or a portion of the
shares delivered upon exercise of any option. All options will,
however, vest and become fully exercisable in the event of a
change-in-control.
Change-in-Control of the Corporation. Change-in-Control shall be
deemed to have occurred if the event set forth in any one of the following
paragraphs shall have occurred:
(vii) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Corporation or its Affiliates) representing 25% or
more of the combined voting power of the Corporation's 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
(viii) 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 Corporation) whose
appointment or election by the Board or nomination for election by
the Corporation's 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
(ix) there is consummated a merger or consolidation of the Corporation or
any direct or indirect subsidiary of the Corporation with any other
corporation, other than (A) a merger or
<PAGE>
consolidation which would result in the voting securities of the
Corporation 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 Corporation or any subsidiary of the
Corporation, at least 60% of the combined voting power of the
securities of the Corporation 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 Corporation (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation (not including in the
securities Beneficially Owned by such Person any securities acquired
directly from the Corporation or its Affiliates) representing 25% or
more of the combined voting power of the Corporation then
outstanding securities.
(x) the shareholders of the Corporation approve a plan of complete
liquidation or dissolution of the Corporation or there is
consummated an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's assets,
other than a sale or disposition by the Corporation of all or
substantially all of the Corporations' assets to an entity, at least
60% of the combined voting power of the voting securities of which
are owned by shareholders of the Corporation in substantially the
same proportions as their ownership of the Corporation immediately
prior to such sale;
(xi) the Corporation 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
(xii) there is consummated an agreement for the sale or disposition by the
Corporation of all or substantially all of a subsidiary's assets,
other than a sale or disposition by the Corporation 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 Corporation 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 Option holders, if
any, employed by the subsidiary whose assets are so sold or
otherwise disposed of, and not all participating Option holders.
"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 board of directors of the Corporation.
"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
Corporation or any of their subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit
plan of the Corporation 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 Corporation
in substantially the same proportions as their ownership of
stock of the Corporation.
(ii) In the discretion of the Committee, the option price of an
option may be payable through the delivery of shares of Common Stock with a
value equal to the option price or in a combination of cash and Common
<PAGE>
Stock with a value equal to the option price.
(d) TERM OF OPTION.
(i) No incentive stock option shall be granted for a
term of more than 10 years from the date such option is
granted.
(ii) No non-qualified stock option shall be granted
for a term of more than 10 years from the date such option is
granted.
(e) TERMINATION OF EMPLOYMENT. Each option, to the extent that it shall
not have been exercised, shall terminate 90 days after the
employment of the participant by the Corporation terminates.
Nothing in this paragraph shall operate to extend the term of the
option beyond the term stated in the agreement granting the option
or to accelerate the period during which portions of the option may
be exercised.
(f) OPTION NONASSIGNABLE AND NONTRANSFERABLE. Each option and all
rights thereunder, including the right to surrender the option,
shall be nonassignable and nontransferable other than by will or
the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder.
The designation of a beneficiary by a participant in the Plan does
not constitute a transfer. Options shall be exercisable during the
optionee's lifetime only by the optionee or his or her guardian or
legal representative. Upon death, options shall be exercisable by
the Option holder's personal representative. Notwithstanding the
foregoing restrictions, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 is amended to permit
further assignment or transfer of options, such assignments or
transfers shall be permissible under the Plan.
6. SURRENDER OF OPTIONS FOR CASH:
Any option granted under the Plan, with the express statement in the
option grant recognizing this paragraph, may include a right to surrender to the
corporation up to 50% of the option to the extent then exercisable and receive
in exchange a cash payment equal to the excess of the fair market value of the
shares covered by the option or portion thereof surrendered over the aggregate
option price of such shares. For the purposes of this paragraph, fair market
value shall be determined by the Committee. Such right may be granted by the
Board of Directors upon recommendation of the Committee concurrently with the
option or thereafter by amendment upon such terms and conditions as the
Committee may recommend. Shares subject to an option or portion thereof that
have been so surrendered shall not thereafter be available for option grants
under the Plan. The Committee may from time to time recommend to the Board of
Directors the maximum amount of cash that may be paid upon surrender of options
in any year, may determine that, if the amount to be received by any optionee is
reduced in any year because of such limitation, all or a portion of the amount
not paid may be paid in any subsequent year or years, and may limit the right of
surrender to certain periods during the year.
