SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996. Commission file number 0-22536
Monocacy Bancshares, Inc.
(Exact name of Registrant as specified in its charter)
Maryland 52-1824297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 East Baltimore Street, Taneytown, Maryland 21787
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 756-2655
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $5 per share
(Title of Class)
- --------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge in a definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-KSB. { }
The Registrant's revenues for the most recent fiscal year were $21,632,360.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 1997, was $26,051,004.
As of March 20, 1997, Monocacy Bancshares, Inc. had 1,618,803 shares of common
stock outstanding, par value $5.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Monocacy Bancshares, Inc. Annual Report to Shareholders for the year
ended December 31, 1996, are incorporated by reference into Parts I, II and III.
Portions of the Definitive Proxy Statement for the annual shareholders' meeting
to be held April 28, 1997, are incorporated by reference in Part III.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
Monocacy Bancshares, Inc. ("Monocacy" or "Registrant") commenced business
on October 1, 1993, and is a Maryland corporation and a bank holding
company. Taneytown Bank & Trust Company ("Bank") is a wholly owned
subsidiary of Monocacy Bancshares, Inc. and its primary operating entity.
The primary regulator of Monocacy Bancshares is the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"), while the Bank, as a
state chartered commercial bank, is regulated by the Federal Deposit
Insurance Corporation ("FDIC") and the Maryland State Banking Commission.
On December 31, 1995, the Registrant acquired Royal Oak Savings Bank,
F.S.B. ("Royal Oak") as a subsidiary of Monocacy. The transaction was
accounted for as a purchase and the results of operations for the year 1995
properly do not include any income from Royal Oak. The purchase price of
the assets and costs associated therewith were approximately equal to the
liabilities and capital assumed and no goodwill was recorded in the
transaction. A $3.6 million deposit premium was paid in the transaction.
Royal Oak was merged with and into the Bank in April, 1996. On April 1,
1996, the Registrant acquired Classic Mortgage Company, which was merged
into the Bank. It is now operated as a division of the Bank. The purchase
price was approximately $250,000.
The Bank, which operates as a commercial bank and trust company, operates
in Carroll County, Baltimore County and Howard County, Maryland, as well as
Gettysburg, Pennsylvania. The Bank is engaged in commercial and savings
business, as authorized by the banking statutes of the State of Maryland,
including the receiving of demand and time deposits and the making of loans
to individuals, associations, partnerships and corporations. The Bank is
also engaged in trust business. Real Estate financing comprises residential
first and second mortgages, home equity lines of credit and commercial
mortgages. Consumer lending is primarily made directly to individuals.
Commercial lending is made primarily to small businesses in the Bank's
trade area in the form of equipment and other fixed asset loans and short
term lines of credit supported by current assets. The Bank offers fiduciary
and trust services, as well as other specialized services in connection
with its general banking and trust business in keeping with the current
trends of the banking industry. The Bank also owns and operates TBT
Insurance, Inc., a Maryland corporation and wholly-owned subsidiary
offering Single Premium and IRA annuities. Investors Marketplace, Inc., is
a separate division that offers mutual funds. Classic Mortgage Company,
another division of the Bank, described above, provides the Bank's
mortgage-banking operations.
Competition
The Bank operates in a very competitive market that is served primarily by
several locally headquartered community banks, several large regional
banks, as well as other financial intermediaries including brokerage firms,
savings and loan associations and savings banks, credit unions, consumer
loan companies, finance companies, insurance companies and certain
government agencies. The Bank operates 11 branches, as well as 5 automatic
teller machines and employed 141 full-time employees at December 31, 1996.
Carroll County, Baltimore County and Howard County, as well as Gettysburg,
Pennsylvania are largely agriculture, light industry and retail business
economies and are residential areas for metropolitan Baltimore and
Washington, D.C. The Bank does not experience any significant fluctuations
in loan or deposit activity that are seasonal in nature. However, the
competition for loans does vary from time to time depending on such factors
as the general availability of credit, general and local economic
conditions, current interest rate levels, conditions in the mortgage market
and other factors that are not readily predictable. The Bank does not
engage in any operations involving foreign countries.
In order to compete with other institutions in the market area, Monocacy
relies heavily on the personal contacts of officers, directors and
employees, in addition to a high level of personalized service that is an
advantage of a community oriented banking institution.
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Government Policy
The earnings of the Registrant are affected not only by general economic
conditions, but also by the policies of various governmental regulatory
authorities. The Federal Reserve Board, through its monetary and credit
policies, has significant influence on overall growth and distribution of
bank loans, investments and deposits and affects interest rates. The
Registrant cannot accurately predict the effect such policies may have on
the future of its business and earnings.
Interstate Banking
Under current law, Monocacy can, under certain circumstances, participate
in interstate affiliations with banks and bank holding companies located in
the District of Columbia, Pennsylvania, Delaware, Virginia, West Virginia
and several other southeastern states. During 1996, the Company opened its
first interstate branch in Gettysburg, Pennsylvania. There are no recent or
known future legislative changes, events or trends, except as discussed in
a subsequent section, that would have a material adverse impact on the
financial condition or results of operations of Monocacy.
Additional Subsidiary Banks
The overall strategy of Monocacy is to expand its operations throughout the
Baltimore-Washington corridor as well as in Southern Central Pennsylvania
by organizing new community banks and/or selectively acquiring existing
institutions. Additional subsidiary banks will tailor their marketing
strategies to the needs of the communities in which they serve. Capital for
the additional subsidiary banks may come from borrowings, dividends from
existing banks, the sale of additional securities of Monocacy, or some
combination of such methods. Specific locations, number and timing for
additional subsidiary banks is not known and will depend, in part, on
factors beyond Monocacy's control, including the financial condition of
Monocacy, the economy, the regulatory environment, and the success of
Monocacy's existing operations.
Supervision and Regulation - Registrant
Monocacy is subject to the jurisdiction of the Securities and Exchange
Commission (the "Commission") and of state securities commissions for
matters relating to the offering and sale of its securities. Issuances of
stock to raise capital and for dividend reinvestment, stock option and
other plans are subject to registration, absent any exemption from
registration with the Commission. Monocacy is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and,
accordingly, files reports, proxy statements and other information with the
Commission.
Monocacy is prohibited from engaging in or acquiring direct or indirect
control of more than five percent (5%) of the voting shares of any company
engaged in non-banking activities unless the Federal Reserve Board, by
order or regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident
thereto. In making this determination, the Federal Reserve Board considers
whether these activities offer benefits to the public that outweigh any
possible adverse effects. Currently, Monocacy does not engage in any
activities not permitted.
As a bank holding company, Monocacy is required to file an annual report
with the Federal Reserve Board, as well as, any additional information that
the Federal Reserve Board may require by regulation promulgated pursuant to
the Bank Holding Company Act of 1956, as amended ("the Act"). The Federal
Reserve Board may also make examinations of Monocacy and any or all of its
subsidiaries. Further, under Section 106 of the 1970 amendments to the Act
and the Federal Reserve Board's regulations, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of
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credit or provision of credit or provision of any property or services. The
so-called "anti-tie-in" provisions state, generally, that a bank may not
extend credit, lease, sell property, or furnish any service to a customer
on the condition that the customer provide additional credit or service to
the bank, to its bank holding company or to any other subsidiary of its
bank holding company or on the condition that the customer not obtain other
credit or service from a competitor of the bank, its bank holding company
or any subsidiary of its bank holding company. Subsidiary banks of a bank
holding company are subject to certain restrictions imposed by the Act on
any extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of the bank
holding company and on taking of such stock or securities as collateral for
loans to any borrower.
Supervision and Regulation - The Bank
The Bank is subject to supervision, regulation and examination by the
Maryland Department of Licensing and Regulation and the FDIC. In addition,
the Bank is subject to a variety of local, state and federal laws that
affect its operations. From time to time, various types of federal and
state legislation are proposed that could result in additional regulation
of, and restrictions on, the business of the Bank. As a consequence of the
extensive regulation of commercial banking and thrift activities in the
United States, the Bank's business is particularly susceptible to federal
and state legislation and regulations that may increase the costs of doing
business.
Federal Law
The Federal Reserve System
The Federal Reserve System is managed through a tripartite hierarchy headed
by the Federal Reserve Board which oversees the entire system. The Federal
Reserve System is at the center of the nation's stable financial and
economic systems, and the Federal Reserve member banks are the means
through which the Federal Reserve System effectuates its goals of
maintaining financial and economic stability.
Monetary Policy
The earnings of the Bank are affected by domestic economic conditions and
the monetary and fiscal policies of the United States Government and its
agencies. An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the instruments used to
implement those objectives are open market operations in United States
government securities and changes in reserve requirements against member
bank deposits. These instruments are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect rates charged on loans or paid on
deposits.
Although the Bank is not a member of the Federal Reserve System, the
policies and regulations of the Federal Reserve Board have a significant
effect on the Bank's deposit, loan and investment growth, as well as the
rate of interest earned and paid, and are expected to affect the Bank's
operations in the future. The effect of such policies and regulations upon
the future business and earnings of the Bank cannot be predicted.
Insurance
The Bank's deposits are insured by the FDIC pursuant to the system of
federal deposit insurance initially established by the Banking Act of 1933.
The Monetary Control Act of 1980 increased coverage of FDIC insurance from
$40,000 to $100,000 per deposit account. The Bank pays insurance premiums
according to rates established by the FDIC. The payment of deposit
insurance premiums is a significant cost to the Bank.
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The operations of Monocacy and the Bank are affected by new federal and
state laws. The federal Economic Growth and Regulatory Paperwork Reduction
Act of 1996 ("New Act"), enacted in September 1996, includes provisions
that affect banks, bank holding companies, and savings institutions. The
New Act had, and is expected to have in the future, its most significant
effect upon bank and savings institutions that hold deposits assessed at
Savings Deposit Insurance Fund ("SAIF") rates. Among other things, the New
Act recapitalized the SAIF through a special assessment on savings
association deposits and bank deposits that had been acquired from savings
associations. The deposits acquired through the acquisition of Royal Oak
Savings Bank, a thrift acquired on December 31, 1995, were included in
this assessment. Accordingly, 1996 earnings reflect this assessment of
approximately $245,000.
The New Act may increase competition from savings associations by
equalizing, over time, the amount of federal insurance premiums paid on
savings association and bank deposits. The New Law also provides that,
beginning in 1997, institutions with deposits insured by the Bank
Insurance Fund, as well as those with SAIF insured deposits, will be
responsible for payment of certain bonds issued in connection with the
resolution of failed savings associations. The result of these provisions
will be somewhat higher federal deposit insurance premiums for the Bank.
These higher insurance premiums are not expected to have a material
adverse effect on the Bank or Monocacy.
The New Act also simplifies the regulatory approval process for new
activities of banks and bank holding companies, and reduces a number of
other regulatory burdens. None of these changes is expected to have a
significant effect on Monocacy or the Bank.
The FDIC Improvement Act of 1991 ("FDICIA"), enacted in part to prevent the
deposit insurance funds from becoming insolvent, authorized the FDIC to
raise insurance premium assessments in order to achieve and maintain an
adequate level of funds. The depletion of the deposit insurance funds was
due, in part, to a large number of failed financial institutions in the
1980's, in combination with the increased coverage per deposit account. As
a result, the future cost of deposit insurance for the Bank is in large
part dependent upon the extent of future bank failures and the amount of
insurance coverage provided by the FDIC per deposit account, both of which
are not within the Bank's control. Moreover, FDICIA required the FDIC to
establish a risk-based insurance premium assessment system that
differentiates between higher and lower risk institutions, with lower
premiums assessed against institutions in a lower risk category. The Bank's
cost of deposit insurance; therefore, depends upon its risk-rating. During
1995, the Bank Insurance Fund of the FDIC became fully capitalized and
during 1996, the SAIF of the FDIC was fully capitalized through the
one-time special assessment mentioned above. Going forward, overall
premiums should be reduced.
FDICIA
Capital Categories
Under FDICIA, banks must be classified in one of five defined categories
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized).
<TABLE>
<CAPTION>
Total Tier 1
Risk- Risk- Tier 1
Based Based Leverage
Ratio Ratio Ratio
----- ----- -----
<S> <C>
Capital Category
- ----------------
Well capitalized (greater than or equal to) 10.0 (greater than or equal to) 6.0 (greater than or equal to) 5.0
Adequately capitalized (greater than or equal to) 8.0 (greater than or equal to) 4.0 (greater than or equal to) 4.0 *
Undercapitalized (less than) 8.0 (less than) 4.0 (less than) 4.0 *
Significantly undercapitalized (less than) 6.0 (less than) 3.0 (less than) 3.0
Critically undercapitalized
<CAPTION>
Under a
Capital
Order or
Directive
---------
<S> <C>
Capital Category
- ----------------
Well capitalized No
Adequately capitalized
Undercapitalized
Significantly undercapitalized
Critically undercapitalized
(less than or equal to) 2.0
</TABLE>
* 3.0 for those banks having the highest available regulatory rating.
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Prompt Corrective Action
In the event an institution's capital deteriorates to the
undercapitalized category or below, FDICIA prescribes an increasing
amount of regulatory intervention, including: (1) the institution by a
bank of a capital restoration plan and a guarantee of the plan by a
parent institution; and (2) the placement of a hold on increases in
assets, number of branches or lines of business. If capital has reached
the significantly or critically undercapitalized levels, further material
restrictions can be imposed, including restriction on interest payable on
accounts, dismissal of management and (in critically undercapitalized
situations) appointment of a receiver. For well capitalized banks, FDICIA
provides authority for regulatory intervention where the institution is
deemed to be engaging in unsafe or unsound practices or receives a less
than satisfactory examination report rating for asset quality,
management, earnings or liquidity. All but well capitalized institutions
are prohibited from accepting brokered deposits without prior regulatory
approval.
Examinations and Audits
Annual full-scope, on site examinations are required for all the
FDIC-insured institutions except institutions with assets under $250
million which are well capitalized, well-managed and not subject to a
recent change in control, in which case, the examination period is every
eighteen (18) months. Moreover, effective after December 31, 1992, banks
with total assets of $500 million or more as of the beginning of the
fiscal year, are required to submit to their supervising federal and
state banking agencies a publicly available annual audit report. The
independent accountants of such banks shall attest to the accuracy of
management's report. The accountants shall also monitor management's
compliance with governing laws and regulations. In addition, such banks
are also required to select an independent audit committee composed of
outside directors who are independent of management, to review with the
management and the independent accountants, the reports that must be
submitted to the bank regulatory agencies. If the independent accountants
resign or are dismissed, written notification must be given to the bank's
supervising government banking agencies. These accounting and reporting
reforms do not apply to an institution with total assets at the beginning
of its fiscal year of less than $500 million, such as the Bank.
Furthermore, the supervising banking agency may exempt institutions with
assets in excess of $500 million from these accounting and reporting
requirements.
Real Estate Loans
FDICIA also requires that banking agencies reintroduce loan-to-value
("LTV") ratio regulations which were previously repealed by the 1982 Act.
LTV's will limit the amount of money a financial institution may lend to
a borrower, when the loan is secured by real estate, to no more than a
percentage to be set by regulation of the value of the real estate.
Truth-In-Savings
A separate subtitle within FDICIA, called the "Bank Enterprise Act of
1991", requires "truth-in-savings" on consumer deposit accounts so that
customers can make meaningful comparisons between the competing claims of
banks with regard to deposit accounts and products. The Bank is required
to provide information to depositors concerning the terms of their
deposit accounts, and in particular, to disclose the annual percentage
yield.
CBCA
Federal law, including the Change in Bank Control Act of 1978 ("CBCA"),
also prohibits acquisitions of control of a bank without prior notice to
certain federal bank regulators. "Control" is defined for this purpose as
the
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power, directly or indirectly, to direct the management or policies of a
bank or to vote twenty-five percent (25%) or more of any class of voting
securities of a bank.
FDIA/FIRA
Under the Federal Deposit Insurance Act (the "FDIA"), the federal
regulatory agencies possess the power to prohibit institutions from
engaging in any activity that would be an unsafe and unsound banking
practice or would otherwise be in violation of the law. Moreover, the
Financial Institutions Regulatory and Interest Rate Control Act of 1978
("FIRA") generally expanded the circumstances under which officers or
directors of a bank may be removed by the institution's federal
supervisory agency, restricts lending by a bank to its executive
officers, directors, principal shareholders or related interest thereof,
restricts management personnel of a bank from serving as directors or in
other management positions with certain depository institutions whose
assets exceed a specified amount or which have an office within a
specified geographic area, and restricts the relationships of management
personnel of a bank with securities companies and securities dealers.
Additionally, FIRA prohibits acquisition of control of a bank unless the
appropriate federal supervisory agency has received sixty (60) days prior
written notice and, within that time, has not disapproved the acquisition
of control or otherwise extended the period for disapproval. Control, for
purposes of FIRA, means the power to direct, either directly or
indirectly, the management or policies or to vote twenty-five percent
(25%) or more of any class of outstanding stock of a financial
institution or its respective holding company. A person or group holding
revocable proxies to vote twenty-five percent (25%) or more of the
outstanding common stock of a financial institution or holding company
would be presumed to be in control of the institution for purposes of
FIRA.
Garn - St. Germain
The Garn - St. Germain Depository Institutions Act of 1982 ("1982 Act")
removed certain restrictions on a bank's lending powers and liberalized
its depository capabilities. The 1982 Act, however, tightened FIRA
provisions respecting management interlocks and correspondent bank
relationships involving a bank's management personnel.
CRA
Under the Community Reinvestment Act of 1977, as amended ("CRA"), federal
regulatory authorities are required to assess the record of all financial
institutions to determine if these institutions are meeting the credit
needs of the community (including low and moderate income neighborhoods)
which they serve and to take this record into account in the evaluation
of any application made by any such institutions for, among other things,
approval of a branch or other deposit facility, office relocation, merger
or any acquisition of bank shares. The Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), described below, amended
the CRA to require, among other things, that the Bank's evaluation of
meeting the credit needs of its entire community, including low and
moderate income neighborhoods be made public. This evaluation includes a
descriptive rating ("outstanding", "satisfactory", "needs to improve" or
"substantial noncompliance") and a statement describing the basis for the
rating.
In 1995, the federal regulators revised the CRA rules to emphasize
performance over process and documentation. Under the revised rules, the
five-point ratings scale is still used. A bank's compliance is determined
by a three- prong test whereby examiners assign a numerical score for a
bank's performance in each of three areas: lending, service and
investment. The area of lending is weighted to increase its importance in
the application of the test. The rule became effective July 1, 1995. When
rating a bank in the area of lending, regulators examine the number and
amount of loan originations, the location of where the loans were made,
and the income levels of the borrowers. Although banks, under the revised
rules, are not required to make loans in every area, if there are
apparent tracts in which there is little lending, examiners will focus
their investigations in that area. The service prong evaluates how a bank
delivers its products to the community through branching. As
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with lending, banks are not required to branch in every area, although
conspicuous gaps will be investigated. The third prong, investment in
community, examines how the bank meets the investment needs in the
community within which it operates. Assessment of investment is
accomplished using a "performance context" pursuant to which regulators
meet with civic, community and bank officials in order to determine the
credit needs of the community. Expanded Home Mortgage Disclosure Act
reporting requirements were also approved for large banks and thrifts
which require reporting of census tract data on mortgages made outside of
the delineated communities. In addition, effective March 1, 1997,
institutions with assets above $250 million will be required to report
their aggregate small business loans made by geographic region.
Independent banks with total assets of less than $250 million and bank
subsidiaries with total assets of less than $250 million that have
holding companies with total assets of less than $1 billion will be
subject to less stringent CRA examinations.
Under the new regulation, banks will enjoy a reduction in compliance
burden. Specifically, banks are not required to keep extensive
documentation to prove that directors have participated in drafting and
review of CRA policies. A formal CRA statement does not have to be
prepared. The efforts banks made to market in low and moderate income
communities do not have to be documented, nor will banks have to justify
the basis for their community delineation or the methods utilized to
determine the credit needs of the community.
BSA
Under the Bank Secrecy Act ("BSA"), banks and other financial
institutions are required to report to the Internal Revenue Service
currency transactions of more than $10,000 or multiple transactions of
which the Bank is aware in any one day that aggregate in excess of
$10,000. Civil and criminal penalties are provided under the BSA for
failure to file a required report, for failure to supply information
required by the BSA or for filing a false or fraudulent report.
CEBA
An omnibus federal banking bill, known as the Competitive Equality
Banking Act ("CEBA"), was signed into law in August of 1987. Included in
the legislation were measures: (1) imposing certain restrictions on
transactions between banks and their affiliates; (2) expanding the powers
available to Federal bank regulators in assisting failed and failing
banks; (3) limiting the amount of time banks may hold certain deposits
prior to making such funds available for withdrawal and any interest
thereon; and (4) requiring that any adjustable rate mortgage loan secured
by a lien on a one-to-four family dwelling include a limitation on the
maximum rate at which interest may accrue on the principal balance during
the term of such loan. This legislation has not had a material adverse
effect on the Bank's operations or its competitive position.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
was primarily enacted to improve the supervision of savings associations
by strengthening capital, accounting and other supervisory standards. In
addition, FIRREA reorganized the FDIC by creating two deposit insurance
funds to be administered by the FDIC: the Savings Association Insurance
Fund and the Bank Insurance Fund. The Bank's deposits are insured under
the Bank Insurance Fund. See discussion of insurance under "Federal Law -
Insurance" above.
FIRREA reformed real estate appraisal procedures and the existing
supervisory/enforcement powers and penalty provisions in connection with
the regulation of the Bank. Under FIRREA, civil penalties are classified
into three levels, with amounts increasing with the severity of the
violation. The first tier provides for civil penalties of up to $5,000
per day for any violation of law or regulation. A civil penalty of up to
$25,000 per day may be assessed if more than a minimal loss or a pattern
of misconduct is involved. Finally, a civil penalty of up to $1 million
per day may be assessed for knowingly or recklessly causing a substantial
loss to an institution or taking action that results in a substantial
pecuniary gain or other benefit. Criminal penalties are increased to $1
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million per violation, up to $5 million for continuing violations or for
the actual amount of gain or loss. These monetary penalties may be
combined with prison sentences for up to five years. Management is of the
opinion that these additional reforms will have no material impact upon
the anticipated results of operations of the Bank.
Regulatory Capital
The FDIC and other federal bank regulatory agencies have issued
risk-based capital guidelines which supplement leverage capital
requirements. As of December 31, 1992, the guidelines required all United
States banks and bank holding companies to maintain a minimum risk-based
capital ratio of 8% (of which at least 4% must be in the form of common
stockholders' equity). Assets are assigned to four risk categories, with
higher levels of capital required for the categories perceived as
representing greater risk. The required capital ratios represent equity
and (to the extent permitted) non-equity capital as a percentage of total
risk-weighted assets. The risk-based capital rules are designed to make
regulatory capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies and to minimize
disincentives for holding liquid assets.
In July 1996, the federal bank regulatory agencies issued a joint policy
statement regarding the evaluation of commercial bank's capital adequacy
for interest rate risk. Under the policy, the assessment of a bank's
capital adequacy includes an assessment of the bank's exposure to adverse
changes in interest rates. Banks that are found to have a high level of
interest rate risk exposure or weak interest rate risk management systems
may be required by the regulators to take corrective actions. Management
believes its interest rate risk management systems and its capital
relative to its interest rate risk are adequate.
Riegle - Neal Act
On September 29, 1994, President Clinton signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking and Branch Act"). The legislation permits interstate banking
twelve months after its enactment into law. Bank holding companies,
pursuant to an amendment to the Bank Holding Company Act, can acquire a
bank located in any state, as long as the acquisition does not result in
the bank holding company controlling more than 10% of the deposits in the
United States, or 30% of the deposits in the target bank's state. The
legislation permits states to waive the concentration limits and require
that the target institution be in existence for up to five years before
it can be acquired by an out-of-state bank or bank holding company.
Interstate branching and merging of existing banks is permitted after
three years from the enactment of the Interstate Banking and Branching
Act, if the bank is adequately capitalized and demonstrates good
management. Branch merging will be permitted earlier if a state
undertakes to enact a law which allows it and states may also enact a law
to permit banks to branch de novo. The Interstate Banking and Branching
Act also amends the International Banking Act to allow a foreign bank to
establish and operate a federal branch or agency upon approval of the
appropriate federal and state banking regulator.
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Statistical Data
The statistical information required by Item I is in the Registrant's
Annual Report to Shareholders for the year ended December 31, 1996, which
is set forth in Exhibit 13, hereto, and is incorporated herein by
reference, as follows except as noted:
<TABLE>
<CAPTION>
Page in the Registrant's Annual
Report to Shareholders for
Guide 3 Disclosure the year ended December 31, 1996
------------------ --------------------------------
<S> <C>
I. Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates and
Interest Differential
A. Average Balance Sheet 7
B. Net Interest Income Analysis 7 & 8
C. Rate/Volume Analysis 8
II. Investment Portfolio
A. Book Value of Investment Securities 12
B. Maturities of Investment Securities 13
C. Investment Securities Concentrations 12
III. Loan Portfolio
A. Types of Loans 13 & 14
B. Maturities and Sensitivities of
Loans to Changes in Interest Rates 14
C. Risk Elements
1. Nonaccrual, Past Due and Restricted Loans 15
2. Potential Problem Loans 15
3. Foreign Outstandings Not Applicable
D. Other Interest Bearing Assets Not Applicable
IV. Summary of Loan Loss Experience
A. Analysis of Allowance for Loan Losses 9
B. Allocation of the Allowance for Loan Losses 10
V. Deposits
A. Average Balances 7
B. Maturities of Large Denomination Certificates 16
C. Foreign Deposit Liability Disclosure Not Applicable
VI. Return on Equity and Assets
A. Return on Assets 4
B. Return on Equity 4
C. Dividend Payout Ratio See Item 6
D. Equity to Assets Ratio 4
VII. Short-Term Borrowings 31 & 32
</TABLE>
10
<PAGE>
ITEM 2 PROPERTIES
Monocacy Bancshares, Inc., Corporate Office
222 East Baltimore Street
Taneytown, Maryland 21787
Taneytown Bank & Trust Company:
<TABLE>
<S> <C>
Main Office Columbia Branch * Randallstown Branch
222 East Baltimore Street 5565 Sterrett Place 9337 Liberty Road
Taneytown, MD 21787 Columbia, MD 21044 Randallstown, MD 21133
Westminster Branch * Uniontown Branch 140 Express Branch
402 Englar Road 3462 Uniontown Road 747 Baltimore Boulevard
Westminster, MD 21157 Westminster, MD 21158 Westminster, MD 21157
Taneytown Branch Keymar Branch Gettysburg Branch *
500 East Baltimore Street 6690 Middleburg Road 545 West Middle Street
Taneytown, MD 21787 Keymar, MD 21757 Gettysburg, PA 17325
Carroll Lutheran Village * Eldersburg Branch *
205 St. Mark Way 1350 Liberty Road
Westminster, MD 21157 Eldersburg, MD 21784
</TABLE>
* These properties are leased. Lease expiration dates are November 19,
2006, for the Westminster branch, October 1, 1998 for Carroll Lutheran
Village, March 31, 1998, for the Columbia branch, December 29, 2006 for
the Eldersburg branch and October 28, 2006 for the Gettysburg branch.
