U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
----------------
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number: 33-43317
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EASTON BANCORP, INC.
--------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1745344
-------- -------------------
(State of incorporation) (I.R.S. Employer Identification No.)
501 Idlewild Avenue, Easton, Maryland 21601
--------------------------------------------
(Address of principal executive offices)
(410) 819-0300
--------------
(Issuer's telephone number)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
On August 4, 1999, 560,318 shares of the issuer's common stock, par value
$.10 per share, were issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
EASTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1999 1998
------------ --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 926,313 $ 976,682
Federal funds sold 349,860 7,269,903
Investment in Federal Home Loan Bank stock 150,000 145,600
Investment securities available-for-sale 4,168,330 4,840,026
Loans, less allowance for credit losses of
$488,280 and $530,000, respectively 39,535,622 33,254,808
Premises and equipment, net 1,672,390 1,662,127
Accrued interest receivable 259,171 246,470
Loan payment held in escrow - 1,175,000
Other assets 163,161 94,777
Deferred income taxes 367,132 401,551
------------ --------------
Total assets $47,591,979 $ 50,066,944
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 3,623,173 $ 4,682,618
Interest-bearing 37,205,790 39,436,342
------------ --------------
Total deposits 40,828,963 44,118,960
Accrued interest payable 77,186 95,611
Securities sold under agreements to repurchase 110,456 281,019
Note payable 2,009,193 1,000,000
Other liabilities 39,596 111,685
------------ --------------
Total liabilities 43,065,394 45,607,275
------------ --------------
Stockholders' equity
Common stock, par value $.10 per share;
Authorized 5,000,000 shares, 560,318 shares
issued and outstanding 56,032 56,032
Additional paid-in-capital 5,227,487 5,227,487
Retained earnings (deficit) (702,867) (816,863)
------------ --------------
4,580,652 4,466,656
Accumulated other comprehensive income (54,067) (6,987)
------------ --------------
Total stockholders' equity 4,526,585 4,459,669
------------ --------------
Total liabilities and stockholders' equity $47,591,979 $ 50,066,944
============ ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
<TABLE>
<CAPTION>
EASTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Interest revenue
Loans, including fees $866,152 $761,797 $1,633,089 $1,514,205
Investment securities 63,111 28,907 135,770 53,459
Federal funds sold 15,629 67,043 78,028 119,743
-------- -------- ---------- ----------
Total interest revenue 944,892 857,747 1,846,887 1,687,407
Interest expense 423,570 461,264 870,247 909,319
-------- -------- ---------- ----------
Net interest income 521,322 396,483 976,640 778,088
Provision for loan losses 18,000 34,812 36,000 71,345
-------- -------- ---------- ----------
Net interest income after
provision for loan losses 503,322 361,671 940,640 706,743
-------- -------- ---------- ----------
Other operating revenue 48,715 33,854 87,023 60,615
-------- -------- ---------- ----------
Other expenses
Salaries and benefits 272,265 216,809 524,462 421,127
Occupancy 16,400 14,884 33,831 28,405
Furniture and equipment 19,626 24,486 37,786 49,387
Other operating 139,306 130,328 258,916 231,822
-------- -------- ---------- ----------
Total operating expenses 447,597 386,507 854,995 730,741
-------- -------- ---------- ----------
Income before income taxes 104,440 9,018 172,668 36,617
Income taxes 34,872 - 58,672 -
-------- -------- ---------- ----------
Net income $ 69,568 $ 9,018 $ 113,996 $ 36,617
======== ======== ========== ==========
Earnings per common share - basic $ 0.12 $ .02 $ 0.20 $ .07
======== ======== ========== ==========
Earnings per common share - diluted $ 0.12 $ .01 $ 0.19 $ .06
======== ======== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
EASTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 1,833,801 $ 1,672,106
Other revenue received 19,813 61,648
Cash paid for operating expenses (877,444) (661,378)
Interest paid (888,672) (909,740)
------------ ------------
87,498 162,636
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for premises, equipment and software (62,326) (11,553)
Net loans to customers (6,314,050) 877,193
Receipt of funds held in escrow 1,175,000 -
Proceeds from sales/maturities of investments 1,721,697 500,000
Purchase of investment securities (1,128,113) (1,719,961)
Proceeds from sale of other real estate owned 61,699 -
Purchase of other real estate owned (60,450) -
------------ ------------
(4,606,543) (354,321)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in time deposits (3,551,399) 1,438,640
Net increase in other deposits 261,402 604,340
Net decrease in securities sold under agreements
to repurchase (170,563) (19,639)
Proceeds from borrowings 1,009,193 1,000,000
Proceeds from exercise of stock options - 9,900
------------ ------------
(2,451,367) 3,033,241
------------ ------------
NET INCREASE (DECREASE) IN CASH (6,970,412) 2,841,556
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,246,585 4,382,348
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,276,173 $ 7,223,904
============ ============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED (USED)
FROM OPERATING ACTIVITIES
Net income $ 113,996 $ 36,617
Adjustments to reconcile net income to net cash
provided (used) from operating activities:
Depreciation and amortization 44,790 81,719
Provision for loan losses 36,000 71,345
Decrease (increase) in accrued interest receivable
and other assets (31,126) 18,580
Increase (decrease) in operating accounts payable and
other liabilities (75,777) (28,146)
Deferred loan origination fees (2,764) (17,509)
Investment amortization, net of accretion 2,379 30
------------ ------------
$ 87,498 $ 162,636
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
1. Basis of Presentation
-----------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 1999, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto for the Company's fiscal year ended December 31, 1998, included in the
Company's Form 10-KSB for the year ended December 31, 1998.
2. Cash Flows
-----------
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, unrestricted amounts due from banks, overnight investments in
repurchase agreements, and federal funds sold.
4
<PAGE>
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors discussed herein and
those factors discussed in detail in the Company's filings with the Securities
and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Easton Bancorp, Inc. (the "Company") was incorporated in Maryland on July
19, 1991, primarily to own and control 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. In addition, in February 1999 the Bank
opened a loan production office in Denton, Maryland, which is in Caroline
County. In April 1999, the Bank received approval from the Federal Deposit
Insurance Corporation and the State of Maryland State Banking Department to
establish a branch in Denton, Maryland. The Bank intends to open a branch at
300 Market Street in Denton in September 1999. 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
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.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and related notes and other statistical information
included elsewhere herein.