7. PAYROLL DEDUCTIONS:
In the discretion of the Committee, there may be made available to
optionees an election for the payroll deduction each pay period over the term of
the option of amounts equal to the aggregate exercise price of any or all of
such options (and estimated federal income taxes thereon). Interest will be paid
on payroll deductions at rates prescribed from time to time by the Board of
Directors upon recommendation of the Committee.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
If the outstanding shares of the Common Stock are increased, decreased,
or changed into, or exchanged for a different number or kind of shares or
securities of the Corporation, without receipt of consideration by the
Corporation, through
<PAGE>
reorganization, merger, statutory share exchange, recapitalization,
reclassification, stock split-up, stock dividend, stock consolidation, or
otherwise, an appropriate and proportionate adjustment shall be made in the
number and kind of shares as to which options may be granted. A corresponding
adjustment in the price per share and number and kind of shares allocated to
unexercised options, or portions thereof, which shall have been granted prior to
any such change shall likewise be made. Any such adjustment, however, in an
outstanding option shall be made without change in the total price applicable to
the unexercised portion of the option but with a corresponding adjustment in the
price for each share subject to the option. Adjustments under this section shall
be made by the Board of Directors, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final and conclusive. No
fractional shares of Common Stock shall be issued under the Plan on account of
any such adjustment.
9. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS:
Options may be granted under the Plan from time to time in substitution
for stock options held by employees of corporations who become or are about to
become key employees of the Corporation or a subsidiary of the Corporation as
the result of a merger or consolidation of the employing corporation with the
Corporation or a subsidiary, or the acquisition by the Corporation or a
subsidiary of the assets of the employing corporation, or the acquisition by the
Corporation or a subsidiary of stock of the employing corporation as the result
of which it becomes a subsidiary of the Corporation. The terms and conditions of
the substitute options so granted may vary from the terms and conditions set
forth in paragraph 5 of this Plan to such extent as the Board of Directors at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the options in substitution for which they are granted.
10. EFFECTIVE DATE OF THE PLAN:
The Plan shall become effective upon approval by the Board of
Directors, subject to approval by the stockholders of the Corporation.
11. TERMINATION DATE:
No options may be granted under the Plan after December 31, 2005.
Subject to Section 5(d), options granted before the termination date for the
Plan may extend beyond that date.
12. STOCK OPTION AGREEMENTS AND COMMON STOCK RECEIVED UPON EXERCISE:
(a) STOCK OPTION AGREEMENT. Options awarded to participants under the
Plan shall be evidenced by a stock option agreement (the "Agreement"). Each
Agreement shall designate the number of shares of Common Stock to be acquired by
the participant upon exercise of the stock option and the price per share at
which the option may be exercised, subject to any adjustment as provided herein.
Each Agreement shall be executed by the Corporation and by the participant,
shall be binding upon each of them, and may be executed in separate
counterparts, each of which shall be deemed to be an original and all of which
taken together constitute one and the same agreement.
(b) RESTRICTION ON EXERCISE: The stock options granted hereunder may
not be exercised if the issuance of the Common Stock upon such exercise or the
method of payment of consideration for such Common Stock would constitute a
violation of any applicable federal or state securities or other law or
regulation. As a condition to the exercise of any stock option granted
hereunder, the Corporation may require the participant to make any
representation and warranty to the Corporation as may be required or advisable
under any applicable law or regulation.
(c) RESTRICTED STOCK. If the shares of Common Stock that will be
received upon the exercise of stock options granted under the Plan have not been
registered under the Securities Act of 1933 or any applicable state securities
laws they will be restricted stock. The certificates representing such shares of
Common Stock will bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE (THE
"SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND HAVE BEEN ISSUED PURSUANT TO EXCEPTIONS UNDER
THE ACT AND UNDER APPLICABLE STATE
<PAGE>
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SHARES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO AND IN COMPLIANCE WITH RULE 144 OF SUCH ACT.
