<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. ________________)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Easton Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
EASTON BANCORP, INC.
501 IDLEWILD AVENUE
EASTON, MARYLAND 21601
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies for use at the Annual Meeting of Stockholders (the "Meeting") of
Easton Bancorp, Inc. (the "Company") to be held on May 14, 1997, at 4:00 p.m.
and at any adjournment thereof, for the purposes set forth in this Proxy
Statement. THE ACCOMPANYING PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
THE COMPANY. The principal executive offices of the Company are located at 501
Idlewild Avenue, Easton, Maryland 21601. This Proxy Statement and the
accompanying Form of Proxy were first mailed to the stockholders on or about
April 9, 1997.
VOTING AND REVOCABILITY OF PROXY APPOINTMENTS
The Company has fixed March 20, 1997, as the record date (the "Record
Date") for determining the stockholders entitled to notice of and to vote at
the Meeting. The Company's only class of stock is its Common Stock, par value
$0.10 per share (the "Common Stock"). At the close of business on the Record
Date, there were outstanding and entitled to vote 559,328 shares of Common
Stock of the Company, with each share being entitled to one vote. There are no
cumulative voting rights. A majority of the outstanding shares of Common Stock
represented at the Meeting, in person or by proxy, will constitute a quorum.
All proxies will be voted in accordance with the instructions
contained in the proxies. If no choice is specified, proxies will be voted
"FOR" the election to the Board of Directors of all the nominees listed below
under "ELECTION OF DIRECTORS," "FOR" the ratification of the appointment of
Rowles & Company as independent auditors for the Company for the fiscal year
ending December 31, 1997, and, at the proxy holders' discretion, on any other
matter that may properly come before the Meeting. Any stockholder may revoke a
proxy given pursuant to this solicitation prior to the Meeting by delivering an
instrument revoking it or by delivering a duly executed proxy bearing a later
date to the Secretary of the Company. A stockholder may elect to attend the
Meeting and vote in person even if he or she has a proxy outstanding.
Management of the Company is not aware of any other matter to be
presented for action at the Meeting other than those mentioned in the Notice of
Annual Meeting of Stockholders and referred to in this Proxy Statement. If any
other matters come before the Meeting, it is the intention of the persons named
in the enclosed Proxy to vote on such matters in accordance with their
judgment.
SOLICITATION
The costs of preparing, assembling and mailing the proxy materials and
of reimbursing brokers, nominees, and fiduciaries for the out-of-pocket and
clerical expenses of transmitting copies of the proxy materials to the
beneficial owners of shares held of record will be borne by the Company.
Certain officers and regular employees of the Company or its wholly-owned
subsidiary, without additional compensation, may use their personal efforts, by
telephone or otherwise, to obtain proxies in addition to this solicitation by
mail. The Company expects to reimburse brokers, banks, custodians and other
nominees for their reasonable out-of-pocket expenses in handling proxy
materials for beneficial owners of the Common Stock. The Company has also
retained the services of Corporate Investor Communication, Inc. to aid in the
solicitation of proxies, for which the Company will pay a fee not to exceed
$1,000 plus reimbursement of expenses.
<PAGE> 3
ELECTION OF DIRECTORS
Article Seven of the Company's Articles of Incorporation and Section
3.2 of the Company's Bylaws provide that the Board of Directors shall be
divided into three classes with each class to be as nearly equal in number as
possible. These provisions also provide that the three classes of directors
are to have staggered terms, so that the terms of only approximately one-third
of the Board members will expire at each annual meeting of stockholders. At the
organizational meeting of the Company in 1991, nine directors were elected and
were apportioned among Classes I, II and III. In August 1992, the size of the
Board was increased to eleven directors, with four in Class I, three in Class
II, and four in Class III. In June 1996, the size of the Board was increased
to twelve directors, with four in Class I, four in Class II, and four in Class
III.
In accordance with Section 3.8 of the Company's Bylaws, on June 12,
1996, the Board of Directors elected J. Parker Callahan, Jr. to fill the
vacancy resulting from the newly created directorship and to serve as the new
Class II director until the next annual meeting of stockholders. Accordingly,
in accordance with Section 3.8 of the Company's Bylaws, at the Meeting the
stockholders shall elect a director to serve in this newly created Class II
directorship until the Class II directors stand for election as a whole at the
1999 Annual Meeting of Stockholders. J. Parker Callahan, Jr. is nominated to
serve the remaining term of this newly created Class II directorship.
The current Class I directors are Sheila W. Bateman, W. David Hill,
D.D.S., Thomas P. McDavid, and Mahmood S. Shariff, M.D. The terms of the
Class I directors will expire at the 1998 Annual Meeting of Stockholders. The
current Class II directors are J. Parker Callahan, Jr., J. Fredrick Heaton,
D.M.D., William C. Hill, and Roger A. Orsini, M.D. The terms of the Class II
directors will expire at the 1999 Annual Meeting of Stockholders, except for J.
Parker Callahan, Jr. whose term will expire at the Meeting as discussed above.
J. Parker Callahan, Jr. will stand for election at the Meeting for a two-year
term which will expire at the 1999 Annual Meeting of Stockholders. The current
Class III directors are Jack H. Bishop, D.D.S., David F. Lesperance, Vinodrai
Mehta, M.D., and Jerry L. Wilcoxon, C.P.A. The terms of the Class III
directors will expire at the Meeting and these directors will stand for
election at the Meeting for a three-year term. The officers of the Company are
elected annually by the Board of Directors following the annual meeting of
stockholders and serve for terms of one year or until their successors are duly
elected and qualified.
It is the intention of the persons named as proxies in the
accompanying proxy to vote FOR the election of the nominees identified below to
serve for a three-year term, expiring at the 2000 Annual Meeting of
Stockholders, except for J. Parker Callahan, Jr. who shall serve for a two-year
term, expiring at the 1999 Annual Meeting of Stockholders. If any nominee is
unable or fails to accept nomination or election (which is not anticipated),
the persons named in the proxy as proxies, unless specifically instructed
otherwise in the proxy, will vote for the election in his or her stead of such
other person as the Company's existing Board of Directors may recommend.
The directors shall be elected by a plurality of the votes cast at the
Meeting. Abstentions and broker non- votes will not be considered to be either
affirmative or negative votes.
The table below sets forth certain information about the nominees,
including the nominee's age, position with the Company, and position with
Easton Bank & Trust Company (the "Bank"), the Company's wholly-owned banking
subsidiary. All of the nominees are currently serving as directors of the
Company and the Bank and are nominated as Class III directors of the Company,
except for J. Parker Callahan, Jr. who is nominated as a Class II director of
the Company. Each of the nominees has been a director of the Company since its
formation in 1991, except for Vinodrai Mehta, M.D. who was first elected as a
director of the Company in 1992 and J. Parker Callahan, Jr. who was first
elected as a director of the Company in June 1996.
<TABLE>
<CAPTION>
Name Age Position with the Company Position with the Bank
---- --- ------------------------- ----------------------
<S> <C> <C> <C>
Jack H. Bishop 52 Director Director
J. Parker Callahan, Jr. 64 Director Director
David F. Lesperance 43 Director Director
Vinodrai Mehta 55 Director Director
Jerry L. Wilcoxon 36 Director, Treasurer Director
</TABLE>
2
<PAGE> 4
JACK H. BISHOP, D.D.S., 52, serves as a Class III director of the
Company and a director of the Bank. Dr. Bishop has been practicing general
dentistry in Easton, Maryland, since 1972. He attended Albright College for
his dental prerequisites and was graduated from the University of Maryland
Baltimore College of Dental Surgery in 1969. He served as a Captain in the
U.S. Army Dental Corps before starting private practice. He is a member of the
American Dental Association, Maryland State Dental Association, and Eastern
Shore Dental Society. Dr. Bishop is an active participant in the Maryland
Foundation of Dentistry for the Handicapped, in which he donates his time and
facilities to elderly, poor or handicapped individuals for the betterment of
their health. He actively supports the American Heart Association and Talbot
County YMCA. Dr. Bishop is a member of the Oxford United Methodist Church
where he is Chairman of the Administrative Council. In the past, Dr. Bishop
has been a partner in an insurance and real estate company as well as a company
selling building supplies. He maintains several commercial and residential
real estate holdings.
J. PARKER CALLAHAN, 64, has served as a Class II director of the
Company since June 1996, and a director of the Bank since its formation. Mr.
Callahan is a farmer and a life-long resident of Talbot County and Easton,
Maryland. Since completing high school in 1952, Mr. Callahan has operated a
diversified farming operation. In recent years he has expanded his operation
and now is an owner and trainer of race horses. Mr. Callahan also was recently
involved in the development of a residential community.
DAVID F. LESPERANCE, 43, serves as a Class III director of the Company
and a director of the Bank. Mr. Lesperance is the owner and president of
David Lesperance, Inc., doing business as Lesperance Construction Company. The
company builds residential and commercial projects in Talbot, Queen Anne and
Dorchester counties. Prior to starting his own construction business, Mr.
Lesperance was employed by Willow Construction and Charles E. Brohawn
Construction Company. Mr. Lesperance has been in the construction field for 25
years.
VINODRAI MEHTA, M.D., 55, has served as a Class III director of the
Company and a director of the Bank since 1992. Dr. Mehta has been practicing
internal medicine at Dorchester General Hospital in Cambridge, Maryland since
1975. He attended University Tutorial College, London, England, and later
attended Medical College of Rhinische-Friedrich-Wilhelm University in Bonn,
Germany. He received his M.D. in 1968. After working for a year at St. Paul
Hospital in Addis Ababa, Ethiopia, he came to the United States. He completed
his training program for internal medicine at Greater Baltimore Medical Center
and Union Memorial Hospital, both in Baltimore, Maryland. Since 1975, he has
been a member of the Medical and Surgical Society of Maryland.
JERRY L. WILCOXON, C.P.A., 36, serves as a Class III director and
Treasurer of the Company and as a director of the Bank. Mr. Wilcoxon is a
certified public accountant and is currently a principal of Caulk Management
Company, Inc., where he has served as Chief Financial Officer since August
1989. Prior to that time, he spent five years as controller for Pioneer
Transportation Systems in Hurlock, Maryland, after a two-year career in public
accounting. Mr. Wilcoxon was born in Baltimore, Maryland, and is a graduate of
Shepherd College with a degree in Accounting. He is a current member of the
Maryland Association of CPA's and a former member and officer of the Delmarva
Chapter of the National Association of Accountants. Locally he has served on
the Board of the Talbot County YMCA, is currently the Treasurer of the Board of
Governors of the Talbot Country Club and actively participates in the Easton
Little League. Residing in Easton since 1983, he is a member of the St. Peter
and Paul Roman Catholic Church and is a member of the Talbot Country Club.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FIVE NOMINEES NAMED ABOVE.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the name of each director and executive
officer of the Company, in addition to the directors discussed above who are up
for reelection at the Meeting, his or her age, positions held, and a brief
description of his or her principal occupation and business experience for at
least the preceding five years. Except as otherwise indicated below, each of
the directors has been a director of the Company since its formation in 1991.
None of the directors are related, except that William C. Hill is the father of
W. David Hill.
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<PAGE> 5
SHEILA W. BATEMAN, 50, serves as a Class I director and Secretary of
the Company and as a director and Secretary of the Bank. Since 1989, Mrs.
Bateman has been Chief Administrative Officer of Eastern Shore Retirement
Associates, which owns and operates health care facilities. She was graduated
from Goldey Beacom Junior College in 1967 with an AA degree. She is a former
owner of a word processing and document preparation service. Mrs. Bateman is a
partner in HTB Limited Partnership, a real estate partnership, and is a
director of William Hill Manor, Inc. She is also a corporate secretary in
seven other private real estate-related businesses. Mrs. Bateman is a member
of Professional Secretaries International and Certified Professional Secretary
Associates. Her charitable activities include the American Heart Association
and serving on the Board of Talbot Philanthropies, Inc. and Mid Atlantic
Maritime Festival, Inc.
J. FREDRICK HEATON, D.M.D., 49, serves as a Class II director of the
Company and a director of the Bank. Dr. Heaton is a dentist specializing in
endodontics practicing in Easton, Maryland. Dr. Heaton is a 1970 graduate of
the U.S. Naval Academy with a B.S. in Naval Science with a minor in Mechanical
Engineering. He served on active duty for five years in nuclear submarines.
He received his D.M.D. degree from the Medical University of South Carolina in
1979. In 1981 he completed advanced specialty training at the University of
Maryland Dental School in Baltimore and was awarded a Post-Graduate Certificate
in Endodontics. Dr. Heaton has practiced in Easton since 1981. He is active
in state and local dental societies and is past President of the Maryland State
Association of Endodontists and the Eastern Shore Dental Society. Dr. Heaton
has served on the Board of Trustees for the Maryland State Dental Association
and is past Chairman of the Maryland Dental Association's Council on Dental
Education. He is currently Chairman of the Maryland State Dental Association's
Political Action Committee. On a local level, Dr. Heaton is active in the
Easton Business Management Authority, YMCA, Elks Lodge 1622, Habitat for
Humanity, and Tred Avon Yacht Club.
WILLIAM C. HILL, 72, serves as a Class II director of the Company and
a director of the Bank. Since 1957, Mr. Hill has been President of Hill's
Drug Store, Inc., which owns and operates three drug stores in Easton,
Maryland. He is also vice president of William Hill Manor, Inc., a local
retirement community, along with being a partner in Idlewild Associates Limited
Partnership and Eastern Shore Retirement Associates. He served in the United
States Marine Corps and was graduated from the Philadelphia College of Pharmacy
and Science. Mr. Hill has served on the Advisory Board of Maryland National
Bank and First Annapolis Savings Bank. He has served as past president of the
Eastern Shore Pharmaceutical Association, the Maryland State Pharmaceutical
Association, and he received the 1992 Talbot County Businessman of the Year
Award. He is an active member of many other national and local organizations.