Results of Operations
- -----------------------
Net income for the Company for the three months ended June 30, 1999, was
$69,568, compared to $9,018 during the corresponding period of 1998. Net income
for the six months ended June 30, 1999, was $113,996, compared to $36,617 for
the corresponding period of 1998. Net income before income taxes was $104,440
for the three months ended June 30, 1999, compared to $9,018 during the
corresponding period of 1998. Net income before income taxes was $172,668 for
the six months ended June 30, 1999, compared to $36,617 during the corresponding
period of 1998.
The increase in earnings before income taxes for the six month period ended
June 30, 1999 can be attributed to an increase in net interest income of
approximately $198,000, a decrease of approximately $35,000 in provision for
loan losses, and an increase of approximately $26,000 in other operating income,
offset by an increase of approximately $124,000 in total operating expenses. The
increase in net interest income is primarily due to an increase of approximately
$82,000 in interest earned on growth in the investment portfolio and an increase
of approximately $119,000 in interest earned on the growth in the loan
portfolio. The increase in total operating expenses is primarily attributed to
an increase in salaries and benefits of approximately $103,000.
5
<PAGE>
The Bank's loan portfolio increased from $33.3 million at December 31,
1998, to $39.5 million at June 30, 1999. The Bank's provision for loan losses
was $18,000 for the quarter ended June 30, 1999, and $36,000 for the six months
ended June 30, 1999, compared to $34,812 for the quarter ended June 30, 1998,
and $71,345 for the six months ended June 30, 1998.
The allowance for loan losses was $488,280 at June 30, 1999, or 1.22% of
total loans, compared to $530,033 at March 31, 1999, or 1.45% of total loans,
and $530,000 at December 31, 1998, or 1.57% of total loans. The level of the
allowance for loan losses represents management's current estimate of future
losses in the loan portfolio; however, there can be no assurance that loan
losses in future periods will not exceed the allowance for loan losses or that
additional increases in the allowance will not be required.
Total operating expenses increased $61,090 to $447,597 for the quarter
ended June 30, 1999, from $386,507 for the quarter ended June 30, 1998. The
increase was primarily related to the increases in salaries and benefits of
$55,456. The increase in salaries and benefits was due to annual salary
increases and three new full-time employees hired for the Main Office since the
second quarter of 1998. Also, three full-time employees were hired for Denton
Bank & Trust Company, a division of Easton Bank & Trust Company, which is
scheduled to open in September 1999.
Return on average assets and average equity, on an annualized basis, for
the quarter ended June 30, 1999, was .59% and 6.26%, respectively, compared to
.32% and 3.49%, respectively, for the same quarter of 1998. Return on average
assets and average equity, on an annualized basis, for the six months ended June
30, 1999, was .56% and 6.14%, respectively, compared to .30% and 3.28%,
respectively, for the same quarter of 1998. Earnings per share on a fully
diluted basis for the quarter and the six months ended June 30, 1999 was $.12
and $.19, respectively, compared to $.01 and $.06, respectively, for the same
periods of 1998.
The Company's assets ended the second quarter of 1999 at $47.6 million, a
decrease of $2.5 million, or 4.9%, from $50.1 million at December 31, 1998. This
decrease can be attributed primarily to the $6.9 million decrease in federal
funds sold, offset by the increase in the Bank's loans of $6.3 million, and the
decrease in loan payments held in escrow of $1.2 million. The Company borrowed
an additional $700,000 from the Federal Home Loan Bank of Atlanta, bringing
total borrowings from the Federal Home Loan Bank of Atlanta to $2.0 million. Of
the total $2.0 million, $1.5 are match funded on two loans and $.5 million is a
short-term borrowing.
Management expects that its 1999 income will exceed expenses. Although
management expects that the Company's current profitability will continue,
future events, such as an unanticipated deterioration in the loan portfolio,
could reverse this trend. Management's expectations are based on management's
best judgment and actual results will depend on a number of factors that cannot
be predicted with certainty and thus fulfillment of management's expectations
cannot be assured.
Liquidity and Sources of Capital
- ------------------------------------
The $3.3 million decrease in deposits from December 31, 1998, to June 30,
1999, is primarily reflected in the $6.9 million decrease in federal funds sold.
The Company's primary source of liquidity is cash on hand plus short-term
investments. At June 30, 1999, the Company's liquid assets totaled $5.6
million, or 11.8% of total assets, compared to $13.2 million, or 26.4% of total
assets, at December 31, 1998. Another source of liquidity is the $6.0 million
secured line of credit the Company has from the Federal Home Loan Bank of
Atlanta, of which $2.0 million is currently used, the $1.0 million unsecured
line of credit the Company has from a correspondent bank, and the $1.5 million
secured line of credit the Company has from another correspondent bank, of which
$75,000 of the $1.5 million line of credit is pledged to secure repurchase
agreements. If additional liquidity is needed, the Bank will sell
participations in its loans.
6
<PAGE>
The capital of the Company and the Bank exceeded all prescribed regulatory
capital guidelines at June 30, 1999. At June 30, 1999, the Tier 1 leverage
ratio for the Bank was 9.45%. At June 30, 1999, the Bank had a risk-weighted
total capital ratio of 13.09% and a Tier 1 risk-weighted capital ratio of
11.84%. The Company expects that its current capital and short-term investments
will satisfy the Company's cash requirements for the foreseeable future.
However, no assurance can be given in this regard as rapid growth, deterioration
in the loan quality or poor earnings, or a combination of these factors, could
change the Company's capital position in a relatively short period of time.
Accounting Rule Changes
- -------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company currently has no derivative
instruments or hedging activities but elected early adoption of this
pronouncement. The standard allows, at adoption, a one-time transfer of
securities between the held-to-maturity and available-for-sale securities
without affecting the classification of other securities. The Company
transferred its remaining securities classified as held-to-maturity to the
available-for-sale portfolio.
Year 2000 Issues
- ------------------
The Year 2000 issue relates to computer programs that use only two digits
to identify a year in the date field. Unless corrected, these programs could
read the year 2000 as the year 1900 and likely would adversely affect any number
of calculations that are made using the date field. Financial institutions are
highly computerized organizations and the Year 2000 issue represents a
significant risk to the industry. The Company faces the same risks as the
industry. The failure of a major loan or deposit system due to the Year 2000
issue could result in interest and balances being calculated inaccurately. Such
failures could have a significant impact on a financial institution's operations
and liquidity.