13. COMPLIANCE WITH LAWS AND REGULATIONS:
The grant, holding and vesting of all options under the Plan shall be
subject to any and all requirements and restrictions that may, in the opinion of
the Committee, be necessary or advisable for the purposes of complying with any
statute, rule or regulation of any governmental authority, or any agreement,
policy or rule of any stock exchange or other regulatory organization governing
any market on which the Common Stock is traded. The Corporation may withhold or
require payment for income and/or employment taxes as required by law.
14. AMENDMENT OF THE PLAN:
The Plan may be amended by the Board of Directors; however, no
amendment to the Plan materially increasing the benefits accruing to
participants or materially increasing the number of shares of Common Stock that
may be issued upon the exercise or surrender of stock options under the Plan
(except adjustments pursuant to Section 8) or materially modifying any
requirements as to eligibility for participation in the Plan shall be effective
unless approved by the stockholders of the Corporation. No amendment shall
become effective without the prior approval of the stockholders of the
Corporation if stockholder approval would be required for continued compliance
with Rule 16b-3 of the Exchange Act or, with respect to incentive stock options,
with applicable provisions of the Code.
15. MISCELLANEOUS:
(a) EXPENSES. The Corporation shall bear all expenses and costs in
connection with the administration of the Plan.
(b) DESIGNATION OF BENEFICIARIES. A participant may designate a
beneficiary to receive any distribution under the Plan upon his or her death.
(c) APPLICABLE LAW. The validity, interpretation and administration of
this Plan and any rules, regulations, determinations or decisions made
hereunder, and the rights of any and all persons having or claiming to have any
interest herein or hereunder, shall be determined exclusively in accordance with
the laws of the State of Maryland, without regard to the choice of laws
provisions thereof.
(d) HEADINGS. The headings herein are for reference purposes only and
shall not affect the meaning or interpretation of the Plan.
(e) NOTICES. All notices or other communications made or given pursuant
to this Plan shall be in writing and shall be sufficiently made or given if
hand-delivered or mailed by certified mail, addressed to any participant at the
address contained in the records of the Corporation or to the Corporation at its
principal office.
(f) FEDERAL SECURITIES LAW REQUIREMENT. Awards granted hereunder shall
be subject to all conditions required under Rule 16b-3 to qualify the award for
any exception from the provisions of Section 16(b) of the Securities Exchange
Act of 1934 available under that Rule.
<PAGE>
EXHIBIT 10.20
F&M BANCORP
1999 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSES OF THE PLAN:
To advance the interests of F&M Bancorp (the "Corporation") and its
subsidiaries by assisting in attracting and retaining qualified persons to serve
as directors of the Corporation and its subsidiaries, encouraging stock
ownership by directors, and more closely aligning the personal interests of
directors with the interests of stockholders.
2. ADMINISTRATION:
The Plan shall be administered by a committee (the "Committee")
consisting of not less than two directors of the Corporation to be appointed by
and to serve during the pleasure of the Board of Directors. The Committee shall
have full power to construe and interpret the Plan and to promulgate such
regulations with respect to the Plan as it may deem desirable. The Committee
shall report its deliberations to the Board of Directors. Notwithstanding the
above, the selection of the Directors to whom stock options are to be granted,
the timing of such grants, the number of shares subject to any stock option, the
exercise price of any stock option, the periods during which any stock option
may be exercised and the term of any stock option shall be as hereinafter
provided, and the Committee shall have no discretion as to such matters.
3. STOCK SUBJECT TO OPTION:
The shares to be issued upon exercise of options to be granted under
the Plan shall be 60,000 shares of the Common Stock (par value $5.00 per share)
of the Corporation (the "Common Stock") to be authorized by stockholders for
issuance under the Plan. If any unexercised option terminates for any reason,
the shares covered thereby shall become available for grant of an option again.