All other properties are owned in fee and without liens. All properties
owned and operated by the Registrant and its subsidiary are adequate
for the business to be conducted at each such location.
ITEM 3 LEGAL PROCEEDINGS
The Bank has been named as a defendant in a legal proceeding in the
Circuit Court for Baltimore City wherein it is alleged that the Bank
permitted the improper withdrawal or transfer of funds from a deposit
account containing escrow monies at the Bank. It is also alleged that the
Bank misapplied certain sums of money by depositing them in an unrelated
account holder's deposit account. The complaint seeks recovery against
the Bank in the amount of $482,000. Management, after consultation with
legal counsel, believes that it has substantial defenses available and
intends to vigorously defend against the claims. Although the amount of
any ultimate liability with respect to these claims cannot be determined,
management is of the opinion that any losses resulting from the
disposition of these matters will not have a material adverse effect on
the financial condition of the Company.
Monocacy and the Bank are involved in other matters of litigation
incidental to their business. In management's opinion, the outcome of
these matters will not have a material impact on the financial statements
of Monocacy, or the Bank.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
11
<PAGE>
PART II
ITEM 5 MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Registrant's Common Stock is traded on a limited basis in the
over-the-counter market. The Common Stock is not listed on any securities
exchange nor is it quoted on the National Association of Securities
Dealers' Automated Quotation System.
Legg Mason Wood Walker, Inc., Ferris Baker Watts, Inc., Koonce
Securities, Inc. and Ryan Beck and Co. offer over-the-counter market
quotations which reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and which do not necessarily represent actual
transactions.
The Bank has paid cash dividends for at least 20 years. The Registrant
has paid dividends since the effective date of its formation as a bank
holding company, October 1, 1993. The Registrant's Board of Directors
intends to continue the dividend payment policy; however, future
dividends must necessarily depend upon net income, capital requirements,
appropriate legal restrictions and other factors relevant at the time the
Board of Directors of the Registrant considers dividend policy. Pages 17
and 38 of the Registrant's Annual Report to Shareholders discusses the
regulatory restrictions that impact the Registrant's and the Bank's
ability to pay dividends. The following tables set forth the high and low
bid prices for each quarter of 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
Fourth Third Second First Fourth Third Second First
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
------- ------ ------ ----- ------ ----- ------ ------
<S> <C>
Per Common Share:*
Cash dividends declared $ .09 $ .09 $ .09 $ .09 $ .08 $ .08 $ .08 $ .08
Bid Prices:
High $25.50 $25.50 $25.50 $25.00 $24.00 $24.50 $26.00 $26.00
Low $22.50 $22.50 $22.50 $22.00 $23.00 $23.00 $25.00 $23.00
</TABLE>
* Amounts have been restated to reflect the January, 1996 and February,
1997 10% stock dividends.
As of March 20, 1997, there were approximately 952 stockholders holding
an aggregate of 1,618,803 shares.
12
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required to be set forth herein is included in the Registrant's
Annual Report to Shareholders, at pages 6 through 20, which is attached hereto
in Exhibit 13 and is incorporated herein by reference.
<TABLE>
<CAPTION>
Five year Comparative Summary
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C>
Summary of Operations:
Interest Income $19,593 17,079 14,997 12,441 12,469
Interest Expense 10,421 7,852 6,271 5,224 5,807
------- ------- ------- ------- -------
Net interest income 9,172 9,227 8,726 7,217 6,662
Provision for loan losses 300 885 687 375 263
------- ------- ------- ------- -------
Net interest income after provision
for loan losses 8,872 8,342 8,039 6,842 6,399
Other income 2,039 1,427 1,081 1,644 1,205
Other expenses 8,762 6,536 6,121 5,904 4,937
------- ------- ------- ------- -------
Income before income taxes 2,149 3,233 2,999 2,582 2,667
Income taxes 538 882 777 621 715
------- ------- ------- ------- -------
Net income $ 1,611 2,351 2,222 1,961 1,952
======= ======= ======= ======= =======
Per Share Data*:
Net income $1.00 1.47 1.40 1.23 1.23
Dividend paid $.36 0.33 0.23 0.19 0.17
Book Value 13.40 13.21 11.69 10.87 9.69
Shares outstanding* 1,615,151 1,602,463 1,592,224 1,590,695 1,590,840
Other Data:
Total assets $263,015 266,194 211,249 191,768 157,725
Total deposits 225,039 223,412 171,873 155,722 141,069
Total loans-net of allowance for
loan losses 156,690 137,222 145,564 121,370 101,079
Total equity 21,648 21,169 18,610 17,289 15,415
Key Ratios:
Return on average
stockholders' equity 7.81% 11.83 12.19 11.27 13.31
Return on average total assets 0.61% 1.07 1.08 1.09 1.27
Equity to assets 8.23% 7.95 8.81 9.02 9.77
Dividend payout ratio 36.00% 22.45 16.43 15.45 13.82
</TABLE>
* Per share data and shares outstanding for all years have been restated to
reflect the 10% common stock dividends issued in 1997 and 1996. Per share
data for years prior to 1994 have been restated to reflect the 25% common
stock dividend issued in 1991, a 20% common stock dividend issued in 1992
and a 2 for 1 stock split in 1993.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be set forth herein is included in the Registrant's
Annual Report to Shareholders, at pages 21 through 38, which is attached hereto
in Exhibit 13 and is incorporated herein by reference. Supplemental data
required under 302 (a) (5) is not applicable.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
13
<PAGE>
The information required to be set forth herein is included in the Registrant's
definitive Proxy Statement, dated March 27, 1997, at pages 6 through 8, which
is attached hereto in Exhibit 99 and is incorporated herein by reference.
ITEM 10 EXECUTIVE COMPENSATION
The information required to be set forth herein is included in the Registrant's
definitive Proxy Statement, dated March 27, 1997, at pages 9 through 12, which
is attached hereto in Exhibit 99 and is incorporated herein by reference.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth herein is included in the Registrant's
definitive Proxy Statement, dated March 27, 1997, at pages 3 through 5, which
is attached hereto in Exhibit 99 and is incorporated herein by reference.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth herein is included in the Registrant's
definitive Proxy Statement, dated March 27, 1997, at pages 13 through 22, which
is attached hereto in Exhibit 99 and is incorporated herein by reference.
ITEM 13 EXHIBITS AND REPORTS ON 8-K
(a) Documents filed as part of this report:
(1) The following financial statements of the Registrant are set forth on
page 21 through 38 of the Registrants' 1996 Annual Report to
Shareholders, which is included herein at Exhibit 13 and is
incorporated herein by reference:
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements for the years ended December
31, 1996, 1995 and 1994.
Independent Auditors' Report for the year ended December 31, 1996.
(2) Financial statement schedules are omitted from this 10-KSB because the
required information is either not applicable or is not deemed material
to the Registrant.
14
<PAGE>
(3) Listing of Exhibits:
The following documents are attached as Exhibits to this Form 10-KSB as
indicated by the Exhibit number or are incorporated by reference to the
prior filings of the Registrant with the Commission.
<TABLE>
<CAPTION>
Form 10-KSB Exhibit # Exhibit
--------------------- -------
<S><C>
Exhibit (3i) Articles of Incorporation
Exhibit (3ii) Bylaws of the Corporation
Exhibit (10i) Employment Agreement, dated June 16, 1993, by and between Taneytown Bank
and Trust Company and Francis W. Neubauer, Jr. (Incorporated herein by
reference to the Registrant's Current Report on Form 8-K, filed with the
Commission on March 24, 1997)
Exhibit (10ii) Supplemental Retirement Plan Agreement, dated April 25, 1994, by and between
Taneytown Bank and Trust Company and Francis W. Neubauer, Jr.
(Incorporated herein by reference to the Registrant's Current Report on Form
8-K, filed with the Commission on March 24, 1997)
Exhibit (10iii) Stock Option Plan
Exhibit (13) Annual Report to Shareholders
Exhibit (21) List of Registrant's Subsidiaries
Exhibit (23) Consent of Independent Auditors
Exhibit (27) Financial Data Schedule
Exhibit (99) Definitive Proxy Statement, Notice and Form of Proxy for 1996 Annual
Meeting of Shareholders to be held on April 28, 1997. (Incorporated into Part
III of the Form 10-KSB)
</TABLE>
ITEM 13 (b) REPORTS ON FORM 8-K
Form 8-K dated March 24, 1997 regarding certain contracts of the Registrant.
15
<PAGE>
SIGNATURES
Pursuant to the registration requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MONOCACY BANCSHARES, INC.
(Registrant)
Date: March 20, 1997 By:
_____________________________
Frank W. Neubauer, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chairman of the Board, Date March 20, 1997
---------------------- Director ---------------
Eric E. Glass
Director, President & CEO Date March 20, 1997
---------------------- (Principal Executive Officer) ---------------
Frank W. Neubauer
---------------------- Director Date March 20, 1997
David M. Abramson ---------------
---------------------- Director Date March 20, 1997
E. Wayne Baumgardner ---------------
---------------------- Director Date March 20, 1997
George B. Crouse ---------------
---------------------- Director Date March 20, 1997
Glenn E. Eaves ---------------
---------------------- Director Date March 20, 1997
Donald R. Hull ---------------
---------------------- Director Date March 20, 1997
Jacob M. Yingling ---------------
CFO & COO Date March 20, 1997
---------------------- ---------------
Michael K. Walsch (Principal Accounting and
Financial Officer and Principal
Operating Officer)
16
Exhibit (3i)
ARTICLES OF INCORPORATION
OF
MONOCACY BANCSHARES, INC
FIRST: THE UNDERSIGNED, Carroll D. Myers, whose address is 222 East
Baltimore Street, Taneytown, Carroll County, Maryland 21787, being at least 18
years of age, acting as incorporator, does hereby form a corporation under the
General Laws of the State of Maryland.
SECOND: The name of the Corporation (which is hereinafter called the
("Corporation") is:
MONOCACY BANCSHARES, INC.
THIRD: (a) The purposes for which, and any of which,
the Corporation is formed and the business
and objects to be carried on and promoted by
it are:
(1) To act as a bank holding company.
(2) To acquire by purchase, subscription or
otherwise, and to receive, hold, own,
guarantee, sell, assign, exchange, transfer,
mortgage, pledge or otherwise dispose of or
deal in and with any and all securities, as
such term is hereinafter defined, issued or
created by any corporation, firm,
organization, association or other entity,
public or private, whether formed under the
laws of the United States of America or of
any state, commonwealth, dependency or
possession thereof, or of any foreign
country or of any political subdivision or
territory thereof, or issued or created by
the United States of America or any state of
commonwealth thereof or any foreign country,
or by any agency, subdivision, territory
dependency, possession or municipality of
any of the foregoing, and as owner thereof
to possess and exercise all the rights,
powers and privileges of ownership,
including the right to execute consents and
vote thereon, and to do any and all acts and
things necessary or advisable for the
preservation, protection, improvement and
enhancement in value thereof.
(3) To engage in any one or more businesses or
transactions, or to acquire all or any
portion of any entity engaged in any one or
more businesses or transactions which the
Board of Directors may from time to time
authorize or approve, whether or not related
to the business described elsewhere in this
Article or to any other business at the time
or theretofore engaged in by the
Corporation.
1
<PAGE>
Exhibit (3i)
(b) The foregoing enumerated purposes and
objects shall be in no way limited or
restricted by reference to, or inference
from, the terms of any other clause of this
or any other Article of the Charter of the
Corporation, and each shall be regarded as
independent; and they are intended to be and
shall be construed as powers as well as
purposes and objects of the Corporation and
shall be in addition to and not in
limitation of the general powers of
corporations under the General Laws of the
State of Maryland.
(c) The term "securities" as used in this
Article shall mean any and all notes,
stocks, treasury stocks, bonds, debentures,
evidences of indebtedness, certificates of
interest or participation in any profit
sharing agreement, collateral trust
certificates, preorganization certificates
or subscriptions, transferable shares,
investment contracts, voting trust
certificates, certificates of deposit for a
security, fractional undivided interests in
oil, gas, or other mineral rights, or, in
general, any interests or instruments
commonly known as "securities", or any and
all certificates of interest or
participation in, temporary or interim
certificates for, receipts for, guaranties
of, or warrants or rights to subscribe to or
purchase, any of the foregoing.
FOURTH: The address of the principal office of the Corporation in this
State is 222 East Baltimore Street, Taneytown, Carroll County,
Maryland 21787.
FIFTH: The name and address of the resident agent of the Corporation
in this State is David M. Abramson, c/o Levan, Schimel, Belman
and Abramson, P.A., Suite 400, Woodmere I, 9881 Broken Land
Parkway, Columbia, Maryland 21046. Said resident agent is a
citizen of the State of Maryland who resides there.
SIXTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is four million (4,000,000)
shares of Common Stock, par value Five Dollars ($5.00) per
share, amounting in aggregate par value to Twenty Million
Dollars ($20,000,000).
SEVENTH: (a) The number of directors of the Corporation
shall be ten (10), which number may be
increased or decreased pursuant to the
By-Laws of the Corporation, but shall never
be less than the minimum number permitted by
the General Laws of the State of Maryland
now or hereafter in force.
2
<PAGE>
Exhibit (3i)
(b) Newly created directorships resulting from
any increase in the authorized number of
directors or any vacancies on the Board of
Directors resulting from death, resignation,
retirement, disqualification, removal from
office, or other cause shall be filled by a
majority vote of the stockholders or the
directors then in office. A director so
chosen by the stockholders shall hold office
for the balance of the term then remaining.
A director so chosen by the remaining
directors shall hold office until the next
annual meeting of stockholders, at which
time the stockholders shall elect a director
to hold office for the balance of the term
then remaining. No decrease in the number
of directors constituting the Board of
Directors shall affect the tenure of office
of any director.
(c) Any director, or the entire Board of
Directors, may be removed from office at any
time, but only for cause and then only by
the affirmative vote of the holders of at
least seventy five percent (75%) of the
aggregate number of votes entitled to be
cast in the election for directors.
(d) The following persons shall serve as
directors until the 1994 annual meeting of
stockholders:
1. Carroll D. Myers
2. David M. Abramson
3. Glenn E. Eaves
4. Jacob M. Yingling
The following persons shall serve as
directors until the 1995 annual meeting of
stockholders:
5. George B. Crouse
6. E. Wayne Baumgardner
7. George A. Fream
The following persons shall serve as
directors until the 1996 annual meeting of
stockholders:
8. Harry B. Dougherty
9. Donald R. Hull
10. Eric E. Glass
At each annual meeting of stockholders beginning in 1994,
successors to the class of directors whose term expires at
that annual meeting shall be elected for a term of three
years.
3
<PAGE>
Exhibit (3i)
EIGHTH: (a) The following provisions are hereby adopted
for the purpose of defining, limiting, and
regulating the powers of the Corporation and
of the directors and stockholders:
(1) The Board of Directors is hereby empowered
to authorize the issuance from time to time
of shares of its stock to any class, whether
now or hereafter authorized, or securities
convertible into shares of its stock of any
class or classes, whether now or hereafter
authorized, for such consideration as may be
deemed advisable by the Board of Directors
and without any action by the stockholders.
(2) No holder of any stock or any other
securities of the Corporation, whether now
or hereafter authorized, shall have any
preemptive right to subscribe for or
purchase any stock or any other securities
of the Corporation other than such, if any,
as the Board of Directors, in its sole
discretion, may determine and at such price
or prices and upon such other terms as the
Board of Directors, in its sole discretion,
may fix; and any stock or other securities
which the Board of Directors may determine
to offer for subscription may, as the Board
of Directors in its sold discretion shall
determine, be offered to the holders of any
class, series or type of stock or other
securities at the time outstanding to the
exclusion of the holders of any or all other
classes, series or types of stock or other
securities at the time outstanding.
(3) The Board of Directors shall have power from
time to time and in its sole discretion to
determine in accordance with sound
accounting practice, what constitutes annual
or other net profits, earnings, surplus, or
net assets in excess of capital; to fix and
vary from time to time the amount to be
reserved as working capital, or to determine
that retained earnings or surplus shall
remain in the hands of the Corporation; to
set apart out of any funds of the
Corporation such reserve or reserves in such
amount or amounts and for such proper
purpose or purposes as it shall determine
and to abolish any such reserve or any part
thereof; to distribute and pay distributions
or dividends in stock, cash or other
securities or property, out of surplus or
any other funds or amounts legally available
therefor, at such times and to the
stockholders of record on such dates as it
may, from time to time, determine; and to
determine whether and to what extent and at
what times and places and under what
conditions and regulations
4
<PAGE>
Exhibit (3i)
the books, accounts and documents of the
Corporation, or any of them, shall be open
to the inspection of stockholders, except as
otherwise provided by statute or by the
By-Laws, and, except as so provided, no
stockholder shall have any right to inspect
any book, account or document of the
Corporation unless authorized to do so by
resolution of the Board of Directors.
(4) A contract or other transaction between the
Corporation and any of its directors or
between the Corporation and any other
corporation, firm or other entity in which
any of its directors is a director or has a
material financial interest is not void or
voidable solely because of any one or more
of the following: the common directorship or
interest; the presence of the director at
the meeting of the Board of Directors which
authorizes, approves or ratifies the
contract or transaction; or the counting of
the vote of the director for the
authorization, approval or ratification of
the contract or transaction. This paragraph
(4) applies if:
(A) the fact of the common directorship or
interest is disclosed or known to: the Board
of Directors and the Board authorizes,
approves or ratifies the contract or
transaction by the affirmative vote of a
majority of disinterested directors, even if
the disinterested directors constitute less
than a quorum; or the stockholders entitled
to vote, other than the votes of shares
owned of record or beneficially by the
interested director or corporation, firm, or
other entity authorizes, approves or
ratifies by a majority of the votes case the
contract or transaction; or
(B) the contract or transaction is fair and
reasonable to the Corporation.
Common or interested directors or the stock owned by them or
by an interested corporation, firm, or other entity may be
counted in determining the presence of a quorum at a meeting
of the Board of Directors or at a meeting of the stockholders,
as the case may be, at which the contract or transaction is
authorized, approved or ratified. If a contract or transaction
is not authorized, approved or ratified in one of the ways
provided for in clause (A) of the second sentence of this
Paragraph (4), the person asserting the validity of the
contract or transaction bears the burden of proving that the
contract or transaction was fair and reasonable to the
Corporation at the time it was authorized, approved or
ratified. The procedures in this Paragraph (4) do not apply to
the fixing by the Board of Directors of reasonable
compensation for a director, whether as a director or in any
other capacity.
5
<PAGE>
Exhibit (3i)
(5) The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its
request any other entity, to the full extent required
or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the
advance of expenses under the procedures required,
and to the full extent permitted, by law and (B)
other employees and agents to such extent as shall be
authorized by the Board of Directors of the
Corporation's by-laws and be permitted by law. The
foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking
indemnification may be entitled. The Board of
Directors may take such action as is necessary to
carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend form
time to time such By-Laws, resolutions or contracts
implementing such provisions or such further
indemnification arrangements as may be permitted by
law. No amendment of the Charter of the Corporation
shall limit or eliminate the right to indemnification
provided under this Paragraph (5) with respect to
acts or omissions occurring prior to such amendment
or repeal.
(6) To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no
director or officer of the Corporation shall be
personally liable to the Corporation or its
stockholders for monetary damages. No amendment of
the Charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the benefits
provided to directors or officers under this
Paragraph (6) with respect to any act or omission
which occurred prior to such amendment or repeal.
(7) The Board of Directors shall, in connection with the
exercise of its business judgment involving any
actual or proposed transaction which would or may
involve a change in control of the Corporation
(whether by purchases or shares of stock or any other
securities of the Corporation in the open market, or
otherwise, tender offer, merger consolidation,
dissolution, liquidation, sale of all or
substantially all of the assets of the Corporation,
proxy solicitation or otherwise), in determining what
is in the best interests of the Corporation and its
stockholders and in making any recommendation to its
stockholders, give due consideration to all relevant
factors, including, but not limited to (A) the
economic effect, both immediate and long-term, upon
the Corporation's stockholders, including
stockholders, if any, not to participate in the
transaction; (B) the social and economic effect on
the employees, depositors and customers of, and other
dealing with, the Corporation and its subsidiaries
and on the communities in which the Corporation and
its subsidiaries operate or are located; (C) whether
the proposal is acceptable based on historical and
current operating results or financial condition of
the Corporation; (D)
6
<PAGE>
Exhibit (3i)
whether a more favorable price could be obtained for
the Corporations's stock or other securities in the
future; (E) the reputation and business practices of
the offeror and its management and affiliates as they
would affect the employees of the Corporation and its
subsidiaries; (F) the future value of the stock or
any other securities of the Corporation; and (G) any
antitrust or other legal and regulatory issues that
are raised by the proposal. If the Board of Directors
determines that any actual or proposed transaction
which would or may involve a change in control of the
Corporation should be rejected, it may take any
lawful action to defeat such transaction, including,
but not limited to, any or all of the following:
advising stockholders not to accept the proposal;
instituting litigation against the party making the
proposal; filing complaints with governmental and
regulatory authorities; acquiring the stock or any of
the securities of the Corporation; selling or
otherwise issuing authorized but unissued stock,
other securities or treasury stock or granting
options with respect thereto; acquiring a company to
create an antitrust or other regulatory problem for
the party making the proposal; and obtaining a more
favorable offer from another individual or entity.
(8) (A) Nominations for the election of directors
and proposals for any new business to be
taken up at any annual or special meeting of
stockholders may be made by the Board of
Directors of the Corporation or by any
stockholder of the Corporation entitled to
vote generally in the election of directors.
In order for a stockholder of the
Corporation to make any such nominations
and/or proposals, he or she shall give
notice thereof in writing, delivered or
mailed by first class United States mail,
postage prepaid, to the secretary of the
Corporation not less than 30 days nor more
than 60 days prior to any such meeting;
provided, however, that if less than 31 days
notice of the meeting is given to
stockholders, such written notice shall be
delivered or mailed, as prescribed, to the
secretary of the Corporation not later than
the close of the tenth day following the day
on which notice of the meeting was mailed to
stockholders. Each such notice given by a
stockholder with respect to nominations for
the election of directors shall set forth
(i) the name, age, business address and, if
known, residence address of each nominee
proposed in such notice, (ii) the principal
occupation or employment of each such
nominee, (iii) the number of shares of stock
of the Corporation which are beneficially
owned by each such nominee, (iv) such
7
<PAGE>
Exhibit (3i)
other information as would be required to be
included in a proxy statement soliciting
proxies for the election of the proposed
nominee pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended,
including, without limitation, such person's
written consent to being named in the proxy
statement as a nominee and to serving as a
director, if elected, and (v) as to the
stockholders giving such notice, his name
and address as they appear on the
Corporation's books and the class and number
of shares of the Corporation which are
beneficially owned by such stockholder. In
addition, the stockholder making such
nomination shall promptly provide any other
information reasonably requested by the
Corporation.
(B) Each such notice given by a stockholder to
the secretary with respect to business
proposals to bring before a meeting shall
set forth in writing as to each matter: (i)
a brief description of the business desired
to be brought before the meeting and the
reasons for conducting such business at the
meeting; (ii) the name and address as they
appear on the Corporation's books, of the
stockholder proposing such business; (iii)
the class and number of shares of the
Corporation which are beneficially owned by
the stockholder; and (iv) any material
interest of the stockholder in such
business. Notwithstanding anything in this
charter to the contrary, no business shall
be conducted at the meeting except in
accordance with the procedures set forth in
this Paragraph (8).
(C) The chairman of the annual or special
meeting of stockholders may, if the facts
warrant, determine and declare to such
meeting that a nomination or proposal was
not made in accordance with the foregoing
procedure, and, if he should so determine,
he shall so declare to the meeting and the
defective nomination or proposal shall be
disregarded and laid over for action at the
next succeeding adjourned, special or annual
meeting of the stockholders taking place 30
days or more thereafter. This provision
shall not require the holding of any
adjourned or special meeting of stockholders
for the purpose of considering such
defective nomination or proposal.
9. No merger, consolidation, liquidation or
dissolution of the Corporation, nor any
action that would result in the sale or
other disposition of all or substantially
all of the assets of the Corporation shall
be valid unless first approved by the
affirmative vote of:
8
<PAGE>
Exhibit (3i)
(A) the holders of at least eighty
percent (80%) of the outstanding
shares of Common Stock of the
Corporation; or
(B) the holders of at least sixty-six
and two-thirds percent (66 2/3%) of
the outstanding shares of Common
Stock of the Corporation, provided
that such transaction has received
the prior approval of at least
eighty percent (80%) of all of the
members of the Board of Directors.
10. In furtherance and not in limitation of the
powers conferred by statute, the Board of
Directors of the Corporation is expressly
authorized to make, repeal, alter, amend and
rescind the By-Laws of the Corporation.
Notwithstanding any other provision of this
Charter or the By-Laws of the Corporation
(and notwithstanding the fact that some
lesser percentage may be specified by law),
the By-Laws shall not be made, repealed,
altered, amended or rescinded by the
stockholders of the Corporation except by
the vote of the holders of not less than
seventy-five percent (75%) of the
outstanding shares of capital stock of the
Corporation entitled to vote generally in
the election of directors (considered for
this purpose as one class cast at a meeting
of the stockholders called for that purpose;
provided that notice of such proposed
adoption, repeal, alteration, amendment or
rescission is included in the notice of such
meeting), or, as set forth above, by the
Board of Directors.
11. The Board of Directors reserves the right
from time to time to make any amendments of
the Charter which may now or hereafter be
authorized by law, including any amendments
changing the terms or contract rights, as
expressly set forth in the Charter, of any
of its outstanding stock by classification,
reclassification or otherwise, but no such
amendment which changes such terms or
contract rights of any of its outstanding
stock shall be valid unless such amendment
shall have been authorized by not less than
a majority of the aggregate number of the
votes entitled to be cast thereon, by a vote
at a meeting or in writing with or without a
meeting; provided, however, that any
amendment to, repeal of or adoption of any
provision inconsistent with Article SEVENTH
or Paragraph (5), (6), (7), (8), (9), (10)
or (11) or Article EIGHTH (a) shall have
been authorized by not less than
seventy-five percent (75%) of the aggregate
votes entitled to be cast thereon
(considered for this purpose as a single
class), by vote at a meeting or in writing
with or without a meeting.