Management has a Year 2000 Committee, which reports to the Board,
responsible for assessing progress in the Company's plans to minimize the
effects of the Year 2000 issue. In its assessment of the Year 2000 issue, the
committee identified five major phases: Awareness, Assessment, Renovation,
Validation and Implementation.
The awareness phase is a continuing effort to educate employees, customers,
business partners and vendors of the impact of the Year 2000 issue. The effort
is well under way through communication with the appropriate constituencies and
training for all employees. During the assessment phase, which was completed by
March 31, 1998, a detailed list was compiled of all vendors, hardware, software,
and equipment owned or used by the Company. Each item was assigned a priority
based on its importance to the operations of the Company and the risk associated
with non-compliance. All manufacturers, software providers and vendors were
requested to provide information relating to the readiness of their product or
process for the Year 2000. The mission critical areas were identified as the
third party data processor, the loan documentation and compliance software, the
new accounts platform software, the proof machines, the microfilmer and fische
reader and the security system. The Company has also assessed non-information
technology systems, including the alarm systems of the Company.
The validation phase consisted of testing all mission critical hardware and
software for Year 2000 readiness. Validation of the core banking systems has
been completed. Test transactions were processed on loan and deposit accounts
to validate the accuracy of the Company's third party data processing service
provider. Validation tests were also run on the loan and compliance software
and the Federal Reserve Bank FedLine system. All tests were successful and no
Year 2000 problems were indicated. Contingency planning for all mission
critical functions was completed in June 1999.
7
<PAGE>
Of concern to management is the amount of funds which may be necessary to
have in the Bank and the ATM at the end of 1999 in the event customers desire to
withdraw extra cash. The Company is currently working to estimate the most
likely level of cash requirements, the source of these funds, and the required
level of security and insurance for the additional cash. It may be necessary to
build significant levels of cash at the end of 1999 which could reduce earning
assets or increase borrowings for a period of time, thereby negatively affecting
earnings. In addition, it may be necessary to purchase commitments from current
cash sources to guarantee funds availability and to purchase commitments from
vendors who transport cash.
Another concern is the preparedness of the Bank's customers for the Year
2000 issue. For example, commercial loan customers may be unable to repay their
loans from the Bank if their business is negatively impacted by the Year 2000
issue. Management continues to attempt to address this issue by educating its
customers as to the possible consequences of not being prepared for the Year
2000 issue. In addition, loan underwriting for the past year has included
issues relating to the customers' preparedness for the Year 2000 and their
reliance on computers in their business operations.
The Company's total costs associated with the Year 2000 issue will
primarily include the costs incurred to upgrade the existing software and
hardware not currently Year 2000 compliant. The Company expects that these
costs will be incurred in the normal course of business as software and hardware
is ordinarily upgraded to keep pace with technological advances. The Company
estimates that $1,000 has been spent to date which could be related to the Year
2000 issue. The Company does not track internal costs for personnel devoted to
the Year 2000 issue; however, one individual has spent significant time on the
project and many individuals have spent numerous hours working on the Year 2000
issue.
Market Risk
- ------------
Net interest income of the Company is one of the most important factors in
evaluating the financial performance of the Company. The Company uses interest
sensitivity analysis to determine the effect of rate changes. Net interest
income is projected over a one-year period to determine the effect of an
increase or decrease in the prime rate of 100 basis points. If prime were to
decrease 100 basis points, the Company would experience an increase in net
interest income of $9,300 if all assets and liabilities maturing within that
period were adjusted for the rate change. The sensitivity analysis does not
consider the likelihood of these rate changes nor whether management's reaction
to this rate change would be to reprice its loans and deposits.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or the
Bank is a party or of which any of their property is the subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on May 26, 1999, at
which meeting all five of management's nominees for the Board of Directors were
reelected, with four individuals reelected to serve as Class II Directors for a
three-year term, and one individual reelected as a Class I Director for a
two-year term. The individuals reelected as Class II Directors were: J. Parker
Callahan, Jr., receiving 412,799 votes for and 1,096 votes against or withheld,
with no votes abstaining; J. Fredrick Heaton, receiving 412,899 votes for and
996 votes against or withheld, with no votes abstaining; William C. Hill,
receiving 412,794 votes for and 1,101 votes against or withheld, with no votes
abstaining; and Roger A. Orsini, receiving 412,899 votes for and 996 votes
against or withheld, with no votes abstaining. The individual reelected as a
Class I Director was R. Michael S. Menzies, Sr., receiving 412,899 votes for and
996 votes against or withheld, with no votes abstaining. Class I and Class III
Directors continuing in office are: Sheila W. Bateman, Jack H. Bishop, W. David
Hill, David F. Lesperance, Vinodrai Mehta, Mahmood S. Shariff, and Jerry L.
Wilcoxon.
ITEM 5. OTHER INFORMATION.
Any stockholder of the Company who intends to present a proposal at the
2000 Annual Meeting of Stockholders, which proposal is not included in the
Company's Proxy Statement, must deliver notice of such proposal to the Company
no later than March 1, 2000. If the proposing stockholder fails to deliver
notice of such proposal to the Company by such date, then the person or persons
designated as proxies in connection with the Company's solicitation of proxies
shall have the discretionary voting authority to vote the shares of the
Company's Common Stock represented by the proxy cards returned to the Company in
accordance with their judgment on such matter when such proposal is presented at
the 2000 Annual Meeting. Any such notice of a stockholder proposal must be made
in writing addressed to Sheila W. Bateman, Easton Bancorp, Inc., P.O. Box 629,
Easton, Maryland 21601.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Amended and Restated Bylaws of the Company.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the
quarter ended June 30, 1999.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EASTON BANCORP, INC.
----------------------
(Registrant)
Date: August 12, 1999 By: /s/ R. Michael S. Menzies, Sr.
------------------ ------------------------------
R. Michael S. Menzies, Sr.
President
Date: August 12, 1999 By: /s/ Pamela A. Mussenden
------------------- ------------------------
Pamela A. Mussenden
Assistant Treasurer
(Principal Financial Officer)
10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
- ------- ------------------------------------------- -----------
<C> <S> <C>
3.1 Amended and Restated Bylaws of the Company.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
11
<PAGE>
EXHIBIT 3.1
-----------
AMENDED AND RESTATED
BYLAWS
OF
EASTON BANCORP, INC.