4. TERMS AND CONDITIONS OF OPTIONS:
Options under this Plan are intended to be non-statutory options not
qualifying under any section of the Internal Revenue Code of 1986, as amended
(the "Code"), (commonly referred to as non-qualified options). All options
granted under this Plan shall be issued upon the following terms and conditions:
(a) OPTION PRICE. The option price per share with respect to each option
shall be not less than: (i) 100% of the fair market value of the
Common Stock on the date the option is granted.
(b) NUMBER OF OPTIONS. Each year each person who shall be elected to serve
as a director of the Corporation or whose term shall continue shall be
awarded not more than 2000 shares in option form on the day following
the annual stockholders meeting.
<PAGE>
(c) EXERCISE OF OPTIONS.
(i) Except as provided in paragraph (ii) below, full
payment for shares acquired shall be made in cash or by
certified check at or prior to the time that an option, or any
part thereof, is exercised. The participant will have no
rights as a stockholder until the certificate for those shares
as to which the option is exercised has been issued by the
Corporation. No option may be exercised during the first 6
months from the date of grant. Thereafter, options shall be
exercisable in full. The Committee may impose resale
restrictions on all or a portion of the shares delivered upon
exercise of any option. All options will, however, vest and
become fully exercisable in the event of a change-in-control.
Change-in-Control of the Corporation. 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) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Corporation (not including
in the securities beneficially owned by such Person any
securities acquired directly from the Corporation or its
Affiliates) representing 25% or more of the combined voting
power of the Corporation's 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 Corporation) whose appointment or election
by the Board or nomination for election by the Corporation's
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
Corporation or any direct or indirect subsidiary of the
Corporation with any other corporation, other than (A) a
merger or consolidation which would result in the voting
securities of the Corporation 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 Corporation or any subsidiary of the
Corporation, at least 60% of the combined voting power of
the securities of the Corporation 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 Corporation
(or similar transaction) in which no Person is or becomes
the Beneficial Owner, directly or indirectly, of securities
of the Corporation (not including in the securities
Beneficially Owned by such Person any securities acquired
directly from the Corporation or its Affiliates)
representing 25% or more of the combined voting power of the
Corporation then outstanding securities.
(iv) the shareholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation or
there is consummated an agreement for the sale or
disposition by the Corporation of all or substantially all
of the Corporation's assets, other than a sale or
<PAGE>
disposition by the Corporation of all or substantially all
of the Corporation'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 Corporation in
substantially the same proportions as their ownership of the
Corporation immediately prior to such sale;
(v) the Corporation 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 Corporation of all or substantially all
of a subsidiary's assets, other than a sale or disposition
by the Corporation 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 Corporation 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
option holders, if any, employed by the subsidiary whose
assets are so sold or otherwise disposed of, and not all
participating option holders.
"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 board of directors of the Corporation.
"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 Corporation
or any of their subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation
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
Corporation in substantially the same proportions as their ownership
of stock of the Corporation.
(ii) In the discretion of the Committee, the option
price of an option may be payable through the delivery of shares of Common Stock
with a value equal to the option price or in a combination of cash and Common
Stock with a value equal to the option price.
(d) TERM OF OPTION.
No option shall be granted for a term of more than 10
years from the date such option is granted.
(e) TERMINATION OF EMPLOYMENT. Each option, to the extent that it
shall not have been exercised, shall terminate 90 days after the date
on which the participant ceases to serve as a director of the
Corporation. Nothing in this paragraph shall operate to
<PAGE>
extend the term of the option beyond the term stated in the agreement
granting the option or to accelerate the period during which portions
of the option may be exercised.
(f) OPTION NONASSIGNABLE AND NONTRANSFERABLE. Each option and all
rights thereunder, including the right to surrender the option, shall
be nonassignable and nontransferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. The designation of a
beneficiary by a participant in the Plan does not constitute a
transfer. Options shall be exercisable during the optionee's lifetime
only by the optionee or his or her guardian or legal representative.
Upon death, options shall be exercisable by the option holder's
personal representative. Notwithstanding the foregoing restrictions,
in the event that Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 is amended to permit further assignment or transfer of
options, such assignments or transfers shall be permissible under the
Plan.