Mr. Hill is a native of Talbot County.
W. DAVID HILL, D.D.S., 55, serves as a Class I director and Chief
Executive Officer of the Company and a director of the Bank. Dr. Hill has
served as Chairman of the Board of the Company and Chairman of the Board of the
Bank from the inception of the Company and the Bank, except for the period from
December 1994 until April 1995 when he took a temporary leave of absence from
such positions. Dr. Hill is the majority stockholder and president of William
Hill Manor, Inc., a continuing care retirement community in Easton, Maryland,
and a general partner in William Hill Health Care Center of Cambridge,
Maryland, both serving the needs of the elderly population through the
provision of skilled nursing, convalescent and rehabilitative care. Dr. Hill
is the owner and president of the Manor Discovery Center, a day care center;
and a general partner in Idlewild Associates Limited Partnership, a limited
partnership that owns land and income-producing properties. He is the
president of Caulk Management Company, which manages nursing homes, and a
director of Hill's Drug Store, Inc. Dr. Hill donated land to the local Red
Cross unit, provided accommodations for the Talbot County Paramedics and is a
member of the Board of Directors of the Talbot County Paramedic Foundation,
Inc. He has served as a fund raiser for the Talbot County Branch of the
American Heart Association, Memorial Hospital at Easton, Talbot County
Historical Society and was voted the Small Business Person of the Year in 1989.
He is a life-long resident of Talbot County.
THOMAS P. MCDAVID, 55, serves as a Class I director and President of
the Company and as a director, President and Chief Executive Officer of the
Bank. He spent 25 years with Signet Bank/Maryland (formerly Union Trust
Company), serving in both the retail and commercial sectors of the bank. His
most recent position at that bank, which he assumed in 1985, was Senior Vice
President and Manager of the division responsible for developing and servicing
relationships with lower-end, middle-market companies statewide. In addition,
Mr. McDavid was a member of the bank's Senior Loan, Community Reinvestment Act
and Corporate Contribution Committees. He was
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<PAGE> 6
graduated with a B.S. in Business Administration from Washington & Lee
University of 1963 and subsequently completed advanced programs at the Stonier
Graduate School of Banking in 1972 and the Harvard Graduate School of Business
Administration in 1978 (Program for Managerial Development). He served as a
lieutenant in the U.S. Army Artillery for two years and subsequently served as
a Captain in a Maryland National Guard Artillery Battalion. In addition to
having served on the board of several different chambers of commerce, past
professional and community activities include service as president of the 12:30
Club, vice president and director of the Merchant's Club, on the Board of
Trustees of Maryvale Preparatory School for Girls, a member of the Baltimore
Advisory Council of the Small Business Administration, and a member of the
Harvard/Radcliffe Club of Maryland, Robert Morris Associates, and the Propeller
Club. He presently serves as Vice President of the Easton Business Management
Authority, is a member of the Board of Directors of Isaac Walton League, serves
as a member of the Board of Governing Trustees of the Council on Economic
Education in Maryland, is Chairman of the Government & Regulatory Committee for
the Talbot Chamber of Commerce, and is a member of Rotary of Easton. He is a
member of the Talbot Country Club and the Miles River Yacht Club.
ROGER A. ORSINI, M.D., 49, serves as a Class II director of the
Company and a director of the Bank. Dr. Orsini is a plastic and reconstructive
surgeon and has been in solo practice in Easton, Maryland, since 1985. He is
the owner of Shore Aesthetic and Reconstructive Associates, a general plastic
surgical practice which includes aesthetic surgery, hand, head and neck
surgery, maxillofacial, microvascular and pediatric surgery. He received his
bachelor of science degree from Georgetown University and pursued graduate
studies in physiology, including marine biology at the University of
Connecticut. Dr. Orsini received his medical degree from the Medical College
of Pennsylvania, then served his internship at Presbyterian-University of
Pennsylvania and went on to complete his surgical residency at Thomas Jefferson
Hospital, both in Philadelphia. He then completed a fellowship in plastic and
reconstructive surgery at the Hospital of the University of Pennsylvania. Dr.
Orsini has been a member of the medical staff at The Memorial Hospital at
Easton since 1985, where he has served as Chairman of the Tissue Review
Committee and served on Rehabilitation, Cancer and Utilization Committees. He
also completed a year-long physicians' management course sponsored by Memorial
Hospital at Easton. Dr. Orsini is a member of the American Society of Plastic
and Reconstructive Surgeons, Talbot County Medical Society, the American
Medical Society and the American Cleft Palate-Craniofacial Associations. He is
licensed to practice medicine in the states of Maryland and Pennsylvania. He
is the chairman and coordinator of the Eastern Shore Cleft Lip and Palate Team
dedicated to provide care for children with cleft and craniofacial deformities
no matter what their financial status. He is a Board Certified member of the
American Society of Plastic and Reconstructive Surgeons and a fellow of the
American College of Surgeons. He is a member of the Coalition of Ambulatory
Care for the State of Maryland and was the former head of the Governor's Task
Force to Care for Eastern European Refugees. He is also a member of the Talbot
Country Club.
MAHMOOD S. SHARIFF, M.D., 60, has served as a Class I director of the
Company and a director of the Bank since 1992. Dr. Shariff is an internist and
a cardiologist. He has been in solo practice in Cambridge, Maryland since
1973. He received his training in New York City. He is Board Certified in
Internal Medicine and Cardiology. He served as Assistant Professor of Clinical
Medicine at the Mount Sinai School of Medicine in New York City. Dr. Shariff
is a Fellow of the American College of Physicians and the American College of
Cardiology. He is a member of the medical staff at Dorchester General Hospital
where he has been the Chief of Medicine for several years. He has also served
in various other capacities on the executive committee of the medical staff and
is presently serving as the Chief of Medicine. He was elected and served on
the board of directors of Dorchester General Hospital for a six-year period.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth for the fiscal years ended December 31,
1994, 1995 and 1996, the cash compensation paid or accrued by the Company and
the Bank, as well as certain other compensation paid or accrued for those
years, for services in all capacities to the chief executive officers of the
Company and the Bank. No
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<PAGE> 7
executive officer of the Company or the Bank earned total annual compensation,
including salary and bonus, for the fiscal year ended December 31, 1996, in
excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------- -----------
Name and Securities
Principal Underlying
Position Year Salary ($)(1) Bonus ($) Options (#)
---------- ---- ------------- --------- -----------
<S> <C> <C> <C> <C>
W. David Hill - 1996 $ -- $ -- 0
Chief Executive Officer
of the Company; 1995 $ -- $ -- 0
Chairman of the Board
of the Company and the 1994 $ -- $ -- 0
Bank
Thomas P. McDavid - 1996 $88,046 $10,720 5,593
President of the
Company; President 1995 $87,000 $10,500 0
and Chief Executive
Officer of the Bank 1994 $87,000 $2,500 0
</TABLE>
- -----------------------------------------
(1) No directors' fees were paid to Dr. Hill or Mr. McDavid during
the fiscal years ended December 31, 1994, 1995 or 1996.
STOCK OPTIONS
The following table sets forth the options granted during the fiscal
year ended December 31, 1996, to Mr. McDavid. There were no other option
grants by the Company during the fiscal year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------------------
Number of % of Total Market
Securities Options Price at
Underlying Granted to Exercise or Date of
Options Employees in Base Price Grant Expiration
Name Granted(#)(1) Fiscal Year ($/share) ($)(2) Date
-------------------------- -------------- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Thomas P. McDavid 5,593 100% $10.00 $12.50 10/9/03
</TABLE>
- ----------------------------------------
(1) These options were exercisable as of the grant date.
(2) There is no active trading market for the Company's Common
Stock; therefore, the market price of the Common Stock as of October 9, 1996,
the date of grant of the options, is not readily discernible. Based on the
sale of the Common Stock nearest October 9, 1996, of which the Company is
aware, which sale was at $12.50 per share on December 3, 1996, the Company
believes that the market price of the Common Stock was approximately $12.50 per
share on October 9, 1996.
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<PAGE> 8
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to Mr. McDavid
concerning the exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End(1)
(#) ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
------------ ------------------ ------------------ --------------- ---------------------
<S> <C> <C> <C> <C>
Thomas P. McDavid --- --- 5,593/ -0- $11,186 / -0-
</TABLE>
- ----------------------------------------
(1) There is no active trading market for the Company's Common
Stock; therefore, the fair market value of the Common Stock as of December 31,
1996, is not readily discernible. Based on the sale of the Common Stock
nearest December 31, 1996, of which the Company is aware, which sale was at
$12.00 per share on December 31, 1996, the Company believes that the fair
market value of the Common Stock was approximately $12.00 per share on December
31, 1996. The exercise price for the options is $10.00 per share and thus
based on a fair market value of $12.00 per share, all of the options are
in-the-money as of December 31, 1996.
COMPENSATION OF DIRECTORS
Directors of the Company and the Bank receive no compensation for
their services as directors, except for outside directors of the Bank who were
not organizers of the Company (Charles T. Capute, Walter E. Chase, Sr., and
Thomas E. Hill), who receive a fee of $100 per meeting for each meeting of the
Board of Directors of the Bank they attend. No fees are paid for attendance at
committee meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Mr. Thomas P. McDavid, who serves as a Class I director and President
of the Company and as a director, President and Chief Executive Officer of the
Bank, entered into an Employment Agreement (the "Agreement") with the Company
on July 22, 1991, as amended on September 30, 1992. The Agreement was assigned
to the Bank upon its organization. Pursuant to the terms of the Agreement, Mr.
McDavid's initial term of employment commenced on July 22, 1991, and will
continue until the end of the Bank's fifth full fiscal year, which is December
31, 1998.
The Agreement provides for a base salary which may be increased
annually at the sole discretion of the Board of Directors. The Agreement also
provides for bonuses and stock options to be paid to Mr. McDavid based upon the
achievement of certain goals by the Bank. In this regard, in 1996 Mr. McDavid
was granted stock options to acquire 5,593 shares of the Company's Common Stock
at $10.00 per share related to the Bank's achievement of certain goals for the
fiscal years ended December 31, 1994 and 1995. The Agreement also provides for
hospitalization and major medical insurance coverage for Mr. McDavid and his
immediate family, disability insurance, an automobile, and reimbursement for
expenses incurred by Mr. McDavid on behalf of the Bank. In addition, the
Agreement provides that following termination of his employment with the Bank,
Mr. McDavid may not engage in any banking activities in which he engaged at the
time of his employment within Talbot County for a period of two years.
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<PAGE> 9
STOCK OPTION PLAN
The Company has adopted a Stock Option Plan, covering 35,000 shares of
the Common Stock, which is intended to qualify for favorable tax treatment
under Section 422 of the Internal Revenue Code. The Stock Option Plan will be
administered by the Board of Directors of the Company and will provide for the
granting of options to purchase shares of the Common Stock to officers and
other key employees of the Company and the Bank. The purchase price under all
such options intended to qualify as incentive options will not be less than the
fair market value of the shares of Common Stock on the date of grant. Options
will be exercisable upon such terms as may be determined by the body
administering the Stock Option Plan, but in any event, options intended to
qualify as incentive options will be exercisable no later than ten years after
the date of grant. As of the Record Date, no options have been granted under
this Stock Option Plan.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934 requires (i) the
Company's directors and executive officers and (ii) persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission (the "SEC"), within certain specified time
periods, reports of ownership and changes in ownership. Such officers,
directors and stockholders are required by SEC regulations to furnish the
Company with copies of all such reports that they file.
To the Company's knowledge, based solely upon a review of copies of
such reports furnished to the Company and representations that no other reports
were required with respect to the year ended December 31, 1996, all persons
subject to the reporting requirements of Section 16(a) filed the required
reports on a timely basis with respect to 1996, except for J. Parker Callahan,
Jr., Thomas P. McDavid, and Jerry L. Wilcoxon, all of whom filed one report
late relating to one transaction.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of
outstanding shares of the Company's Common Stock beneficially owned at the
Record Date by (a) each executive officer of the Company, (b) each director of
the Company, (c) all executive officers and directors of the Company as a
group, and (d) each person or entity known to the Company to own more than five
percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(2)
------------------------ ------------------ -------
<S> <C> <C>
Sheila W. Bateman(3) 5,469(5) *
Jack H. Bishop, D.D.S.(3) 39,586(6) 6.87%
J. Parker Callahan, Jr.(3) 19,189(7) 3.39%
J. Fredrick Heaton, D.M.D.(3) 13,186(8) 2.33%
William C. Hill(3) 35,254(9) 6.11%
W. David Hill, D.D.S.(3) 60,019(10) 10.27%
David F. Lesperance(3) 25,784(11) 4.52%
Thomas P. McDavid(3) 6,133(12) 1.09%
Vinodrai Mehta, M.D.(3) 42,973(13) 7.44%
Roger A. Orsini, M.D.(3) 25,882(14) 4.54%
Mahmood S. Shariff, M.D.(3) 58,973(15) 10.12%
Jerry L. Wilcoxon, C.P.A.(3) 1,969(16) *
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(2)
------------------------ --------------------- -----------
<S> <C> <C>
Idlewild Associates(4) 68,758(17) 11.69%
Executive officers and directors of
the Company as a group (12 persons) 334,417(18) 47.56%
</TABLE>
- ------------------------
(1) Information relating to beneficial ownership of the Common Stock is
based upon "beneficial ownership" concepts set forth in rules of the
SEC under Section 13(d) of the Securities Exchange Act of 1934. Under
these rules a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes
the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose or to direct
the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to
acquire beneficial ownership within 60 days. Under the rules, more
than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he has no beneficial interest. For instance,
beneficial ownership includes spouses, minor children and other
relatives residing in the same household, and trusts, partnerships,
corporations or deferred compensation plans which are affiliated with
the principal.