A MARYLAND CORPORATION
ARTICLE I
---------
OFFICES
The Corporation shall continuously maintain in the State of Maryland a
principal office and may have other offices within or without the state. The
Corporation shall have at least one resident agent who shall either be a citizen
of Maryland and reside in Maryland or be a Maryland corporation.
ARTICLE II
----------
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. An annual meeting of the stockholders
--------------
shall be held on such date in May of each year as the board of directors may
designate for the purpose of electing directors and for the transaction of such
other business as may come before the meeting.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the stockholders may
----------------
be called either by the president, the board of directors, or, subject to the
following sentence, the secretary at the written request of stockholders
entitled to cast at least 25% of all the votes entitled to be cast at the
meeting for the purpose or purposes stated in the call of the meeting. In the
case of a special meeting called at the request of the stockholders, the
secretary shall inform the stockholders who made the request of the reasonably
estimated costs of preparing and mailing a notice of the meeting and, on payment
of these costs to the Corporation, notify each stockholder entitled to notice of
the meeting. Notwithstanding the above, unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the meeting,
a special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve months.
SECTION 2.3 PLACE OF MEETING. The board of directors may designate any
----------------
place as the place of meeting for any annual meeting or for any special meeting
called by the board of directors. If no designation is made, or if a special
meeting is otherwise called, the place of meeting shall be at the Corporation's
principal place of business.
SECTION 2.4 NOTICE OF MEETINGS. Written notice stating the place, date,
------------------
and hour of the meeting and, if the meeting is a special meeting or if otherwise
required by any provision of the Maryland General Corporation Law (the
"Corporation Law"), the purpose or purposes for which the meeting is called,
shall be delivered not less than 10 nor more than 90 days before the date of the
meeting either personally or by mail, by or at the direction of the secretary,
to each stockholder entitled to vote at such meeting and to each other
stockholder entitled to notice of the meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, postage
prepaid, addressed to the stockholder at the stockholder's address as it appears
on the records of the Corporation. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken and
such date is not more than 120 days after the original record date.
<PAGE>
SECTION 2.5 FIXING OF RECORD DATE. For the purpose of determining the
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
stockholders entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the board of
directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than 90 days
and, for a meeting of stockholders, not less than 10 days before the date on
which the action requiring the determination will be taken. If no record date
is fixed for the determination of stockholders entitled to notice of or to vote
at a meeting of stockholders, the later of the close of business on the day on
which notice of the meeting is mailed or the 30th day before the meeting shall
be the record date for such determination. If no record date is fixed for the
determination of stockholders entitled to receive payment of a dividend or the
allotment of any rights, the date on which the resolution of the board of
directors declaring such dividend or allotment of rights is adopted shall be the
record date for such determination. A determination of stockholders shall apply
to any adjournment of the meeting unless the board fixes a new record date for
the adjourned meeting or unless the date to which the meeting is adjourned is
more than 120 days after the original record date.
SECTION 2.6 QUORUM. The holders of a majority of the outstanding shares
------
of the Corporation entitled to vote on a matter represented in person or by
proxy shall constitute a quorum for consideration of such matter at any meeting
of stockholders; provided that if less than a majority of the outstanding shares
are represented at such meeting, a majority of the shares so represented may
adjourn the meeting at any time without further notice. If a quorum is present,
the affirmative vote of the majority of all the votes cast at the meeting shall
be the act of the stockholders, unless the vote of a greater number of voting by
classes is required by the Corporation Law, the articles of incorporation or
these Bylaws. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the original
meeting. Withdrawal of stockholders from any meeting shall not cause failure of
a duly constituted quorum at that meeting.
SECTION 2.7 PROXIES. Each stockholder may appoint a proxy to vote or
-------
otherwise act for him by signing an appointment form and delivering it to the
person so appointed, but no such proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
SECTION 2.8 VOTING OF SHARES. Each outstanding share shall be entitled
----------------
to one vote in each matter submitted to vote at a meeting of stockholders.
Unless otherwise provided in the articles of incorporation, there shall be no
cumulative voting. Each stockholder may vote either in person or by proxy as
provided above.
SECTION 2.9 VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
--------------------------------------
Corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any given
time.
Shares registered in the name of another corporation, domestic or foreign,
may be voted by the president, a vice president or a proxy appointed by either
of them, unless another person appointed to vote the stock under a bylaw or a
resolution of the board of directors presents a certified copy of the bylaw or
resolution, in which case he may vote the stock.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his administrator, executor or
court-appointed guardian, either in person or by proxy, without a transfer of
such shares into the name of such administrator, executor or court appointed
guardian. Shares registered in the name of a trustee may be voted by such
trustee either in person or by proxy.
Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so is
contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock owned directly or indirectly by this Corporation
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
2
<PAGE>
SECTION 2.10 INSPECTORS. At any meeting of stockholders, the presiding
----------
officer may, or upon the request of any stockholder shall, appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the stockholders.
Each report of an inspector shall be in writing and signed by a majority of
the inspectors acting at such meeting. The report of a majority of the
inspectors shall be the report of the inspectors. The report of the inspectors
on the number of shares represented at the meeting and the results of the voting
shall be prima facie evidence thereof.
SECTION 2.11 VOTING BY BALLOT. Voting on any question may be by voice
----------------
unless the presiding officer shall order or any stockholder shall demand that
voting be by ballot.
SECTION 2.12 NOMINATIONS OF DIRECTORS.
--------------------------
(a) Nominations by Stockholders. Nominations, other than those made by
---------------------------
or on behalf of the existing management of the Corporation, shall be made in
writing and shall be delivered or mailed to the president of the Corporation not
less than 30 days prior to any meeting of stockholders called for the election
of directors; provided, however, that if less than 35 days' notice of the
-------- -------
meeting is given to stockholders, such nomination shall be mailed or delivered
to the president of the Corporation not later than the close of business on the
seventh day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information:
(1) The name age and business and residence addresses of each proposed
nominee.
(2) The principal business or occupation of each proposed nominee
during the last five years.
(3) With respect to each proposed nominee , any affiliation with or
material interest in the Corporation or any transaction involving the
Corporation, and any affiliation with or material interest in any person or
entity having an interest materially adverse to the Corporation.
(4) The name and residence address of the notifying stockholder.
(5) The number of shares of common stock of the Corporation owned by
the notifying stockholder.