5. SURRENDER OF OPTIONS FOR CASH:
Any option granted under the Plan, with the express statement in the
option grant recognizing this paragraph, may include a right to surrender to the
corporation up to 50% of the option to the extent then exercisable and receive
in exchange a cash payment equal to the excess of the fair market value of the
shares covered by the option or portion thereof surrendered over the aggregate
option price of such shares. For the purposes of this paragraph, fair market
value shall be determined by the Committee. Such right may be granted by the
Board of Directors upon recommendation of the Committee concurrently with the
option or thereafter by amendment upon such terms and conditions as the
Committee may recommend. Shares subject to an option or portion thereof that
have been so surrendered shall not thereafter be available for option grants
under the Plan. The Committee may from time to time recommend to the Board of
Directors the maximum amount of cash that may be paid upon surrender of options
in any year, may determine that, if the amount to be received by any optionee is
reduced in any year because of such limitation, all or a portion of the amount
not paid may be paid in any subsequent year or years, and may limit the right of
surrender to certain periods during the year.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
If the outstanding shares of the Common Stock are increased, decreased,
or changed into, or exchanged for a different number or kind of shares or
securities of the Corporation, without receipt of consideration by the
Corporation, through reorganization, merger, statutory share exchange,
recapitalization, reclassification, stock split-up, stock dividend, stock
consolidation, or otherwise, an appropriate and proportionate adjustment shall
be made in the number and kind of shares as to which options may be granted. A
corresponding adjustment in the price per share and number and kind of shares
allocated to unexercised options, or portions thereof, which shall have been
granted prior to any such change shall likewise be made. Any such adjustment,
however, in an outstanding option shall be made without change in the total
price applicable to the unexercised portion of the option but with a
corresponding adjustment in the price for each share subject to the option.
Adjustments under this section shall be made by the Board of Directors, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final and conclusive. No fractional shares of Common Stock shall be
issued under the Plan on account of any such adjustment.
<PAGE>
7. EFFECTIVE DATE OF THE PLAN:
The Plan shall become effective upon approval by the Board of
Directors, subject to approval by the stockholders of the Corporation.
8. TERMINATION DATE:
No options may be granted under the Plan after December 31, 2005.
Subject to Section 4(d), options granted before the termination date for the
Plan may extend beyond that date.
9. STOCK OPTION AGREEMENTS AND COMMON STOCK RECEIVED UPON EXERCISE:
(a) STOCK OPTION AGREEMENT. Options awarded to participants under the
Plan shall be evidenced by a stock option agreement (the "Agreement"). Each
Agreement shall designate the number of shares of Common Stock to be acquired by
the participant upon exercise of the stock option and the price per share at
which the option may be exercised, subject to any adjustment as provided herein.
Each Agreement shall be executed by the Corporation and by the participant,
shall be binding upon each of them, and may be executed in separate
counterparts, each of which shall be deemed to be an original and all of which
taken together constitute one and the same agreement.
(b) RESTRICTION ON EXERCISE: The stock options granted hereunder may
not be exercised if the issuance of the Common Stock upon such exercise or the
method of payment of consideration for such Common Stock would constitute a
violation of any applicable federal or state securities or other law or
regulation. As a condition to the exercise of any stock option granted
hereunder, the Corporation may require the participant to make any
representation and warranty to the Corporation as may be required or advisable
under any applicable law or regulation.
(c) RESTRICTED STOCK. If the shares of Common Stock that will be
received upon the exercise of stock options granted under the Plan have not been
registered under the Securities Act of 1933 or any applicable state securities
laws they will be restricted stock. The certificates representing such shares of
Common Stock will bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE (THE
"SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND HAVE BEEN ISSUED PURSUANT TO EXCEPTIONS UNDER
THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SHARES UNDER SUCH
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR UNDER APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO AND IN COMPLIANCE WITH RULE
144 OF SUCH ACT.
10. COMPLIANCE WITH LAWS AND REGULATIONS:
The grant, holding and vesting of all options under the Plan shall be
subject to any and all requirements and restrictions that may, in the opinion of
the Committee, be necessary or advisable for the purposes of complying with any
statute, rule or regulation of any governmental authority, or any agreement,
policy or rule of any stock exchange or other regulatory organization governing
any market on which the Common Stock is traded. The Corporation may withhold or
require payment for income and/or employment taxes as required by law.