9
<PAGE>
Exhibit (3i)
(b) The enumeration and definition of particular
powers of the Board of Directors included in
the foregoing shall in no way be limited or
restricted by reference to or inference from
the terms of any other clause of this or any
other Article of the Charter of the
Corporation, or construed as or deemed by
inference or otherwise in any manner to
exclude or limit any powers conferred upon
the Board of Directors under the General
Laws of the State of Maryland now or
hereafter in force.
NINTH: The duration of the Corporation shall be
perpetual.
(THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK)
10
<PAGE>
Exhibit (3i)
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on April 1, 1993.
/s/ Carroll D. Meyers
______________________________ _____________________________
Witness Carroll D. Myers
11
Exhibit (3ii)
MONOCACY BANCSHARES, INC.
BY-LAWS
In accordance with convention, the masculine gender
is used throughout these By-Laws but should be read to
include the feminine (or neuter) where appropriate.
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. Annual Meeting. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 10:00 o'clock a.m. on the second Monday of April in
each year if not a legal holiday, or at such other time in the month of April as
shall be set by the Board of Directors. Except as the Charter or statute
provides otherwise, any business may be considered at an annual meeting without
the purpose of the meeting having been specified in the notice. Failure to hold
an annual meeting does not invalidate the Corporation's existence or affect any
otherwise valid corporate acts.
SECTION 1.02. Special Meeting. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the Vice- Chairman of the Board or the President or by
a majority of the Board of Directors by vote at a meeting or in writing
(addressed to the Secretary of the Corporation) with or without a meeting. A
special meeting of the stockholders may be called upon the submission to the
Secretary of the Corporation a written request therefore by stockholders
entitled to cast not less than 25% of all the votes entitled to be cast at the
meeting. The request for the meeting shall state the purpose of and the matters
proposed to be acted upon at such meeting. The Secretary shall inform the
stockholders making the request of the reasonably estimated costs of preparing
and mailing a notice for such meeting and, upon payment of such costs to the
Corporation, notify each stockholder entitled to notice of such meeting in
accordance with Section 1.04. 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 12 months.
SECTION 1.03. Place of Meetings. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the Board
of Directors.
SECTION 1.04. Notice of Meetings: Waiver of Notice. Not less than
10 nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to
<PAGE>
each stockholder entitled to vote at the meeting and each other stockholder
entitled to notice of the meeting. The notice shall state the time and place of
the meeting and, if the meeting is a special meeting or notice of the purpose is
required by statute, the purpose of the meeting. Notice is given to a
stockholder when it is personally delivered to him, left at his residence or
usual place of business, or mailed to him at his address as it appears on the
records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if he before or after the meeting
signs a waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy.
SECTION 1.05. Quorum: Voting. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement, may adjourn the
meeting from time to time until a quorum shall attend. At any such adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified. In the event
that at any meeting a quorum exists for the transaction of some business but
does not exist for the transaction of other business, the business as to which a
quorum is present may be transacted by the holders of stock present in person or
by proxy who are entitled to vote thereon.
SECTION 1.06. Adjournments. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy by
a majority vote. Any business which might have been transacted at the meeting as
originally notified may be deferred and transacted at any such adjourned meeting
at which a quorum shall be present. No further notice of an adjourned meeting
other than by announcement shall be necessary if held on a date not more than
120 days after the original record date.
SECTION 1.07. General Right to Vote: Proxies. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock he owns of
record either in person or by written proxy signed by the stockholder or by his
duly authorized attorney in fact. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.08. List of Stockholders. At each meeting of stockholders,
a full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of
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<PAGE>
shares held by each and certified by the transfer agent for such class or by the
Secretary, shall be furnished by the Secretary.
SECTION 1.09. Conduct of Voting. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall be
received, and all questions touching the qualification of voters and the
validity of proxies and the acceptance or rejection of votes shall be decided,
by the chairman of the meeting. If demanded by stockholders, present in person
or by proxy, entitled to cast 10% in number of votes entitled to be cast, or if
ordered by the chairman, the vote upon any election or question shall be taken
by ballot and, upon like demand or order, the voting shall be conducted by two
inspectors, in which event the proxies and ballots shall be received, and all
questions touching the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot and voting need not be
conducted by inspectors. The stockholders at any meeting may choose an inspector
or inspectors to act at such meeting, and in default of such election the
chairman of the meeting may appoint an inspector or inspectors. No candidate for
election as a director at a meeting shall serve as an inspector thereat.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. Number of Directors. The Corporation shall have not
less than five (5) nor more than twenty-four (24) directors (exclusive of
directors, if any, to be elected by holders of Preferred Stock of the
Corporation, voting separately as a class). The Corporation shall have the
number of directors provided in the Charter until changed as herein provided.
Two-thirds of the entire Board of Directors may alter the number of directors
set by the Charter, but the action may not affect the tenure of office of any
director. No person who is seventy ( 70) years of age or older shall serve as a
director, except Carroll D. Myers, David M. Abramson, Glenn E. Eaves, Jacob M.
Yingling, George B. Crouse, E. Wayne Baumgardner, George A. Fream, Harry B.
Dougherty, Donald R. Hull and Eric E. Glass, each of whom may serve until they
retire, resign or are replaced as provided by these By-Laws.
SECTION 2.03. Election and Tenure of Directors. The Board of Directors
shall be divided into three classes as nearly equal in number as possible. The
members of each class shall be elected for a term of three years and until their
successors are elected and qualified.
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<PAGE>
SECTION 2.04. Removal of Director. Any director or the entire Board
of Directors may be removed only in accordance with the provisions of the
Charter.
SECTION 2.05. Vacancy on Board. Subject to the rights of the holders of
any class of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office, or other cause shall be
filled by a majority vote of the stockholders or the directors then in office. A
director so chosen by the stockholders shall hold office for the balance of the
term then remaining and until his successor is elected and qualifies. A director
so chosen by the remaining directors shall hold office until the next annual
meeting of stockholders, at which time the stockholders shall elect a director
to hold office for the balance of the term then remaining and until his
successor is elected and qualifies. No decrease in the number of directors
constituting the Board of Directors shall affect the tenure of office of any
director.
SECTION 2.06. Regular Meetings. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour after
the time for such stockholders' meeting or immediately following the close of
such meeting, whichever is later, on the day of such meeting. Such first regular
meeting shall be held at any place as may be designated by the stockholders, or
in default of such designation at the place designated by the Board of Directors
for such first regular meeting, or in default of such designation at the place
of the holding of the immediately preceding meeting of stockholders. Any other
regular meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Board of Directors. No
notice of such first meeting or any other regular meeting shall be necessary if
held as hereinabove provided.
SECTION 2.07. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
Vice-Chairman of the Board or the President or by one-third of the Board of
Directors by vote at a meeting, or in writing with or without a meeting. A
special meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Board of Directors. In the
absence of designation such meeting shall be held at such place as may be
designated in the call.
SECTION 2.08. Notice of Meeting. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. Written notice of any regular or special
meeting shall be give to each director at least two days previous thereto
delivered personally or by telegram or at least seven days previous thereto
delivered by mail at the address at which the director is most likely to be
reached. Such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid if mailed or when
delivered to the telegraph company if sent by telegram. Neither the business to
be transacted at, nor the purpose of, any meeting of the Board of Directors need
be specified in the
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<PAGE>
notice or waiver of notice of such meeting. No notice of any meeting of the
Board of Directors need be given to any director who attends except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened, or to any director who, in writing executed and filed with the records
of the meeting either before or after the holding thereof, waives such notice.
Any meeting of the Board of Directors, regular or special, may adjourn from time
to time to reconvene at the same or some other place, and no notice need be
given of any such adjourned meeting other than by announcement.
SECTION 2.09. Action by Directors. Unless statute or the Charter or
By-Laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if a unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
SECTION 2.10. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting, but shall not constitute attendance
for the purpose of compensation pursuant to Section 2.11 of this Article.
SECTION 2.11. Compensation. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
SECTION 2.12. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Corporation addressed to the Chairman of the Board, the Vice Chairman of the
Board or the President. Unless otherwise specified herein such resignation shall
take effect upon receipt thereof by the Chairman of the Board, the Vice Chairman
of the Board or the President.
SECTION 2.13. 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 his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by
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<PAGE>
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who votes in favor of such action.
SECTION 2.14. Advisory Directors. The Board of Directors may by
resolution appoint advisory directors to the Board, who may also serve as
directors emeriti, and shall have such authority and receive such compensation
and reimbursement as the Board of Directors shall provide. Advisory directors or
directors emeriti shall not have the authority to participate by vote in the
transaction of business.
ARTICLE III.
COMMITTEES
SECTION 3.01. Committees. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of two or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to declare dividends or other distributions on
stock, elect directors, issue stock other than as provided in the next sentence,
recommend to the stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange which does not
require stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in accordance
with a general formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, may fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
SECTION 3.02. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if a unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.03. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the
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<PAGE>
provisions of Section 3.01. In the event of the unavailability, at such time, of
a minimum of two members of the then incumbent Executive Committee, the
available directors shall elect an Executive Committee consisting of any two
members of the Board of Directors, whether or not they be officers of the
Corporation, which two members shall constitute the Executive Committee for the
full conduct and management of the affairs of the Corporation in accordance with
the foregoing provisions of this Section. This Section shall be subject to
implementation by resolution of the Board of Directors passed from time to time
for that purpose, and any provisions of the By-Laws (other than this Section)
and any resolutions which are contrary to the provisions of this Section or to
the provisions of any such implementary resolutions shall be suspended until it
shall be determined by any interim Executive Committee acting under this Section
that it shall be to the advantage of the Corporation to resume the conduct and
management of its affairs and business under all the other provisions of the
By-Laws.
ARTICLE IV.
OFFICERS
SECTION 4.01. Executive and Other Officers. The Corporation shall have
a President, a Secretary, and a Treasurer who shall be the executive officers of
the Corporation. It may also have a Chairman of the Board and a Vice-Chairman of
the Board; the Chairman of the Board or the Vice- Chairman of the Board shall be
an executive officer if he is designated as the chief executive officer of the
Corporation. The Board of Directors may designate who shall serve as chief
executive officer, having general supervision of the business and affairs of the
Corporation, or as chief operating officer, having supervision of the operations
of the Corporation; in the absence of designation the President shall serve as
chief executive officer and chief operating officer. It may also have one or
more Vice- Presidents, assistant officers, and subordinate officers as may be
established by the Board of Directors. A person may hold more than one office in
the Corporation but may not serve concurrently as both President and
Vice-President of the Corporation. The Chairman of the Board and the
Vice-Chairman of the Board shall be directors; the other officers may be
directors.
SECTION 4.02. Chairman of the Board. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present; and, in general, he shall perform all
such duties as are from time to time assigned to him by the Board of Directors.
SECTION 4.03. Vice Chairman of the Board. The Vice Chairman of the
Board, if one be elected, in the absence of the Chairman of the Board, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present; and, in general, he shall perform all such duties as
are from time to time assigned to him by the Board of Directors.
SECTION 4.04. President. The President, in the absence of the Chairman
of the Board and the Vice Chairman of the Board, shall preside at all meetings
of the Board of Directors and of
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<PAGE>
the stockholders at which he shall be present; he may sign and execute, in the
name of the Corporation, all authorized deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall have been expressly delegated to some other officer or agent of a
Corporation; and, in general, he shall perform all duties usually performed by a
president of the corporation and such other duties as are from time to time
assigned to him by the Board of Directors or the chief executive officer of the
Corporation.
SECTION 4.05. Vice-Presidents. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his inability to act, shall perform the duties and
exercise the functions of the President, and when so acting shall have the
powers of the President. If there be more than one Vice-President, the Board of
Directors may determine which one or more of the Vice-Presidents shall perform
any of such duties or exercise any of such functions, or if such determination
is not made by the Board of Directors, the chief executive officer, or the
President may make such determination; otherwise any of the Vice-Presidents may
perform any of such duties or exercise any of such functions. The Vice-President
or Vice-Presidents shall have such other powers and perform such other duties,
and have such additional descriptive designations in their titles (if any), as
are from time to time assigned to them by the Board of Directors, the chief
executive officer, or the President.
SECTION 4.06. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he shall
be custodian of the records of the Corporation; he may witness any document on
behalf of the Corporation, the execution of which is duly authorized, see that
the corporate seal is affixed where such document is required or desired to be
under its seal, and, when so affixed, may attest the same; and, in general, he
shall perform all duties incident to the office of a secretary of a corporation,
and such other duties as are from time to time assigned to him by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.07. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he shall render to the chief executive officer and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from time
to time assigned to him by the Board of Directors, the chief executive officer,
or the President.
SECTION 4.08. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
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<PAGE>
SECTION 4.09. Election, Tenure and Removal of Officers. The Board of
Directors shall elect the officers. The Board of Directors may from time to time
authorize any committee or officer to appoint assistant and subordinate
officers. Election or appointment of an officer, employee or agent shall not of
itself create contract rights. All officers shall be appointed to hold their
offices, respectively, during the pleasure of the Board. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may remove an officer at any time. The removal of an
officer does not prejudice any of his contract rights. The Board of Directors
(or, as to any assistant or subordinate officer, any committee or officer
authorized by the Board) may fill a vacancy which occurs in any office for the
unexpired portion of the term.
SECTION 4.10. Compensation. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the Corporation.
The Board of Directors may authorize any committee or officer, upon whom the
power of appointing assistant and subordinate officers may have been conferred,
to fix the salaries, compensation and remuneration of such assistant and
subordinate officers.
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ARTICLE V.
STOCK
SECTION 5.01. Certificates for Stock. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of the
corporation that issues it, the name of the stockholder or other person to whom
it is issued, and the class of stock and number of shares it represents. It
shall be in such form, not inconsistent with law or with the Charter, as shall
be approved by the Board of Directors or any officer or officers designated for
such purpose by resolution of the Board of Directors. Each stock certificate
shall be signed by the Chairman of the Board, the Vice-Chairman of the Board,
the President, or a Vice-President, and countersigned by the Secretary, an
Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each certificate
may be sealed with the actual corporate seal or a facsimile of it or in any
other form and the signatures may be either manual or facsimile signatures. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued.
SECTION 5.02. Transfers. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 30 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least 10 days before the date of the meeting.
SECTION 5.04. Stock Ledger. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.05. Certification of Beneficial Owners. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of
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stockholders who may certify; the purpose for which the certification may be
made; the form of certification and the information to be contained in it; if
the certification is with respect to a record date or closing of the stock
transfer books, the time after the record date or closing of the stock transfer
books within which the certification must be received by the Corporation; and
any other provisions with respect to the procedure which the Board considers
necessary or desirable. On receipt of a certification which complies with the
procedure adopted by the Board in accordance with this Section, the person
specified in the certification is, for the purpose set forth in the
certification, the holder of record of the specified stock in place of the
stockholder who makes the certification.
SECTION 5.06. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. Checks, Drafts, Etc. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the Chairman of the Board, the President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. In
the case of dividend checks, a facsimile signature is permitted.
SECTION 6.02. Annual Statement of Affairs. The President shall prepare
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after the meeting, placed on
file at the Corporation's principal office.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall be
the 12 calendar months period ending December 31 in each year, unless otherwise
provided by the Board of Directors.
SECTION 6.04. Dividends. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
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SECTION 6.05. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Charter or these By-Laws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation.
Such authority may be general or confined to specific instances.
SECTION 6.06. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 6.07. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the Board of Directors may select.
ARTICLE VII.
SUNDRY PROVISIONS
SECTION 7.01. Books and Records. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the By-Laws
shall be kept at the principal office of the Corporation.
SECTION 7.02. Corporate Seal. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 7.03. Bonds. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.04. Voting Upon Shares in Other Corporations. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the Chairman of the Board, the Vice-Chairman of the Board, the
President, a Vice-President, or a proxy appointed by either of them. The Board
of Directors, however, may by resolution appoint some other
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person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 7.05. Mail. Any notice or other document which is required
by these By-Laws to be mailed shall be deposited in the United States mail,
postage prepaid.
SECTION 7.06. Execution of Documents. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 7.07. Amendments. In accordance with the Charter, these By-Laws
may be repealed, altered, amended or rescinded by the stockholders of the
Corporation only by vote of not less than seventy-five percent (75%) of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting). In addition, the Board of Directors may
repeal, alter, amend or rescind these By-Laws by vote of two-thirds (2/3) of the
Board of Directors at a legal meeting held in accordance with the provisions of
these By-Laws.
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Exhibit (10iii)
MONOCACY BANCSHARES, INC.
1994 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
advance the development, growth and financial condition of Monocacy Bancshares,
Inc. (the "Corporation") and each subsidiary thereof as defined in Section 424
of the Internal Revenue Code of 1986, as amended (the "Code"), by providing
incentives through participation in the appreciation of capital stock of the
Corporation so as to secure, retain and motivate personnel who may be
responsible for the operation and management of the affairs of the Corporation
and any such subsidiary now or hereafter existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is adopted
by the Corporation's Board of Directors (the "Board"), so long as the
Corporation's stockholders duly approve the Plan within twelve (12) months
either before or after the date of the Board's adoption of the Plan. Any and all
options and rights awarded under the Plan ("Awards") before it is so approved by
the Corporation's stockholders shall be conditional upon and may not be
exercised before timely obtainment of such approval, and shall lapse upon the
failure thereof. If the Plan is so approved, it shall continue in effect until
all Awards either have lapsed or been exercised, satisfied or cancelled
according to their terms under the Plan.
3. Stock. The shares of stock that may be issued under the Plan shall
not exceed in the aggregate 65,000 shares of the Corporation's common stock, par
value $5.00 per share (the "Stock"), as may be adjusted pursuant to paragraph 18
hereof. Such shares of Stock may be either authorized and unissued shares of
Stock, or authorized shares of Stock issued by the Corporation and subsequently
reacquired by it as treasury stock. Under no circumstances shall any fractional
shares of Stock be issued or sold under the Plan or any Award. Except as may be
otherwise provided in the Plan, any Stock subject to an Award that for any
reason lapses or terminates prior to its exercise as to such Stock shall become
and again be available under the Plan. The Corporation shall reserve and keep
available, and shall duly apply for any requisite governmental authority to
issue or sell the number of shares of Stock needed to satisfy the requirements
of the Plan while in effect. The Corporation's failure to obtain any such
governmental authority deemed necessary by the Corporation's legal counsel for
the lawful issuance and sale of Stock under the Plan shall relieve the
Corporation of any duty, or liability for the failure to issue or sell such
Stock as to which such authority has not been obtained.
4. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of two (2) or more directors from the Board serving for
such terms as determined, selected and appointed by the Board. The Board shall
fill all vacancies occurring in the Committee's membership, and at any time and
for any reason may add additional members to the Committee or may remove members
from the Committee and appoint their successors. Except as otherwise permitted
under Section 16(b) of the Securities Exchange Act of 1934, as amended, and
applicable
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rules and regulations thereto, a member of the Committee must be a director of
the Corporation and during the year prior to commencing service on the
Committee, and while a member of the Committee, was not granted or awarded any
Awards, allocations or other options or rights of or with respect to Stock or
any other equity securities of the Corporation or its affiliates pursuant to the
Plan or any other plan of the Corporation or its affiliates which provides for
grants or awards. A majority of the Committee's membership shall constitute a
quorum for the transaction of all business of the Committee, and all decisions
and actions taken by the Committee shall be determined by a majority of the
members of the Committee attending a meeting at which a quorum of the Committee
is present.
The Committee shall be responsible for the management and operation of
the Plan and, subject to its provisions, shall have full, absolute and final
power and authority, exercisable in its sole discretion: to interpret and
construe the provisions of the Plan, adopt, revise and rescind rules and
regulations relating to the Plan and its administration, and decide all
questions of fact arising in the application thereof; to determine what, to
whom, when and under what facts and circumstances Awards shall be made, and the
form, number, terms, conditions and duration thereof, including but not limited
to when exercisable, the number of shares of Stock subject thereto, and Stock
option purchase prices; to adopt, revise and rescind procedural rules for the
transaction of the Committee's business, subject to any directives of the Board
not inconsistent with the provisions or intent of the Plan or applicable
provisions of law; and to make all other determinations and decisions, take all
actions and do all things necessary or appropriate in and for the administration
of the Plan. The Committee's determinations, decisions and actions under the
Plan, including but not limited to those described above, need not be uniform or
consistent, but may be different and selectively made and applied, even in
similar circumstances and among similarly situated persons. Unless contrary to
the provisions of the Plan, all decisions, determinations and actions made or
taken by the Committee shall be final and binding upon the Corporation and all
interested persons, and their heirs, personal and legal representatives,
successors, assigns and beneficiaries. No member of the Committee or of the
Board shall be liable for any decision, determination or action made or taken in
good faith by such person under or with respect to the Plan or its
administration.
5. Awards. Awards may be made under the Plan in the form of: (a)
"Qualified Options" to purchase Stock that are intended to qualify for certain
tax treatment as incentive stock options under Sections 421 and 422 of the Code,
(b) "Non-Qualified Options" to purchase Stock that are not intended to qualify
under Sections 421-424 of the Code, (c) Stock appreciation rights ("SARs"), or
(d) "Restricted Stock". More than one Award may be granted to an eligible
person, and the grant of any Award shall not prohibit the grant of any other
Award, either to the same person or otherwise, or impose any obligation upon the
person to whom granted to exercise the Award. All Awards and the terms and
conditions thereof shall be set forth in written agreements, in such form and
content as approved by the Committee from time to time, and shall be subject to
the provisions of the Plan whether or not contained in such agreements. Multiple
Awards for a particular person may be set forth in a single written agreement or
in multiple agreements, as determined by the Committee, but in all cases each
agreement for one or more Awards shall identify each of the Awards thereby
represented as a Qualified Option, Non-Qualified Option, SAR, or Restricted
Stock, as the case may be. Every Award made to a person (a "Recipient") shall be
exercisable during his or her lifetime only
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by the Recipient, and shall not be salable, transferable or assignable by the
Recipient except by his or her Will or pursuant to applicable laws of descent
and distribution.
6. Eligibility. Persons eligible to receive Awards shall be those key
officers and other management employees of the Corporation and each Subsidiary
as determined by the Committee. In no case, however, shall any current member of
the Committee be eligible to receive any Awards. A person's eligibility to
receive Awards shall not confer upon him or her any right to receive any Awards;
rather, the Committee shall have the sole authority, exercisable in its
discretion consistent with the provisions of the Plan, to select when, to whom
and under what facts and circumstances Awards will be made. Except as otherwise
provided, a person's eligibility to receive, or actual receipt of Awards under
the Plan shall not limit or affect his or her benefits under or eligibility to
participate in any other incentive or benefit plan or program of the Corporation
or its affiliates.
7. Qualified Options. In addition to other applicable provisions
of the Plan, all Qualified Options and Awards thereof shall be under and subject
to the following terms and conditions:
(a) No Qualified Option shall be awarded more than ten (10)
years after the date the Plan is adopted by the Board or the date the
Plan is approved by the Corporation's stockholders, whichever date is
earlier;
(b) The time period during which any Qualified Option is
exercisable, as determined by the Committee, shall not commence before
the expiration of six (6) months or continue beyond the expiration of
ten (10) years after the date such Option is awarded;
(c) If the Recipient of a Qualified Option ceases to be
employed by the Corporation or any Subsidiary for any reason other than
his or her death, the Committee may permit the Recipient thereafter to
exercise such Option during its remaining term for a period of not more
than three (3) months after such cessation of employment to the extent
that the Option was then and remains exercisable, unless such
employment cessation was due to the Recipient's disability as defined
in Section 22(e)(3) of the Code, in which case such three (3) month
period shall be twelve (12) months; if the Recipient dies while
employed by the Corporation or a Subsidiary, the Committee may permit
the Recipient's qualified personal representatives, or any persons who
acquire the Qualified Option pursuant to his or her Will or laws of
descent and distribution, thereafter to exercise such Option during its
remaining term for a period of not more than twelve (12) months after
the Recipient's death to the extent that the Option was then and
remains exercisable; the Committee may impose terms and conditions upon
and for said exercise of such Qualified Option after such cessation of
the Recipient's employment or his or her death;
(d) The purchase price of a share of Stock subject to any
Qualified Option, as determined by the Committee, shall not be less
than the Stock's fair market value at the time such Option is awarded,
as determined under paragraph 13 hereof, or less than the Stock's par
value.
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8. Non-Qualified Options. In addition to other applicable
provisions of the Plan, all Non-Qualified Options and Awards thereof shall be
under and subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is
exercisable, as determined by the Committee, shall not commence before
the expiration of six (6) months or continue beyond the expiration of
ten (10) years after the date such Option is awarded;
(b) If a Recipient of a Non-Qualified Option, before its lapse
or full exercise, ceases to be eligible under the Plan, the Committee
may permit the Recipient thereafter to exercise such Option during its
remaining term, to the extent that the Option was then and remains
exercisable, for such time period and under such terms and conditions
as may be prescribed by the Committee;
(c) The purchase price of a share of Stock subject to any
Non-Qualified Option, as determined by the Committee, shall not be less
than the Stock's fair market value at the time such Option is awarded,
as determined under paragraph 13 hereof.