(b) Additional Nomination Requirements. Notwithstanding subsection (a)
----------------------------------
of this Section 2.12, if the Corporation or any banking subsidiary of the
Corporation is subject to the requirements of Section 914 of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, then no person may
be nominated by a stockholder for election as a director at any meeting of
stockholders unless the stockholder furnishes the written notice required by
subsection (a) of this Section 2.12 to the secretary of the Corporation at least
60 days prior to the date of the meeting and the nominee has received regulatory
approval to serve as a director prior to the date of the meeting.
(c) Procedures. The chairman of any meeting of stockholders at which one
----------
or more directors are to be elected may disregard any nomination not made in
accordance with this Section 2.12, and upon the chairman's instructions, the
vote tellers shall disregard all votes cast for such nominees. The chairman of
any such meeting, for good cause shown and with proper regard for the orderly
conduct of business at the meeting, may waive in whole or in part the operation
of this Section 2.12.
SECTION 2.13 CHAIRMAN OF MEETING. The chairman of the board of
---------------------
directors shall serve as chairman of any meeting of shareholders unless he is
unable or unwilling to serve as such, in which case the president shall serve as
chairman of the meeting unless the board of directors has designated another
person to serve as chairman of the meeting.
3
<PAGE>
ARTICLE III
-----------
DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the
--------------
Corporation shall be managed under the direction of its board of directors. A
majority of the board of directors may establish reasonable compensation for
their services and the services of the officers, irrespective of any personal
interest.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of directors
---------------------------------
of the Corporation shall at all times be not less than eleven nor more than
twenty-five persons, the exact number to be fixed and determined from time to
time by resolution of a majority of the full board of directors or by resolution
of a majority of the shareholders at any annual or special meeting thereof.
Directors will be divided into three classes, the term of office of those of the
first class to expire at the annual meeting next ensuing; of the second class
one year thereafter; of the third class two years thereafter; and at each annual
election held after such classification and election, directors shall be chosen
for a full term, as the case may be, to succeed those whose terms expire.
Directors need not be residents of Maryland or stockholders of the Corporation.
The number of directors may be increased or decreased from time to time by the
amendment of this section; but no decrease shall have the effect of shortening
the term of any incumbent director.
SECTION 3.3 REGULAR MEETINGS. A regular meeting of the board of
----------------
directors shall be held, without notice other than this Bylaw, immediately after
the annual meeting of stockholders. The board of directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the board of
----------------
directors may be called by or at the request of the chairman of the board of
directors, the president or any four directors. The person or persons authorized
to call special meetings of the board of directors may fix any place as the
place for holding any special meeting of the board of directors called by them.
SECTION 3.5 NOTICE. No notice will be required for any scheduled
------
regular meeting of the board of directors. Unless waived as provided below, if a
special meeting has been called pursuant to Section 3.4, the person or persons
calling the meeting or any other officer or director shall give notice to each
director of the special meeting stating the date, time and place of the meeting.
Such notice will be given either (a) by mailing a notice of the meeting not
later than the fifth business day prior to the date of the meeting, (b) by
telephone, telegram, cablegram, telecommunication, teletype, facsimile
transmission or personal delivery not later than the second business day prior
to the date of the meeting, or (c) orally, either in person or by telephone not
later than the second business day prior to the date of the meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.6 QUORUM. A majority of the entire board of directors shall
------
constitute a quorum for the transaction of business at any meeting of the board
of directors, provided that if less than a majority of such number of directors
are present at such meeting, a majority of the directors present may adjourn the
meeting at any time without further notice.
SECTION 3.7 MANNER OF ACTING. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless the act of a greater number is required by statute, these
Bylaws, or the articles of incorporation.
4
<PAGE>
SECTION 3.8 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy
-----------------------------------------
occurring on the board for any reason, except as a result of a newly created
directorship, may be filled by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director. A majority of the
entire board of directors may fill a vacancy which results from a newly created
directorship. The director elected to fill such vacancy of newly created
directorship shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualifies. The stockholders may elect a
successor to fill a vacancy on the board of directors which results from the
removal of a director. A director elected by the stockholders to fill a vacancy
which results from the removal of a director serves for the balance of the term
of the removed director.
SECTION 3.9 RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
--------------------------------------
resign at any time by giving written notice of his resignation to the chairman
of the board of directors, the president or the secretary of the Corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective is not specified therein, then when accepted
by action of the board of directors. Except as provided above, the acceptance
of such resignation shall not be necessary to make it effective.
Unless the articles of incorporation provide otherwise, a director may be
removed, with or without cause, at any time by the affirmative vote of a
majority of all the votes entitled to be cast for the election of directors.
SECTION 3.10 ACTION BY CONFERENCE TELEPHONE. Any one or more members
-------------------------------
of the board of directors or of any committee designated by the board of
directors may participate in a meeting of the board or of such committee by
means of conference telephone or similar communications equipment which allows
all persons participating in the meeting to hear each other at the same time.
Participation in a meeting by such means shall constitute presence in person at
such meeting.
SECTION 3.11 ACTION BY DIRECTORS WITHOUT A MEETING. The authority of
-------------------------------------
the board of directors may be exercised without a meeting if a consent in
writing, setting forth the action taken, is signed by all of the directors
entitled to vote and is filed with the minutes of the proceedings of the board
of directors.
SECTION 3.12 COMPENSATION. The board of directors, by the affirmative
------------
vote of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the Corporation as directors,
officers, or otherwise notwithstanding any director conflict of interest. By
resolution of the board of directors, the directors may be paid their expenses,
if any, of attendance at each meeting of the board. No such payment previously
mentioned in this section shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 3.13 PRESUMPTION OF ASSENT. A director of the Corporation who
---------------------
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless he announces his dissent at the meeting and that director's dissent shall
be entered in the minutes of the meeting or written dissent to such action shall
be filed with the person acting as the secretary of the meeting before the
adjournment thereof or shall be forwarded by registered or certified mail to the
secretary of the Corporation within 24 hours after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action or failed to make his dissent known at the meeting.
SECTION 3.14 COMMITTEES. A majority of the board of directors may
----------
create one or more committees of two or more members and delegate to these
committees any of the powers of the board of directors, except such powers that
the Corporation Law provides may not be delegated to a committee. A majority of
such committee shall constitute a quorum for transaction of business. A
committee may transact business without a meeting by unanimous written consent.