(2) Percentage is determined on the basis of 559,328 shares of Common
Stock issued and outstanding plus shares subject to options or
warrants held by the named individual for whom the percentage is
calculated which are exercisable within the next 60 days as if
outstanding, but treating shares subject to warrants or options held
by others as not outstanding. An asterisk (*) indicates less than 1%
ownership.
(3) Address is 501 Idlewild Avenue, P. O. Box 629, Easton, Maryland 21601.
(4) Address is 501 Dutchman's Lane, Easton, Maryland 21601.
(5) Includes 1,869 shares Mrs. Bateman has the right to acquire within 60
days pursuant to the exercise of warrants. Also includes 1,000 shares
owned by Mrs. Bateman's husband in which she shares voting and
investing power.
(6) Includes 16,557 shares Dr. Bishop has the right to acquire directly or
indirectly within 60 days pursuant to the exercise of warrants. Also
includes 8,000 shares for which the beneficial ownership is
attributable to him as a result of his 20% interest in Idlewild
Associates Limited Partnership.
(7) Includes 7,189 shares Mr. Callahan has the right to acquire within 60
days pursuant to the exercise of warrants.
(8) Includes 5,515 shares Dr. Heaton has the right to acquire within 60
days pursuant to the exercise of warrants. Also includes 230 shares
owned by Dr. Heaton's wife in which he shares voting and investing
power.
(9) Includes 17,254 shares Mr. Hill has the right to acquire directly or
indirectly within 60 days pursuant to the exercise of warrants. Also
includes 8,000 shares for which the beneficial ownership is
attributable to him as a result of his 20% interest in Idlewild
Associates Limited Partnership.
(10) Includes 25,019 shares Dr. Hill has the right to acquire directly or
indirectly within 60 days pursuant to the exercise of warrants. Also
includes 10,000 shares for which the beneficial ownership is
attributable to him as a result of his 25% interest in Idlewild
Associates Limited Partnership and 100 shares owned by Dr. Hill's wife
in which he shares voting and investing power.
(11) Includes 10,784 shares Mr. Lesperance has the right to acquire within
60 days pursuant to the exercise of warrants. Also includes 1,449
shares owned by Mr. Lesperance's wife in which he shares voting and
investing power.
(12) Includes 5,593 shares Mr. McDavid has the right to acquire within 60
days pursuant to the exercise of options.
(13) Includes 17,973 shares Dr. Mehta has the right to acquire within 60
days pursuant to the exercise of warrants.
(14) Includes 10,825 shares Dr. Orsini has the right to acquire
within 60 days pursuant to the exercise of warrants.
(15) Includes 23,413 shares Dr. Shariff has the right to acquire within 60
days pursuant to the exercise of warrants. Also includes 3,283 shares
owned by Dr. Shariff's wife in which he shares voting and investing
power and 10,000 shares held for the benefit of their children in
which he shares voting and investing power with his wife.
9
<PAGE> 11
(16) Includes 1,869 shares Mr. Wilcoxon has the right to acquire within 60
days pursuant to the exercise of warrants.
(17) Includes 28,758 shares Idlewild Associates Limited Partnership has the
right to acquire within 60 days pursuant to the exercise of warrants.
Partners in Idlewild Associates Limited Partnership include Dr.
Bishop, Mr. Hill, and Dr. Hill, and a proportionate interest of these
28,758 shares are also included as beneficially owned by such persons.
(18) Includes 143,860 total shares the officers and directors have the
right to acquire directly or indirectly within 60 days pursuant to the
exercise of warrants and options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank leases approximately 600 square feet of office space in the
main office to William Hill Manor, Inc. ("WHM") at a rate of $14.00 per square
foot for five years. Rent received totalled $7,938 for each of the years ended
December 31, 1994, 1995 and 1996. Dr. W. David Hill, a director of the Bank
and the Company, is the Chief Executive Officer, founder, and principal
stockholder of WHM. Three other directors of the Company and/or the Bank,
Sheila W. Bateman, William C. Hill and Donna S. Taylor, are officers and
directors of WHM. Sheila W. Bateman is a director and the Secretary of the
Company and the Bank. William C. Hill is a director of the Company and the
Bank and Donna S. Taylor is a director of the Bank. The Bank currently leases
approximately 72 square feet of space from WHM in which it operates a branch
office at WHM's retirement facility. Activities at this branch are limited to
receiving checks and accepting deposits. The lease has a term of two years
with rent of $3,600 per year. The terms of the lease were based upon terms
upon which this space was previously leased to another bank. Management
believes that the terms of the above-described transactions are at least as
favorable to the Company and the Bank as could have been obtained in negotiated
transactions with independent third parties.
The Company and the Bank have banking and other transactions in the
ordinary course of business with the directors and officers of the Company and
the Bank and their affiliates, including members of their families or
corporations, partnerships or other organizations in which such officers or
directors have a controlling interest, on substantially the same terms
(including price or interest rates, and collateral) as those prevailing at the
time for comparable transactions with unrelated parties. Such transactions do
not involve more than the normal risk of collectibility or present other
unfavorable features to the Company and the Bank. Loans to individual
directors and officers must comply with the Bank's lending policies and
statutory lending limits, and directors with a personal interest in any loan
application are excluded from the consideration of such loan application.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Because all of the Company's operations are conducted through the
Bank, the Bank, but not the Company, has an Audit and Compliance Committee and
a Compensation Committee. In 1996 the Audit and Compliance Committee was
composed of Charles T. Capute, Stephen W. Chitty, Pamela H. Lappen (Chairman),
Vinodrai Mehta, M.D., and Jerry L. Wilcoxon, C.P.A. The Audit and Compliance
Committee met two times in 1996. This committee has the responsibility of
reviewing the financial statements, evaluating internal accounting controls,
reviewing reports of regulatory authorities, and determining that all audits
and examinations required by law are performed. The committee recommends to
the Board the appointment of the independent auditors for the next fiscal year,
reviews and approves the auditors' audit plans, and reviews with the
independent auditors the results of the audit and management's response
thereto. The committee is responsible for overseeing the entire audit function
and appraising the effectiveness of internal and external audit efforts. The
committee reports its findings to the Board of Directors.
The Compensation Committee is responsible for establishing the
compensation plans for the Bank. Its duties include the development with
management of all benefit plans for employees of the Bank, the formulation of
bonus plans, incentive compensation packages, and medical and other benefit
plans. This committee met four times in 1996. In 1996 the Compensation
Committee was composed of Jack H. Bishop, D.D.S., J. Parker Callahan, Jr.,
Walter E. Chase, Sr., J. Fredrick Heaton, D.M.D. (Chairman), W. David Hill,
D.D.S., Thomas E. Hill, L. Linda Kildea, Marian H. Shannahan, Donna S. Taylor,
and Jerry L. Wilcoxon, C.P.A.
10
<PAGE> 12
The Company does not have a nominating committee. The entire Board of
Directors is responsible for nominating individuals for election to the
Company's Board of Directors and welcomes recommendations made by stockholders
of the Company. Any recommendations for the 1998 Annual Meeting of
Stockholders should be made in writing addressed to the Company's Board of
Directors, P. O. Box 629, Easton, Maryland 21601, and should be made prior to
December 9, 1997.
The Board of Directors of the Company held fourteen meetings, and the
Board of Directors of the Bank held thirteen meetings, during the year ended
December 31, 1996. All of the directors of the Company attended at least 75%
of the aggregate of such board meetings and the meetings of each committee on
which they served, except for William C. Hill, Vinodrai Mehta, M.D., Roger A.
Orsini, M.D. and Mahmood S. Shariff, M.D.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors
has reappointed Rowles & Company as independent auditors to audit the financial
statements of the Company for the 1997 fiscal year. Rowles & Company served as
the independent auditors for the Company for the fiscal years ended December
31, 1992, 1993, 1994, 1995 and 1996.
A representative of Rowles & Company is expected to be present at the
Meeting and will have an opportunity to make a statement, if the representative
so desires, and will be available to respond to any appropriate questions
stockholders may have.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
ROWLES & COMPANY AS INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING OF STOCKHOLDERS
Stockholders' proposals intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company no later than December
9, 1997, to be presented at the 1998 Annual Meeting of Stockholders or
considered for inclusion in the Company's Proxy Statement and form of Proxy for
that meeting.
ANNUAL REPORTS
COPIES OF THE COMPANY'S 1996 ANNUAL REPORT ARE BEING MAILED TO ALL
STOCKHOLDERS TOGETHER WITH THIS PROXY STATEMENT. THE COMPANY WILL PROVIDE,
WITHOUT CHARGE, TO ANY STOCKHOLDER OF RECORD AS OF MARCH 20, 1997, WHO SO
REQUESTS IN WRITING A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. ANY SUCH REQUESTS SHOULD BE DIRECTED TO THOMAS P. MCDAVID, EASTON
BANK & TRUST COMPANY, 501 IDLEWILD AVENUE, P.O. BOX 629, EASTON, MARYLAND
21601.
11
<PAGE> 13
OTHER MATTERS
The Board of Directors knows of no business other than that set forth
above to be transacted at the Meeting, but if other matters requiring a vote of
the stockholders arise, the persons designated as proxies will vote the shares
of Common Stock represented by the proxy cards in accordance with their
judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ W. David Hill
-----------------------------------
W. David Hill, D.D.S.
Chief Executive Officer
Easton, Maryland
April 9, 1997
12
<PAGE> 14
APPENDIX A
EASTON BANCORP, INC.
POST OFFICE BOX 629
EASTON, MARYLAND 21601
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 14, 1997
Dear Stockholder:
The Annual Meeting of Stockholders of Easton Bancorp, Inc. will be held at 4:00
p.m. on Wednesday, May 14, 1997 at Easton Bank & Trust Company, 501 Idlewild
Avenue, Easton, Maryland, for the following purposes:
1. To elect five members to the Board of Directors, four to
serve three-year terms and one to serve a two-year term;
2. To ratify the appointment of Rowles & Company as
independent auditors for the Company for the fiscal year
ending December 31, 1997; and
3. To consider such other matters as properly may come before
the Meeting or any adjournment of the Meeting.
Only holders of record of Common Stock of Easton Bancorp, Inc. at the close of
business on March 20, 1997 will be entitled to notice of and to vote at the
Meeting or any adjournment thereof.
TO BE SURE THAT YOUR VOTE IS COUNTED, WE URGE YOU TO COMPLETE AND SIGN THE
PROXY CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT IN THE POSTAGE PAID
ENVELOPE ENCLOSED IN THIS PACKAGE. The giving of such proxy does not effect
your right to vote in person if you attend the Meeting. The prompt return of
your signed proxy will aid the Company in reducing the expense of additional
proxy solicitation.
If you plan to attend the Annual Meeting in person, detach and bring this
letter to the Meeting as an admission ticket for you and your guests.
BY ORDER OF THE BOARD OF DIRECTORS
April 9, 1997
/s/ W. David Hill
W. David Hill, DDS
Chief Executive Officer
DETACH PROXY CARD HERE
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. To elect five members FOR all nominees WITHHOLD AUTHORITY to vote
to the Board of Directors. listed below [ ] for all nominees listed below [ ] *EXCEPTIONS [ ]
Nominees: Jack H. Bishop, David F. Lesperance, Vinodrai Mehta and Jerry L. Wilcoxon to serve three-year terms, and J.
Parker Callahan, Jr. to serve a two-year term.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE
THROUGH THAT NOMINEE'S NAME.)
2. To ratify the appointment of Rowles & Company 3. In their discretion, to vote upon such other
as independent auditors for the Company for the matters as properly may come before the
fiscal year ending December 31, 1997. Meeting or any adjournment of the Meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Address Change and/or
Comments Mark Here [ ]
Please date and sign exactly as your name
appears to the left. All joint owners should
sign. When signing as a fiduciary,
representative or corporate officer, give
full title as such. If you receive more than
one proxy card, please sign and
return all cards received.
Dated:
-----------------------------------------
------------------------------------------------
(Signature)
------------------------------------------------
(Signature if held jointly)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
<PAGE> 15
EASTON BANCORP, INC. PROXY CARD VOTING INSTRUCTIONS
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF EASTON BANCORP, INC. FOR THE ANNUAL MEETING ON MAY 14, 1997.
The undersigned appoints W. David Hill and Sheila W. Bateman, and each of them,
with full power of substitution in each, as the proxies of the undersigned to
represent the undersigned and vote all shares of Easton Bancorp, Inc. Common
Stock which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on May 14, 1997, and at any adjournment or postponement
thereof, as indicated on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL LISTED NOMINEES UNDER PROPOSAL 1, FOR THE
RATIFICATION OF THE APPOINTMENT OF ROWLES & COMPANY UNDER PROPOSAL 2 AND, AT
THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING.
Easton Bancorp, Inc.
501 Idlewild Avenue EASTON BANCORP, INC.
PO Box 629 P.O. BOX 11361
Easton, MD 21601 NEW YORK, N.Y. 10203-0361
<PAGE> 16
APPENDIX B
ANNUAL REPORT TO STOCKHOLDERS
DECEMBER 31, 1996
EASTON BANCORP, INC.
<PAGE> 17
EASTON BANCORP, INC.
March 1997
Dear Stockholders:
I am pleased and proud to present Easton Bancorp, Inc.'s 1996 Annual Report to
Stockholders. Total assets at the end of 1996 stood at $37,294,940 and our
deposits have grown from $28,237,995 to $32,758,559.