9. Stock Appreciation Rights. In addition to other applicable
provisions of the Plan, all SARs and Awards thereof shall be under and subject
to the following terms and conditions:
(a) SARs may be granted either alone, or in connection with
another previously or contemporaneously granted Award (other than
another SAR) so as to operate in tandem therewith by having the
exercise of one affect the right to exercise the other, as and when the
Committee may determine; however, no SAR shall be awarded in connection
with a Qualified Option more than ten (10) years after the date the
Plan is adopted by the Board or the date the Plan is approved by the
Corporation's stockholders, whichever date is earlier;
(b) Each SAR shall entitle its Recipient to receive upon
exercise of the SAR all or a portion of the excess of (i) the fair
market value at the time of such exercise of a specified number of
shares of Stock as determined by the Committee, over (ii) a specified
price as determined by the Committee of such number of shares of Stock
that, on a per share basis, is not less than the Stock's fair market
value at the time the SAR is awarded;
(c) Upon exercise of any SAR, the Recipient shall be paid
either in cash or in Stock, or in any combination thereof, as the
Committee shall determine; if such payment is to be made in Stock, the
number of shares thereof to be issued pursuant to the exercise shall be
determined by dividing the amount payable upon exercise by the Stock's
fair market value at the time of exercise;
(d) The time period during which any SAR is exercisable, as
determined by the Committee, shall not commence before the expiration
of six (6) months or continue beyond the expiration of ten (10) years
after the date such SAR is awarded; however, no SAR
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connected with another Award shall be exercisable beyond the last date
that such other connected Award may be exercised;
(e) If a Recipient of a SAR, before its lapse or full
exercise, ceases to be eligible under the Plan, the Committee may
permit the Recipient thereafter to exercise such SAR during its
remaining term, to the extent that the SAR was then and remains
exercisable, for such time period and under such terms and conditions
as may be prescribed by the Committee;
(f) No SAR shall be awarded in connection with any Qualified
Option unless the SAR (i) lapses no later than the expiration date of
such connected Option, (ii) is for not more than the difference between
the Stock purchase price under such connected Option and the Stock's
fair market value at the time the SAR is exercised, (iii) is
transferable only when and as such connected Option is transferable and
under the same conditions, (iv) may be exercised only when such
connected Option may be exercised, and (v) may be exercised only when
the Stock's fair market value exceeds the Stock purchase price under
such connected Option.
10. Restricted Stock. In addition to other applicable provisions
of the Plan, all Restricted Stock and Awards thereof shall be under and subject
to the following terms and conditions:
(a) Restricted Stock shall consist of shares of Stock that may
be acquired by and issued to a Recipient at such time, for such or no
purchase price, and under and subject to such transfer, forfeiture and
other restrictions, conditions or terms as shall be determined by the
Committee, including but not limited to prohibitions against transfer,
substantial risks of forfeiture within the meaning of Section 83 of the
Code, and attainment of performance or other goals, objectives or
standards, all for or applicable to such time periods as determined by
the Committee;
(b) Except as otherwise provided in the Plan or the Restricted
Stock Award, a Recipient of shares of Restricted Stock shall have all
the rights as does a holder of Stock, including without limitation the
right to vote such shares and receive dividends with respect thereto;
however, during the time period of any restrictions, conditions or
terms applicable to such Restricted Stock, the shares thereof and the
right to vote the same and receive dividends thereon shall not be sold,
assigned, transferred, exchanged, pledged, hypothecated, encumbered or
otherwise disposed of except as permitted by the Plan or the Restricted
Stock Award;
(c) Each certificate issued for shares of Restricted Stock
shall be deposited with the Secretary of the Corporation, or the office
thereof, and shall bear a legend in substantially the following form
and content:
This Certificate and the shares of Stock hereby represented
are subject to the provisions of the Corporation's Stock
Incentive Plan and a certain agreement entered into between
the owner and the Corporation pursuant to said Plan. The
release of this
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Certificate and the shares of Stock hereby represented from
such provisions shall occur only as provided by said Plan and
agreement, a copy of which are on file in the office of the
Secretary of the Corporation.
Upon the lapse or satisfaction of the restrictions, conditions and
terms applicable to such Restricted Stock, a certificate for the shares
of Stock free thereof without such legend shall be issued to the
Recipient;
(d) If a Recipient's employment with the Corporation or a
Subsidiary ceases for any reason prior to the lapse of the
restrictions, conditions or terms applicable to his or her Restricted
Stock, all of the Recipient's Restricted Stock still subject to
unexpired restrictions, conditions or terms shall be forfeited
absolutely by the Recipient to the Corporation without payment or
delivery of any consideration or other thing of value by the
Corporation or its affiliates, and thereupon and thereafter neither the
Recipient nor his or her heirs, personal or legal representatives,
successors, assigns, beneficiaries, or any claimants under the
Recipient's Last Will or laws of descent and distribution, shall have
any rights or claims to or interests in the forfeited Restricted Stock
or any certificates representing shares thereof, or claims against the
Corporation or its affiliates with respect thereto.
11. Exercise. Except as otherwise provided in the Plan, Awards may be
exercised in whole or in part by giving written notice thereof to the Secretary
of the Corporation, or his or her designee, identifying the Award being
exercised, the number of shares of Stock with respect thereto, and other
information pertinent to exercise of the Award. The purchase price of the shares
of Stock with respect to which an Award is exercised shall be paid with the
written notice of exercise, either in cash or in Stock at its then current fair
market value, or in any combination thereof, as the Committee shall determine;
provided, that if the Stock tendered as payment for a Qualified Option was
acquired through the exercise of a Qualified Option, the Recipient must have
held such Stock for a period not less than the holding period described in Code
Section 422(a)(1). Funds received by the Corporation from the exercise of any
Award shall be used for its general corporate purposes.
The number of shares of Stock subject to an Award shall be reduced by
the number of shares of Stock with respect to which the Recipient has exercised
rights under the Award. If a SAR is awarded in connection with another Award,
the number of shares of Stock that may be acquired by the Recipient under the
other connected Award shall be reduced by the number of shares of Stock with
respect to which the Recipient has exercised his or her SAR, and the number of
shares of Stock subject to the Recipient's SAR shall be reduced by the number of
shares of Stock acquired by the Recipient pursuant to the other connected Award.
The Committee may permit an acceleration of previously established
exercise terms of any Awards or the lapse of restrictions thereon as, when,
under such facts and circumstances, and subject to such other or further
requirements and conditions as the Committee may deem necessary or appropriate.
In addition: (a) if the Corporation or its stockholders execute an agreement to
dispose of all or substantially all of the Corporation's assets or capital stock
by means of sale, merger,
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consolidation, reorganization, liquidation or otherwise, as a result of which
the Corporation's stockholders as of immediately before such transaction will
not own at least fifty percent (50%) of the total combined voting power of all
classes of voting capital stock of the surviving entity (be it the Corporation
or otherwise) immediately after the consummation of such transaction, thereupon
any and all Awards immediately shall become and remain exercisable with respect
to the total number of shares of Stock still subject thereto for the remainder
of their respective terms unless the transaction is not consummated and the
agreement expires or is terminated, in which case thereafter all Awards shall be
treated as if said agreement never had been executed; (b) if there is an actual,
attempted or threatened change in the ownership of at least twenty-five percent
(25%) of all classes of voting capital stock of the Corporation, as determined
by the Committee in its sole discretion, through the acquisition of, or an offer
to acquire such percentage of the Corporation's voting capital stock by any
person or entity, or persons or entities acting in concert or as a group, and
such acquisition or offer has not been duly approved by the Board, thereupon any
and all Awards immediately shall become and remain exercisable with respect to
the total number of shares of Stock still subject thereto for the remainder of
their respective terms; or (c) if during any period of two (2) consecutive
years, the individuals who at the beginning of such period constituted the
Board, cease for any reason to constitute at least a majority of the Board,
unless the election of each director of the Board, who was not a director of the
Board at the beginning of such period, was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of such period, thereupon any and all Awards immediately shall become
and remain exercisable with respect to the total amount of shares of Stock still
subject thereto for the remainder of their respective terms. If an event
described in (a), (b) or (c) occurs, the Committee shall immediately notify the
Recipients in writing of the occurrence of such event and their rights under
this paragraph 11.
12. Withholding. Whenever the Corporation is about to issue or transfer
Stock pursuant to any Award, the Corporation may require the Recipient to remit
to the Corporation an amount sufficient to satisfy fully any federal, state and
other jurisdictions' income and other tax withholding requirements prior to the
delivery of any certificates for such shares of Stock. Whenever payments are to
be made in cash to any Recipient pursuant to his or her exercise of an Award,
such payments shall be made net after deduction of all amounts sufficient to
satisfy fully any federal, state and other jurisdictions' income and other tax
withholding requirements.
13. Value. Where used in the Plan, the "fair market value" of Stock or
Options or rights with respect thereto, including Awards, shall mean and be
determined by: (a) in the event that the Stock is listed on an established
exchange, the closing price of the Stock on the relevant date or, if no trade
occurred on that day, on the next preceding day on which a trade occurred, (b)
in the event that the Stock is not listed on an established exchange, but is
then quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the average of the average of the closing bid and
asked quotations of the Stock for the five (5) trading days immediately
preceding the relevant date, or (c) in the event that the Stock is not then
listed on an established exchange or quoted on NASDAQ, the average of the
average of the closing bid and asked quotations of the Stock for five (5)
trading days immediately preceding the relevant date as reported by such
brokerage firms which are then making a market in the Stock. In the event that
the Stock is not listed on an established exchange and no closing bid and asked
quotations are available, fair market value shall be determined
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in good faith by the Committee. In the case of (b) or (c) above, in the event
that no closing bid or asked quotation is available on one or more of such
trading days, fair market value shall be determined by reference to the five (5)
trading days immediately preceding the relevant date on which closing bid and
asked quotations are available.
14. Amendment. To the extent permitted by applicable law, the Board may
amend, suspend, or terminate the Plan at any time; provided, however, that: (a)
no amendment may be adopted that permits an Award to be granted to any member of
the Committee; (b) with respect to qualified options, except as specified in
paragraph 18 hereof, no amendment may be adopted that will increase the number
of shares reserved for Awards under the Plan, change the option price, or change
the provisions required for compliance with Section 422 of the Code and
regulations issued thereunder; and (c) notwithstanding anything to the contrary
herein, no amendment may be adopted to increase the number of securities that
may be issued under the Plan, except as specified in paragraph 18 hereof,
materially increase the benefits accruing to recipients or materially modify the
requirements for eligibility to participate in the Plan, without the approval of
the shareholders of the Corporation, to the extent that shareholder approval is
required under Section 16 of the Securities Exchange Act of 1934, as amended,
and the regulations thereunder, as from time to time in effect. The amendment or
termination of this Plan shall not, without the consent of the Recipients, alter
or impair any rights or obligations under any Award previously granted
hereunder.
In addition and subject to the foregoing, the Committee may prescribe
other or additional terms, conditions and provisions with respect to the grant
or exercise of any or all Awards as the Committee may determine necessary or
appropriate for such Awards and the Stock subject thereto to qualify under and
comply with all applicable laws, rules and regulations, and changes therein,
including but not limited to the provisions of Sections 421 and 422 of the Code,
Section 16 of the Securities Exchange Act of 1934, as amended, and Rule 16b-3
promulgated by the Securities and Exchange Commission. Without limiting the
generality of the preceding sentence, each Qualified Option, and any SAR awarded
in connection therewith, shall be subject to such other and additional terms,
conditions and provisions as the Committee may deem necessary or appropriate in
order to qualify such Option, or connected Option and SAR, as an incentive stock
option under Section 422 of the Code, including but not limited to the following
provisions:
(i) the aggregate fair market value, at the time such Option
is awarded, of the Stock subject thereto and of any Stock or other
capital stock with respect to which incentive stock options qualifying
under Sections 421 and 422 of the Code are exercisable for the first
time by the Recipient during any calendar year under the Plan and any
other plans of the Corporation or its affiliates, shall not exceed
$100,000.00; and
(ii) No Qualified Option, or any SAR in connection therewith,
shall be awarded to any person if at the time of such Award, such
person owns Stock possessing more than ten percent (10%) of the total
combined voting power of all classes of capital stock of the
Corporation or its affiliates, unless at the time such Option or SAR is
awarded the Stock purchase price under such Option is at least one
hundred and ten percent (110%) of the fair market value of the Stock
subject to such Option and the Option (and any SAR connected
8
<PAGE>
therewith) by its terms is not exercisable after the expiration of five
(5) years from the date it is awarded.
From time to time, the Committee may rescind, revise and add to any of such
terms, conditions and provisions as may be necessary or appropriate to have any
Awards be or remain qualified and in compliance with all applicable laws, rules
and regulations, and may delete, omit or waive any of such terms, conditions or
provisions that are no longer required by reason of changes in applicable laws,
rules or regulations.
15. Continued Employment. Nothing in the Plan or any Award shall confer
upon any Recipient or other persons any right to continue in the employment of,
or maintain any particular relationship with the Corporation or its affiliates,
or limit or affect any rights, powers or privileges that the Corporation or its
affiliates may have to supervise, discipline and terminate such Recipient or
other persons, and the employment and other relationships thereof. However, the
Committee may require as a condition of making and/or exercising any Award that
its Recipient agree to, and in fact provide services, either as an employee or
in another capacity, to or for the Corporation or any Subsidiary for such time
period following the date the Award is made and/or exercised as the Committee
may prescribe. The immediately preceding sentence shall not apply to any
Qualified Option to the extent such application would result in disqualification
of said Option as an incentive stock option under Sections 421 and 422 of the
Code.
16. General Restrictions. Each Award shall be subject to the
requirement and provision that if at any time the Committee determines it
necessary or desirable as a condition of or in consideration of making such
Award, or the purchase or issuance or Stock thereunder, (a) the listing,
registration or qualification of the Stock subject to the Award, or the Award
itself, upon any securities exchange or under any federal or state securities or
other laws, (b) the approval of any governmental authority, or (c) an agreement
by the Recipient with respect to disposition of any Stock (including without
limitation that at the time of the Recipient's exercise of the Award, any Stock
thereby acquired is being and will be acquired solely for investment purposes
and without any intention to sell or distribute such Stock), then such Award
shall not be consummated in whole or in part unless such listing, registration,
qualification, approval or agreement shall have been appropriately effected or
obtained to the satisfaction of the Committee and legal counsel for the
Corporation.
17. Rights. Except as otherwise provided in the Plan, the Recipient of
any Award shall have no rights as a holder of the Stock subject thereto unless
and until one or more certificates for the shares of such Stock are issued and
delivered to the Recipient. No adjustments shall be made for dividends, either
ordinary or extraordinary, or any other distributions with respect to Stock,
whether made in cash, securities or other property, or any rights with respect
thereto, for which the record date is prior to the date that any certificates
for Stock subject to an Award are issued to the Recipient pursuant to his or her
exercise thereof. No Award, or the grant thereof, shall limit or affect the
right or power of the Corporation or its affiliates to adjust, reclassify,
recapitalize, reorganize or otherwise change its or their capital or business
structure, or to merge, consolidate, dissolve, liquidate or sell any or all of
its or their business, property or assets.
9
<PAGE>
18. Adjustments. In the event of any change in the number of issued and
outstanding shares of Stock which results from a stock split, reverse stock
split, payment of a stock dividend or any other change in the capital structure
of the Corporation, the Committee shall proportionately adjust the maximum
number of shares subject to each outstanding Award, and (where appropriate) the
purchase price per share thereof (but not the total purchase price under the
Award), so that upon exercise or realization of such Award, the Recipient shall
receive the same number of shares he or she would have received had he or she
been the holder of all shares subject to his or her outstanding Award and
immediately before the effective date of such change in the number of issued and
outstanding shares of Stock. Such adjustments shall not, however, result in the
issuance of fractional shares. Any adjustments under this paragraph 18 shall be
made by the Committee, subject to approval by the Board. No adjustments shall be
made that would cause a Qualified Option to fail to continue to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
In the event the Corporation is a party to any merger, consolidation or
other reorganization, any and all outstanding Awards shall apply and relate to
the securities to which a holder of Stock is entitled after such merger,
consolidation or other reorganization. Upon any liquidation or dissolution of
the Corporation, any and all outstanding Awards shall terminate upon
consummation of such liquidation or dissolution, but prior to such consummation
shall be exercisable to the extent that the same otherwise are exercisable under
the Plan.
19. Forfeiture. Notwithstanding anything to the contrary in this Plan,
if the Committee finds after full consideration of the facts presented on behalf
of the Corporation and the involved Recipient, that he or she has been engaged
in fraud, embezzlement, theft, commission of a felony, or dishonesty in the
course of his or her employment by the Corporation or any Subsidiary that has
damaged it, or that the Recipient has disclosed trade secrets of the Corporation
or its affiliates, the Recipient shall forfeit all rights under and to all
unexercised Awards, and all exercised Awards under which the Corporation has not
yet delivered payment or certificates for shares of Stock (as the case may be),
all of which Awards and rights shall be automatically cancelled. The decision of
the Committee as to the cause of the Recipient's discharge from employment with
the Corporation or any Subsidiary and the damage thereby suffered shall be final
for purposes of the Plan, but shall not affect the finality of the Recipient's
discharge by the Corporation or Subsidiary for any other purposes. The preceding
provisions of this paragraph shall not apply to any Qualified Option to the
extent such application would result in disqualification of said Option as an
incentive stock option under Sections 421 and 422 of the Code.
20. Indemnification. In and with respect to the administration of the
Plan, the Corporation shall indemnify each present and future member of the
Committee and/or of the Board, who shall be entitled without further action on
his or her part to indemnity from the Corporation for all damages, losses,
judgments, settlement amounts, punitive damages, excise taxes, fines, penalties,
costs and expenses (including without limitation attorneys' fees and
disbursements) incurred by such member in connection with any threatened,
pending or completed action, suit or other proceedings of any nature, whether
civil, administrative, investigative or criminal, whether formal or informal,
and whether by or in the right or name of the Corporation, any class of its
security holders, or otherwise, in which such member may be or have been
involved, as a party or otherwise, by reason of his or her
10
<PAGE>
being or having been a member of the Committee and/or of the Board, whether or
not he or she continues to be such a member. The provisions, protection and
benefits of this paragraph shall apply and exist to the fullest extent permitted
by applicable law to and for the benefit of all present and future members of
the Committee and/or of the Board, and their respective heirs, personal and
legal representatives, successors and assigns, in addition to all other rights
that they may have as a matter of law, by contract, or otherwise, except (a) as
may not be allowed by applicable law, (b) to the extent there is entitlement to
insurance proceeds under insurance coverage provided by the Corporation on
account of the same matter or proceeding for which indemnification hereunder is
claimed, or (c) to the extent there is entitlement to indemnification from the
Corporation, other than under this paragraph, on account of the same matter or
proceeding for which indemnification hereunder is claimed.
21. Miscellaneous. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation, including but not limited to
the Internal Revenue Code of 1986 and the Securities Exchange Act of 1934, both
as amended, shall include any subsequently enacted or promulgated section or
provision of law, rule or regulation, as the case may be, of similar import.
With respect to persons subject to Section 16 of the Securities Exchange Act of
1934, as amended, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or any successor rule that may be
promulgated by the Securities and Exchange Commission, and to the extent any
provision of this Plan or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by applicable law and deemed
advisable by the Committee. Where used in this Plan: the plural shall include
the singular, and unless the context otherwise clearly requires, the singular
shall include the plural; and, the term "affiliates" shall mean each and every
Subsidiary and any parent of the Corporation. The captions of the numbered
paragraphs contained in this Plan are for convenience only, and shall not limit
or affect the meaning, interpretation or construction of any of the provisions
of the Plan.
- - - - - - - - - - - -
END
- - - - - - - - - - - -
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Taneytown, State of Maryland on , 1994.
MONOCACY BANCSHARES, INC.
By:
____________________________________
Frank W. Neubauer, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Frank W. Neubauer and Michael
K. Walsch, and each of them, his true and law attorney-in-fact, as agent with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the date indicated.
Capacity Date
-------- ----
______________________ President and Chief Executive , 1994
Frank W. Neubauer Officer and Director (Principal
Executive Officer)
______________________ Senior Vice President , 1994
Michael K. Walsch and Treasurer (Principal
Financial and Accounting
Officer)
______________________ Chairman of the Board , 1994
Donald R. Hull and Director
12
<PAGE>
______________________ Vice Chairman of the Board , 1994
Eric E. Glass and Director
______________________ Director , 1994
David M. Abramson
______________________ Director , 1994
E. Wayne Baumgardner
______________________ Director , 1994
George B. Crouse
______________________ Director , 1994
Harry B. Dougherty, Sr.
______________________ Director , 1994
Glenn E. Eaves
______________________ Director , 1994
George A. Fream
______________________ Director , 1994
Jacob M. Yingling
13
1996
- --------------------------------------------------------------------------------
MONOCACY BANCSHARES, INC.
ANNUAL REPORT
A Year of Investing in Our Future
<PAGE>
OUR MISSION
================================================================================
The mission of Monocacy Bancshares, Inc. is to serve our community as an
independent, market driven organization by providing "Service Excellence"
through highly motivated and trained employees and officers who, complemented by
continued emphasis on advanced technology, will set the standard for excellence
in our marketplace. It is our stated desire to obtain superior profitability in
order to provide our shareholders a fair return on their investment.
- --------------------------------------------------------------------------------
1 Columbia Office &
Classic Mortgage Office
2 Randallstown Office &
Classic Mortgage Headquarters
3 Eldersburg Office
4 Uniontown Office
5 Keymar Office [MAP OF ADAMS CO., PA; CARROLL, HOWARD
6 Route 140 Express Office AND BALTIMORE CO., MD; AND
7 Englar Road Office BALTIMORE CITY APPEARS HERE]
8 Carroll Lutheran Village Office
9 Main Office & Corporate
Headquarters
10 Fairground Office
11 Gettysburg Office
<PAGE>
FROM THE PRESIDENT
================================================================================
[PHOTOGRAPH OF THE FOLLOWING PEOPLE APPEARS IN CENTER OF PAGE]
ERIC E. GLASS,
DONALD R. HULL AND
FRANK W. NEUBAUER
Carroll County has changed dramatically since we first opened our doors over 110
years ago. The pace of these changes has picked up momentum in recent years.
Correspondingly, the banking industry has been going through dramatic changes.
Every day there is news of another merger or a new approach to delivering
services. We all know that these environments will continue to change as we move
into the future. Monocacy Bancshares has grown and evolved right along with
these changes; in fact, we take great pride in the way we have anticipated and
prepared for these changes.
The theme of our Annual Report this year is "A Year of Investing in our
Future". While our financial results in terms of earnings are down compared to
1995, our financial performance reconciles with this theme and we believe that
1996 represents a banner year in our Company's history.
At our 1996 stockholders' meeting, we outlined energetic plans for 1996. Not
only did we accomplish everything we set out to do, but we added a few
additional initiatives. Any one of these initiatives would have represented a
challenge for a bank our size but, together, they should be viewed as an
extraordinary accomplishment and a true testimonial to the quality and
dedication of our staff. Our Annual Report provides an overview of these
initiatives. We believe we have positioned our Bank to be able to exploit growth
and profitability opportunities in the future.
An anticipated but unquantifiable event, both in terms of the timing and the
dollar amount, was the special FDIC Assessment to recapitalize the Savings
Association Insurance Fund (SAIF) on which Congress vacillated for over a year.
This had an impact of $245,000 on earnings. All savings banks and commercial
banks with savings deposits received such an assessment. This and the
substantial first year costs associated with our initiatives had a significant
impact on our 1996 earnings.
I would like to highlight some of the more substantial initiatives completed
in 1996.
o The deposit acquisition and integration of the two Royal Oak branches
o The acquisition of Classic Mortgage
o The opening of a state of the art express drive-in banking facility in
Westminster
o The opening of our second Commercial Banking Office in Gettysburg,
Pennsylvania
Perhaps more important than the initiatives described above in terms of
impact and positioning for the future were less physically tangible efforts in a
variety of areas which included:
o The completion and full implementation of our Relationship Banking program
o The completion of a functional reorganization
o The beginning of the next stage of our technology efforts
These initiatives were costly, but they fit the Strategic Plan outlined in
the beginning of the year, "A Year of Investing in our Future". Intelligently
investing in people, marketing, facilities and technology will significantly
increase the future value of our Bank.
Our Board of Directors, at our January Board meeting, adopted a management
rotation plan whereby Eric E. Glass was elected Chairman of the Board and Donald
R. Hull was elected Vice Chairman of the Board and Chairman of the Executive
Committee. Mr. Glass and Mr. Hull have worked closely with each other for a
number of years and have long viewed their respective roles on a unified basis.
In late February, the City of Taneytown experienced the loss of one of our
community leaders with the passing of Henry Reindollar. Henry was dedicated and
committed to improving our community and will be greatly missed.
More than ever, we are optimistic and highly focused as we move into 1997;
our compasses of growth, profitability and adding shareholder value are pointed
in the same direction. Our agenda is well defined, is based on input from all
areas within our organization and is driven by an organizational commitment to
service excellence. Your support of our initiatives is sincerely appreciated and
will be rewarded as these investments begin to mature and contribute to our
future successes.
/s/ Frank W. Neubauer, Jr.
Frank W. Neubauer, Jr.
President and Chief Executive Officer
1
<PAGE>
YEAR IN REVIEW
================================================================================
[THE FOLLOWING 9 LINES IS A PULL QUOTE APPEARING AT THE CENTER OF THE PAGE]
1996 WILL BE
REMEMBERED
AS THE YEAR WE
COMMITTED OUR
RESOURCES IN WAYS
UNPRECEDENTED IN
OUR ONE HUNDRED
TWELVE YEAR
HISTORY.
A YEAR OF INVESTING IN OUR FUTURE
- --------------------------------------------------------------------------------
1996 will be remembered as the year we committed our resources in ways
unprecedented in our one hundred twelve year history. With a goal to remain a
strong independent community financial institution, we undertook pivotal efforts
to significantly improve our retail delivery system with four new full service
branch offices, a realignment of staff functions, a new telephone banking system
and new marketing initiatives. We acquired a successful mortgage company to
further support our opportunities to serve our diverse market region with all
mortgage related services. All these activities were underlined by an extensive
strategic planning effort that resulted in our renewed mission to Service
Excellence.
NEW MARKETS
- --------------------------------------------------------------------------------
In an age of mergers and acquisitions, each community bank must accept the
challenge to grow wisely in order to remain a viable independent entity. During
1996, we ably met that challenge by significantly expanding our presence in
Carroll County and by entering new markets in Randallstown and Gettysburg.
A review of the population growth in Carroll County and the subsequent steady
increase of commuters to our region clearly directed us to explore sites in the
southern Carroll County area. By the merger of a savings bank, we found the
right advantage we needed. With an office in Eldersburg and another further east
in Randallstown we are able to serve this dynamic suburban community and those
that commute on Route 26, a major artery into Baltimore. The Randallstown
location has also become the hub/Corporate Headquarters of Classic Mortgage.
Merging two savings bank branches into our full service commercial banking
operation was a daunting experience. Every department of the bank rose to the
occasion to meet the systems', regulatory and customer demands. Multiple
communications were personalized to each new customer introducing our bank and
the many new services we provide. By all measurements, we were very successful.
Our Englar Road office has been a trend setter for our competition in the
Westminster market. Our customers have commended us time and again on our
extended lobby hours and personalized service. All that was missing was a
drive-up facility. In September, we introduced the Rt. 140 Express office to
Westminster. The finest drive-up banking equipment was installed to make sure
commercial customers and commuters are serviced quickly and efficiently. Our
dawn to dusk hours are a true sign of our commitment to meet our customers'
needs.