<PAGE>
11. AMENDMENT OF THE PLAN:
The Plan may be amended by the Board of Directors; however, no
amendment to the Plan materially increasing the benefits accruing to
participants or materially increasing the number of shares of Common Stock that
may be issued upon the exercise or surrender of stock options under the Plan
(except adjustments pursuant to Section 6) or materially modifying any
requirements as to eligibility for participation in the Plan shall be effective
unless approved by the stockholders of the Corporation. No amendment shall
become effective without the prior approval of the stockholders of the
Corporation if stockholder approval would be required for continued compliance
with Rule 16b-3 of the Exchange Act.
12. MISCELLANEOUS:
(a) EXPENSES. The Corporation shall bear all expenses and costs in
connection with the administration of the Plan.
(b) DESIGNATION OF BENEFICIARIES. A participant may designate a
beneficiary to receive any distribution under the Plan upon his or her death.
(c) APPLICABLE LAW. The validity, interpretation and administration of
this Plan and any rules, regulations, determinations or decisions made
hereunder, and the rights of any and all persons having or claiming to have any
interest herein or hereunder, shall be determined exclusively in accordance with
the laws of the State of Maryland, without regard to the choice of laws
provisions thereof.
(d) HEADINGS. The headings herein are for reference purposes only and
shall not affect the meaning or interpretation of the Plan.
(e) NOTICES. All notices or other communications made or given pursuant
to this Plan shall be in writing and shall be sufficiently made or given if
hand-delivered or mailed by certified mail, addressed to any participant at the
address contained in the records of the Corporation or to the Corporation at its
principal office.
(f) FEDERAL SECURITIES LAW REQUIREMENT. Awards granted hereunder shall
be subject to all conditions required under Rule 16b-3 to qualify the award for
any exception from the provisions of Section 16(b) of the Securities Exchange
Act of 1934 available under that Rule.
<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.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) For the Three Months Ended March 31,
------------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Net income $ 4,180 $ 4,189
----------- ----------
----------- ----------
Basic EPS
Shares 8,714,829 8,639,374
EPS $ 0.48 $ 0.48
Dilutive shares
Stock options 62,072 106,620
EPS -- --
Diluted EPS
Shares including options 8,776,901 8,745,994
EPS $ 0.48 $ 0.48
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 43,104
<INT-BEARING-DEPOSITS> 20,815
<FED-FUNDS-SOLD> 22,713
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 313,332
<INVESTMENTS-CARRYING> 102,713
<INVESTMENTS-MARKET> 104,588
<LOANS> 886,714
<ALLOWANCE> 12,888
<TOTAL-ASSETS> 1,451,011
<DEPOSITS> 1,141,507
<SHORT-TERM> 60,235
<LIABILITIES-OTHER> 17,833
<LONG-TERM> 99,182
0
0
<COMMON> 43,706
<OTHER-SE> 88,548
<TOTAL-LIABILITIES-AND-EQUITY> 1,451,011
<INTEREST-LOAN> 18,649
<INTEREST-INVEST> 5,804
<INTEREST-OTHER> 336
<INTEREST-TOTAL> 24,789
<INTEREST-DEPOSIT> 9,726
<INTEREST-EXPENSE> 11,653
<INTEREST-INCOME-NET> 13,136
<LOAN-LOSSES> 525
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,049
<INCOME-PRETAX> 5,927
<INCOME-PRE-EXTRAORDINARY> 4,180
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,180
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 4.22
<LOANS-NON> 3,795
<LOANS-PAST> 3,345
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 24,061
<ALLOWANCE-OPEN> 12,817
<CHARGE-OFFS> 1,016
<RECOVERIES> 562
<ALLOWANCE-CLOSE> 12,888
<ALLOWANCE-DOMESTIC> 9,671
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,217
</TABLE>