As Easton's first community bank in over 100 years, we are committed to
providing quality service, growth, and profitability.
Thanks to the efforts of our officers and staff, Easton Bank & Trust is on
course to a very exciting future. Our customer base is continuing to grow and
we showed a profit for each month of 1996.
In closing, let me thank all of the stockholders who have supported Easton
Bancorp, Inc. You are an essential component in the growth of the Bank; and by
sharing with friends your satisfaction with our services, you have contributed
greatly to our success.
Sincerely,
/s/ W. David Hill
W. David Hill, DDS
Chairman of the Board
501 Idlewild Ave. P.O. Box 629 Easton MD 21601
410-819-0300 FAX 410-819-8091
2
<PAGE> 18
BUSINESS OF THE COMPANY
Easton Bancorp, Inc. (the "Company") was incorporated as a Maryland
corporation on July 19, 1991, to become a one-bank holding company by acquiring
all of the capital stock of Easton Bank & Trust Company (the "Bank") upon its
formation. The Bank commenced business on July 1, 1993, and the only activity
of the Company since then has been the ownership and operation of the Bank.
The Bank was organized as a nonmember state bank under the laws of the State of
Maryland. The Bank is engaged in a general commercial banking business,
emphasizing in its marketing the Bank's local management and ownership, from
its main office location in its primary service area, Talbot County, Maryland.
The Bank offers a full range of deposit services that are typically available
in most banks and savings and loan associations, including checking accounts,
NOW accounts, savings accounts and other time deposits of various types,
ranging from daily money market accounts to longer-term certificates of
deposit. In addition, the Bank offers certain retirement account services,
such as Individual Retirement Accounts. The Bank also offers a full range of
short- to medium-term commercial and personal loans. The Bank also originates
and holds or sells into the secondary market fixed and variable rate mortgage
loans and real estate construction and acquisition loans. Other bank services
include cash management services, safe deposit boxes, travelers checks, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
financial statements and related notes and other statistical information
included elsewhere herein.
OVERVIEW
Easton Bancorp, Inc. is a one-bank holding company which was
incorporated on July 19, 1991. Its wholly-owned subsidiary, Easton Bank and
Trust Company, is a Maryland-chartered bank which began operations July 1,
1993.
Consolidated income of the Company is derived primarily from
operations of the Bank. Fiscal year 1996 represented the Bank's third full
year of operations. Losses were projected for the first three years of
operation for the Bank as it developed its deposit and loan base. The Bank has
shown net income since the fourth quarter of 1995. As a result, the Company is
reporting net income of $191,114 for 1996, compared to a net loss of $164,608
for 1995.
RESULTS OF OPERATIONS
The Company reported its first full year of profitability with net
income of $191,114, or $.32 per share, for the year ended December 31, 1996,
which was an increase of $355,722 over the net loss of $164,608, or ($.29) per
share, for the year ended December 31, 1995. The primary reason for the change
in profitability is the increase in net interest income while controlling
overhead so that operating expenses have remained relatively stable.
Net interest income increased $246,888, or 23.59%, to $1,293,645 in
1996 from $1,046,757 in 1995. This increase in net interest income was the
result of a $585,653 increase in interest income and a $338,765 increase in
interest expense associated with the Bank's continued development of its
deposit and loan base. Net interest spread decreased to 3.77% in 1996 from
3.92% in 1995, and the net interest margin decreased to 3.94% in 1996 from
4.12% in 1995.
The provision for loan losses was $18,699 in 1996, a decrease of
$105,601 from the $124,300 provision in 1995. The reduced provision is the
result of net recoveries for 1996 of $53,554, compared to net charge-offs for
1995 of $452,300.
3
<PAGE> 19
The Company had loans over ninety days delinquent on which the accrual
of interest had been discontinued totaling $13,058 and $184,704 as of December
31, 1996 and 1995, respectively. The Company's allowance for loan losses as a
percentage of its year-end loans was 1.09% at December 31, 1996, compared to
1.06% at December 31, 1995. During 1996, the Company had net recoveries of
$53,554 which was .21% of average loans. Net charge-offs of $452,300 during
1995 resulted in a ratio of net charge-offs to average loans of 2.04%. The
1995 net charge-offs as a percentage of loans were unusually high because of a
charge-off of approximately $400,000 made during the year for the loans of one
borrower which victimized the Bank in a fraudulent loan scheme. During 1996,
the banks which were victimized by this loan scheme recovered part of the loans
charged off. The share of these recoveries received by the Bank during 1996
was in excess of $60,000.
Noninterest income increased $28,258, or 33.31%, to $113,088 in 1996
from $84,830 in 1995. The increase was due primarily to an increase in credit
card merchant fees and a 29.46% growth in average deposits.
Noninterest expense increased $25,025, or 2.14%, to $1,196,920 in 1996
from $1,171,895 in 1995. The Company has closely monitored its overhead
expenses during 1996. The Company's efficiency ratio, which is noninterest
expense as a percentage of the sum of net interest income and noninterest
income, improved to 85.09% in 1996, compared to 103.56% in 1995. The Company's
improving ratio is the result of growth in loans and deposits without an
increase in corresponding overhead expenses. This is typical in the first
years of operation of a new bank.
The Company showed a profit for the first time during the final
quarter of 1995 when net income for the quarter was $12,992. In each
succeeding quarter, the net income of the Company has increased. For the
fourth quarter of 1996, net income was $75,586.
NET INTEREST INCOME
The primary source of income for the Company is net interest income,
which is the difference between revenue on interest-earning assets, such as
investment securities and loans, and interest incurred on interest-bearing
sources of funds, such as deposits and borrowings. The level of net interest
income is determined primarily by the average balances of interest-earning
assets and funding sources and the various rate spreads between the
interest-earning assets and the Company's funding sources. The table "Average
Balances, Income and Expenses, and Rates" which follows shows the Company's
average volume of interest-earning assets and interest-bearing liabilities for
1996 and 1995 and related income/expense and yields. Changes in net interest
income from period to period result from increases or decreases in the volume
of interest-earning assets and interest-bearing liabilities, and increases or
decreases in the average rates earned and paid on such assets and liabilities.
The volume of interest-earning assets and interest-bearing liabilities is
affected by the ability to manage the earning-asset portfolio (which includes
loans), and the availability of particular sources of funds, such as
noninterest bearing deposits. The table "Analysis of Changes in Net Interest
Income" shows the amount of net interest income change from rate changes and
from activity changes.
The key performance measure for net interest income is the "net margin
on interest-bearing assets," or net interest income divided by average
interest-earning assets. The Company's net interest margin for 1996 was 3.94%,
compared to 4.12% for 1995. The decrease is due to a larger investment in
federal funds sold during 1996 compared to 1995 which have lower interest rates
than other earning assets. The Bank has no old, higher yielding loans or
securities to increase the average yield, and a significant number of the
Bank's loans are fixed rate loans. As a result of the significant amount of
fixed rate loans, the Bank's income may increase in a falling interest rate
environment and decrease in a rising interest rate environment. Management of
the Company expects to maintain or increase the net margin on interest-earning
assets. The net margin may decline, however, if competition increases, loan
demand decreases, or the cost of funds rises faster than the return on loans.
Although such expectations are based on management's judgment, actual results
will depend on a number of factors that cannot be predicted with certainty, and
fulfillment of management's expectations cannot be assured.
4
<PAGE> 20
The following table depicts interest income on earning assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for 1996 and 1995.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
--------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expenses Rate Balance Expenses Rate
----------- ---------- ------ ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 6,845,883 $ 364,327 5.32% $ 3,021,489 $ 177,606 5.88%
Interest-bearing deposits 10,360 530 5.12% - - 0.00%
Investment securities:
U.S. Government agency 717,213 38,863 5.42% 500,000 25,773 5.15%
Other 4,319 - 0.00% - - 0.00%
----------- ---------- ----- ----------- ---------- ----
Total investment securities 721,532 38,863 5.39% 500,000 25,773 5.15%
----------- ---------- ----- ----------- ---------- ----
Loans:
Demand and time 3,179,554 300,504 9.45% 2,700,786 253,131 9.37%
Mortgage 20,577,929 1,892,300 9.20% 17,796,041 1,589,671 8.93%
Installment 1,812,925 190,989 10.53% 1,637,469 155,679 9.51%
----------- ---------- ----- ----------- ---------- ----
Total loans 25,570,408 2,383,793 9.32% 22,134,296 1,998,481 9.03%
Allowance for loan losses 284,970 - - 250,380 - -
----------- ---------- ----- ----------- ---------- ----
Total loans, net of allowance 25,285,438 2,383,793 9.43% 21,883,916 1,998,481 9.13%
----------- ---------- ----- ----------- ---------- ----
Total interest-earning assets 32,863,213 2,787,513 8.48% 25,405,405 2,201,860 8.67%
---------- ----- ---------- ----
Cash and due from banks 711,474 690,638
Premises and equipment 1,576,200 1,645,044
Other assets 307,884 328,981
----------- -----------
Total assets $35,458,771 $28,070,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Deposits
Savings and NOW deposits $ 7,273,028 $ 236,164 3.25% $ 6,248,071 $ 213,330 3.41%
Money market and supernow 2,497,559 88,182 3.53% 1,909,174 69,530 3.64%
Other time deposits 20,122,148 1,157,291 5.75% 14,882,301 865,095 5.81%
----------- ---------- ----- ----------- ---------- ----
Total interest-bearing deposits 29,892,735 1,481,637 4.96% 23,039,546 1,147,955 4.98%
Noninterest-bearing deposits 1,429,358 - - 1,155,459 - -
----------- ---------- ----- ----------- ---------- ----
Total deposits 31,322,093 1,481,637 4.73% 24,195,005 1,147,955 4.74%
Borrowed funds 388,883 12,231 3.15% 128,356 7,148 5.57%
----------- ---------- ----- ----------- ---------- ----
31,710,976 1,493,868 4.71% 24,323,361 1,155,103 4.75%
---------- ----- ---------- ----
Other liabilities 135,260 89,736
Stockholders' equity 3,612,535 3,656,971
----------- -----------
Total liabilities and
stockholders equity $35,458,771 $28,070,068
=========== ===========
Net interest spread 3.77% 3.92%
===== ====
Net interest income $1,293,645 $1,046,757
========== ==========
Net interest income/margin 3.94% 4.12%
===== ====
</TABLE>
5
<PAGE> 21
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1996 Compared with 1995 1995 Compared with 1994
Variance Due To Variance Due To
------------------------------------ --------------------------------------
Total Rate Volume Total Rate Volume
-------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing deposits $ 530 $ - $ 530 $ (9,268) $ - $ (9,268)
with banks
Federal funds sold 186,721 (38,153) 224,874 109,560 47,061 62,499
Investment Securities:
U.S. Treasury - - - (6,999) - (6,999)
U.S. Government Agency 13,090 1,904 11,186 (5,094) 5,688 (10,782)
Loans:
Demand and time 47,373 2,512 44,861 92,791 30,231 62,560
Mortgage 302,629 54,206 248,423 787,773 92,700 695,073
Installment 35,310 18,624 16,686 63,793 5,966 57,827
-------- ------- -------- ---------- -------- ---------
Total interest income 585,653 39,093 546,560 1,032,556 181,646 850,910
-------- ------- -------- ---------- -------- ---------
INTEREST-BEARING LIABILITIES
Savings and NOW deposits 22,834 (12,117) 34,951 60,441 10,850 49,591
Money market and
supernow deposits 18,652 (2,765) 21,417 12,006 7,254 4,752
Time deposits 292,196 (12,239) 304,435 566,184 147,755 418,429
Federal funds purchased and 5,083 (9,428) 14,511 7,148 - 7,148
short-term borrowings -------- --------- -------- ---------- -------- ---------
Total interest expense 338,765 (36,549) 375,314 645,779 165,859 479,920
-------- -------- -------- ---------- -------- ---------
Net interest income $246,888 $ 75,642 $171,246 $ 386,777 $ 15,787 $ 370,990
======== ======== ======== ========== ======== =========
</TABLE>
COMPOSITION OF LOAN PORTFOLIO
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets (assuming that loan losses are not
excessive), the absolute volume of loans and the volume as a percentage of
total earning assets is an important determinant of net interest margin.
Average loans, net of the allowance for loan losses, were $25,285,438 and
$21,883,916 during 1996 and 1995, respectively, which constituted 76.94% and
86.14% of average interest-earning assets for the periods. At December 31,
1996, the Company's loan to deposit ratio was 91.77%, compared to 85.83% at
December 31, 1995. The Bank extends loans primarily to customers located in
and near Talbot County. There are no industry concentrations in the Bank's
loan portfolio. The Bank does, however, have a substantial portion of its
loans in real estate and its performance may be influenced by the real estate
market in the region.
6
<PAGE> 22
The following table sets forth the composition of the Company's loan
portfolio as of December 31, 1996 and 1995, respectively.