Finally, with our three year old Business Development office in Columbia, a
model for commercial banking success, the Gettysburg office was opened in
December. This was a market desperate for the style of personalized service our
community bank has always been proud to offer. Our results to date have exceeded
our expectations.
Each step of the way, with each new office, we have rallied the talents of
our staff to insure we met our goals.
THE FINEST RESIDENTIAL
MORTGAGE LENDER
- --------------------------------------------------------------------------------
Columbia's much respected Classic Mortgage Company became the best regional
community bank mortgage department when we joined forces in April. No competitor
offers more types of programs or better service. On top of that, all our bank
products and services have a whole new audience. Already, customers are
referring friends because Classic works hard to make it happen. There are
"Financing by Taneytown Bank" signs in every new subdivision we serve as our lot
and construction loan programs take off. Our Homeowners Checking Account brings
these new customers into our family. With over $60 million of new business from
our mortgage division in
2
<PAGE>
[THE FOLLOWING 10 LINES IS A PULL QUOTE APPEARING AT THE CENTER OF THE PAGE]
THE FINANCIAL
BUSINESS IS IN A
CONSTANT STATE OF
CHANGE, AND THE
RACE BELONGS TO
THOSE WITH THE
VISION AND
DETERMINATION TO
MOVE AHEAD IN THIS
ENVIRONMENT.
1996, we have laid the groundwork to become the finest residential lender in the
area.
TECHNOLOGY
- --------------------------------------------------------------------------------
Monocacy has prudently invested in that technology which was once only available
at much larger institutions over the past 3 years. Whether it's express drive
through lanes or an innovative information delivery system, our customers and
their needs drive our technological actions.
Mid year, we introduced the Automated Customer Service Line. Now all
customers can access account information, transfer funds, and initiate stop
payments from a personal telephone. Due to its dependability and ease, the line
is now receiving over five thousand calls per month. There is also information
designed to attract non-customers, such as, branch locations, rates, and product
highlights.
Yes, we are now on the Internet. Customers and non-customers can leisurely
survey our services, review recent corporate news, calculate a mortgage or loan
payment and make inquiries on their personal computers at www.taneytownbank.com.
These are investments that only a positive and growth oriented corporate
culture like ours can support.
THE DRIVING FORCE--
EMPLOYEES MATTER
- --------------------------------------------------------------------------------
Quality products and efficient delivery systems are vital to our success, but
it's our employees--in all areas of the company--who are making it work. In
order to effect our many 1996 projects, we have expected heroic efforts of all
our employees. Using a team approach at all times, many resources were allocated
to refine and enhance our capabilities. Again and again, bank employees
responded to a changing environment with a flexible, innovative approach to
"getting the job done."
Branch expansion and the addition of Classic Mortgage led naturally to a
reorganization. A consolidation of operational and administrative functions
permitted a flattened organizational chart in our sales and production areas.
SERVICE EXCELLENCE
- --------------------------------------------------------------------------------
Our commitment to our customers has never been taken for granted. To insure our
position among our peers, we reaffirmed a mission of service excellence in 1996
and to recognize the nature of our business, one of rapid change and greatly
increased competition, we saw the need to develop a renewed energy towards
Service Excellence. The organization at every level has drafted an action plan
focusing on customers and programs to enhance our sales culture. These efforts,
coupled with the enhanced delivery systems have presented our employees with a
sense of mission and shared vision.
INVESTMENTS MAKE OPPORTUNITIES
- --------------------------------------------------------------------------------
In today's changing market, we cannot rest on past success. Our small business
package of services, "BOSS" has been a magnet to business people from Gettysburg
to Columbia. We are recognized as having the premiere retirement account: Club
50. Investors MarketPlace, Inc., with TBT Insurance, offers our customers
creditable non-FDIC insured investments. Our products and services combined with
our strategic 1996 investments offer us many new opportunities to continue
excellent service as we attract many new friends. The financial business is in a
constant state of change, and the race belongs to those with the vision and
determination to move ahead in this environment. Your company is poised and
ready to take full advantage of future opportunities.
3
<PAGE>
MONOCACY BANCSHARES, INC.
SELECTED FINANCIAL HIGHLIGHTS
================================================================================
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C>
EARNINGS:
Net income $ 1,611 $ 2,351 $ 2,222 $ 1,961 $ 1,952
Net interest income 9,172 9,227 8,726 7,217 6,662
Provision for loan losses 300 885 687 375 263
PER SHARE: (1)
Net income $ 1.00 $ 1.47 $ 1.40 $ 1.23 $ 1.23
Cash dividend declared .36 .33 .23 .19 .17
Book value 13.40 13.21 11.69 10.87 9.69
AT YEAR END:
Assets $263,015 $266,194 $211,249 $191,768 $157,725
Loans, net 156,690 137,222 145,564 121,370 101,079
Deposits 225,039 223,412 171,873 155,722 141,069
Stockholders' equity 21,648 21,169 18,610 17,289 15,415
Non-performing assets 1,449 2,569 303 583 1,491
Number of employees
(full time equivalents) 160 129 95 98 86
RATIOS:
Return on average assets 0.61% 1.07% 1.08% 1.09% 1.27%
Return on average equity 7.81 11.83 12.19 11.27 13.31
Equity to assets 8.23 7.95 8.81 9.02 9.77
Loan loss allowance to loans 1.32 1.37 1.29 1.23 1.09
</TABLE>
(1) Per share data for all years have been restated to reflect the 10% common
stock dividends issued in 1997 and 1996. Per share data for years prior to 1994
have been restated to reflect a 20% common stock dividend issued in 1992 and a 2
for 1 stock split in 1993.
4
<PAGE>
FINANCIAL CONTENTS
================================================================================
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations..... 6
Independent Auditors' Report..............................................................21
Consolidated Balance Sheets...............................................................22
Consolidated Statements of Income.........................................................23
Consolidated Statements of Changes in Stockholders' Equity................................24
Consolidated Statements of Cash Flows.....................................................25
Notes to Consolidated Financial Statements................................................26
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
December 31, 1996 compared to December 31, 1995
(Dollars in thousands, except per share data)
Monocacy Bancshares, Inc. ("Monocacy" or the "Company"), with headquarters in
Taneytown, Maryland is a registered Bank Holding Company formed on October 1,
1993. At December 31, 1996, Monocacy had total consolidated assets of $263,015.
Monocacy is engaged in the general, commercial and consumer banking businesses
through its subsidiary, Taneytown Bank and Trust Company. Taneytown Bank & Trust
Company (the "Bank"), provides a full range of financial services to
individuals, businesses and organizations through eleven banking offices and
five Automated Teller Machines. Classic Mortgage Company, a division of the
Bank, provides the Bank's mortgage-banking operations. Monocacy Bancshares also
offers annuity sales through TBT Insurance, Inc., a subsidiary of the Bank. The
primary market area of the Company extends through Carroll, Howard and Baltimore
Counties, Maryland and surrounding areas including Southern Central
Pennsylvania.
A detailed discussion of the 1996 Operating Results and Financial Condition at
December 31, 1996 follows and is intended to assist readers in their analysis of
the Company's consolidated financial statements and related notes. Such
financial condition and results of operations are not necessarily indicative of
future performance.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this annual report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-QSB to be filed by the Company in 1997, and any
Current Reports on Form 8-K filed by the Company.
OVERVIEW
Monocacy reported consolidated net income for 1996 of $1,611 or $1.00 per share
as compared with consolidated net income of $ 2,351 or $1.47 per share in 1995.
For Monocacy, 1996 was a year of investment in the future. In March of 1996,
Royal Oak Savings Bank, which was acquired on December 31, 1995, was merged into
Taneytown Bank. In April, 1996, the Company acquired Classic Mortgage Company
("Classic") and is currently operating it as a division of the Bank. In
addition, two new branches of Taneytown Bank were opened in 1996. All of these
projects involved extensive costs in the data processing, operational and branch
areas of the Company throughout the year. The 1996 performance reflected net
interest margins that were lower than in 1995, although tax-equivalent net
interest income was higher due to higher earning assets in 1996. In addition,
1996 reflected increases in non-interest revenues and non-interest expenses and
a decrease in the provision for loan losses. The 1996 Return on Average Assets
was .61% and Return on Average Equity was 7.81%. Total assets were $263,015 at
December 31, 1996, with strong interest-earning asset and deposit growth. Return
on Average Assets for 1995 was 1.07% and Return on Average Equity was 11.83%.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
The net interest margin of 4.09% was 59 basis points below the 1995 level of
4.68%. Taxable equivalent interest income, Monocacy's primary contributor to
earnings, was $20,381 for 1996 which was a 16.7% increase over the 1995 level of
$17,460. This increase can be attributed to increase in the average volume of
interest earning assets, primarily in the investment securities portfolios. A
major contributor to the higher asset volume was the acquisition of Royal Oak's
asset portfolio on December 31, 1995. Interest expense for 1996 was $10,421
which was an increase of $2,569 or 32.7% over 1995 because of the change in the
Company's deposit mix towards higher costing certificates of deposit, largely
due to the higher costing deposits acquired in the Royal Oak transaction and the
effect of amortization of the related deposit premium paid in the transaction.
The Royal Oak acquisition increased average interest-bearing liabilities by
approximately 22% and the deposit premium amortization increased the Company's
overall cost of funds by approximately 17 basis points. The overall cost of
interest-bearing liabilities (deposits and borrowings) was 4.82% which was a 35
basis point increase over 1995, primarily as a result of the noted change in
deposit mix.
6
<PAGE>
- --------------------------------------------------------------------------------
Table 1: Average Balances, Interest and Yields and Table 2: Net Interest Income
Analysis, provide further details of the Company's net interest income.
- --------------------------------------------------------------------------------
TABLE 1
AVERAGE BALANCES, INTEREST AND YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- ---------------------------
Average Average Average
Balances Interest Yield Balances Interest Yield Balances Interest Yield
-------- -------- ----- -------- -------- ----- -------- -------- -----
<S> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
income (2)(3) $148,756 $14,044 9.44% $140,969 $13,535 9.60% $137,808 $12,148 8.82%
Securities available for sale--
taxable 58,100 3,797 6.54 12,480 711 5.70 18,392 921 5.01
Securities available for sale--
tax-exempt (1) 9,419 639 6.78 5,475 406 7.42 6,192 453 7.32
Investment securities--taxable 401 26 6.48 31,490 1,892 6.01 17,960 1,104 6.15
Investment securities--
tax-exempt (1) 22,915 1,677 7.32 10,720 715 6.67 10,108 685 6.78
Federal funds sold 2,654 146 5.50 1,250 68 5.44 504 30 5.95
Interest-bearing deposits 1,116 52 4.66 2,819 133 4.72 837 42 5.02
-------- ------- -------- ------- -------- -------
Total interest-earning assets 243,361 20,381 8.37% 205,203 17,460 8.51% 191,801 15,383 8.02%
------- ------- -------
Non-interest-earning assets:
Cash and due from banks 7,463 4,683 6,529
Bank premises and equipment,
net 7,442 5,851 5,817
Other assets 6,353 4,931 3,182
Less--allowance for loan
losses (2,055) (1,904) (1,715)
-------- -------- --------
Total assets $262,564 $218,764 $205,614
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing checking
accounts $ 21,488 540 2.51% $ 18,426 446 2.42% $ 19,595 489 2.50%
Savings and money market
accounts 62,507 2,324 3.72 52,442 1,628 3.10 56,657 1,728 3.05
Certificates of deposit 112,673 6,387 5.67 86,406 4,831 5.59 68,831 2,995 4.35
Federal funds purchased 1,727 95 5.50 1,300 55 4.23 804 34 4.23
Other borrowings 17,991 1,075 5.98 17,059 892 5.23 20,588 1,026 4.98
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 216,386 10,421 4.82% 175,633 7,852 4.47% 166,475 6,271 3.77%
------- ------- -------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 23,792 21,500 19,612
Other liabilities 1,767 1,761 1,306
Stockholders' equity 20,619 19,870 18,221
-------- -------- -------
Total liabilities and
stockholders' equity $262,564 $218,764 $205,614
======== ======== ========
Net interest income $ 9,960 $ 9,608 $ 9,112
======= ======= =======
Net interest spread (4) 3.55% 4.04% 4.25%
Net yield on earning assets (5) 4.09% 4.68% 4.75%
</TABLE>
(1) Interest on state and municipal investments is presented on a fully-taxable
equivalent basis
(2) Includes loans held for sale and non-accrual loans
(3) Interest income on loans includes the amortized portion of net loan fees of
$351, $611 and $415 for the years ended December 31, 1996, 1995 and 1994,
respectively
(4) Represents the difference between the yield on interest-earning assets and
the cost of interest-bearing liabilities
(5) Represents net interest income divided by average interest-earning assets
- --------------------------------------------------------------------------------
7
<PAGE>
Average interest-earning assets totaled $243,361 for 1996, an increase of 18.6%
from the previous year. Increases occurred in most all categories of the loan
portfolio, generally reflecting the results of commercial, construction and
consumer lending initiatives and other marketing efforts. Average securities
(including the Available for Sale portfolio) experienced overall increases of
$30,670 from the 1995 level as a result of the funds reinvested after the Royal
Oak transaction. During 1996, the Company sold a pool of approximately $10
million of the Bank's residential mortgage loan portfolio in the secondary
market, while retaining the servicing of those loans. Net of the loan sale,
average loan growth was $7,787 in 1996. See the Balance Sheet Review below for
further discussion on interest-earning assets.
Average interest-bearing liabilities, increased by $40,753 from the prior year.
The increase was due primarily to the acquisition of Royal Oak, which brought in
approximately $39 million in additional deposits. The mix in core deposits also
changed during 1996, as a result of the Royal Oak acquisition. See a more
comprehensive discussion of funding elsewhere in this report.
- --------------------------------------------------------------------------------
TABLE 2
NET INTEREST INCOME ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 over 1995 1995 over 1994
--------------------------------- -----------------------------------
Due to change in (2) Due to change in (2)
-------------------- Increase --------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> ------ ------ ---------- ------ ------ ----------
Interest Income:
Loans, net of unearned income $ 738 $(229) $ 509 $ 284 $1,103 $1,387
Securities available for sale--taxable 2,967 119 3,086 (325) 115 (210)
Securities available for sale--
tax-exempt (1) 270 (37) 233 (53) 6 (47)
Investment securities--taxable (2,005) 139 (1,866) 812 (24) 788
Investment securities--tax-exempt (1) 886 76 962 41 (11) 30
Federal funds sold 77 1 78 41 (3) 38
Interest-bearing deposits (80) (1) (81) 45 46 91
------ ----- ------ ------ ------ ------
Total 2,853 68 2,921 845 1,232 2,077
------ ----- ------ ------ ------ ------
Interest expense:
Interest-bearing checking accounts 76 18 94 (29) (14) (43)
Savings and money market accounts 343 353 696 (130) 30 (100)
Certificates of deposit 1,488 68 1,556 868 969 1,837
Federal funds purchased 21 19 40 21 -- 21
Other borrowings 51 132 183 (183) 49 (134)
------ ----- ------ ------ ------ ------
Total 1,979 590 2,569 547 1,034 1,581
------ ----- ------ ------ ------ ------
Net interest income $ 874 $(522) $ 352 $ 298 $ 198 $ 496
====== ===== ====== ====== ====== ======
</TABLE>
(1) Interest on state and municipal investments is presented on a fully-taxable
equivalent basis
(2) The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the absolute dollar amounts of the
change in each.
- --------------------------------------------------------------------------------
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is the periodic expense of maintaining an adequate
allowance for loan losses to absorb possible future losses, net of recoveries
inherent in the existing loan portfolio. The provision for loan losses totaled
$300 for 1996 and $885 in 1995. Net charge-offs amounted to $104 in 1996 and
$883 in 1995. Table 3, Analysis of Allowance for Loan Losses, shows further
details on the Allowance for Loan Losses for the past five years.
The allowance for loan losses at December 31, 1996, was $2,100 or 1.32% of year
end net loans, compared to the 1995 year end allowance of $1,904 or 1.37% of net
loans. The 1996 allowance for loan losses was 135.5% of year-end non-performing
and past due loans and 144.9% of year-end non-performing assets.
8
<PAGE>
- --------------------------------------------------------------------------------
TABLE 3
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C>
Balance at beginning of year $1,904 $1,902 $1,509 $1,113 $ 919
Provision for loan losses 300 885 687 375 263
Loans charged-off:
Real Estate:
Residential mortgage -- -- -- -- 49
Commercial mortgage 302 377 -- -- 49
Construction and land development -- -- -- -- --
Commercial -- 500 297 -- --
Consumer 20 63 16 8 145
------ ------ ------ ------ ------
Total loans charged-off 322 940 313 8 243
------ ------ ------ ------ ------
Recoveries of loans previously charged off:
Real Estate:
Residential mortgage 4 6 -- -- 47
Commercial mortgage 211 -- 11 12 --
Construction and land development -- -- -- -- --
Commercial -- 41 -- -- 17
Consumer 3 10 8 17 110
------ ------ ------ ------ ------
Total recoveries 218 57 19 29 174
------ ------ ------ ------ ------
Net loans charged-off 104 883 294 (21) 69
------ ------ ------ ------ ------
Balance at end of year $2,100 $1,904 $1,902 $1,509 $1,113
------ ------ ------ ------ ------
Ratio of allowance to loans, net
of unearned income 1.32% 1.37% 1.29% 1.23% 1.09%
====== ====== ====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
Monocacy's allowance for loan losses for all loan categories is further detailed
in Table 4: Allowance for Loan Losses Allocation. The allowance for loan losses
is based on a risk-rating system under which all commercial and commercial real
estate loans are assigned a risk rating. Factors such as the financial condition
of the borrower, the adequacy of underlying collateral and the impact of
business and economic conditions upon the borrower are evaluated. Based on this
information and action plans provided by the lending officers, each of these
loans is subject to classification by the Credit Department which then
determines the allowance based on aggregate classifications. On a monthly basis,
remaining loan portfolio categories receive general allocation deemed reasonably
necessary to provide for losses within the categories of loans set forth on the
table and based on the factors previously listed. The overall allocation should
not be interpreted as an indication of future charge-off trends. While
management has made every effort to make a reasonable assessment of the level of
the allowance necessary for the portfolio, further adjustments may be necessary
based on economic conditions and any related changes in asset quality.
9
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4
ALLOWANCE FOR LOAN LOSSES ALLOCATION
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1996 1995 1994
------------------------- -------------------------- --------------------------
Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each
Allowance Category to Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans Amount Total Loans
--------- ------------- --------- ------------- --------- -------------
<S> <C>
Real Estate:
Commercial
mortgages $1,222 43.9% $ 642 40.2% $1,019 43.7%
Residential
mortgages 60 12.9 46 22.5 52 24.9
Construction and
land development 300 18.0 289 9.4 403 7.4
Commercial 275 14.2 381 15.9 268 14.1
Consumer 80 11.0 64 12.0 31 9.9
Unallocated 163 -- 482 -- 129 --
------ ----- ------ ----- ------ -----
Total $2,100 100.0% $1,904 100.0% $1,902 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1993 1992
-------------------------- --------------------------
Percentage of Percentage of
Loans in Each Loans in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
--------- ------------- --------- -------------
<S> <C>
Real Estate:
Commercial
mortgages $ 899 54.2% $ 667 51.1%
Residential
mortgages 26 20.0 27 18.8
Construction and
land development 252 5.7 177 4.3
Commercial 107 10.1 86 13.6
Consumer 69 10.0 62 12.2
Unallocated 156 -- 94 --
------ ----- ------ -----
Total $1,509 100.0% $1,113 100.0%
====== ===== ====== =====
</TABLE>
- -------------------------------------------------------------------------------
NON-INTEREST REVENUE
A portion of Monocacy's net income is derived from non-interest related sources
including service charges, trust fees, gains on the sale of loans and securities
and other income. Non-interest revenue for 1996 was $2,039, up from $1,427 for
1995.
The 1996 results included $220 of net investment security losses as compared to
$55 of net gains in 1995. The 1996 security losses occurred with the sale of
securities related to the Bank's overall asset/liability management practices
and were taken to reposition the Bank's securities portfolio for funding loan
growth and interest rate considerations.
Service charges related to deposits increased in 1996 to $438 over $329 in 1995,
due to the higher customer and deposit volume in large part due to the Royal Oak
acquisition and other new branch sites and marketing initiatives.
Other service charges totaled $660 for 1996 which was a 39.0% increase from 1995
due to a 14.8% increase in loans serviced for others and a 5.5% increase in
average loans. The residential mortgage loan servicing portfolio of $119,374
(including $40,363 acquired from Royal Oak), which is created when mortgage
loans are sold with the servicing retained by the Company, contributed
approximately $378 in servicing fees in 1996. Most residential loans are sold in
the secondary markets. In addition to regular sales of individual residential
loans on the secondary market, the Company made a bulk sale of approximately $10
million of its residential loan portfolio during 1996 and $110 in gains were
recognized on the sale. Total gains on residential mortgage loan sales totaled
$797 for 1996 compared to $167 for 1995. The increased profitability of the
mortgage-banking operations can be attributed to the April acquisition of
Classic. Loan production from Classic for the year was $64 million. In addition,
the Company originates Small Business Administration (SBA) loans, which are
partially guaranteed by the SBA, and sells the guaranteed portion on the
secondary market. Gains from the sales of SBA loans were $67 in 1996.
The 1996 non-interest revenue included Trust fees of $150, which was flat
compared to 1995. Assets under management by the Trust Department were $27,625
in market value at December 31, 1996 compared to $23,749 in market value at
December 31, 1995.
NON-INTEREST EXPENSES
Non-interest expense for 1996 totaled $8,762, an increase of 34.1% from 1995.
1996 was a year of significant investment in staff, equipment and infrastructure
to support future growth. The Company had 141 full-time and 38 part-time
employees at December 31, 1996 as compared to 114 full-time and 30 part-time
employees at December 31, 1995. Table 5: Non-Interest Expenses shows the
breakdown of non-interest expenses by category.
Salary and Benefit expenses increased $1,282 or 33.7% over 1995 due to the
Company growth in 1996. 27 full-time and 8 part-time positions were added in
1996. Salary expenses also include $308 of commissions that were not experienced
in 1995 and were a result of acquiring Classic Mortgage Company. Classic lenders
10
<PAGE>
- --------------------------------------------------------------------------------
TABLE 5
NON-INTEREST EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1996 1995 Change % Change
---- ---- ------ --------
<S> <C>
Salaries and Benefits $5,087 $3,805 $1,282 33.7%
Occupancy 628 436 192 44.0%
Equipment 712 670 42 6.3%
Deposit Insurance 335 198 137 69.2%
Professional Fees 379 282 97 34.4%
Advertising 224 136 88 64.7%
Data Processing 167 21 146 695.2%
Postage and Freight 122 94 28 29.8%
Meals and Entertainment 106 63 43 68.3%
Telephone 161 110 51 46.4%
Supplies 263 178 85 47.8%
Amortization of Intangibles 135 21 114 542.9%
Other 443 522 (79) (15.1)%
------ ------ ------ -----
$8,762 $6,536 $2,226 34.1%
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
are paid commissions on loan production and, accordingly, commissions expense
grows in direct proportion to loan production.
Occupancy expenses increased $192 or 44.0% over 1995 and equipment expenses
increased by $42 or 6.3% over 1995 due to the investment in new branch locations
and significant investments in additional technology. Other non-interest
expenses totaled $1,621, which was above the 1995 level of $1,145 because of
higher data processing, advertising, postage, meals and entertainment, telephone
and supplies expenses prompted in large part by the acquisitions and new branch
openings. Also related to the acquisitions, and included in other non-interest
expenses, were $114 in amortization of intangibles. The related intangibles
include organization costs, premium paid on mortgage servicing and goodwill.
In 1996, Congress passed legislation to recapitalize the Savings Association
Insurance Fund (SAIF) of the FDIC. This legislation called for a one time
special assessment of 65.7 basis points on thrift deposits as of March 31, 1995.
Royal Oak Savings Bank, which the Company acquired on December 31, 1995, is
included in this assessment. Accordingly, non-interest expenses reflect this
assessment of approximately $245,000. Furthermore, FDIC rates going forward will
increase from their 1996 levels due to the finalization of the FDIC
restructuring and the merger of the SAIF with the Bank Insurance Fund (BIF).
A total of $379 of legal and professional fees were paid in 1996 as compared to
$282 in 1995. The increase was primarily due to additional legal fees paid on
loan workouts and expenses incurred in conjunction with the merger of Royal Oak
and Classic into Taneytown Bank.
In addition to the merger of Royal Oak and the acquisition of Classic Mortgage
Company, the Company opened two new branches in 1996. The Route 140 Express
branch was opened in Westminster, Maryland in September of 1996 and the
Gettysburg branch was opened in Gettysburg, Pennsylvania in December of 1996.
The opening of the Gettysburg branch marked the Company's entrance into
inter-state banking. Total non-interest expenses related to these branch
openings and to the two acquisitions that are non-recurring were $252.
INCOME TAXES
Income tax expense for 1996 was $538 as compared with $882 for 1995 with lower
pre-tax income in 1996. The 1996 effective tax rate was 25.0% down from 27.3% in
1995 as increased taxable income of the Company was more sheltered in 1996 for
tax purposes than it was in 1995, mostly due to the increase in volume of
tax-exempt securities. Note 10 to the Consolidated Financial Statements
reconciles reported income tax expenses with the amount computed by applying the
federal statutory rate to income before taxes.
BALANCE SHEET REVIEW
EARNING ASSETS
Average earning assets totaled $243,361 for 1996 as shown in Table 1. This was
an increase of 18.6% from the 1995 level of $205,203.
11
<PAGE>
LOANS HELD FOR SALE
The Company originates residential mortgage loans for sale in the secondary
market. In 1996, loans originated for sale amounted to $34 million compared to
$17 million in 1995. The increase in volume was due primarily to the efforts of
Classic Mortgage Company, which the Company acquired in the second quarter of
1996. Approximately $10 million of the balance at December 31, 1996 is under
contract for sale that should close in the first quarter of 1997 at a gain.
SECURITIES
The Available For Sale ("AFS") portfolio is generally comprised of somewhat
shorter term investment securities and other securities the company feels it may
sell in response to changes in interest rates or liquidity needs. The AFS
portfolio averaged $67,519 for 1996. The Held to Maturity ("HTM") portfolio
averaged $23,316 and is comprised of state and municipal bonds and
mortgage-backed securities with original maturities greater than eight years.