5
<PAGE>
ARTICLE IV
----------
OFFICERS
SECTION 4.1 NUMBER. The officers of the Corporation shall include a
------
president, a treasurer, and a secretary, and may include a chief executive
officer, one or more vice presidents, and such other officers as may be elected
by the board of directors. Any two or more offices may be held by the same
person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the
---------------------------
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as conveniently may be. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until a successor shall have been
duly elected and shall have qualified or until such officer's death, resignation
or removal in the manner hereinafter provided. Election of an officer shall not
of itself create contract rights.
SECTION 4.3 REMOVAL. Any officer elected or appointed by the board of
-------
directors may be removed by the board of directors whenever in its judgment the
best interests of the Corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4.4 CHIEF EXECUTIVE OFFICER. The chief executive officer shall
------------------------
be the active executive officer of the Corporation. Subject to the direction
and control of the board of directors, the chief executive officer shall: be in
charge of the business of the Corporation; see that the resolutions and
directions of the board of directors are carried into effect except in those
instances in which that responsibility is specifically assigned to some other
person by the board of directors; and, in general, discharge all duties incident
to the office of the chief executive officer and such other duties as may be
prescribed by the board of directors from time to time. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the Corporation or a different mode of execution is
expressly pre-scribed by the board of directors or these Bylaws, the chief
executive officer may execute for the Corporation certificates for its shares,
and any contracts, deeds, mortgages, bonds, or other instruments which the board
of directors has authorized to be executed, and may accomplish such execution
either under or without the seal of the Corporation and either individually or
with the secretary, any assistant secretary, or any other officer thereunto
authorized by the board of directors, according to the requirements of the form
of the instrument. The chief executive officer may vote all securities which
the Corporation is entitled to vote except as and to the extent such authority
shall be vested in a different officer or agent of the Corporation by the board
of directors.
SECTION 4.5 PRESIDENT. The president shall be the principal operating
---------
officer of the Corporation. Under the direction of the board of directors, the
president shall perform the duties of the chief executive officer in the chief
executive officer's absence or inability to act; and in general, discharge all
duties incident to the office of the president and such other duties as may be
prescribed by the board of directors from time to time. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the Corporation or a different mode of execution is
expressly prescribed by the board of directors or these Bylaws, the president
may execute for the Corporation certificates for its shares, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, and may accomplish such execution either under or
without the seal of the Corporation and either individually or with the
secretary, any assistant secretary, or any other officer thereunto authorized by
the board of directors.
SECTION 4.6 THE VICE PRESIDENTS. The vice president (or in the event
-------------------
there is more than one vice president, each of the vice presidents) shall assist
the chief executive officer and the president in the discharge of their duties
and shall perform such other duties as from time to time may be assigned by the
chief executive officer, the president, or the board of directors. In the
absence of the chief executive officer or the president or in the event of the
chief executive officer's or president's inability or refusal to act, the vice
president (or in the event there is more than one vice president, the vice
presidents in the order designated by the board of directors, or by the
president if the board of directors has not made such a designation, or in the
absence of any designation, then in the order of seniority of tenure as vice
president) shall perform the duties of the chief executive officer or the
president and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the chief executive officer or the president. Except
in those instances in which the authority to execute is expressly delegated to
another officer or agent of the Corporation or a different mode of execution is
expressly prescribed by the board of directors or these Bylaws, the vice
president (or each of them if there are more than one) may execute for the
Corporation certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments which the board of directors has authorized to be
executed, and may accomplish such execution either under or without the seal of
the Corporation and either individually or with the secretary, any assistant
secretary, or any other officer thereunto authorized by the board of directors,
according to the requirements of the form of the instrument.
6
<PAGE>
SECTION 4.7 THE TREASURER. The treasurer shall be the principal
-------------
accounting and financial officer of the Corporation. The treasurer shall: (a)
have charge of and be responsible for the maintenance of adequate books of
account for the Corporation; (b) have charge and custody of all funds and
securities of the Corporation, and be responsible therefor and for the receipt
and disbursement thereof; and (c) perform all the duties incident to the office
of treasurer and such other duties as from time to time may be assigned by the
president or by the board of directors. If required by the board of directors,
the treasurer shall give a bond for the faithful discharge of these duties in
such sum and with such surety or sureties as the board of directors may
determine.
SECTION 4.8 THE SECRETARY. The secretary shall: (a) record the minutes
-------------
of the stockholders' and the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation; (d) keep a register of
the post office address of each stockholder which shall be furnished to the
secretary by such stockholder; (e) sign with the chief executive officer, the
president, or a vice president, or any other officer thereunto authorized by the
board of directors, certificates for shares of the Corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the board of directors or these Bylaws; (f) have general charge of the stock
transfer books of the Corporation; (g) have authority to certify the Bylaws,
resolutions of the stockholders and board of directors and committees thereof,
and other documents of the Corporation as true and correct copies thereof; and
(h) perform all duties incident to the office of secretary and such other duties
as from time to time may be assigned by the chief executive officer, the
president or by the board of directors.
SECTION 4.9 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
----------------------------------------------
assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or
by the chief executive officer, the president or the board of directors. The
assistant secretaries may sign with the chief executive officer, the president,
or a vice president, or any other officer thereunto authorized by the board of
directors, certificates for shares of the Corporation, the issue of which shall
have been authorized by the board of directors, and any contracts, deeds,
mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument except when a different mode of execution is expressly prescribed by
the board of directors or these Bylaws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 4.10 SALARIES. The salaries of the officers shall be fixed
--------
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that such officer is also a
director of the Corporation.
ARTICLE V
---------
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall
------------------------------
indemnify and hold harmless any person (an "Indemnified Person") who was or is,
or is threatened to be made, a named defendant or respondent to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action or suit by or in the right
of the Corporation), by reason of service as a director of the Corporation
against any judgments, penalties, fines, settlements and reasonable expenses
(including, but not limited to, attorneys' fees and disbursements, court costs
and expert witness fees) actually incurred by him in connection with the action,
suit or proceeding; provided, in any case, that no indemnification shall be made
for any judgments, fines, penalties, settlements or expenses attributable to
circumstances as to which, under applicable provisions of the Corporation Law as
in effect from time to time, such indemnification is not allowed. If at any
time the Corporation Law shall have been amended to authorize the further
indemnification against liability of a director, then each director of the
Corporation shall be indemnified by the Corporation to the fullest extent
permitted by the Corporation Law, as so amended, without action by the board of
directors or shareholders, unless the provisions of the Corporation Law, as
amended, require such action.