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------ ----------------------------
Percent Percent
Amount of Total Amount of Total
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Commercial $ 2,473,468 8.12% $ 1,949,673 7.94%
Real estate 21,371,852 70.19% 16,913,382 68.87%
Construction 2,624,709 8.62% 2,323,490 9.46%
Home equity 1,607,606 5.28% 1,268,170 5.16%
Consumer 2,372,719 7.79% 2,103,166 8.57%
----------- ------ ----------- ------
Total Loans 30,450,354 100.00% 24,557,881 100.00%
====== ======
Less deferred loan origination fees 55,670 60,106
Less allowance for credit losses 332,253 260,000
----------- -----------
Net Loans $30,062,431 $24,237,775
=========== ===========
</TABLE>
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for selected components
of the Company's loan portfolio as of December 31, 1996.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Over one
One Year through Over five
or less five years years Total
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Commercial $ 1,347,194 $ 1,126,274 $ - $ 2,473,468
Real estate 6,898,079 13,879,820 593,953 21,371,852
Construction 2,624,709 - - 2,624,709
Home equity 1,607,606 - - 1,607,606
Consumer 654,418 1,708,942 9,359 2,372,719
----------- ----------- -------- -----------
Total $13,132,006 $16,715,036 $603,312 $30,450,354
=========== =========== ======== ===========
Fixed interest rate $ 7,936,324 $16,450,718 $253,312 $24,640,354
Variable interest rate 5,195,682 264,318 350,000 5,810,000
----------- ----------- -------- -----------
Total $13,132,006 $16,715,036 $603,312 $30,450,354
=========== =========== ======== ===========
</TABLE>
As of December 31, 1996, $24,640,354, or 80.92%, of the total loans were
fixed rate loans. The significant amount of fixed rate loans was the result of
the market demand during the first three years of operations of the Bank. With
such a significant amount of fixed rate loans, the Bank's income will decrease
in a rising interest rate environment, but will increase in a falling interest
rate environment.
7
<PAGE> 23
The Company has the following commitments, lines of credit, and letters
of credit outstanding as of December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Construction loans $1,650,040 $ 620,059
Lines of credit 1,257,319 1,140,976
Overdraft protection lines 93,997 88,454
Standby letters of credit 44,563 12,700
---------- ----------
Total $3,045,919 $1,862,189
========== ==========
</TABLE>
Loan commitments and lines of credit are agreements to lend to a
customer as long as there is no violation of any condition to the contract.
Loan commitments may have interest fixed at current rates, fixed expiration
dates, and may require the payment of a fee. Lines of credit generally have
variable interest rates. Such lines do not represent future cash requirements
because it is unlikely that all customers will draw upon their lines in full at
any time. Letters of credit are commitments issued to guarantee the
performance of a customer to a third party. Loan commitments and lines and
letters of credit are made on the same terms, including collateral, as
outstanding loans. The Company's exposure to credit loss in the event of
nonperformance by the borrower is represented by the contract amount of the
commitment. Management is not aware of any accounting loss the Company will
incur by the funding of these commitments.
LOAN QUALITY
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes require attention. The determination of the reserve level rests upon
management's judgment about factors affecting loan quality and assumptions
about the economy. Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio; however, management's
judgment is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan loss or that additional increases in the loan loss allowance
will not be required.
For significant problem loans, management's review consists of an
evaluation of the financial strengths of the borrowers and guarantors, the
related collateral, and the effects of economic conditions. The Bank uses a
loan grading system where all loans are graded based on management's evaluation
of the risk associated with each loan. Based on the loan grading, a factor is
applied to the loan balance to reserve for potential losses. The overall
evaluation of the adequacy of the total allowance for loan losses is based on
an analysis of historical loan loss ratios, loan charge-offs, delinquency
trends, and previous collection experience, along with an assessment of the
effects of external economic conditions. The Bank is a relatively new
institution without a long history. Its current policy is to maintain an
allowance equal to the greater of one percent of gross loans or the results of
management's evaluation of the risk associated with each loan. This allowance
is increased for reserves for specific loans identified as substandard during
management's loan review.
The table "Allocation of Allowance for Loan Losses" which follows shows
the specific reserves applied by loan type and also the general allowance
included in the December 31, 1996 and 1995 allowance for loan losses.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. At year-end 1996, the allowance for loan losses was
1.09% of outstanding loans, compared to 1.06% at year-end 1995.
8
<PAGE> 24
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Commercial $ 32,537 9.79% $ 37,612 14.47%
Real estate 185,532 55.84% 133,377 51.29%
Construction 13,124 3.95% 11,618 4.47%
Home equity 11,034 3.32% 8,877 3.41%
Consumer 24,817 7.47% 18,759 7.22%
Commitments 24,706 7.44% 16,038 6.17%
General 40,503 12.19% 33,719 12.97%
-------- ------ -------- ------
Total $332,253 100.00% $260,000 100.00%
======== ====== ======== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 260,000 $ 588,000
Loan losses:
Commercial 2,464 414,307
Consumer 25,592 47,454
----------- -----------
Total loan losses 28,056 461,761
----------- -----------
Recoveries on loans previously charged off
Commercial 73,469 2,555
Consumer 8,141 6,906
----------- -----------
Total loan recoveries 81,610 9,461
----------- -----------
Net loan losses (53,554) 452,300
Provision for loan losses charged to expense 18,699 124,300
----------- -----------
Balance at end of year $ 332,253 $ 260,000
=========== ===========
Total loans outstanding at end of year $30,450,354 $24,557,881
Allowance for loan losses to loans outstanding
at end of year 1.09% 1.06%
Net charge-offs to average loans (0.21%) 2.04%
</TABLE>
As a result of management's ongoing review of the loan portfolio, loans
are classified as nonaccrual when it is not reasonable to expect collection of
interest under the original terms. These loans are classified as nonaccrual
even though the presence of collateral or the borrower's financial strength may
be sufficient to provide for ultimate repayment. Interest on nonaccrual loans
is recognized only when received. A delinquent loan is generally placed in
nonaccrual status when it becomes 90 days or more past due. When a loan is
placed in nonaccrual status, all interest which has been accrued on the loan
but remains unpaid is reversed and deducted from earnings as a reduction of
reported interest income. No additional interest is accrued on the loan
balance until the collection of both principal and interest becomes reasonably
certain. When a problem loan is finally resolved, there may ultimately be an
actual writedown or charge-off of the principal balance of the loan which would
necessitate additional charges to earnings.
9
<PAGE> 25
The Company had nonperforming loans totaling $13,058 and $184,704 as of
December 31, 1996 and 1995, respectively. Where real estate acquired by
foreclosure and held for sale is included with nonperforming loans, the result
comprises nonperforming assets. Loans are classified as impaired when the
collection of contractual obligations, including principal and interest, is
doubtful. Management has identified no significant impaired loans as of
December 31, 1996.
A potential problem loan is one in which management has serious doubts
about the borrower's future performance under the terms of the loan contract.
These loans are current as to principal and interest and, accordingly, they are
not included in the nonperforming assets categories. Management monitors these
loans closely in order to ensure that the Company's interests are protected.
At December 31, 1996, the Company had twenty one borrowers with loans
considered by management to be potential problem loans totaling approximately
$412,502. The level of potential problem loans is factored into the
determination of the adequacy of the allowance for loan losses.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the
steady growth of the Company's primary source of earnings, net interest income.
Net interest income can fluctuate with significant interest rate movements. To
lessen the impact of these margin swings, the balance sheet should be
structured so that repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits.
Average liquid assets (cash and amounts due from banks, interest bearing
deposits in other banks, federal funds sold and investment securities) were
26.46% of average deposits for 1996, compared to 17.41% for 1995. The Company
considers its loan portfolio as an alternate source of liquidity since it has
available third parties who will buy participations in loans.
Interest rate sensitivity may be controlled on either side of the
balance sheet. On the asset side, management can exercise some control on
maturities. Also, loans may be structured with rate floors and ceilings on
variable rate notes and by providing for repricing opportunities on fixed rate
notes. The Company's investment portfolio, including federal funds sold,
probably provides the most flexible and fastest control over rate sensitivity
since it can generally be restructured more quickly than the loan portfolio.
On the liability side, deposit products can be restructured so as to
offer incentives to attain the maturity distribution desired. Competitive
factors sometimes make control over deposits more difficult and less effective.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates.
The rate-sensitive position, or gap, is the difference in the volume of
rate-sensitive assets and liabilities at a given time interval. The general
objective of gap management is to actively manage rate-sensitive assets and
liabilities to reduce the impact of interest rate fluctuations on the net
interest margin. Management generally attempts to maintain a balance between
rate-sensitive assets and liabilities as the exposure period is lengthened to
minimize the overall interest rate risk to the Company.
The asset mix of the balance sheet is continually evaluated in terms of
several variables; yield, credit quality, appropriate funding sources, and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
The interest rate sensitivity position at December 31, 1996, is
presented in the table "Interest Sensitivity Analysis." The difference between
rate-sensitive assets and rate-sensitive liabilities, or the interest rate
sensitivity gap, is shown at the bottom of the table. The Company was
liability-sensitive through the one-year period but asset-sensitive for longer
time horizons. For liability-sensitive institutions, if interest rates should
increase, the net
10
<PAGE> 26
interest margins should decline. Since all interest rates and yields do not
adjust at the same velocity, the gap is only a general indicator of rate
sensitivity.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------
After three
Within but within After one
three twelve but within After
months months five years five years Total
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Federal funds sold $ 2,824,727 $ - $ - $ - $ 2,824,727
Investment securities
available for sale 121,600 - - - 121,600
Investment securities
held to maturity 250,000 250,000 750,000 - 1,250,000
Loans 6,625,322 6,506,684 16,715,036 603,312 30,450,354
----------- ----------- ----------- ---------- -----------
Total earning assets $ 9,821,649 $ 6,756,684 $17,465,036 $ 603,312 $34,646,681
=========== =========== =========== ========== ===========
LIABILITIES
Interest-bearing liabilities:
Money market and NOW $ 7,660,738 $ - $ - $ - $ 7,660,738
Savings deposits 3,228,701 - - - 3,228,701
Club accounts - 26,084 - - 26,084
Certificates $100,000
and over 1,210,112 1,547,716 1,371,563 - 4,129,391
Certificates under $100,000 3,034,786 5,152,409 7,807,263 - 15,994,458
Securities sold under
agreements to repurchase 574,328 - - - 574,328
----------- ----------- ----------- ---------- -----------
Total interest-bearing liabilities $15,708,665 $ 6,726,209 $ 9,178,826 $ - $31,613,700
=========== =========== =========== ========== ===========
Period gap $(5,887,016) $ 30,475 $ 8,286,210 $ 603,312 $ 3,032,981
=========== =========== =========== ========== ===========
Cumulative gap $(5,887,016) $(5,856,541) $ 2,429,669 $3,032,981 $ 3,032,981
=========== =========== ========== ========== ===========
Ratio of cumulative gap to total
earning assets (16.99)% (16.90)% 7.01% 8.75% 8.75%
</TABLE>
As noted in the table "Loan Maturity Schedule and Sensitivity to Changes
in Interest Rates," approximately $5,098,177, or 16.74%, of the loan portfolio
consisted of commercial loans and real estate construction loans. Of this
amount, $3,971,903, or 77.91%, matures within one year.
The table "Investment Securities Maturity Distribution and Yields" shows
that as of December 31, 1996, $500,000 of the investment portfolio matures in
one year or less. The balance of the debt securities mature within five years.
All debt securities of the Company have been classified as "held-to-maturity."
The equity securities are comprised of Federal Home Loan Bank stock which are
classified as "available-for-sale" even though the Company has no immediate
plans to sell the securities. The funds invested in Federal funds sold provide
liquidity so that no debt securities have been classified as
"available-for-sale." Another source of liquidity is the $1,000,000 line of
credit the Company has available from a correspondent bank.
11
<PAGE> 27
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------- -----------------------
Year-end Year-end
Book Value Yields Book value Yields
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Government Agency securities
One year or less $ 500,000 5.2% $ - 0.0%
Over one through five years 750,000 6.0% 500,000 5.2%
---------- --- -------- ---
Total U.S. Government Agency securities $1,250,000 5.6% $500,000 5.2%
========== === ======== ===
</TABLE>
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $7,113,716, or 30.71%,
to $30,281,618 in 1996, from $23,167,902 in 1995. Average interest-bearing
deposits increased $6,853,189, or 29.75%, to $29,892,735 in 1996, from
$23,039,546 in 1995. These increases resulted from increases in all categories
of interest-bearing deposits resulting from the continued promotional efforts
of management to increase the deposits and loans of the Bank. At December 31,
1996, total deposits were $32,758,559, compared to $28,237,995 at December 31,
1995, an increase of 16.01%.
The following table sets forth the deposits of the Company by category
as of December 31, 1996 and 1995, respectively.
DEPOSITS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
Percent of Percent of
Amount Deposits Amount Deposits
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Demand deposit accounts $ 1,719,187 5.25% $ 1,493,690 5.29%
NOW accounts 4,457,641 13.61% 3,291,062 11.65%
Money market accounts 3,203,097 9.78% 1,965,025 6.96%
Savings accounts 3,254,785 9.94% 3,147,391 11.15%
Time deposits less than
$100,000 15,994,458 48.82% 13,555,818 48.00%
Time deposits of $100,000
or over 4,129,391 12.60% 4,785,009 16.95%
----------- ------ ----------- ------
Total deposits $32,758,559 100.00% $28,237,995 100.00%
=========== ====== =========== ======
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or
more, provide a relatively stable funding source for the Company's loan
portfolio and other earning assets. The Company's core deposits increased
$5,176,182 during 1996. Deposits, and particularly core deposits, have been
the Company's primary source of funding and have enabled the Company to meet
both its short-term and long-term liquidity needs. Management anticipates that
such deposits will continue to be the Company's primary source of funding in
the future. The Company's loan-to-deposit ratio was 91.77% at December 31,
1996, and 85.83% at the end of 1995, with a 1996 ratio of average loans to
average deposits of 80.73%. The maturity distribution of the Company's time
deposits over $100,000 at December 31, 1996, is shown in the following table.