Investment securities, including those in the AFS portfolio, are primarily fixed
rate instruments with maturities that range from less than one year to ten years
or in some small cases have no maturities such as with the small amount of
mutual funds that the Bank owns. These mutual funds, which have a fair value of
$853 at December 31, 1996, invest in securities comparable to the securities
that are directly owned by the Company including U.S. Government and U.S.
Government agency obligations and obligations of municipal and political
subdivisions. Investment securities can be used to secure public deposits and as
collateral for Federal Home Loan Bank borrowings. The Company owns no
derivatives in its portfolios. The accounting policy for securities is included
in Note 1 to the Consolidated Financial Statements. At year end 1996, the HTM
and AFS securities portfolios had total unrealized gains of $74 and total
unrealized losses of $1,427.
Investment securities portfolios yields increased to 6.76% from the prior year
levels of 6.19% as a result of the change in the mix of the portfolio caused by
the turnover (sales and maturities) of lower yielding securities and limited
reinvestment into the portfolio, as well as investment of the excess funds
provided by the Royal Oak acquisition, in higher yielding securities. During
1996, the overall portfolio was managed with a goal to increase loan volumes as
discussed below. The interest rate environment in 1996 was somewhat higher than
in 1995 for the most part as indicated by the securities markets. At the end of
the past two years, the Company did not have any investment with a single issuer
(except for U.S. Government and agency obligations) which was greater than 10%
of stockholders' equity. Table 6: Securities and Table 7: Maturities and Yields
of Debt Securities provide further information on the Company's securities
portfolios.
- --------------------------------------------------------------------------------
TABLE 6
SECURITIES
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ----------------------
Securities Securities Securities
Investment available Investment available Investment available
securities for sale securities for sale securities for sale
---------- ---------- ---------- ---------- ---------- ----------
<S> <C>
U.S. Treasury securities $ -- $ -- $ -- $ 1,520 $ 3,056 $ --
U.S. Government agency
securities -- 21,721 -- 18,917 10,978 3,658
State & municipal
securities 24,042 5,349 8,311 15,856 11,397 2,666
Mortgage-backed
securities -- 16,372 7,213 14,638 14,607 --
Equity securities -- 853 -- 887 -- 784
Federal Home Loan
Bank Stock -- 1,623 -- 2,023 -- 1,863
------- ------- ------- ------- ------- ------
$24,042 $45,918 $15,524 $53,841 $40,038 $8,971
======= ======= ======= ======= ======= ======
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
TABLE 7
MATURITIES AND YIELDS OF DEBT SECURITIES
(Dollars in thousands)
<TABLE>
<CAPTION>
Investment securities
----------------------------------------------------
Current
Amor- Un- Un- Estimated weighted-
tized realized realized fair average
cost gains losses value yield
----- -------- -------- --------- ---------
<S> <C>
U.S. Government
agency securities:
Due within one year $ -- $-- $ -- $ -- --
Due after one-
five years -- -- -- -- --
Due after five years -- -- -- -- --
State & municipal securities:
Due after one-
five years -- -- -- -- --
Due after five years 24,042 56 238 23,860 7.30%
Mortgage-backed securities:
Due after five years -- -- -- -- --
------- --- ---- -------
$24,042 $56 $238 $23,860
======= === ==== =======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Securities available for sale
----------------------------------------------------
Current
Amor- Un- Un- Estimated weighted-
tized realized realized fair average
cost gains losses value yield
----- -------- -------- --------- ---------
<S> <C>
U.S. Government
agency securities:
Due within one year $ 1,000 $-- $ 2 $ 998 6.24%
Due after one-
five years 12,488 -- 107 12,381 5.91%
Due after five years 8,496 -- 154 8,342 6.46%
State & municipal securities:
Due after one-
five years 2,614 4 3 2,615 6.61%
Due after five years 2,725 14 5 2,734 6.97%
Mortgage-backed securities:
Due after five years 17,122 -- 750 16,372 6.78%
------- --- ------ -------
$44,445 $18 $1,021 $43,442
======= === ====== =======
</TABLE>
- --------------------------------------------------------------------------------
LOANS
Loans net of unearned income for 1996 averaged $148,756, which was an increase
of $7,787 or 5.5% from the 1995 level. Total loans at December 31, 1996 of
$159,247 are shown in Table 8: Summary of Total Loans. Increases occurred in all
loan categories except residential mortgages due to the generally favorable
economic environment coupled with extensive marketing efforts by the Bank's
lending staff. In addition, the acquisition of Classic created increased loan
volume and loan growth in the residential construction portfolio as we
emphasized this product in our marketing efforts. Borrowers are concentrated in
a market area which extends from Carroll County, Baltimore County and Howard
County, Maryland and to a lesser extent other parts of central Maryland and
southern central Pennsylvania.
Commercial mortgage loans, which represent 43.9% of the loan portfolio, were
$69,947 at December 31, 1996. This was an increase of 24.9% over the 1995 level.
This increase was due to a renewed focus on these types of loans and increased
marketing efforts by the lending staff.
Commercial loans, which represent 14.2% of the loan portfolio, were $22,582 at
December 31, 1996. The commercial loan portfolio, which consists primarily of
secured loans, is strongly oriented towards diversified middle market borrowers
in the manufacturing, wholesaling, services and real estate industries. The
credit risk associated with middle market borrowers is principally influenced by
general economic conditions and the resulting impact on the borrowers'
operations. The emphasis on commercial loans is desirable to diversify the
overall loan portfolio and to increase the Bank's net interest margin.
Consumer loans, which includes home equity lines of credit as well as other
personal loans, increased by 4.7% in 1996 as the Company continues to focus
marketing efforts in this area, particularly home equity lines of credit
("helocs") and fixed rate second mortgages because of the profitability
associated with consumer relationships that can be created and the competitive
environment that exists for other consumer type loans from specialty lenders
such as finance companies, credit card banks and captive auto lenders.
Management also believes that the Company's overall focus on residential
lending, including lot, construction, permanent and helocs is a strategy that
will differentiate us from the competition.
Residential mortgage loans of $20,477 were 12.9% of the loan portfolio. This
category decreased by 34.7% in 1996, primarily due to the sale of a $10 million
pool of such loans on the secondary market in the third quarter yielding a gain
of $110. The majority of residential mortgage loan originations occur through
Classic Mortgage Company and are sold on the secondary market. Classic's
residential mortgage loan production for 1996 was $44.5 million of which $24
million was sold servicing released, $8.5 million was sold with servicing
retained and $12 million was retained in the Bank's portfolio.
13
<PAGE>
- --------------------------------------------------------------------------------
Construction and land development loans were $28,695, an increase of 118.7% from
1995, due in large part to renewed focus on these types of loans in 1996.
Residential construction loans comprised the majority of the increase and
represented 42% of the total portfolio balance due to Classic's substantial
efforts in the marketing of these loans in 1996. Residential construction loans
are owned and serviced by the Bank until the end of the construction period. At
the time of conversion to permanent loans, the loan is generally sold on the
secondary market.
Loans, as a result of maturities, monthly payments, salability and as a source
of collateral provided an important source of liquidity to the Company. Unused
loan commitments related primarily to commercial loans are shown in Note 6 to
the Consolidated Financial Statements.
Table 9: Maturities of Loans, shows the maturities of selected loan categories
at year end 1996.
- --------------------------------------------------------------------------------
TABLE 8
SUMMARY OF TOTAL LOANS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
<S> <C>
Real Estate:
Commercial mortgages $ 69,947 $ 56,001 $ 64,684 $ 66,692 $49,551
Residential mortgages 20,477 31,357 36,880 24,588 18,206
Construction and land
development 28,695 13,121 10,913 7,026 4,185
Commercial 22,582 22,181 20,909 12,361 13,173
Consumer 17,546 16,759 14,602 12,493 11,792
-------- -------- -------- -------- -------
Total $159,247 $139,419 $147,988 $123,160 $96,907
======== ======== ======== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE 9
MATURITIES OF LOANS
(Dollars in thousands)
<TABLE>
<CAPTION>
After 1
Within 1 Year But Within 5 Years After 5 Years
-------------------- ------------------- --------------------
Fixed Variable Fixed Variable Fixed Variable
------- -------- ------- -------- ------- ---------
<S> <C>
Real Estate:
Commercial mortgages (3) $15,947 $ 7,454 $32,185 $ 846 $ -- $13,515
Residential mortgages 1,085 -- 2,496 -- -- 16,896
Construction and
land development (2) 6,275 4,830 4,331 10,239 1,102 1,918
Commercial (1) 155 8,478 995 3,876 9,078 --
Consumer (4) 216 189 7,020 6,082 1,188 2,851
------- ------- ------- ------- ------- -------
Total $23,678 $20,951 $47,027 $21,043 $11,368 $35,180
======= ======= ======= ======= ======= =======
</TABLE>
(1) Includes nonaccrual loans of $52
(2) Includes nonaccrual loans of $143
(3) Includes nonaccrual loans of $592
(4) Includes nonaccrual loans of $6
- --------------------------------------------------------------------------------
14
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans and foreclosed property.
Non-accrual loans represent loans on which interest accruals have been
suspended. It is the Company's policy to discontinue interest accruals on
commercial and real estate loans when management believes, after considering
economic and business conditions, collection efforts and in the absence of
adequate collateral that collection is questionable. Legal foreclosures occur
when Monocacy legally takes title to the collateral of the loan.
Non-performing assets at year end 1996 totaled $1,449 or .9% of loans, net of
unearned income and foreclosed property compared with $2,569 or 1.8% at the end
of 1995. This reduction of $1,120 occurred as the Company aggressively resolved
many of these properties and loans. Table 10 provides details of the various
components of non-performing assets and past due loans for the past five years.
The majority of the non-accrual loan balance consists of one commercial
property, one commercial business loan and two single family residences. The
foreclosed properties consist of three undeveloped residential lots, one
commercial property and one residential property. There are $405 of other real
estate owned under contract for sale at December 31, 1996. Management expects
these sales to close in the first half of 1997. Management is aggressively
working out all non-performing assets as fast as legal constraints permit in
order to minimize their impact on earnings and growth strategies.
Accruing loans past due 90 days or more as to principal or interest totaled $757
at the end of 1996 as compared to $174 for 1995. These loans are in the process
of collection and are considered adequately collateralized.
At December 31, 1996, management had identified its non-accrual loans (as shown
in Table 10) of $793 as impaired loans in accordance with FASB Statement No.
114. There were no valuation allowances for impaired loans at December 31, 1996
as the amounts by which the measure of the impaired loans were less than the
investment in the loans were charged off in 1996 for all impaired loans held in
1996.
- --------------------------------------------------------------------------------
TABLE 10
NON-PERFORMING ASSETS AND PAST DUE LOANS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C>
Non-performing loans--
non-accrual loans $ 793 $1,258 $ 25 $519 $ 736
Other real estate owned 656 1,311 278 64 755
------ ------ ---- ---- ------
Total non-performing assets $1,449 $2,569 $303 $583 $1,491
====== ====== ==== ==== ======
Accruing loans past due
90 days or more $ 757 $ 174 $936 $240 $ 492
====== ====== ==== ==== ======
Allowance for loan losses to:
Non-performing loans 264.8% 151.4% 7,608.0% 290.8% 151.2%
Non-performing assets 144.9 74.1 627.7 258.8 74.7
</TABLE>
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The Company's bank premises and equipment increased to $8,435 at December 31,
1996 from $6,233 at December 31, 1995 due to significant investments for future
growth. Land, buildings and improvements were purchased for future branch sites,
including the new branch that opened in Westminster in 1996. A substantial
amount of equipment was purchased in 1996 and mostly includes various computer
related equipment and furniture for the new branch locations and Classic. Also
in 1996, the Company undertook major renovations of the main office operations
facilities in Taneytown, which cost approximately $250. Construction in progress
at December 31, 1996 consists mostly of costs incurred to date in the expansion
of the Eldersburg branch facility.
FUNDING
DEPOSITS
The Company offers to its diverse customer base a full range of savings
instruments including interest-bearing and non-interest-bearing demand, savings
and certificates of deposit. Monocacy competes for deposits with
15
<PAGE>
- --------------------------------------------------------------------------------
other commercial banks, savings banks and savings and loan associations, bond
and stock markets and non-bank financial service providers including money
market funds, credit unions and other deposit gathering institutions. The
competition among the various financial institutions, higher consumer awareness
and a desire for high returns and service has increased the relative cost of and
continues to reduce the overall benefits received from many categories of
deposits. Interest-bearing liabilities (including other borrowings, discussed
below) averaged $216,386 for 1996, an increase of 23.2% from 1995. The increase
was due primarily to increases in the Company's savings products, primarily
certificates of deposit as a result of the acquisition of approximately $39
million in additional deposits in the Royal Oak purchase, including
approximately $21 million in certificates of deposit and $18 million in savings
and checking deposits. The opening of the two new branches during the second
half of 1996 brought in $2 million in additional deposits in 1996. In addition,
Monocacy was able to increase its deposit and customer base during the year
through new products, innovative marketing techniques and a high quality of
customer service.
The Company has a portfolio of large denomination certificates of $100,000 or
more as shown in Table 11. The majority of the certificates have been sold to
existing in-market customers; however, at times, deposits have been placed at
the Bank from national brokers. At December 31, 1996, 100% of the $7,213 total
are from the Bank's existing deposit base.
- --------------------------------------------------------------------------------
TABLE 11
MATURITY OF LARGE DENOMINATION CERTIFICATES OF $100,000 OR MORE
(Dollars in thousands)
December 31,
1996
------------
3 months or less $ 228
Over 3 through 6 months 201
Over 6 through 12 months 1,329
Over 12 months 5,455
------
$7,213
======
- --------------------------------------------------------------------------------
OTHER FUNDING SOURCES
The Company periodically borrows from the Federal Home Loan Bank of Atlanta
("FHLB") under a secured borrowing arrangement. At December 31, 1996, the
aggregate advances from the FHLB were $14,739. These borrowings are done
primarily on a matched basis, meaning that the Company manages the interest rate
risk that may otherwise exist on certain types of transactions such as long term
fixed rate loans in concert with the Company's overall asset/liability policy.
As a result, the transactions are likely to be more profitable to the Company
and can allow the Company to better serve its markets. In general, these
borrowings are stable although relatively more expensive than deposits. Of these
borrowings, $280 will mature in 1997. The Company from time to time will borrow
funds on an overnight basis from its correspondent banks and the FHLB.
In preparation for the cash investment required for the acquisition of Royal
Oak, in 1995, the Company borrowed $3,000,000 from another commercial bank at a
rate of 8.5%. This loan was paid off following the merger of Royal Oak into the
Bank in April, 1996.
STOCKHOLDERS' EQUITY
Stockholders' equity provides a source of permanent funding, allows for future
growth and assists the Company to withstand unforeseen and adverse developments.
At December 31, 1996, stockholders' equity totaled $21,648 which was
approximately the same as the previous year end level, as a result of earnings
being offset by the increase in the adjustment in the fair values of the AFS
securities portfolio and an increase in cash dividends.
For 1996, the Company's annual cash dividend rate, as adjusted for the February
1997 stock dividend, was $.36 per share, as compared to a rate of $.33 in 1995.
In addition, the Company declared a 10% common stock dividend in 1996 and 1995.
The increase in the cash dividend rate and the declaration of the common stock
dividend was in recognition of the continued strong financial health, liquidity
and capital position of the Company. The net unrealized holding loss on
securities available for sale of $773 reflects the after-tax unrealized net loss
of these securities. There was an unrealized net gain of $19 at December 31,
1995. It is important to note that the monthly adjustments of fair value on
these securities will generally move in concert with interest rates and there is
potential for volatility in this category of stockholders' equity. It is
management's intention to actively manage this portfolio to ensure that optimal
returns are achieved by the Company with low impact to stockholders' equity.
A Dividend Reinvestment plan was established in October 1994 which offers
shareholders a variety of options to increase their stock holdings. As of
January 27, 1997, 415 shareholders were enrolled in the plan. In 1996,
approximately 13,000 new shares of stock were issued through the plan which
resulted in additional capital of approximately $246.
A primary objective of management is and has been to sustain a strong capital
position to merit the confidence
16
<PAGE>
- --------------------------------------------------------------------------------
of its customers, the investing public, banking regulators and stockholders.
Capital adequacy may be defined as the amount of capital needed to support
future asset growth and to absorb losses if necessary. Regulators consider a
range of factors when determining capital adequacy such as the organization's
size, quality and stability of earnings, risk diversification, management
expertise, asset quality, liquidity and internal controls. Management reviews
the various capital ratios monthly and takes appropriate action to ensure they
are within established internal and external guidelines. Management believes
that Monocacy's current capital ratios (consolidated), as shown in Table 12, are
strong and that its capital position is adequate to support its various business
ventures. Table 12 shows the Company's capital positions as of December 31, 1996
and shows that the Company's ratios are significantly above the regulatory
requirements. The Company is subject to restrictions on the payment of dividends
to its shareholders as discussed in Note 18 to the Consolidated Financial
Statements. In addition, Federal and State banking regulations place certain
restrictions on the ability of the Bank to pay dividends to Monocacy.
- --------------------------------------------------------------------------------
TABLE 12
RISK BASED AND OTHER CAPITAL DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1996 1995
-------------------- -------------------- Regulatory
Balance Percent Balance Percent Requirement
-------- ------- -------- ------- -----------
<S> <C>
Common stockholders' equity (1) $ 22,421 $ 21,150
Intangibles (2) (4,012) (4,134)
-------- ----- -------- -----
Total Tier 1 18,409 10.31% 17,016 10.61% 4.00%
Qualifying allowance
for loan losses 2,100 1,904
-------- ----- -------- -----
Total Tier II $ 20,509 11.49% $ 18,920 11.80%
======== ===== ======== =====
Total Risk-Based Capital $ 20,509 11.49% $ 18,920 11.80% 8.00%
======== ===== ======== =====
Total Risk-Adjusted Assets $178,569 $160,393
======== ========
Leverage Ratio 7.03% 7.56% 3.00-5.00%
===== =====
</TABLE>
(1) Calculation does not include adjustment to capital for net unrealized
gains/losses on AFS securities as defined by regulators.
(2) Includes deposit premium on Royal Oak transaction, goodwill on Classic
purchase, premium paid on mortgage servicing in Royal Oak transaction,
mortgage-servicing rights and various organization costs.
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
Monocacy's interest rate sensitivity position is managed by the Asset and
Liability Committee ("ALCO") and Funds Management Committee of the Board. ALCO's
purpose is to optimize net interest income by managing balance sheet mix and
interest rate sensitivity in order to create an acceptable balance between
safety, profitability and liquidity. This committee addresses policy and
business decisions of pricing, asset and funding mix, asset sales, investments,
capital and tax strategies. Legislative changes, monetary control efforts of the
Federal Reserve, the effects of deregulation and the overall economic
environment significantly affect the task. Table 13: Interest Rate Sensitivity,
shows the Company to be in a cumulative net asset sensitive position of 1.88%
within the one year horizon as of December 31, 1996. When interest rates are
rising, a net asset sensitive position is desirable as more assets will be
priced at higher rates than liabilities, resulting in a favorable impact on net
interest income. Likewise, when interest rates are declining, a net liability
sensitive position is preferred. It is important to note that management
possesses the ability to adjust this position through the sale of various assets
or obtaining of other sources of funds including certificates of deposit, FHLB
borrowings or other deposit adjustments as deemed necessary.
17
<PAGE>
TABLE 13
INTEREST RATE SENSITIVITY
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
1-30 31-90 91-360 >1 Year- >3 Years- Over
Days Days Days 3 Years 5 Years 5 Years
------- ------ ------ -------- --------- -------
<S> <C>
Interest-earning assets:
Loans held for sale $10,118 $ -- $ -- $ -- $ -- $ --
Securities available for sale,
investment securities and
federal funds sold 4,725 270 3,064 17,994 7,357 38,658
Loans (1) 51,299 6,015 21,070 33,889 21,528 24,989
------- ------- ------ ------ ------ ------
Total interest-earning assets 66,142 6,285 24,134 51,883 28,885 63,647
Interest-bearing liabilities:
Savings and interest checking (2) -- -- 42,080 42,080 -- --
Certificates of deposit 4,587 11,172 32,892 47,086 21,098 42
Borrowings 600 -- 280 9,543 1,650 3,266
------- ------- ------ ------ ------ ------
Total interest-bearing liabilities 5,187 11,172 75,252 98,709 22,748 3,308
Non-rate related assets
and liabilities, net -- -- -- -- -- 24,600
------- ------- -------- -------- -------- -------
Interest sensitivity gap (3) $60,955 $(4,887) $(51,118) $(46,826) $ 6,137 $35,739
------- ------- -------- -------- -------- -------
Interest sensitivity gap as a
percentage of total assets 23.18% (1.86)% (19.44)% (17.80)% 2.33% 13.59%
Cumulative interest sensitivity gap (3) $60,955 $56,068 $ 4,950 $(41,876) $(35,739) $ --
------- ------- -------- -------- -------- -------
Cumulative interest sensitivity
gap as a percentage of total assets 23.18% 21.32% 1.88% (15.92)% (13.59)% --
======= ======= ======== ======== ======== =======
</TABLE>
(1) Loans are stated before deducting allowance for loan losses, but net of
unearned income.
(2) The Company's historical rate sensitivity analysis shows that interest
checking and statement savings, while technically subject to immediate
withdrawals, actually have shown repricings and run-off characteristics of
longer term deposits.
(3) Interest sensitivity gaps represent the difference between total
interest-earning assets and total interest-bearing liabilities.
- --------------------------------------------------------------------------------
LIQUIDITY
Liquidity is the ability to meet present and future financial obligations either
through the sale or maturity of existing assets or by the acquisition of
additional funds through liability management. During 1996 and on an ongoing
basis, all aspects noted have been utilized, including loan sales, investment
security transactions and the use of borrowings from the FHLB to complement the
Company's deposit gathering efforts. A coordination of asset maturities and
effective liability management are important to the maintenance of liquidity.
Stable core deposits and other non-interest-bearing funds, accessibility to
local, regional and national funding sources and readily marketable assets are
all important to manage liability. Asset liquidity is generally provided by
cash, federal funds sold, securities available for sale and maturing investment
securities. Liability liquidity is measured by adequate amounts and by length of
maturities. Since core deposits are the most stable source of liquidity a bank
can have because they are generally government insured, the high level of
average core deposits during 1996 maintained the Company's strong liquidity
position. The 1996 year end loan balances are entirely funded by core deposits.
The equity base of the Company also provides a stable source of funding. It is
important to note that the parent company does not rely on the capital markets
for funding.
OTHER MATTERS
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of the Company and the Bank. It cannot be predicted whether such
legislation will be adopted or, if adopted, how such legislation would affect
the business of the company and the Bank. As a consequence of the extensive
regulation of commercial banking activities in the United States, the Company's
and the Bank's business is particularly susceptible to being affected by federal
legislation and regulations that may increase the cost of doing business. Except
as specifi-
18
<PAGE>
- --------------------------------------------------------------------------------
cally described above, Management believes that the effect of the provisions of
the legislation on the liquidity, capital resources, and results of operations
of the Company will be immaterial. Management is not aware of any other current
specific recommendations by regulatory authorities or proposed legislation,
which if they were implemented, would have a material adverse effect upon the
liquidity, capital resources, or results of operations, although the general
cost of compliance with numerous and multiple federal and state laws and
regulations does have, and in the future may have, a negative impact on the
Company's results of operations.
Further, the business of the Company is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, Management predicts that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management believes that
such consolidations and mergers may enhance its competitive position as a
community bank.
PROSPECTIVE ACCOUNTING CHANGES
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. This
Statement will require, among other things, that the Company record at fair
value, assets and liabilities resulting from a transfer of financial assets. The
Company will adopt the provisions of SFAS 125 as of January 1, 1997. As of
December 31, 1996, the Company had $303 in assets comprised of mortgage
servicing rights that would be subject to this statement.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
================================================================================
December 31, 1995 compared to December 31, 1994
(Dollars in thousands, except per share data)
OVERVIEW
The earnings for 1995 were $2,351 or $1.47 per share (as restated for the
February, 1997 stock dividend) which was a $129 or 5.8% increase over the
earnings level of 1994.
The Company's earnings level in 1995 reflected strong net interest margins,
increased non-interest revenues, a modest increase in non-interest expenses and
an increase in the provision for loan losses to compensate for the net
charge-offs of $883 experienced on loans in 1995.
The asset level of the Company increased to $266,194. The increase in the asset
level resulted primarily from the December 31, 1995 acquisition of Royal Oak as
well as extensive loan growth in most segments due to the increased marketing
efforts of the Bank's lending staff. This growth was funded by the FHLB
borrowings and the purchase of federal funds as well as deposit growth of
approximately $51,000.
The Royal Oak acquisition consisted of assets that included cash and cash
equivalents of $45,398, loans of $451, property, plant and equipment of two
branch facilities of $510 and miscellaneous other assets of $646, including
mortgage-servicing rights. $39 million in deposits of the two branches were
assumed in the transaction.
NET INTEREST INCOME
Net interest income after provision for loan losses totaled $8,342 up from
$8,039 in 1994. The growth in both earning assets and interest-bearing
liabilities contributed to this increase and was offset by a decrease in the net
yield on earning assets to 4.68% from 4.75%.
Tax equivalent net interest income increased to $9,608 in 1995 from $9,112 in
1994 due to the increase in the volume of tax-exempt state and municipal
securities.
INTEREST INCOME
Interest income on a fully taxable equivalent basis increased to $17,460 from
the $15,383 level in 1994 due to higher available yields on increased average
earning assets. The average earning assets increased to $205,203 with growth
noted in most all loan categories and in the investment securities portfolios.
INTEREST EXPENSE
Interest expense increased to $7,852 from $6,271 in 1994 with significant
increases in interest rates and levels of interest-bearing liabilities. Average
certificates of deposit, one of the higher costing components of interest
expense, increased by 25.5% over 1994.
INTEREST RATE PERFORMANCE
The net yield margin in 1995 was 4.68% which was down by 7 basis points from the
1994 level. During 1995, the net interest margin decreased mostly because of
increased interest costs on interest-bearing liabilities as was mentioned above.
The yield on earning assets increased by 49 basis points while the rates paid on
liabilities and borrowings increased by 70 basis points.
NON-INTEREST INCOME
During 1995, non-interest income was $1,427, a substantial increase from the
1994 level of $1,081. This increase was due primarily to the increased
profitability of the Company's mortgage-banking operations, mostly in the form
of mortgage servicing and gains on sales of loans, both residential mortgage and
SBA, from $521 to $642. During 1995, $55 of investment security gains were
recorded versus $78 of security losses recorded in 1994.