7
<PAGE>
SECTION 5.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall
---------------------------
have the power to cause the Corporation to provide to officers, employees and
agents of the Corporation all or any part of the right to indemnification and
other rights of the type provided under Section 5.1, 5.5 and 5.11 of this
Article Five (subject to the conditions, limitations and obligations specified
therein) upon a resolution to that effect identifying such officers, employees
or agents (by position or name) and specifying the particular rights provided,
which may be different for each of the persons identified. Each officer,
employee or agent of the Corporation so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article Five.
SECTION 5.3 SUBSIDIARIES. The Board of Directors shall have the power
------------
to cause the Corporation to provide to any director, officer, employee or agent
of the Corporation who also is or was a director, officer, trustee, general
partner, employee or agent of a Subsidiary (as defined below), all or any part
of the right to indemnification and other rights of the type provided under
Sections 5.1, 5.5 and 5.11 of this Article Five (subject to the conditions,
limitations and obligations specified therein), with regard to amounts actually
and reasonably incurred by such person because he is or was a director, officer,
trustee, general partner, employee or agent of the Subsidiary. The Board of
Directors shall exercise such power, if at all, through a resolution identifying
the person or persons to be indemnified (by position or name) and the Subsidiary
(by name or other classification), and specifying the particular rights
provided, which may be different for each of the persons identified. Each
person so identified shall be an "Indemnified Person" for purposes of the
provisions of this Article Five. As used in this Article Five, "Subsidiary"
shall mean (a) another corporation, joint venture, trust, partnership. or
unincorporated business association more than 20% of the voting capital stock or
other voting equity interest of which was, at or after the time the
circumstances giving rise to such action, suit or proceeding arose, owned,
directly or indirectly, by the Corporation, or (b) a nonprofit corporation that
receives its principal financial support from the Corporation or its
Subsidiaries.
SECTION 5.4 DETERMINATION. To the extent that an Indemnified Person
-------------
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 5.1 (or in Sections 5.2 or 5.3, if the Board
of Directors has specified that advancement of expenses be made available to
such Indemnified Person), or in defense of any claim, issue, or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. Except as
provided above, any indemnification under this Article Five (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Indemnified Person is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth under the Corporation Law. Such determination shall be made (1) by
the board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or even if obtainable and a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
SECTION 5.5 ADVANCES. Expenses (including, but not limited to,
--------
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred by the Indemnified Person in defending any action, suit or proceeding
of the kind described in Section 5.1 (or in Sections 5.2 or 5.3, if the Board of
Directors has specified that advancement of expenses be made available to such
Indemnified Person) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as set forth herein. The
Corporation shall promptly pay the amount of such expenses to the Indemnified
Person, but in no event later than 10 days following the Indemnified Person's
delivery to the Corporation of a written request for an advance pursuant to this
Section 5.5, together with a reasonable accounting of such expenses; provided,
however, that the Indemnified Person shall furnish the Corporation a written
affirmation of his good faith belief that he is entitled to indemnification for
such amounts under this Article Five and a written undertaking and agreement to
repay to the Corporation any advances made pursuant to this Section 5.5 if it
shall be determined that the Indemnified Person is not entitled to be
indemnified by the Corporation for such amounts. The Corporation shall make the
advances contemplated by this Section 5.5 regardless of the Indemnified Person's
financial ability to make repayment. Any advances and undertakings to repay
pursuant to this Section 5.5 shall be unsecured and interest-free.
8
<PAGE>
SECTION 5.6 NON-EXCLUSIVITY. Subject to any applicable limitation
---------------
imposed by the Corporation Law or the articles of incorporation, the
indemnification and advancement of expenses provided by or granted pursuant to
this Article Five shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
any provision of the Articles of Incorporation, or any Bylaw, resolution, or
agreement specifically or in general terms approved or ratified by the
affirmative vote of holders of a majority of the shares entitled to be cast
thereon.
SECTION 5.7 INSURANCE. The Corporation shall have the power to purchase
---------
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, trustee, general partner,
employee or agent of a Subsidiary, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article Five.
SECTION 5.8 NOTICE. If the Corporation indemnifies or advances
------
expenses to a director under Section 2-418 of the Corporation Law (or any
equivalent provision of these Bylaws) in connection with a proceeding by or in
the right of the Corporation, the Corporation shall, to the extent required by
such section, report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholders' meeting.
SECTION 5.9 SECURITY. The Corporation may designate certain of its
--------
assets as collateral, provide self-insurance or otherwise secure its obligations
under this Article Five, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Five, as the Board of Directors deems appropriate.
SECTION 5.10 AMENDMENT. Any amendment to this Article Five that limits
---------
or otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to claims, actions, suits, or proceedings based
on actions, events or omissions (collectively, "Post Amendment Events")
occurring after such amendment and after delivery of notice of such amendment to
the Indemnified Person so affected. Any Indemnified Person shall, as to any
claim, action, suit or proceeding based on actions, events or omissions
occurring prior to the date of receipt of such notice, be entitled to the right
of indemnification, advancement of expenses and other rights under this Article
Five to the same extent as if such provisions had continued as part of the
Bylaws of the Corporation without such amendment. This Section 5.10 cannot be
altered, amended or repealed in a manner effective as to any Indemnified Person
(except as to Post Amendment Events) without the prior written consent of such
Indemnified Person.
SECTION 5.11 AGREEMENTS. The provisions of this Article Five shall be
----------
deemed to constitute an agreement between the Corporation and each person
entitled to indemnification hereunder. In addition to the rights provided in
this Article Five, the Corporation shall have the power, upon authorization by
the Board of Directors, to enter into an agreement or agreements providing to
any person who is or was a director, officer, employee or agent of the
Corporation indemnification rights substantially similar to those provided in
this Article Five.
SECTION 5.12 CONTINUING BENEFIT. The indemnification and advancement
-------------------
of expenses provided by or granted pursuant to this Article Five shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
SECTION 5.13 SUCCESSORS. For purposes of this Article Five, the term
----------
"Corporation" shall include any corporation, joint venture, trust, partnership
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation or otherwise, and any such successor
shall be liable to the persons indemnified under this Article Five on the same
terms and conditions and to the same extent as this Corporation.