12
<PAGE> 28
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OF MORE
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
After
Three After Six
Within Through Through After
Three Six Twelve Twelve
Months Months Months Months Total
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or more $1,210,112 $933,033 $614,683 $1,371,563 $4,129,391
Other time deposits of $100,000 or more - - - - -
---------- -------- -------- ---------- ----------
Total $1,210,112 $933,033 $614,683 $1,371,563 $4,129,391
========== ======== ======== ========== ==========
</TABLE>
Large certificate of deposit customers tend to be extremely sensitive
to interest rate levels, making these deposits less reliable sources of funding
for liquidity planning purposes than core deposits. Some financial
institutions partially fund their balance sheets using large certificates of
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, the
Company does not accept brokered deposits.
Borrowed funds consist primarily of short-term borrowings in the form
of securities sold under agreements to repurchase and federal funds purchased
from correspondent banks. Average short-term borrowings were $388,883 and
$128,356 during 1996 and 1995, respectively. As previously noted, the Company's
primary funding source is core deposits, and it does not depend heavily on
purchased funds to support its earning asset base.
NONINTEREST INCOME
Noninterest income for 1996 was $113,088, compared to noninterest
income in 1995 of $84,830, an increase of $28,258, or 33.31%. Of this
increase, $13,965 relates to revenues from credit card merchant fees. The Bank
offered its merchants, for a fee, the ability to deposit credit card receipts
beginning in 1993. However, the Bank did not receive the fees it was due from
the credit card clearing house until 1996, at which time the Bank received the
unpaid fees for 1993, 1994 and 1995 due from the credit card clearing house.
In addition, service charges on deposits have grown with the growth in
deposits. As the deposit base of the Bank grows, the Company expects the
noninterest income will continue to increase. This represents management's
best judgment but actual results depend on events that cannot be predicted with
certainty and these expectations cannot be assured.
The following table presents the principal components of noninterest
income for the years ended December 31, 1996 and 1995, respectively.
NONINTEREST INCOME
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Service charges on deposit accounts $ 68,660 $65,805
Other noninterest revenue 44,428 19,025
-------- -------
Total noninterest income $113,088 $84,830
======== =======
Noninterest income as a percentage of average total assets .32% .30%
=== ===
</TABLE>
13
<PAGE> 29
NONINTEREST EXPENSE
Noninterest expense increased by $25,025, or 2.14%, from $1,171,895 in
1995 to $1,196,920 in 1996. Increased personnel costs of $65,411 were offset
by controlling other operating expenses.
The Company has plans to finish the second floor of the Bank's main
office during 1997 and to begin renting part of it to third parties by the
second half of 1997. A portion of the second floor will be used as increased
space of the Bank. Although the floor space used by the Bank will increase,
management expects the rental income will offset the cost of this expansion.
The following table presents the principal components of noninterest
expense for the years ended December 31, 1996 and 1995, respectively.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Compensation and related expenses $ 673,944 $ 608,533
Occupancy expense 75,310 64,108
Furniture and equipment expense 92,704 86,837
Advertising 35,332 39,544
Professional fees 44,890 59,976
Data processing 65,372 58,497
Deposit assessment 2,000 22,795
Insurance 21,435 34,147
Loan reports and collection costs 2,491 25,585
Organizational expense amortization 46,964 46,964
Stationery and supplies 35,119 30,112
Telephone and postage 34,115 30,769
Other 67,244 64,028
---------- ----------
Total noninterest expense $1,196,920 $1,171,895
========== ==========
Noninterest expense as a percentage of average total assets 3.38% 4.17%
===== =====
</TABLE>
CAPITAL
Under the capital guidelines of the Federal Reserve Board and the FDIC,
the Company and the Bank are currently required to maintain a minimum
risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital.
Tier 1 capital consists of common stockholders' equity, qualifying perpetual
preferred stock, and minority interests in equity accounts of consolidated
subsidiaries, less certain intangibles. In addition, the Company and the Bank
must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets)
of at least 3%, but this minimum ratio is increased by 100 to 200 basis points
for other than the highest-rated institutions.
14
<PAGE> 30
At December 31, 1996, the Company and the Bank exceeded their regulatory
capital ratios, as set forth in the following table.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
Required
Company Bank Minimums
------- ---- --------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio 13.1% 12.8% 4.0%
Total risk-based capital ratio 14.3% 13.9% 8.0%
Tier 1 leverage ratio 10.1% 9.8% 3.0%
</TABLE>
ACCOUNTING RULE CHANGES
Accounting for Stock-Based Compensation. The Financial Accounting
Standards Board (the "FASB") issued SFAS 123, "Accounting for Stock-Based
Compensation," which encouraged, but did not require, the use of fair value
based accounting for stock compensation awards. Under SFAS 123, compensation
cost is measured and shown as an expense on the income statement based on the
fair value of the awards at the grant dates. The Company adopted SFAS 123 as
of January 1, 1996, electing to report the fair values in disclosure
information only.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. During 1996 the FASB issued SFAS 125. Many of
its provisions become effective in 1997. SFAS 125 defines when assets are
transferred or debt is extinguished. Generally, transfers are recognized when
the transferee no longer has control over the assets. The Company adopted SFAS
125 as of January 1, 1997. Management does not expect the adoption of SFAS 125
to have a material adverse impact on the Company's financial position or
results of operations.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions, such as the Company and the Bank, are primarily
monetary in nature. Therefore, interest rates have a more significant effect
on the Company's performance than do the effects of changes in the general rate
of inflation and changes in prices. In addition, interest rates do not
necessarily move in the same direction or in the same magnitude as the prices
of goods and services. As discussed previously, management seeks to manage the
relationships between interest sensitive assets and liabilities in order to
protect against wide interest rate fluctuations, including those resulting from
inflation. See "-- Liquidity and Interest Rate Sensitivity" above.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations.
MARKET FOR COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Articles of Incorporation authorize it to issue up to
5,000,000 shares of the Common Stock. The Company closed its initial public
offering (the "Initial Offering") of Common Stock on December 31, 1992, in
which the Company offered for sale a minimum of 535,000 shares and a maximum of
700,000 shares at a purchase price of $10.00 per share. As a result of the
Initial Offering, 559,328 shares of the Common Stock were issued.
As of March 20, 1997, there were approximately 589 holders of record
of the Common Stock and 559,328 shares of Common Stock issued and outstanding.
In addition, there were 207,800 shares of Common Stock issuable
15
<PAGE> 31
pursuant to warrants which may be issued in the next 60 days. There is no
established public trading market in the stock, and there is no likelihood that
a trading market will develop in the near future. The development of a trading
market may be inhibited because a large portion of the Company's shares is held
by insiders. Transactions in the Common Stock are infrequent and are
negotiated privately between the persons involved in those transactions.
All outstanding shares of Common Stock of the Company are entitled to
share equally in dividends from funds legally available, when, as, and if
declared by the Board of Directors. No dividends have been paid to date on the
Common Stock, and it is anticipated that earnings will be retained for the
foreseeable future in order to expand the Bank's capital base to support
deposit growth. The Company currently has no source of income other than
dividends and other payments received from the Bank. It is unlikely that any
cash dividends will be paid in the near future.
16
<PAGE> 32
[ROWLES & COMPANY LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Easton Bancorp, Inc. and Subsidiary
Easton, Maryland
We have audited the consolidated balance sheets of Easton Bancorp, Inc. and
Subsidiary as of December 31, 1996, 1995, and 1994, and the related consolidated
statements of income (loss), changes in stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Easton
Bancorp, Inc. and Subsidiary as of December 31, 1996, 1995, and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Rowles & Company LLP
Salisbury, Maryland
January 22, 1997
17
<PAGE> 33
EASTON BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
----------- ----------- -----------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 1,211,182 $ 991,301 $ 1,277,753
Federal funds sold 2,824,727 4,500,000 1,900,000
Investment in Federal Home Loan Bank stock 121,600 -- --
Investment securities held to maturity (market value of
$1,247,275, $496,113, and $482,500) 1,250,000 500,000 500,000
Loans, less allowance for credit losses of
$332,253, $260,000, and $588,000 30,062,431 24,237,775 17,779,187
Premises and equipment 1,515,354 1,597,478 1,691,067
Intangible assets 84,503 137,844 192,904
Accrued interest receivable 181,009 156,483 101,037
Other assets 44,134 37,270 32,703
----------- ----------- -----------
Total assets $37,294,940 $32,158,151 $23,474,651
=========== =========== ===========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 1,719,187 $ 1,493,690 $ 1,261,038
Interest-bearing 31,039,372 26,744,305 18,461,396
----------- ----------- -----------
Total deposits 32,758,559 28,237,995 19,722,434
Accrued interest payable 93,684 101,109 54,014
Securities sold under agreements to repurchase 574,328 277,363 --
Other liabilities 145,578 10,007 1,918
----------- ----------- -----------
Total liabilities 33,572,149 28,626,474 19,778,366
----------- ----------- -----------
Stockholders' equity
Common stock, par value $.10 per share; authorized 5,000,000
issued and outstanding 559,328 shares 55,933 55,933 55,933
Additional paid-in capital 5,217,686 5,217,686 5,217,686
Retained earnings (deficit) (1,550,828) (1,741,942) (1,577,334)
----------- ----------- -----------
Total stockholders' equity 3,722,791 3,531,677 3,696,285
----------- ----------- -----------
Total liabilities and stockholders' equity $37,294,940 $32,158,151 $23,474,651
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 34
EASTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income (Loss)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST REVENUE
Loans, including fees $ 2,383,793 $ 1,998,481 $ 1,054,124
Deposits in banks 530 -- 9,268
U.S. Treasury and Government agency securities 38,863 25,773 37,866
Federal funds sold 364,327 177,606 68,046
----------- ----------- -----------
Total interest revenue 2,787,513 2,201,860 1,169,304
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 1,481,637 1,147,955 509,127
Interest on borrowed funds 12,231 7,148 197
----------- ----------- -----------
Total interest expense 1,493,868 1,155,103 509,324
----------- ----------- -----------
Net interest income 1,293,645 1,046,757 659,980
PROVISION FOR CREDIT LOSSES 18,699 124,300 546,510
----------- ----------- -----------
Net interest income after provision for credit losses 1,274,946 922,457 113,470
----------- ----------- -----------
OTHER OPERATING REVENUE
Service charges on deposit accounts 68,660 65,805 46,506
Other noninterest revenue 44,428 19,025 11,171
----------- ----------- -----------
Total other operating revenue 113,088 84,830 57,677
----------- ----------- -----------
OTHER EXPENSES
Compensation and related expenses 673,944 608,533 564,152
Occupancy 75,310 64,108 61,397
Furniture and equipment 92,704 86,837 80,796
Other operating 354,962 412,417 348,806
----------- ----------- -----------
Total other expenses 1,196,920 1,171,895 1,055,151
----------- ----------- -----------
Income (loss) before income taxes 191,114 (164,608) (884,004)
Income taxes -- -- --
----------- ----------- -----------
NET INCOME (LOSS) $ 191,114 $ (164,608) $ (884,004)
=========== =========== ===========
Earnings (loss) per common share and common stock equivalents
Primary $ 0.32 $ (0.29) $ (1.58)
=========== =========== ===========
Fully diluted $ 0.32 $ (0.29) $ (1.58)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 35
EASTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common stock Retained
--------------------- earnings
Shares Par value Surplus (deficit)
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 559,328 $ 55,933 $ 5,217,686 $ (693,330)
Net loss - - - (884,004)
----------- ----------- ----------- -----------
Balance, December 31, 1994 559,328 55,933 5,217,686 (1,577,334)
Net loss - - - (164,608)
----------- ----------- ----------- -----------
Balance, December 31, 1995 559,328 55,933 5,217,686 (1,741,942)
Net income - - - 191,114
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 559,328 $ 55,933 $ 5,217,686 $(1,550,828)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 36
EASTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 2,758,551 $ 2,179,706 $ 1,101,322
Fees, commissions, and rent received 112,868 84,830 57,677
Interest paid (1,501,293) (1,108,008) (464,894)
Payments to suppliers and employees (918,846) (1,016,472) (905,619)
------------ ------------ ------------
451,280 140,056 (211,514)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated, net of principal repayments (5,604,316) (6,737,602) (13,686,815)
Loan participations sold - 897,750 -
Loan participations purchased (344,346) (776,328) -
Purchase of investment securities (871,600) - (250,000)
Purchase of interest-bearing deposits,
net of redemptions - - 300,000
Proceeds from maturities of investment securities - - 1,000,000
Proceeds from sale of other real estate owned 113,804 - -
Purchase of premises and equipment, including
construction in progress (15,287) (2,817) (35,414)
Cash paid for organization costs and software (2,456) (435) (966)
------------ ------------ ------------
(6,724,201) (6,619,432) (12,673,195)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 4,520,564 8,515,561 11,549,583
Increase in securities sold under agreements to repurchase 296,965 277,363 -
Advances from organizers repaid - - (500)
Payments on notes payable - - (16,380)
------------ ------------ ------------
4,817,529 8,792,924 11,532,703
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,455,392) 2,313,548 (1,352,006)
Cash and cash equivalents at beginning of year 5,491,301 3,177,753 4,529,759
------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,035,909 $ 5,491,301 $ 3,177,753
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 37
EASTON BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss) $ 191,114 $ (164,608) $ (884,004)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Accretion on investments - - (10,610)
Provision for credit losses 18,699 124,300 546,510
Depreciation 97,411 96,406 95,099
Amortization of intangibles 55,797 55,495 55,548
Gain on sale of other real estate owned (4,061) - -
Decrease (increase) in
Accrued interest receivable (24,526) (55,446) (77,391)
Other assets (6,864) (4,567) (2,639)
Increase (decrease) in
Deferred loan origination fees (4,436) 33,292 20,019
Accrued interest payable (7,425) 47,095 44,430
Other liabilities 135,571 8,089 1,524
---------- ---------- ----------
$ 451,280 $ 140,056 $ (211,514)
========== ========== ==========
NONCASH ACTIVITY
Other real estate acquired in lieu of foreclosure $ 109,743 $ - $ -
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 38
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies in the financial statements
conform to generally accepted accounting principles and to general
practices within the banking industry. Management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. These estimates and assumptions may affect the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Business
Easton Bancorp, Inc. is a one-bank holding company. Easton Bank &
Trust Company is a financial institution operating primarily in Talbot
County. The Bank offers deposit services and loans to individuals, small
businesses, associations, and government entities. Other services include
direct deposit of payroll and social security checks, automatic drafts from
accounts, automated teller machine services, cash management services, safe
deposit boxes, money orders, and travelers cheques. The Bank also offers
credit card services and discount brokerage services through a
correspondent.