NON-INTEREST EXPENSE
Non-interest expense for 1995 was $6,536, a $415 or 6.8% increase from the 1994
level. The largest increase was noted in salary/benefit categories as staff grew
during 1995. Other categories of non-interest expenses, including data
processing and equipment expenses, increased with the increasing staff and loan
and deposit volumes and locations noted.
LIQUIDITY
As in the past, the Company maintained a very favorable liquid position in
accordance with management's Asset/Liability and Liquidity policies. In
addition, the Bank retains a correspondent relationship for the purchase of
Federal Funds as well as a line of credit with the Federal Home Loan Bank.
CAPITAL
The Company had a Tier I Capital Ratio of 10.61%, a Total Risk-Based Capital
Ratio of 11.80% and a Leverage Ratio of 7.56% at December 31, 1995 which were
well above regulatory requirement levels.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Directors and Stockholders
Monocacy Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Monocacy
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial position of
Monocacy Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Stegman & Company
Towson, Maryland
January 31, 1997
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
================================================================================
December 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
ASSETS
Cash and due from banks (note 2) $ 10,374 $ 10,735
Federal funds sold 2,000 36,409
Interest-bearing deposits with other banks 108 805
Loans held for sale 10,118 --
Securities available for sale (note 3) 45,918 53,841
Investment securities (approximate fair value of
$23,860 and $15,261) (note 4) 24,042 15,524
Loans, net of allowance for loan losses of
$2,100 and $1,904 (note 5) 156,690 137,222
Bank premises and equipment, net (note 7) 8,435 6,233
Other real estate owned 656 1,311
Deferred income taxes (note 10) 899 520
Accrued interest receivable 1,939 1,663
Other assets 1,836 1,931
-------- --------
Total Assets $263,015 $266,194
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Non-interest-bearing $ 24,002 $21,317
Interest-bearing:
Savings and checking 84,160 87,935
Certificates of deposit:
Under $100,000 109,664 103,925
$100,000 and over 7,213 10,235
-------- --------
Total deposits 225,039 223,412
Short-term borrowings (note 8) 7,600 9,310
Other long-term borrowings (note 8) 7,739 10,323
Accrued expenses payable 555 752
Other liabilities 287 1,095
Dividends payable 147 133
-------- --------
Total Liabilities 241,367 245,025
-------- --------
Stockholders' Equity:
Common stock, par value $5.00 per share;
authorized 4,000,000 shares; issued and
outstanding 1,468,324 in 1996 and
1,323,555 shares in 1995 7,342 6,618
Common stock dividend to be distributed 3,699 2,846
Surplus 9,145 6,777
Retained earnings 2,235 4,909
Unrealized holding gain (loss) on securities, net (773) 19
Commitments and contingencies (notes 6 and 13)
-------- --------
Total Stockholders' Equity 21,648 21,169
-------- --------
Total Liabilities and Stockholders' Equity $263,015 $266,194
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
22
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C>
INTEREST INCOME:
Loans, including fees $ 14,043 $ 13,535 $ 12,148
Securities available for sale - taxable 3,797 712 921
Securities available for sale - tax-exempt 422 268 299
Investment securities-taxable 26 1,892 1,105
Investment securities-tax-exempt 1,107 472 452
Interest-bearing deposits with other banks 52 132 42
Federal funds sold 146 68 30
--------- --------- ---------
Total interest income 19,593 17,079 14,997
--------- --------- ---------
INTEREST EXPENSE:
Deposits of $100,000 or more 469 486 259
Other deposits 8,782 6,419 4,953
Federal funds purchased 95 55 33
Other borrowings 1,075 892 1,026
--------- --------- ---------
Total interest expense 10,421 7,852 6,271
--------- --------- ---------
Net interest income 9,172 9,227 8,726
Provision for loan losses 300 885 687
--------- --------- ---------
Net interest income after provision for
loan losses 8,872 8,342 8,039
--------- --------- ---------
NON-INTEREST INCOME:
Service charges on deposit accounts 438 329 329
Other service charges 660 475 417
Trust department fees 150 151 124
Gains and fees on sales of loans 864 167 104
Gains (losses) on securities (220) 55 (78)
Other 147 250 185
--------- --------- ---------
Total non-interest income 2,039 1,427 1,081
--------- --------- ---------
NON-INTEREST EXPENSE:
Salaries 3,956 3,062 2,852
Employee benefits (note 9) 1,131 743 672
Occupancy 628 436 490
Equipment 712 670 475
Deposit insurance 335 198 354
Professional fees 379 282 252
Other 1,621 1,145 1,026
--------- --------- ---------
Total non-interest expense 8,762 6,536 6,121
--------- --------- ---------
Income before income taxes 2,149 3,233 2,999
Income tax provision (note 10) 538 882 777
--------- --------- ---------
Net income $ 1,611 $ 2,351 $ 2,222
========= ========= =========
Net income per common share $ 1.00 $ 1.47 $ 1.40
Cash dividends per common share $ .36 $ .33 $ .23
Average common shares outstanding
(as adjusted to reflect the
February, 1997 stock dividend) 1,608,330 1,598,847 1,589,774
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
================================================================================
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION> Unrealized
Common Stock Common Stock Holding
-------------------- Divided to be Retained Gain (Loss)
Shares Par Value Distributed Surplus Earnings on Securities
<S> <C> --------- --------- ------------- ------- -------- -------------
BALANCE, DECEMBER 31, 1993 1,312,200 $6,561 $ -- $6,561 $ 4,078 $ 90
Net income -- -- -- -- 2,222 --
Issuance of shares of common stock
in connection with employee benefit
and dividend reinvestment plan 2,629 13 -- 49 -- --
Cash dividend, $0.23 per share -- -- -- -- (368) --
Decrease in fair value of
securities available for sale -- -- -- -- -- (596)
--------- ------ ----- ------ ------ ----
BALANCE, DECEMBER 31, 1994 1,314,829 6,574 -- 6,610 5,932 (506)
Net income -- -- -- -- 2,351 --
Issuance of shares of common stock
in connection with employee benefit
and dividend reinvestment plan 8,726 44 -- 167 -- --
Cash dividend, $0.33 per share -- -- -- -- (528) --
10% stock dividend to be distributed -- -- 2,846 -- (2,846) --
Increase in fair value of
securities available for sale -- -- -- -- -- 525
--------- ------ ------ ------ ------ ----
BALANCE, DECEMBER 31, 1995 1,323,555 6,618 2,846 6,777 4,909 19
Net income -- -- -- -- 1,611 --
Issuance of shares of common stock
in connection with employee benefit
and dividend reinvestment plan 12,688 63 -- 183 -- --
Issuance of 10% stock dividend 132,081 661 (2,846) 2,185 -- --
Cash dividend, $0.36 per share -- -- -- -- (586) --
10% stock dividend to be distributed -- -- 3,699 -- (3,699) --
Decrease in fair value of securities
available for sale -- -- -- -- -- (792)
--------- ------ ------- ------ ------- -----
BALANCE, DECEMBER 31, 1996 1,468,324 $7,342 $ 3,699 $9,145 $ 2,235 $(773)
========= ====== ======= ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 (1) 1994
-------- -------- --------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,611 $ 2,351 $ 2,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,131 628 444
Provision for loan losses 300 885 687
Deferred income taxes (379) 114 (279)
(Gains)/losses on sales of securities available for sale 220 (55) 78
Proceeds from sales of loans originated for sale 33,585 17,256 9,179
Disbursements for loans originated for sale (43,058) (17,089) (9,075)
Gains on sales of loans (864) (167) (104)
Increase (decrease) in unearned income,
net of origination costs 519 (229) 241
Gain on sale of other real estate owned (14) (20) --
Write down of real estate owned 14 -- --
Net change in:
Accrued interest receivable (276) (138) (151)
Accrued expenses payable (197) (332) 260
Other--net (1,786) 58 (298)
------- ------- ------
Net cash provided by (used in) operating activities (9,194) 3,262 3,204
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing
deposits with other banks 696 328 (838)
Proceeds from maturities of investment securities 7,003 6,717 1,273
Proceeds from sales of securities available for sale 34,984 4,974 3,298
Proceeds from maturities of securities available for sale 2,506 3,065 10,949
Purchases of securities available for sale (29,614) (19,479) (4,110)
Purchases of investment securities (15,521) (7,268) (6,180)
Sales of loan participations 7,532 945 2,386
Purchases of loan participations (1,300) -- --
Loan originations, net of principal repayments (26,488) (2,044) (27,825)
Proceeds from sales of other real estate owned 561 25 103
Additions to other real estate owned (68) (38) --
Purchases of bank premises and equipment (2,860) (991) (527)
------- ------- -------
Net cash used in investing activities (22,569) (13,766) (21,471)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,627 51,539 16,151
Proceeds from issuance of other borrowings 23,167 3,000 18,700
Repayment of other borrowings (27,461) (2,886) (16,986)
Issuance of common stock 246 211 62
Dividends paid on common stock (586) (528) (341)
------- ------- -------
Net cash provided by (used in) financing activities (3,007) 51,336 17,586
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (34,770) 40,832 (681)
Cash and cash equivalents at beginning of year 47,144 6,312 6,993
-------- -------- --------
Cash and cash equivalents at end of year $ 12,374 $ 47,144 $ 6,312
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 10,368 $ 7,785 $ 6,265
Income taxes paid $ 475 $ 755 $ 943
Transfers of loans to other real estate owned $ 163 $ 999 $ 318
Transfers of securities from the available for
sale portfolio to the investment security portfolio $ -- $ -- $ 15,416
Transfers of securities from the investment security
portfolio to the available for sale portfolio $ -- $ 32,850 $ --
Securitization of residential mortgage loans $ -- $ 7,784 $ --
Transfers of loans to held for sale $ 10,118 $ -- $ --
</TABLE>
(1) The components of the purchase of Royal Oak Savings Bank (purchase price of
$7.8 million) are included in the respective categories in the cash flows
statement.
The accompanying notes are an integral part of these consolidated financial
statements
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies reflected in the consolidated financial
statements of Monocacy Bancshares, Inc. and subsidiary (the "Company") conform
to generally accepted accounting principles and prevailing practices within the
banking industry. Certain reclassifications have been made to 1995 and 1994
amounts to conform with the presentation for 1996.
ORGANIZATION
The Company was formed on October 1, 1993, and is a Maryland Corporation
chartered as a Bank Holding Company. The Company holds all the issued and
outstanding shares of common stock of Taneytown Bank & Trust Company (the
"Bank"). The Bank is a Maryland trust company, originally established in 1884,
which engages in general commercial banking operations. Deposits in the Bank are
insured by the Federal Deposit Insurance Corporation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
including Taneytown Bank & Trust Company, its principal subsidiary. All
significant intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
FEDERAL FUNDS SOLD/PURCHASED
Federal funds sold and purchased are carried at cost which approximates fair
value and are generally sold and purchased for one day periods.
LOANS HELD FOR SALE
Loans held for sale are those loans which management does not intend to hold
until maturity. Loans held for sale are carried at the lower of cost or market
with adjustments recorded as a component of income. Gains or losses on the
disposition of loans held for sale are computed using the specific
identification method.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are those securities which management does not
have the ability and intent to hold until maturity. Securities available for
sale may be sold in response to changes in interest rates, for liquidity needs
or for tax planning purposes and are carried at fair value with unrealized
holding gains or losses, net of the related tax effect, excluded from earnings
and reported as a separate component of stockholders' equity until realized.
Gains or losses on the disposition of securities available for sale are computed
using the specific identification method.
INVESTMENT SECURITIES
Investment securities are those securities which management has the ability and
intent to hold to maturity. Investment securities are stated at cost adjusted
for amortization of premiums and accretion of discounts. Gains or losses on the
disposition of investment securities are computed using the specific
identification method.
LOANS
Loans are stated at the current amount of unpaid principal, reduced by unearned
income, net deferred origination fees and the allowance for loan losses.
Unearned income consists of commitment and origination fees, net of origination
costs and is generally recognized as income over the commitment and loan periods
using the interest method. Interest on loans is accrued based upon the principal
amount outstanding. Loans are placed on non-accrual status when management
believes, after considering economic and business conditions and collection
efforts and in the absence of adequate collateral, that collection is
questionable. At that time, interest is recognized on a cash basis only after
all principal has been recovered. A loan is only returned to accrual status when
it becomes current as to payment of both principal and interest and the borrower
demonstrates the ability to pay and remain current.
26
<PAGE>
- --------------------------------------------------------------------------------
On January 1, 1995, the Company adopted Financial Accounting Standards Board
("FASB") Statement No. 114, "Accounting by Creditors for the Impairment of a
Loan," as amended by Statement No. 118, "Accounting by Creditors for the
Impairment of a Loan - Income Recognition Disclosures" with no material impact
to the financial condition or results of operations of the Company.
On January 1, 1995, the Company adopted FASB Statement No. 122, "Accounting for
Mortgage Servicing Rights," which amends Statement No. 65, "Accounting for
Certain Mortgage Banking Activities." Statement No. 122 eliminates the
distinction between servicing rights purchased and servicing rights originated
and allows for the capitalization of originated servicing rights. Mortgage
servicing rights are valued using the aggregate method of determining the lower
of cost or market value and are amortized over the remaining life of the loans
serviced. Servicing rights are periodically reviewed for impairment with any
required adjustment to market value made at the time of review.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to expenses. Loans are charged against the allowance when management
believes that the collectibility of the principal is unlikely. The allowance is
an amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluation of the
collectibility of loans and prior loan loss experience. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgements about information available to them at the time of their
examinations.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight-line
method.
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure is recorded at the lower of cost or
estimated fair value on the date acquired and at the lower of cost or estimated
fair value less selling costs thereafter. Losses incurred at the time of
acquisition of the property are charged to the allowance for loan losses.
Subsequent writedowns are included in other non-interest expense. Rental revenue
and expenses are included in other operating non-interest expense.
PER SHARE DATA
Earnings per share and dividends per share are based on the average shares
outstanding adjusted by any common stock equivalents and giving retroactive
effect to stock dividends.
ORGANIZATION COSTS
Organization costs are capitalized and amortized on a straight-line basis over
five years.
CORE DEPOSIT INTANGIBLE
The core deposit intangible acquired in connection with the Royal Oak
acquisition is being amortized over the estimated remaining life of the
intangible, which has been determined to be 11 years at December 31, 1996.
TRUST ASSETS AND INCOME
Assets (other than cash deposits) held by the Company for others under fiduciary
and agency relationships are not included in the accompanying balance sheets
since they are not assets of the Company. Trust department fees are accounted
for on the cash basis. Amounts recognized under this method are not
significantly different from amounts that would have been recognized on the
accrual basis.
INCOME TAXES
The provision for income taxes is based upon the results of operations, adjusted
for tax-exempt income and other differences between items of income or expenses
reported in the financial statements and those reported for income tax purposes.
Deferred income taxes are provided to give effect to temporary differences
between financial statement carrying amounts and the tax bases of assets and
liabilities.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances through cash or
reserves with the Federal Reserve Bank or in other commercial banks. The amount
of these reserves, calculated based on percentages of certain deposit balances,
was $1,091 at December 31, 1996.
27
<PAGE>
- --------------------------------------------------------------------------------
3. SECURITIES AVAILABLE FOR SALE
The Available for Sale ("AFS") portfolio is generally comprised of somewhat
shorter term investment securities and other securities the Company feels it may
sell in response to changes in interest rates or liquidity needs. Securities
available for sale are carried at fair value. Net unrealized holding gains and
losses on securities available for sale are reported as a separate component of
stockholders' equity, net of related income taxes. In 1995, the FASB granted a
one time exemption from the restrictions on transferring securities between
various portfolios. The Company took advantage of this opportunity to transfer
approximately $33 million in securities previously held in the Held to Maturity
portfolio to the AFS portfolio.
Securities available for sale are summarized as follows at December 31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996
-------------------------------------------------
Gross Unrealized Holding Estimated
Amortized ------------------------ Fair
Cost Gains Losses Value
<S> <C> --------- ----- ------ ---------
U.S. Government agency $21,984 $-- $ 263 $21,721
State and municipal bonds 5,339 18 8 5,349
Mortgage-backed securities 17,122 -- 750 16,372
Equity securities 2,644 -- 168 2,476
------- --- ------ -------
$47,089 $18 $1,189 $45,918
======= === ====== =======
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------
Gross Unrealized Holding Estimated
Amortized ------------------------ Fair
Cost Gains Losses Value
--------- ----- ------ ---------
<S> <C>
U.S. Treasury $ 1,511 $ 9 $ -- $ 1,520
U.S. Government agency 18,856 117 56 18,917
State and municipal bonds 15,738 142 24 15,856
Mortgage-backed securities 14,668 37 67 14,638
Equity securities 3,040 -- 130 2,910
------- ---- ---- -------
$53,813 $305 $277 $53,841
======= ==== ==== =======
</TABLE>
- --------------------------------------------------------------------------------
Securities available for sale with a carrying value of $4,630 and $4,003 at
December 31, 1996 and 1995, respectively, were pledged as collateral for certain
liabilities as required by law. In addition, securities available for sale with
a carrying value of $12,847 and $7,345 at December 31, 1996 and 1995,
respectively, were pledged as collateral for certain borrowing arrangements of
the Company.
The amortized cost and fair value of securities available for sale by
contractual maturity, at December 31, 1996 and 1995, are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C>
Due within one year $ 1,000 $ 998 $ 6,169 $ 6,197
Due after one through five years 15,102 14,996 18,529 18,579
Due after five through ten years 11,221 11,076 11,407 11,517
Mortgage backed-securities 17,122 16,372 14,668 14,638
Equity securities 2,644 2,476 3,040 2,910
------- ------- ------- -------
$47,089 $45,918 $53,813 $53,841
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
- --------------------------------------------------------------------------------
Proceeds from sales of securities available for sale were $34,984 in 1996 with
gains of $31 and losses of $251. Proceeds from sales of securities available for
sale were $4,974 in 1995 with gains of $55 and no losses.
4. INVESTMENT SECURITIES
Investment securities are summarized as follows at December 31:
- --------------------------------------------------------------------------------
1996
-------------------------------------------------
Gross Unrealized Holding Estimated
Amortized ------------------------ Fair
Cost Gains Losses Value
--------- ----- ------ ---------
State and municipal bonds $24,042 $56 $238 $23,860
======= === ==== =======
1996
-------------------------------------------------
Gross Unrealized Holding Estimated
Amortized ------------------------ Fair
Cost Gains Losses Value
--------- ----- ------ ---------
State and municipal bonds $ 8,311 $46 $ 41 $ 8,316
Mortgage-backed securities 7,213 -- 268 6,945
------- --- ---- -------
$15,524 $46 $309 $15,261
======= === ==== =======
- --------------------------------------------------------------------------------
Investment securities with an amortized cost of $197 at December 31, 1996
were pledged as collateral for certain liabilities as required by law.
The amortized cost and estimated fair value of debt securities by contractual
maturity at December 31, 1996 and 1995 are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
- --------------------------------------------------------------------------------
1996 1995
---------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
Due after five through
ten years $11,510 $11,452 $ 8,311 $ 8,316
Due after ten years 12,532 12,408 7,213 6,945
------- ------- ------- -------
$24,042 $23,860 $15,524 $15,261
======= ======= ======= =======
- --------------------------------------------------------------------------------
5. LOANS
Major classifications of loans are as follows at December 31:
- --------------------------------------------------------------------------------
1996 1995
Real Estate: -------- --------
Commercial mortgages $ 69,947 $ 56,001
Residential mortgages 20,477 31,357
Construction and land development 28,695 13,121
Commercial 22,582 22,181
Consumer 17,546 16,759
-------- --------
Total loans 159,247 139,419
Less:
Unearned income (457) (293)
Allowance for loan losses (2,100) (1,904)
-------- --------
$156,690 $137,222
======== ========
- --------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
The Company has placed on non-accrual status loans totaling $793 at December 31,
1996, $1,258 at December 31, 1995 and $25 at December 31, 1994. Gross interest
income that would have been recognized had the loans performed in accordance
with original terms was $257 in 1996, $190 in 1995 and $2 in 1994. Interest
income on these loans included in the results of operations was $127 in 1995 and
none in the years 1996 and 1994.
Changes in the allowance for loan losses were as follows for the years ended
December 31:
- --------------------------------------------------------------------------------
1996 1995 1994
------ ------ ------
Balance at January 1 $1,904 $1,902 $1,509
Provision for loan losses 300 885 687
Recoveries 218 57 19
Loans charged off (322) (940) (313)
------ ------ ------
Balance at December 31 $2,100 $1,904 $1,902
====== ====== ======
- --------------------------------------------------------------------------------
Effective January 1, 1995, the Company adopted FASB Statements No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), and No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures ("SFAS 118"). In accordance with SFAS 114, impaired loans are
measured and reported based on the present value of expected cash flows
discounted at the loan's effective interest rate, or at the fair value of the
loan's collateral if the loan is deemed "collateral dependent." A valuation
allowance is required to the extent that the measure of the impaired loans is
less than the recorded investment.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. The specific factors that influence management's judgment in
determining when a loan is impaired include evaluation of the financial strength
of the borrower and the fair value of the collateral. A specifically reviewed
loan is not impaired during a period of "minimum delay" in payment, regardless
of the amount of the shortfall, if the ultimate collectibility of all amounts
due is expected. The Company defines "minimum delay" as past due less than 90
days.
SFAS 114 does not apply to larger groups of homogeneous loans such as consumer
installment and real estate mortgage loans, which are collectively evaluated for
impairment. Impaired loans are therefore primarily business loans which include
commercial loans and income property and construction real estate loans. The
Company applies the measurement methods described above to these loans on a
loan-by-loan basis. Smaller balance populations of business loans, which are not
specifically reviewed in accordance with normal credit review procedures, are
also excluded from the application of SFAS 114. Most impaired loans are
non-accrual loans, as generally loans are placed on non-accrual status on the
earlier of the date that principal or interest amounts are 90 days or more past
due or the date that collection of such amounts is judged uncertain based on an
assessment of collectibility.
Impaired loans at December 31, 1996 and 1995 amounted to $793 and $1,258,
respectively. There was no valuation allowance for impaired loans at December
31, 1996 or 1995 as the amount by which the measure of the impaired loans was
less than the recorded investment in the loans was charged off in 1996 and 1995
for all impaired loans held in 1996 and 1995. Average impaired loans for 1996
and 1995 amounted to $1,230 and $1,285, respectively. No interest was recognized
during the time period that any loan was impaired as any cash received on such
loans was applied to the loan as a principal reduction.
SFAS 118 allows a creditor to use existing methods for recognizing interest
income on an impaired loan.
6. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off balance sheet risk in
the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to extend credit, available credit
lines and letters of credit. Outstanding loan commitments, unused lines and
letters of credit are summarized as follows at December 31:
30
<PAGE>
- --------------------------------------------------------------------------------
1996 1995
Loan Commitments: ------- -------
Commercial mortgage loans $ 3,075 $ 4,337
Residential mortgage loans 898 1,372
Commercial loans 9,916 5,462
------- -------
$13,889 $11,171
======= =======
Unused lines of credit:
Construction and land development $ 9,006 $10,726
Commercial 12,991 8,374
Home-equity 15,138 10,194
Other consumer 1,366 755
------- -------
$38,501 $30,049
======= =======
Letters of credit $ 3,026 $ 1,905
======= =======
- --------------------------------------------------------------------------------
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
generally have interest rates fixed at current market amounts, fixed expiration
dates and may require payment of a fee. Lines of credit generally have variable
interest rates. Since many of the commitments and lines of credit are expected
to expire without being fully drawn, the available amounts do not necessarily
represent future cash requirements. Letters of credit are commitments issued to
guarantee the performance of a customer to a third party. All letters of credit
issued by the Bank are secured.
Loan commitments, lines and letters of credit are made on the same terms,
including collateral requirements, as outstanding loans. The contractual amount
of these instruments represents the Company's potential exposure to loss in the
event of non-performance by the other party after the commitment has been
fulfilled by the Company.
7. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment is as follows at December 31:
- --------------------------------------------------------------------------------
1996 1995
------ -------
Land $ 863 $ 429
Buildings 5,585 4,459
Equipment 4,562 3,860
Leasehold improvements 703 718
Construction in progress 477 82
------- -------
12,190 9,548
Accumulated depreciation and
amortization (3,755) (3,315)
------- -------
$ 8,435 $ 6,233
======= =======
- --------------------------------------------------------------------------------
Depreciation and amortization expense for bank premises and equipment was $658,
$607 and $430 for 1996, 1995 and 1994, respectively. Amortization expense for
intangible assets was $135, $21 and $14 for 1996, 1995 and 1994, respectively.
8. BORROWINGS
Information with respect to borrowings is as follows for the years ended
December 31:
31
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Amount outstanding at year-end:
Federal funds purchased $ -- $ -- $ 1,150
Federal Home Loan Bank advances 14,739 16,633 18,369
Term Note -- 3,000 --
Treasury Tax & Loan Note 600 -- --
Weighted average interest rate at year end:
Federal funds purchased --% --% 6.10%
Federal Home Loan Bank advances 5.84% 5.50% 5.02%
Term Note --% 8.50% --%
Treasury Tax & Loan Note 5.40% --% --%
Maximum outstanding at any month-end:
Federal funds purchased $ 5,750 $ 4,500 $ 4,100
Federal Home Loan Bank advances 24,429 18,356 24,533
Term Note 2,917 3,000 --
Treasury Tax & Loan Note 745 -- --
Average outstanding:
Federal funds purchased $ 1,727 $ 1,300 $ 871
Federal Home Loan Bank advances 16,756 16,950 20,820
Term Note 931 3,000 --
Treasury Tax & Loan Note 168 -- --
Weighted average interest rate during the year:
Federal funds purchased 5.50% 4.20% 3.90%
Federal Home Loan Bank advances 5.80% 5.26% 4.93%
Term Note 8.50% 8.50% --%
Treasury Tax & Loan Note 5.13% --% --%
</TABLE>
- --------------------------------------------------------------------------------
The Company had borrowings from the Federal Home Loan Bank ("FHLB") of $14,739
at December 31, 1996 and $16,633 at December 31, 1995. The borrowings mature in
varying amounts through 2007 and have an average interest rate of 5.84% at
December 31, 1996. The advances are collateralized by certain real estate loans
with a carrying value of $19,728 and investment securities available for sale
with a book value of $12,847 at December 31, 1996. The Company may borrow up to
$30,000,000 under this line of credit at interest rates set periodically by the
lender.