SECTION 5.14 SEVERABILITY. Each of the Sections of this Article Five,
------------
and each of the clauses set forth herein, shall be deemed separate and
independent, and should any part of any such Section or clause be declared
invalid or unenforceable by any court of competent jurisdiction, such invalidity
or unenforceability shall in no way render invalid or unenforceable any other
part thereof or any separate Section or clause of this Article Five that is not
declared invalid or unenforceable.
9
<PAGE>
SECTION 5.15 ADDITIONAL INDEMNIFICATION. In addition to the specific
---------------------------
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and such of its officers as have been appointed by the Board of
Directors to the full extent permitted by action of the Board of Directors
without shareholder approval under the Corporation Law or other laws of the
State of Maryland as in effect from time to time.
ARTICLE VI
----------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 6.1 CONTRACTS. The board of directors may authorize any
---------
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 6.2 LOANS. No loans shall be contracted on behalf of the
-----
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors.
SECTION 6.3 CHECKS, DRAFTS, ETC. All checks, drafts, or other
----------------------
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers, or
agent or agents, of the Corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
SECTION 6.4 DEPOSITS. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE VII
-----------
SHARES AND THEIR TRANSFER
SECTION 7.1 SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED
----------------------------------------------------------
SHARES. Shares shall either be represented by certificates or be uncertificated
- ------
shares.
Certificates representing shares of the Corporation shall be signed by the
appropriate officer and may be sealed with the seal or a facsimile of the seal
of the Corporation. If a certificate is countersigned by a transfer agent or
registrar, other than the Corporation or its employee, any other signatures may
be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified, and shall also state the name of the person to
whom issued, the number and class of shares (with designation of series, if
any), the date of issue, and that the Corporation is organized under Maryland
law. If the Corporation is authorized to issue shares of more than one class or
of series within a class, the certificate shall also contain such information or
statement as may be required by law.
The name and address of each stockholder, the number and class of shares
held, and the date on which the shares were issued shall be entered on the books
of the Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 7.2 LOST CERTIFICATES. If a certificate representing shares
------------------
has allegedly been lost or destroyed the board of directors may in its
discretion, except as may be required by law, direct that a new certificate be
issued, upon such indemnification and other reasonable requirements as it may
impose.
SECTION 7.3 TRANSFERS OF SHARES. Transfers of shares of the
---------------------
Corporation shall be recorded on the books of the Corporation. Transfer of
shares represented by certificates, except in the case of a lost or destroyed
certificate, shall be made on surrender for cancellation of the certificate for
such shares. A certificate presented for transfer must be duly endorsed and
accompanied by proper guaranty of signature and other appropriate assurances
that the endorsement is effective. Transfer of an uncertificated share shall be
made on receipt by the Corporation of an instruction from the registered owner
or other appropriate person. The instruction shall be in writing or a
communication in such form as may be agreed upon in writing by the Corporation.
10
<PAGE>
ARTICLE VIII
------------
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 in each year or
on such other date as the board of directors may determine.
ARTICLE IX
----------
DISTRIBUTIONS
The board of directors may authorize, and the Corporation may make,
distributions to its stockholders, subject to any restrictions in its articles
of incorporation or provided by law.
ARTICLE X
---------
SEAL
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal, Maryland." The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced,
provided that the affixing of the corporate seal to an instrument shall not give
the instrument additional force or effect, or change the construction thereof,
and the use of the corporate seal is not mandatory.
ARTICLE XI
----------
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
Bylaws or under the provisions of the articles of incorporation or under the
provisions of the Corporation Law, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute waiver of notice thereof unless the
person at the meeting objects to the holding of the meeting because proper
notice was not given.
ARTICLE XII
-----------
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by the
stockholders or the board of directors, provided that any action by the board of
directors shall not divest or limit the power of the stockholders to adopt,
amend, or repeal Bylaws and the stockholders may, in adopting, amending or
repealing a particular bylaw, provide expressly the board of directors may not
amend or repeal the Bylaw. The Bylaws may contain any provisions for the
regulation and management of the affairs of the Corporation not inconsistent
with the law or the articles of incorporation.
* * * * *
Effective May 26, 1999
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
EASTON BANCORP, INC.
COMPUTATION OF EARNINGS PER SHARE
QUARTER ENDED JUNE 30, 1999
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
-------------- --------------
<S> <C> <C>
Net income $ 69,568 $ 113,996
============== ==============
Average shares outstanding 560,318 560,318
Basic earnings per share $ 0.12 $ 0.20
============== ==============
Average shares outstanding 560,318 560,318
Dilutive average shares outstanding under
warrants and options 207,800 207,800
Exercise price $ 10.00 $ 10.00
Assumed proceeds on exercise $ 2,078,000 $ 2,078,000
Average market value $ 12.25 $ 12.25
Less: Treasury stock purchased with assumed
proceeds from exercise of warrants and options 169,633 169,633
Adjusted average shares-diluted 598,485 598,485
Diluted earnings per share $ 0.12 $ 0.19
============== ==============
</TABLE>
The stock of the Company is not traded on any public exchange. The average
market values are derived from trades known to management. Private sales may
occur where management of the Company is unaware of the sales price.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 926313
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 349860
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4168330
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 39535622
<ALLOWANCE> 488280
<TOTAL-ASSETS> 47591979
<DEPOSITS> 40828963
<SHORT-TERM> 610456
<LIABILITIES-OTHER> 116782
<LONG-TERM> 1509193
0
0
<COMMON> 56032
<OTHER-SE> 4470553
<TOTAL-LIABILITIES-AND-EQUITY> 47591979
<INTEREST-LOAN> 1633089
<INTEREST-INVEST> 135770
<INTEREST-OTHER> 78028
<INTEREST-TOTAL> 1846887
<INTEREST-DEPOSIT> 827491
<INTEREST-EXPENSE> 870247
<INTEREST-INCOME-NET> 976640
<LOAN-LOSSES> 36000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 854995
<INCOME-PRETAX> 172668
<INCOME-PRE-EXTRAORDINARY> 113996
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113996
<EPS-BASIC> .20
<EPS-DILUTED> .19
<YIELD-ACTUAL> 3.86
<LOANS-NON> 427000
<LOANS-PAST> 9000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 806045
<ALLOWANCE-OPEN> 530000
<CHARGE-OFFS> 103830
<RECOVERIES> 26110
<ALLOWANCE-CLOSE> 488280
<ALLOWANCE-DOMESTIC> 488280
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 488280
<PAGE>
</TABLE>