Principles of consolidation
The consolidated financial statements of Easton Bancorp, Inc. include
the accounts of its wholly owned subsidiary, Easton Bank & Trust Company.
Intercompany accounts and transactions have been eliminated.
Cash equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Investment securities
As securities are purchased, management determines if the securities
should be classified as held to maturity or available for sale. Securities
which management has the intent and ability to hold to maturity are
recorded at amortized cost which is cost adjusted for amortization of
premiums and accretion of discounts to maturity.
Earnings (loss) per share
Earnings (loss) per common share and common stock equivalents is
determined by dividing net income (loss) by the weighted average number of
common stock and dilutive common stock equivalents outstanding during the
period.
Dilutive common equivalent shares consist of stock warrants,
calculated using the treasury stock method. In loss periods, dilutive
common equivalent shares are excluded since the effect would be
anti-dilutive.
23
<PAGE> 39
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans and allowance for credit losses
Loans are stated at face value less deferred origination fees and the
allowance for credit losses.
Interest on loans is credited to income based on the principal amounts
outstanding. Origination fees are recorded as income over the contractual
life of the related loans as an adjustment of yield.
Accrual of interest on a loan is discontinued when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that collection of
interest is doubtful.
The allowance for credit losses represents an amount which, in
management's judgment, will be adequate to absorb possible losses on
existing loans that may become uncollectible. If the current economy or
real estate market were to suffer a severe downturn, the estimate for
uncollectible accounts would need to be increased. Management's judgment in
determining the adequacy of the allowance is based on evaluations of the
collectibility of loans. These evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay.
Management classifies loans as impaired when the collection of
contractual obligations, including principal and interest, is doubtful.
Premises and equipment
Premises and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed
over the estimated useful lives using the straight-line method. Leasehold
improvements are amortized over the terms of the lease or the estimated
useful lives of the improvements, whichever is shorter.
Stock options
The Company accounts for stock options under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No.
25").
2. CASH AND EQUIVALENTS
The Bank normally carries balances with other banks that exceed the
federally insured limit. The average balances carried in excess of the
limit, including unsecured federal funds sold to the same banks, were
approximately $6,865,970, $3,031,492 and $1,422,037 for 1996, 1995, and
1994, respectively.
Banks are required to carry noninterest-bearing cash reserves at
specified percentages of deposit balances. The Bank's normal amount of cash
on hand and on deposit with other banks is sufficient to satisfy the
reserve requirements.
24
<PAGE> 40
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
3. INVESTMENT SECURITIES
Investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
cost gains losses value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. Government agencies $1,250,000 $ - $ 2,725 $1,247,275
DECEMBER 31, 1995
U.S. Government agencies $ 500,000 $ - $ 3,887 $ 496,113
DECEMBER 31, 1994
U.S. Government agencies $ 500,000 $ - $ 17,500 $ 482,500
</TABLE>
There were no sales of investment securities during 1996, 1995, or
1994.
Pledged securities and the amortized cost and estimated market value
of investment securities, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
------------------------ -------------------- --------------------
Amortized Market Amortized Market Amortized Market
cost value cost value cost value
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Due
One year or less $ 500,000 $ 499,453 $ - $ - $ - $ -
After one year
through five years 750,000 747,822 500,000 496,113 500,000 482,500
---------- ---------- -------- -------- -------- --------
$1,250,000 $1,247,275 $500,000 $496,113 $500,000 $482,500
========== ========== ======== ======== ======== ========
Pledged securities $ 650,000 $ 648,546 $250,000 $249,863 $250,000 $242,188
========== ========== ======== ======== ======== ========
</TABLE>
Securities were pledged as collateral for repurchase agreements.
25
<PAGE> 41
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Commercial $ 2,473,468 $ 1,949,673 $ 2,209,606
Real estate 21,371,852 16,913,382 11,914,573
Construction 2,624,709 2,323,490 1,629,267
Home equity 1,607,606 1,268,170 1,040,545
Consumer 2,372,719 2,103,166 1,600,010
----------- ----------- -----------
30,450,354 24,557,881 18,394,001
Less deferred loan origination fees 55,670 60,106 26,814
Less allowance for credit losses 332,253 260,000 588,000
----------- ----------- -----------
Loans, net $30,062,431 $24,237,775 $17,779,187
=========== =========== ===========
</TABLE>
The rate repricing distribution of the loan portfolio follows:
<TABLE>
<S> <C> <C> <C>
Immediately $ 3,267,806 $ 3,501,979 $ 2,812,446
Within one year 9,864,200 6,389,267 2,666,375
Over one to five years 16,715,036 14,662,115 12,826,499
Over five years 603,312 4,520 88,681
----------- ----------- -----------
$30,450,354 $24,557,881 $18,394,001
=========== =========== ===========
</TABLE>
Transactions in the allowance for credit losses are as follows:
<TABLE>
<S> <C> <C> <C>
Beginning balance $ 260,000 $ 588,000 $ 50,000
Provision charged to operation 18,699 124,300 546,510
Recoveries 81,610 9,461 -
----------- ----------- -----------
360,309 721,761 596,510
Charge-offs 28,056 461,761 8,510
----------- ----------- -----------
Ending balance $ 332,253 $ 260,000 $ 588,000
=========== =========== ===========
</TABLE>
Management has identified no significant impaired loans.
26
<PAGE> 42
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued)
Nonaccrual loans and loans past due 90 days or more are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual
Commerical $ 7,333 $ - $ -
Mortgage - 180,079 -
Installment 5,725 4,625 -
----------- ----------- -----------
$ 13,058 $ 184,704 $ -
=========== =========== ===========
Interest not accrued $ 449 $ 13,526 $ -
=========== =========== ===========
Loans past due ninety days or more,
still accruing interest $ 261,664 $ - $ -
=========== =========== ===========
</TABLE>
The following commitments, lines of credit, and letters of credit are
outstanding as of December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Construction loans $1,650,040 $ 620,059 $1,347,733
Lines of credit, including home equities 1,257,319 1,140,976 990,247
Overdraft protection lines 93,997 88,454 72,066
Standby letters of credit 44,563 12,700 10,000
---------- ---------- ----------
$3,045,919 $1,862,189 $2,420,046
========== ========== ==========
</TABLE>
Loan commitments and lines of credit are agreements to lend to a
customer as long as there is no violation of any condition to the contract.
Loan commitments may have rates fixed at current market interest, fixed
expiration dates, and may require payment of a fee. Lines of credit
generally have variable interest rates. Such lines do not represent future
cash requirements because it is unlikely that all customers will draw upon
their lines in full at any time.
Letters of credit are commitments issued to guarantee the performance
of a customer to a third party.
Loan commitments, lines of credit and letters of credit are made on
the same terms, including collateral, as outstanding loans. The Bank's
exposure to credit loss in the event of nonperformance by the borrower is
represented by the contract amount of the commitment. Management is not
aware of any accounting loss the Bank will incur by the funding of these
commitments.
27
<PAGE> 43
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
5. PREMISES AND EQUIPMENT
A summary of premises and equipment and the related depreciation
expense is as follows:
<TABLE>
<CAPTION>
Estimated
useful lives 1996 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land - $ 295,211 $ 295,211 $ 295,211
Land improvements 20 years 40,512 40,512 40,512
Building 10-40 years 1,050,407 1,050,407 1,049,519
Furniture, fixtures, and equipment 5-10 years 468,195 452,908 450,979
----------- ----------- -----------
1,854,325 1,839,038 1,836,221
Accumulated depreciation 338,971 241,560 145,154
----------- ----------- -----------
Net premises and equipment $ 1,515,354 $ 1,597,478 $ 1,691,067
=========== =========== ===========
Depreciation expense $ 97,411 $ 96,406 $ 95,099
=========== =========== ===========
</TABLE>
6. INTANGIBLE ASSETS
A summary of intangible assets and the related amortization follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Organization costs $ 234,820 $ 234,820 $ 234,820
Computer software 42,940 40,917 40,917
------------ ------------ ------------
277,760 275,737 275,737
Accumulated amortization 193,257 137,893 82,833
------------ ------------ ------------
Net intangible assets $ 84,503 $ 137,844 $ 192,904
============ ============ ============
Amortization expense $ 55,797 $ 55,495 $ 55,548
============ ============ ============
</TABLE>
7. LINES OF CREDIT
The Bank has available lines of credit of $1,000,000 in secured loans
from other banks.
28
<PAGE> 44
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
8. DEPOSITS
Major classifications of interest-bearing deposits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Money market and NOW $ 7,660,738 $ 5,256,087 $ 5,228,180
Savings 3,254,785 3,147,391 2,691,079
Other time 20,123,849 18,340,827 10,542,137
------------ ------------ ------------
$ 31,039,372 $ 26,744,305 $ 18,461,396
============ ============ ============
</TABLE>
Included in other time deposits are certificates of deposit issued in
denominations of $100,000 or more. The maturities and related interest
expense of these deposits follow:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Three months or less $ 1,210,112 $ 1,473,198 $ 712,947
Three to twelve months 1,547,716 2,387,364 1,056,203
One to five years 1,371,563 924,447 1,012,357
------------ ------------ ------------
$ 4,129,391 $ 4,785,009 $ 2,781,507
============ ============ ============
Interest expense $ 296,856 $ 184,461 $ 77,833
============ ============ ============
</TABLE>
9. OTHER OPERATING EXPENSES
Other operating expenses are comprised as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Advertising $ 35,332 $ 39,544 $ 34,312
Professional fees 44,890 59,976 34,679
Data processing 65,372 58,497 44,447
Deposit assessment 2,000 22,795 22,667
Insurance 21,435 34,147 35,109
Loan reports and collection costs 2,491 25,585 8,855
Organizational expense amortization 46,964 46,964 46,964
Postage 21,128 17,871 10,672
Proxy and transfer agent costs 2,701 9,076 10,701
Software amortization 8,833 8,531 8,584
Stationery and supplies 35,119 30,112 36,084
Telephone 12,987 12,898 13,121
Other 55,710 46,421 42,611
------------ ------------ ------------
$ 354,962 $ 412,417 $ 348,806
============ ============ ============
</TABLE>
29
<PAGE> 45
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
10. INCOME TAXES
For income tax purposes at December 31, 1996, 1995, and 1994, the
Corporation had net operating loss carryforwards of $1,426,467, $1,598,364,
and $1,038,768 available to offset future taxable income.
The statutory federal income tax rate was 34% for 1996, 1995, and
1994. The Company's effective tax rate for 1996, 1995, and 1994 was zero
due to the net operating losses. The provision (benefit) for income taxes
is reconciled as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income taxes $ 191,114 $ (164,608) $ (884,004)
========== ========== ==========
Tax provision at statutory rates $ 64,979 $ (55,967) $ (300,561)
Increase (decrease) resulting from
State income taxes, less federal benefit 8,822 (7,605) (40,841)
Nondeductible expenses 1,649 2,068 2,013
Net operating loss carryover (75,450) 61,504 339,389
---------- ---------- ----------
Provision (benefit) for income taxes $ - $ - $ -
========== ========== ==========
</TABLE>
The components of the deferred tax assets and liabilities as of
December 31, 1996, 1995, and 1994, are as follows:
<TABLE>
<S> <C> <C> <C>
Deferred tax assets
Allowance for credit losses $ 93,255 $ 86,034 $ 218,602
Deferred loan origination fees 1,033 1,668 -
Contributions carryforward 2,355 2,355 1,368
Net operating loss carryforward 550,902 617,288 401,172
Start-up costs 22,398 36,559 50,719
---------- ---------- ----------
669,943 743,904 671,861
---------- ---------- ----------
Deferred tax liabilities
Depreciation 46,980 47,803 38,671
Cash method accounting 34,741 32,198 30,790
---------- ---------- ----------
81,721 80,001 69,461
---------- ---------- ----------
Net deferred tax asset before
valuation allowance 588,222 663,903 602,400
Valuation allowance (588,222) (663,903) (602,400)
---------- ---------- ----------
Net deferred tax asset $ - $ - $ -
========== ========== ==========
</TABLE>
30
<PAGE> 46
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
11. LEASE COMMITMENTS
The Bank is currently leasing branch facilities from a related party.
The initial two year term of the lease began July 1, 1993. The second lease
term, for a period of five years, began July 1, 1995. Rent is fixed at $300
per month. There are options to extend beyond the initial lease terms with
rent increases that are contingent on the performance of the Bank and based
on the consumer price index of Easton.
<TABLE>
<CAPTION>
Minimum lease payments Amount
---------------------- ------
<S> <C>
1997 $ 3,600
1998 3,600
1999 3,600
2000 1,800
--------
$ 12,600
========
</TABLE>
Rent expense was $3,600 for each of the years ended December 31, 1996,
1995, and 1994.
12. STOCK WARRANTS
The organizers of the Corporation and certain partnerships controlled
by the organizers have purchased 272,574 shares of common stock sold in the
initial offering and hold warrants to purchase up to 207,800 additional
shares of common stock. The warrants are exercisable at a price of $10 per
share for a period of 10 years and expire June 30, 2003.
13. STOCK OPTION PLANS
The Corporation has entered into an employment agreement with an
executive officer that provides for options to purchase for $10 per share
2,797 shares each year for four years and, at the end of year five, to
receive an option for 5,593 shares. The officer must meet performance
criteria to be established by the Board of Directors. If issued, each such
option will be exercisable for a period of seven years following the date
of grant.
The Corporation has adopted a stock option plan, covering 35,000
shares of common stock, intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code. The plan will provide for
granting options to purchase shares of the common stock to the officers and
other key employees of the Corporation and the Bank.
31
<PAGE> 47
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
13. STOCK OPTION PLANS (Continued)
A summary of the status of the Company's performance-based stock
option plans follows:
<TABLE>
<CAPTION>
Shares 1996
- ----------------------------------- ---------
<S> <C>
Outstanding, beginning of year -
Granted 5,593
Exercised -
Forfeited -
---------
Outstanding, end of year 5,593
=========
</TABLE>
The Bank applies APB No. 25 in accounting for the stock option plan.
Accordingly, no compensation expense has been recognized for the stock
options granted. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) was issued in
October, 1995 to establish accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 defines a fair value
based method of accounting for measuring compensation expense for
stock-based plans to be recognized in the statement of income or disclosed
in the notes to the financial statements. Based on estimated fair values of
the stock, no compensation expense has been recognized.
14. RELATED PARTY TRANSACTIONS
The executive officers and directors of the Corporation enter into
loan transactions with the Bank in the ordinary course of business. The
terms of these transactions are similar to the terms provided to other
borrowers entering into similar loan transactions. A summary of the
activity of loans of officers and directors follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Beginning balance $ 2,067,392 $ 2,025,790 $ 1,305,419
Advances 936,266 411,326 1,535,609
Repayments (561,815) (369,724) (815,238)
------------ ------------ ------------
Ending balance $ 2,441,843 $ 2,067,392 $ 2,025,790
============ ============ ============
</TABLE>
The Corporation engaged a firm owned by one of the organizers to
construct the Bank's main office. The general contractor was paid $7,578 in
1994.
The Bank paid rent to a company that is owned by a director. Annual
rental payments of $3,600 were paid for each of the three years ended
December 31, 1996.
During 1996, 1995, and 1994, the Bank leased office space to a
director for $7,938 yearly.
32
<PAGE> 48
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
15. CAPITAL STANDARDS
The Federal Reserve Board and the Federal Deposit Insurance
Corporation have adopted risk-based capital standards for banking
organizations. These standards require ratios of capital to assets for
minimum capital adequacy and to be classified as well capitalized under
prompt corrective action provisions. As of December 31, 1996, the capital
ratios and minimum capital requirements of the Bank are as follows:
<TABLE>
<CAPTION>
To be well
Actual Capital adequacy capitalized
----------------- ------------------ -------------------
(in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $ 3,893 13.9% > $2,234 > 8.0% > $ 2,792 > 10.0%
- - - -
Tier 1 capital
(to risk-weighted assets) $ 3,561 12.8% > $1,117 > 4.0% > $ 1,675 > 6.0%
- - - -
Tier 1 capital
(to average assets) $ 3,561 9.8% > $1,454 > 4.0% > $ 1,818 > 5.0%
- - - -
</TABLE>
Tier 1 capital consists of capital stock, surplus, and undivided
profits. Total capital includes a limited amount of the allowance for
credit losses. In calculating risk-weighted assets, specified risk
percentages are applied to each category of asset and off-balance sheet
items.
Failure to meet the capital requirements could affect the Bank's
ability to pay dividends and accept deposits and may significantly affect
the operations of the Bank.
16. PROFIT SHARING PLAN
In 1996, the Bank adopted a defined contribution profit sharing plan
under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all of the employees and allows discretionary Bank
contributions. In 1996, the Board of Directors approved contributions
matching 10% of employee contributions which totaled $1,605.
33
<PAGE> 49
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments are
summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value techniques
prescribed by the FASB and may not be indicative of the net realizable or
liquidation values. Also, the calculation of estimated fair values is based
on market conditions at a specific point in time and may not reflect
current or future fair values.
<TABLE>
<CAPTION>
December 31,
1996 1995
------------------------- -------------------------
Carrying Fair Carrying Fair
amount value amount value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 1,211,182 $ 1,211,182 $ 991,301 $ 991,301
Federal funds sold 2,824,727 2,824,727 4,500,000 4,500,000
Investment securities 1,371,600 1,368,875 500,000 496,113
Loans, net 30,062,431 29,907,317 24,237,775 23,958,784
Accrued interest receivable 181,009 181,009 156,483 156,483
Financial liabilities
Noninterest-bearing deposits $ 1,719,187 $ 1,719,187 $ 1,493,690 $ 1,493,690
Interest-bearing deposits and securities
sold under agreements to repurchase 31,613,700 31,887,840 27,021,668 27,282,075
Accrued interest payable 93,684 93,684 101,109 101,109
</TABLE>
The fair values of U.S. Government agency securities are determined
using market quotations.
The fair value of fixed-rate loans is estimated to be the present
value of scheduled payments discounted using interest rates currently in
effect for loans of the same class and term. The fair value of
variable-rate loans, including loans with a demand feature, is estimated to
equal the carrying amount. The valuation of loans is adjusted for possible
loan losses.
The fair value of interest-bearing checking, savings, and money market
deposit accounts is equal to the carrying amount. The fair value of
fixed-maturity time deposits is estimated based on interest rates currently
offered for deposits of similar remaining maturities.
It is not practicable to estimate the fair value of outstanding loan
commitments, unused lines, and letters of credit.
34
<PAGE> 50
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
18. PARENT COMPANY FINANCIAL INFORMATION
The balance sheet and statements of income and cash flows for Easton
Bancorp, Inc. (Parent Only) follow:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
------------ ------------ ------------
BALANCE SHEETS
Assets
<S> <C> <C> <C>
Cash $ 91,153 $ 100,414 $ 117,356
Investment in Easton Bank & Trust Company 3,623,899 3,418,365 3,560,872
Organization costs 7,739 12,898 18,057
------------ ------------ ------------
Total assets $ 3,722,791 $ 3,531,677 $ 3,696,285
============ ============ ============
Liabilities and Stockholders' Equity
Stockholders' equity
Common stock, par value $.10 per share;
authorized 5,000,000 shares; issued and
outstanding 559,328 shares $ 55,933 $ 55,933 $ 55,933
Additional paid-in capital 5,217,686 5,217,686 5,217,686
Retained earnings (deficit) (1,550,828) (1,741,942) (1,577,334)
------------ ------------ ------------
Total stockholders' equity 3,722,791 3,531,677 3,696,285
------------ ------------ ------------
Total liabilities and stockholders' equity $ 3,722,791 $ 3,531,677 $ 3,696,285
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF (INCOME) LOSS Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest revenue $ 3,327 $ 3,929 $ 4,236
Equity in undistributed income (loss) of subsidiary 205,534 (142,507) (854,310)
------------ ------------ ------------
208,861 (138,578) (850,074)
------------ ------------ ------------
Expenses
Furniture and equipment 49 49 49
Other 17,698 25,981 33,881
------------ ------------ ------------
17,747 26,030 33,930
------------ ------------ ------------
Net income (loss) $ 191,114 $ (164,608) $ (884,004)
============ ============ ============
</TABLE>
35
<PAGE> 51
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
18. PARENT COMPANY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---------- ---------- ----------
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest received $ 3,327 $ 3,929 $ 4,236
Cash paid for operating expenses (12,588) (20,871) (28,772)
---------- ---------- ----------
(9,261) (16,942) (24,536)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from organizers repaid - - (500)
---------- ---------- ----------
NET (DECREASE) IN CASH (9,261) (16,942) (25,036)
Cash and equivalents at beginning of year 100,414 117,356 142,392
---------- ---------- ----------
Cash and equivalents at end of year $ 91,153 $ 100,414 $ 117,356
========== ========== ==========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 191,114 $ (164,608) $ (884,004)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Undistributed net (income) loss of subsidiary (205,534) 142,507 854,310
Amortization 5,159 5,159 5,158
---------- ---------- ----------
$ (9,261) $ (16,942) $ (24,536)
========== ========== ==========
</TABLE>
36
<PAGE> 52
EASTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
1996
- ----
<S> <C> <C> <C> <C>
Interest revenue $ 741,826 $ 694,753 $ 699,932 $ 651,002
Interest expense 373,791 367,737 386,380 365,960
Net interest income 368,035 327,016 313,552 285,042
Provision for loan losses (15,463) 9,066 21,297 3,799
Net income 75,586 61,304 29,547 24,677
Earnings per share 0.13 0.10 0.05 0.04
1995
- ----
Interest revenue $ 632,399 $ 585,856 $ 527,976 $ 455,629
Interest expense 334,910 317,476 286,494 216,223
Net interest income 297,489 268,380 241,482 239,406
Provision for loan losses 21,164 27,539 47,943 27,654
Net income (loss) 12,992 (17,696) (80,747) (79,157)
Earnings (loss) per share 0.02 (0.03) (0.14) (0.14)
1994
- ----
Interest revenue $ 419,208 $ 347,051 $ 248,273 $ 154,772
Interest expense 187,539 149,194 107,760 64,831
Net interest income 231,669 197,857 140,513 89,941
Provision for loan losses 420,784 38,726 49,000 38,000
Net income (loss) (443,790) (93,701) (173,492) (173,021)
Earnings (loss) per share (0.79) (0.17) (0.31) (0.31)
</TABLE>
37
<PAGE> 53
THE FOLLOWING COMMENT IS REQUIRED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
"This statement has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation"
38
<PAGE> 54
DIRECTORS AND EXECUTIVE OFFICERS OF
EASTON BANCORP, INC.
W. DAVID HILL, DDS PRESIDENT, WILLIAM HILL MANOR, INC.
CHAIRMAN/CHIEF EXECUTIVE OFFICER
THOMAS P. MCDAVID PRESIDENT/CHIEF EXECUTIVE OFFICER
PRESIDENT EASTON BANK & TRUST COMPANY
SHEILA W. BATEMAN CHIEF ADMINISTRATIVE OFFICER
SECRETARY WILLIAM HILL MANOR, INC.
JERRY L. WILCOXON CHIEF FINANCIAL OFFICER
TREASURER CAULK MANAGEMENT COMPANY
JACK H. BISHOP, DDS DENTIST, JACK H. BISHOP, DDS
J. PARKER CALLAHAN, JR. FARMER
J. FREDRICK HEATON, DMD ENDODONTIST, J. FREDRICK HEATON,
DMDPA
WILLIAM C. HILL PRESIDENT, HILL'S DRUG STORE, INC.
DAVID F. LESPERANCE PRESIDENT, LESPERANCE CONSTRUCTION,
INC.
VINODRAI MEHTA, MD PHYSICIAN, VINODRAI MEHTA, MD
ROGER A. ORSINI, MD PLASTIC & RECONSTRUCTIVE SURGEON
PRESIDENT OF SHORE AESTHETIC
& RECONSTRUCTIVE ASSOCIATES
MAHMOOD S. SHARIFF, MD CARDIOLOGIST, MAHMOOD S. SHARIFF, MD
ALL OF THE PERSONS NOTED ABOVE ARE DIRECTORS OF EASTON BANCORP, INC.
39
<PAGE> 55
DIRECTORS, OFFICERS AND STAFF OF
EASTON BANK & TRUST COMPANY
DIRECTORS
<TABLE>
<S> <C>
W. DAVID HILL, DDS THOMAS P. MCDAVID
CHAIRMAN OF THE BOARD PRESIDENT
SHEILA W. BATEMAN JERRY L. WILCOXON
SECRETARY TREASURER
JACK H. BISHOP, DDS PAMELA H. LAPPEN
J. PARKER CALLAHAN, JR. DAVID F. LESPERANCE
CHARLES T. CAPUTE VINODRAI MEHTA, MD
WALTER E. CHASE, JR. ROGER A. ORSINI, MD
STEPHEN W. CHITTY MARIAN H. SHANNAHAN
J. FREDRICK HEATON, DMD MAHMOOD S. SHARIFF, MD
THOMAS E. HILL JAMES B. SPEAR, SR.
WILLIAM C. HILL MYRON SZCZUKOWSKI, JR. MD
WILLIAM R. HOUCK, DDS DONNA S. TAYLOR
M. LINDA KILDEA
OFFICERS
--------
THOMAS P. MCDAVID DELIA B. DENNY
PRESIDENT/CHIEF EXECUTIVE OFFICER SENIOR VICE PRESIDENT
PAMELA A. MUSSENDEN GENE FISCHGRUND
SENIOR VICE PRESIDENT/TREASURER VICE PRESIDENT
BARBARA M. OSTRANDER ROSE M. KLECKNER
ASSISTANT VICE PRESIDENT ASSISTANT TREASURER
STAFF
-----
TERRI L. BRANNOCK, CSR SUPERVISOR BRENDA L. FORBES, CSR
BETTY C. GOULD, ADMINISTRATIVE ASSISTANT TRACY L. LEDNUM, CSR
SUSAN D. HASCHEN, OPERATIONS ADMINISTRATOR KIMBERLY D. STARTT, CSR
JACQUELINE D. WILSON, CREDIT ADMINISTRATOR PHILLIP B. MOANEY, JR., CSR
LESTA R. GUNTHER, OPERATIONS/LOAN ASSISTANT ANNE H. HUGHES, RECEPTIONIST
</TABLE>
40