The principal maturities of the FHLB advances at December 31, 1996, were:
- --------------------------------------------------------------------------------
1997 $ 280
1998 9,543
1999 --
2000 1,650
2001 --
Thereafter 3,266
-------
$14,739
=======
- --------------------------------------------------------------------------------
The Company was required to purchase shares of the capital stock of the FHLB as
additional collateral for the advances as a condition to obtaining the line of
credit. The amount invested in their capital stock was $1,623 at December 31,
1996, and $2,023 at December 31, 1995, and is carried in the securities
available for sale portfolio.
In anticipation of the cash outlay required for the acquisition of Royal Oak, in
December 1995, the Company borrowed $3,000,000 from another commercial bank. The
loan was repaid in April of 1996.
9. PENSION AND PROFIT SHARING PLANS
The Company has a contributory thrift plan qualifying under Section 401 (k) of
the Internal Revenue Code. Employees with six months of service are eligible for
participation in the plan. The Company matches the employee's contribution up to
50% of the first 6% of employee contributions. The Company's contributions to
this plan, included in employee benefits expenses, were $61 for 1996, $60 for
1995 and $49 for 1994.
The Company has agreements with certain of its executive officers to provide
certain supplemental retirement benefits upon retirement. The benefits to be
paid by the Company upon retirement are being accrued over the number of years
remaining to retirement date and in accordance with the plan vesting
arrangements. The amounts included in operating expenses were $74 for 1996, $79
for 1995 and $89 for 1994.
32
<PAGE>
- --------------------------------------------------------------------------------
10. INCOME TAXES
The provision for income taxes is composed of the following for the years ended
December 31:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- -----
Current:
Federal $597 $716 $ 949
State (88) 52 106
Deferred 29 114 (278)
---- ---- -----
Provision for income taxes $538 $882 $ 777
==== ==== =====
- --------------------------------------------------------------------------------
The deferred tax effects of timing differences between financial and taxable
income are as follows for the years ended December 31:
- --------------------------------------------------------------------------------
1996 1995 1994
----- ---- -----
Provision for loan losses $(75) $(10) $(151)
Depreciation 60 12 85
Deferred compensation plans (7) (13) 39
Loan fees and costs (64) 89 (286)
Mortgage servicing rights 87 30 --
Other 28 6 34
---- ---- -----
$ 29 $114 $(279)
==== ==== =====
- --------------------------------------------------------------------------------
At December 31, 1996, net deferred tax assets consisted of the following:
- --------------------------------------------------------------------------------
1996 1995
------ ----
Deferred tax assets:
Provision for loan losses $ 668 $593
Deferred compensation plans 150 143
Loan fees and costs 153 89
Deferred losses on securities
available for sale 398 --
Other 154 12
------ ----
Total deferred tax assets 1,523 837
------ ----
Deferred tax liabilities:
Depreciation 304 244
Mortgage servicing rights 117 30
Deferred gains on securities available for sale -- 10
Other 203 33
------ ----
Total deferred tax liabilities 624 317
------ ----
Net deferred tax asset $ 899 $520
====== ====
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
The provisions for taxes on income are at effective rates of 25.0%, 27.3% and
25.9% as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Tax-exempt income (7.5) (8.9) (8.2)
State income taxes, net of federal income taxes (2.7) 1.4 1.8
Other 1.2 .8 (1.7)
---- ---- ----
25.0% 27.3% 25.9%
==== ==== ====
- --------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
Certain members of the Board of Directors and senior officers had loan
transactions with the Bank. Such loans were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated customers. Loans outstanding, both direct and indirect, to directors
and senior officers totaled $2,287 and $2,596 at December 31, 1996 and 1995,
respectively. During 1996, $694 of new loan advances were made and repayments
totaled $1,003.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. Fair values for securities available for sale and
investment securities are based on quoted market prices. For loans,
interest-bearing deposits and long-term borrowings, where quoted market prices
are not available, fair values are based on estimates using present value
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Interest rates on commitments to extend credit are
normally committed for periods of less than 60 days. Fees charged for
commitments to extend credit and on standby letters of credit and other
financial guarantees are deemed to be immaterial and these commitments and
guarantees are expected to be settled at face amount or expire unused. It is
impracticable to assign any fair value to these commitments.
The estimated fair values of the Company's financial instruments are as follows
at December 31, 1996:
- --------------------------------------------------------------------------------
Carrying Fair
Value Value
-------- --------
Assets:
Cash and due from banks $ 10,374 $ 10,374
Federal funds sold 2,000 2,000
Interest-bearing deposits with other banks 108 108
Loans held for sale 10,118 10,118
Securities available for sale 45,918 45,918
Investment securities 24,042 23,860
Loans, net 156,690 157,684
Accrued interest receivable 1,939 1,939
Liabilities:
Non-interest bearing deposits 24,002 24,002
Interest-bearing deposits 201,037 202,810
Other borrowings 15,339 16,325
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is currently leasing five branch offices and one storage facility
under operating leases expiring from 1997 through 2007. The leases generally
provide for payment of property taxes, insurance, maintenance and common area
costs by the Company. Total rent and common area expenses for the three years
ended December 31, 1996, 1995 and 1994 were $185, $113 and $111, respectively.
Lease obligations will require rent and common area payments as follows:
- --------------------------------------------------------------------------------
Minimum
Year Rentals
---- -------
1997 $ 190
1998 149
1999 130
2000 130
2001 130
Remaining years 668
------
$1,397
======
- --------------------------------------------------------------------------------
The Bank has been named as a defendant in a legal proceeding in the Circuit
Court for Baltimore City wherein it is alleged that the Bank permitted the
improper withdrawal or transfer of funds from a deposit account containing
escrow monies at the Bank. It is also alleged that the Bank misapplied certain
sums of money by depositing them in an unrelated account holder's deposit
account. The complaint seeks recovery against the Bank in the amount of $482.
Management, after consultation with legal counsel, believes that it has
substantial defenses available and intends to vigorously defend against the
claims. Although the amount of any ultimate liability with respect to these
claims cannot be determined, management is of the opinion that any losses
resulting from the disposition of these matters will not have a material adverse
effect on the financial condition of the Company.
14. STOCK OPTIONS
In 1994, the Company adopted a stock option incentive plan which provides for
the granting of common stock options to officers. In January, 1996, the Company
issued an additional stock option award to certain officers of the Company,
which contain a serial feature whereby 20% of the options are awarded or vested
each year for the next five years at the Board's discretion. Under this plan,
8,580 additional options were issued in 1997 with an exercise price of $20.00.
Option prices are equal to or greater than the estimated fair market value of
the common stock at the date of the grant. Options are exercisable beginning six
months from the date of grant and expire 10 years after the date of grant.
Information with respect to options is as follows for the year ended December
31:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------------------------- ---------------------
Shares Option Price Range Shares Option Price
------ ------------------ ------ ------------
<S> <C>
Outstanding at beginning of year 17,940 $19.01 17,940 $19.01
Granted 8,090 19.23-20.45 -- --
Exercised (220) 20.91 -- --
Expired/canceled (1,280) 20.91 -- --
------ ------
Outstanding at end of year 24,530 19.23-20.45 17,940 19.01
------ ------
Exercisable 24,530 19.23-20.45 17,940 19.01
====== ======
</TABLE>
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1996:
- --------------------------------------------------------------------------------
1996
--------
Dividend yield --
Expected volatility 15%
Risk-free interest rate 5.106%
Expected lives 10 years
- --------------------------------------------------------------------------------
The company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its Plans. No compensation expense related to
the Plans was recorded during the two years ended December 31, 1996. If the
Company had elected to recognize compensation cost based on the fair value at
the grant dates for awards under the Plans consistent with the method prescribed
by SFAS 123, net income and earnings per share would have been changed to the
pro forma amounts as follows for the year ended December 31, 1996:
35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income $1,564
Earnings per share $.96
- --------------------------------------------------------------------------------
There were no options issued in 1995 so there would be no pro forma net income
or earnings per share related to stock options for 1995.
15. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1996, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $20,509 11.49% $14,285 8.00% $17,857 10.00%
Taneytown Bank & Trust Company 20,528 11.50% 14,284 8.00% 17,855 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated 18,409 10.31% 7,143 4.00% 10,714 6.00%
Taneytown Bank & Trust Company 18,428 10.32% 7,142 4.00% 10,713 6.00%
Tier I Capital (to Average Assets):
Consolidated 18,409 7.03% 10,467 4.00% 13,084 5.00%
Taneytown Bank & Trust Company 18,428 7.04% 10,465 4.00% 13,082 5.00%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated 18,920 11.80% 12,831 8.00% 16,039 10.00%
Taneytown Bank & Trust Company 17,294 10.86% 12,745 8.00% 15,931 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated 17,016 10.61% 6,416 4.00% 9,624 6.00%
Taneytown Bank & Trust Company 15,390 9.66% 6,373 4.00% 9,559 6.00%
Tier I Capital (to Average Assets):
Consolidated 17,016 7.56% 9,003 4.00% 11,254 5.00%
Taneytown Bank & Trust Company 15,390 7.03% 8,751 4.00% 10,938 5.00%
</TABLE>
- --------------------------------------------------------------------------------
36
<PAGE>
16. ACQUISITION
On December 31, 1995, the Company purchased Royal Oak Savings Bank as a
subsidiary of Monocacy Bancshares, Inc. The transaction was accounted for as a
purchase and the results of operations for the year 1995 properly do not include
any income from Royal Oak. Royal Oak's condensed balance sheet as of the date of
the acquisition as valued under purchase accounting was as follows:
- --------------------------------------------------------------------------------
Cash and investments $45,398
Loans, net 451
Property, plant and equipment 510
Other assets 646
-------
$47,005
=======
Deposits $38,733
Other liabilities 517
Capital 7,755
-------
$47,005
=======
- --------------------------------------------------------------------------------
The purchase price of $7.8 million included a deposit premium paid of $3.6
million and a mortgage servicing premium paid of $281. The purchase price of the
assets and costs associated were approximately equal to the liabilities assumed
and no goodwill was recorded in the transaction.
17. SUBSEQUENT EVENT
On February 17, 1997, the company distributed a 10% stock dividend which
increased shares outstanding by approximately 146,000.
18. PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Monocacy Bancshares, Inc. (parent company
only) is as follows as of and for the years ended December 31:
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
1996 1995
Assets ------- -------
Cash and due from Bank subsidiary $ 205 $ 967
Securities available for sale 20 16
Investment securities -- --
Investment in subsidiary 21,637 23,150
Other assets 30 172
------- -------
Total assets $21,892 $24,305
======= =======
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings $ -- $ 3,000
Other liabilities 244 136
------- -------
Total liabilities 244 3,136
------- -------
Stockholders' equity:
Common stock 7,342 6,618
Common stock dividend to be distributed 3,699 2,846
Surplus 9,145 6,777
Retained earnings 1,462 4,928
------- -------
Total stockholders' equity 21,648 21,169
------- -------
Total liabilities and stockholders' equity $21,892 $24,305
======= =======
- --------------------------------------------------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Interest on investment securities $ 1 $ 12 $ 3
Interest expense on borrowings 101 -- --
------ ------ ------
Net interest income (100) 12 3
Cash dividends from subsidiaries 1,759 2,393 400
Operating expenses 82 64 58
------ ------ ------
Income before income tax expense and equity in
undistributed net income of subsidiaries 1,577 2,341 345
Income tax benefit (34) (10) (9)
------ ------ ------
Income before equity in undistributed
net income of subsidiaries 1,611 2,351 354
Equity in undistributed net income of subsidiaries -- -- 1,868
------ ------ ------
Net income $1,611 $2,351 $2,222
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C>
Cash flows from operating activities:
Net income $1,611 $2,351 $2,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries -- -- (1,868)
(Increase) decrease in other assets 142 (134) 129
Decrease in accrued interest receivable -- 4 --
Increase (decrease) in other liabilities (39) 6 41
------ ------ ------
Net cash provided by operating activities 1,714 2,227 524
------ ------ ------
Cash flows from investing activities:
Purchases of securities available for sale (4) (16) (200)
Maturities of investment securities -- 200 --
Distribution of undivided profits of Bank subsidiary 868 3,468 --
Investment in Savings Bank subsidiary -- (7,755) --
------ ------ ------
Net cash provided by (used in) investing activities 864 (4,103) (200)
------ ------ ------
Cash flows from financing activities:
Issuance of common stock 246 211 62
Dividends paid (586) (528) (341)
Proceeds from issuance of debt -- 3,000 --
Repayments of debt (3,000) -- --
------ ------ ------
Net cash provided by (used in) financing activities (3,340) 2,683 (279)
------ ------ ------
Net increase (decrease) in cash and cash equivalents (762) 807 45
Cash and cash equivalents at beginning of year 967 160 115
------ ------ ------
Cash and cash equivalents at end of year $ 205 $ 967 $ 160
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
Under certain state and federal banking regulations, the Bank may declare cash
dividends to Monocacy Bancshares, Inc., from undivided profits, or with prior
approval of the Maryland Bank Commissioner, out of surplus in excess of 100% of
its capital stock, after providing for certain expenses.
38
<PAGE>
EXECUTIVE OFFICERS
================================================================================
Chairman of the Board
Eric E. Glass*
Vice Chairman of the Board, Chairman
of the Executive Committee
Donald R. Hull*
President and Chief Executive Officer
Francis W. Neubauer, Jr.*
Executive Vice President and Chief Operating Officer and Chief Financial Officer
Michael K. Walsch*
Senior Vice Presidents
Francis X. Bossle, Jr.
Craig H. McConnell
Edward D. Leister
Vice President and Corporate Secretary
Brian M. Etzler*
*Officers of both Monocacy Bancshares, Inc.
and Taneytown Bank & Trust Company,
its principal subsidiary.
Vice Presidents:
Brenda K. Anders
Linda L. Bennett
Mary E. Bowns
Harold E. Eyler
William O. Eyler
Michael H. Galassi
Thomas J. Gerhart
Christopher D. Holt
C. Alan Jefferson
Cynthia M. Joynes
Edwin L. Koons
Donna L. Oliver
William A. Springer, Jr.
Assistant Vice Presidents:
Michael L. Barrett
Charlotte B. Bollinger
Joyce B. Clingan
Judith E. Frock
Laura M. Garriss-Smith
Jane E. Harford
Lawrence R. Hierstetter
C. Daniel Pastros
Judith A. Shultz
Linda S. Warehime
Commercial Banking Officers:
Timothy L. Baumgardner
Elizabeth J. Dutrow
Barbara A. Ebaugh
Amy R. Eyler
Herbert W. Findeisen, III
Beverly A. Franklin
Andrew P. Heck
Janet L. Joy
Donna H. Moore
Theresa M. Perry
Richard L. Rose
Jeris L. Talbott
JoAnn R. Vanscoy
Deborah A. Zepp
Assistant Secretary:
Kathleen A. Ford
Administrative Officer:
Patricia A. Shryock-Smith
39
<PAGE>
BOARD OF DIRECTORS
================================================================================
David M. Abramson
Senior Vice President and General Counsel
JP Foodservice, Inc.
E. Wayne Baumgardner
Independent Investor
George B. Crouse
Vice President, Crouse Ford Sales, Inc.
Harry B. Dougherty+
Retired
Glenn E. Eaves
Dairy Farmer
George A. Fream+
Retired Postmaster, Taneytown Post Office
Donald R. Hull
Vice Chairman of the Board and Chairman
of the Executive Committee
Monocacy Bancshares, Inc.
President, Hull Company Accountants, Inc.
Eric E. Glass
Chairman of the Board
Monocacy Bancshares, Inc.
Chairman of the Board,
The Taney Corporation
Francis W. Neubauer, Jr.
President and Chief Executive Officer
Monocacy Bancshares, Inc.
Jacob M. Yingling
Independent Consultant/Investor
+Directors Emeritus
Shareholders may obtain a free copy of the Monocacy Bancshares, Inc. Form 10-KSB
upon written request to:
Michael K. Walsch, Executive Vice President
Monocacy Bancshares, Inc.
P.O. Box 491
Taneytown, Maryland 21787-0491
A charge of 10 cents per page may be billed for copies of exhibits
The Annual Report and other Company reports are also filed electronically
through the Electronic Data Gathering, Analysis, and Retrival System ("EDGAR")
which performs automated collection, validation, indexing, acceptance, and
forwarding of submissions to the Securities and Exchange Commission (SEC) and is
accessible by the public using the Internet at http://www.secgov/edgarhp.htm.
The Annual Meeting of Shareholders will be held on April 28, 1997 beginning at
3:00 P.M. in Taneytown, Maryland
Transfer Agent, Registrar and Dividend Disbursing Agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
1-800-368-5948
Taneytown Bank website: www.taneytownbank.com
40
<PAGE>
THE TANEYTOWN BANK TEAM
It's our employees who are making it work
================================================================================
KELLY S. ABELL MONICA B. ADELMAN PHYLLIS E. ALBAN BRENDA K. ANDERS NATALIE A.
ANDREWS ELIZABETH M. ARTHUR MELISA K. BANKS MICHAEL L. BARRETT BONNIE L.
BAUBLITZ TIMOTHY L. BAUMGARDNER FRANCES J. BEARD JILL M. BEASLEY DOLORES A.
BEDNAR ELIZABETH R. BENJAMIN LINDA L. BENNETT CHARLOTTE B. BOLLINGER LAUREN J.
BOND LOUIS J. BONNEVILLE FRANCIS X. BOSSLE, JR. MARY E. BOWNS SHANNA R. BOYD M.
E. BRATCHER DEBRA S. BRAUNING KAREN M. BROOKS DAWN L. CARROLL MARY ANN CARROLL
JOYCE B. CLINGAN JOHN W. COE BELINDA K. COLE SANDRA K. COLE JOHN F. COLLINS
NANCY L. COMEGNA PAMELA A. COMMAROTA ADRIANA M. CRISTOFARO CAROLYN M. DELANEY
KRISTEN E. DICKENS TERRI L. DISKIN KIMBERLY J. DISKIN JUDITH N. DIXON ELIZABETH
J. DUTROW DONNA A. DUTTERER BARBARA A. EBAUGH HOLLIE A. EDWARDS BRIAN M. ETZLER
LISA N. ETZLER WILLIAM O. EYLER HAROLD E. EYLER FRANCES A. EYLER MARISA L. EYLER
AMY R. EYLER HERBERT W. FINDEISEN, III HARRY E. FISHER KATHLEEN A. FORD BEVERLY
A. FRANKLIN TRACY L. FRANKLIN JUDITH E. FROCK DENISE A. FROCK MICHAEL H. GALASSI
SAMUEL K. GARDNER LAURA M. GARRISS-SMITH STEPHANIE L. GAULDIN THOMAS J. GERHART
BRENDA K. GIVVINES PATRICIA A. GODWIN-YINGLING MELISSA D. GOODWIN BELINDA A.
GRANT JAMES E. GRANT KELLIANN GREENE JANICE P. GREENHOLTZ MAUREEN GREGG JOHN
MICHAEL GUILLOTT JOAN K. GULIERE DEBORAH L. GUTOWSKI TERESA L. HAINES SHIRLIE A.
HANSBROUGH JANE E. HARFORD MELISSA S. HARRIS ANDREW P. HECK PATRICIA A. HENNESSY
LAWRENCE R. HIERSTETTER MARY P. HIGGS BILLIE JO HOFFMAN RUTH HOFFMAN CHRISTOPHER
D. HOLT KAREN M. HOOPER ANGE M. HORNER ERIC M. HORRELL MARVIN R. HURWITZ C. ALAN
JEFFERSON WILLIAM A. JENKINS, IV EDDIE A. JONES, SR. JANET L. JOY CYNTHIA M.
JOYNES CHERYL L. KEENEY MELISSA K. KEISER BEVERLY B. KEMPLER EDWIN L. KOONS
MELANIE L. LAMER ROBIN L. LEASE MICHELLE A. LEIKAM EDWARD D. LEISTER SHELBY D.
LENKER RICHARD D. LISKO CAROL A. LONGENECKER BEULAH E. MACKINZIE HELEN E. MARTIN
SANDRA D. MAXEY MONICA A. MAY ROBERT L. MCAFEE CRAIG H. MCCONNELL JAMI M.
MERRELL CHRISTY A. MILES DONNA H. MOORE GEORGE W. MOTTER HOWARD D. MYERLY GEORGE
A. MYERS JOHN E. MYERS FRANCIS W. NEUBAUER JR DONNA L. OLIVER C. DANIEL PASTROS
FRANCES J. PAWLOWSKI MARILYN PELKOSKI THERESA M. PERRY SANDRA S. PRETTY JAMES A.
PRYOR CATHY L. REAVER CHRISTINA J. REPLOGLE BETTY W. REPP JAIME B. RIDINGER MARY
E. ROHE RICHARD L. ROSE KARIN T. ROSS PAMELA M. RUBIN LEE W. RUSSO CARRI L. RYER
LAURA L. SELBY LAURA B. SHICKMAN PATRICIA A. SHRYOCK-SMITH JUDITH A. SHULTZ
DONNA C. SMITH WILLIAM A. SPRINGER, JR. EVE M. STANCOVICH DEBORAH M. STEWART
JOHN W. STONESIFER MARY H. STONESIFER DONNA L. STRAUB JERIS L. TALBOTT WENDY N.
TUCKER WILLIAM J. UPDEGRAFF JAMES A. UPDEGRAFF DON K. UPHOUSE JOANN R. VANSCOY
GWENDOLYN A. WACHTER JOSEPH F. WADE, JR. LYNN M. WAGNER MICHAEL K. WALSCH
CYNTHIA L. WANTZ LINDA S. WAREHIME LANA E. WEIDNER SABRINA L. WELLER RETA I.
WETZEL TINA M. WETZEL ANNE C. WILDASIN JOAN S. WILHIDE LORI L. WILSON SANDRA V.
YINGLING BONNIE J. YINGLING DEBORAH A. ZEPP
Taneytown Bank & Trust Company is a member of F.D.I.C.
and an equal housing lender.
<PAGE>
[Monocacy Bancshares Inc. Logo]
222 East Baltimore Street
Taneytown, MD 21787-0491
410-756-2655
Attached as Exhibit
Exhibit 21
List of Subsidiaries of Monocacy Bancshares, Inc.
<TABLE>
<CAPTION>
State of Owned Percentage
Name Incorporation By Ownership
---- ------------- ----- ----------
<S> <C>
Taneytown Bank
& Trust Company Maryland Monocacy Bancshares, Inc. 100%
TBT Investments, Inc. Delaware Taneytown Bank & Trust Company 100%
TBT Insurance, Inc. Maryland Taneytown Bank & Trust Company 100%
TBT Title Holdings,
Inc. Maryland Taneytown Bank & Trust Company 100%
TBT Title I, Inc. Maryland TBT Title Holdings, Inc. 100%
TBT Title II, Inc. Maryland TBT Title Holdings, Inc. 100%
TBT Title III, Inc. Maryland TBT Title Holdings, Inc. 100%
TBT Title IV, Inc. Maryland TBT Title Holdings, Inc. 100%
TBT Title V, Inc. Maryland TBT Title Holdings, Inc. 100%
</TABLE>
17
Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Form 10-KSB
of Monocacy Bancshares, Inc. for the year ended December 31, 1996 of our report
dated January 31, 1997 which appears on page 21 of the 1996 Annual Report to
Shareholders.
Stegman & Company
Towson, Maryland
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,374
<INT-BEARING-DEPOSITS> 108
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 10,118
<INVESTMENTS-HELD-FOR-SALE> 45,918
<INVESTMENTS-CARRYING> 24,042
<INVESTMENTS-MARKET> 0
<LOANS> 158,790
<ALLOWANCE> 2,100
<TOTAL-ASSETS> 263,015
<DEPOSITS> 225,039
<SHORT-TERM> 7,600
<LIABILITIES-OTHER> 989
<LONG-TERM> 7,739
0
0
<COMMON> 7,342
<OTHER-SE> 14,307
<TOTAL-LIABILITIES-AND-EQUITY> 263,015
<INTEREST-LOAN> 14,044
<INTEREST-INVEST> 5,550
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 19,594
<INTEREST-DEPOSIT> 9,251
<INTEREST-EXPENSE> 10,422
<INTEREST-INCOME-NET> 9,172
<LOAN-LOSSES> 300
<SECURITIES-GAINS> (220)
<EXPENSE-OTHER> 8,762
<INCOME-PRETAX> 2,149
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,611
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.36
<LOANS-NON> 793
<LOANS-PAST> 757
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,904
<CHARGE-OFFS> 321
<RECOVERIES> 217
<ALLOWANCE-CLOSE> 2,100
<ALLOWANCE-DOMESTIC> 1,937
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 163
</TABLE>
Exhibit (99)
March 27, 1997
DEAR SHAREHOLDER:
It is my pleasure to invite you to attend the 1997 Annual Meeting of
Shareholders of Monocacy Bancshares, Inc. to be held on Monday, April 28, 1997
at 3:00 p.m., prevailing time. The Annual Meeting will be held in the lobby at
the main office of Taneytown Bank & Trust Company, 222 East Baltimore Street,
Taneytown, Maryland 21787.
The Notice of the Annual Meeting and the Proxy Statement on the
following pages address the formal business of the meeting. The formal business
schedule includes: the election of four (4) directors; the approval and adoption
of the Monocacy Bancshares, Inc. 1997 Independent Directors' Stock Option Plan;
the approval and adoption of the proposed amendment to the Monocacy Bancshares,
Inc. 1994 Stock Incentive Plan to increase the number of authorized shares of
Common Stock available for issuance under the plan by 31,592 shares; and the
adoption of the selection of the Corporation's independent auditors for 1997. At
the meeting, members of the Corporation's management will review the
Corporation's operations during the past year and will be available to respond
to questions.
We strongly encourage you to vote your shares whether or not you plan
to attend the meeting. It is very important that you sign, date and return in
the postage prepaid envelope the accompanying Proxy as soon as possible. The
giving of such Proxy may be revoked at any time before it is voted and does not
alter your right to attend the meeting and vote in person.
Sincerely,
Frank W. Neubauer
President and
Chief Executive Officer
<PAGE>
[This Page Intentionally Left Blank.]
<PAGE>
--------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1997
--------------------------------
TO THE SHAREHOLDERS OF MONOCACY BANCSHARES, INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
MONOCACY BANCSHARES, INC. (the "Corporation") will be held at 3:00 p.m.,
prevailing time, on Monday, April 28, 1997 in the lobby at the main office of
Taneytown Bank & Trust Company, 222 East Baltimore Street, Taneytown, Maryland
21787, for the following purposes:
1. To elect four (4) Directors to serve for a three-year term and
until their successors are elected and qualified;
2. To approve and adopt the Monocacy Bancshares, Inc. 1997
Independent Directors' Stock Option Plan;
3. To approve and adopt the proposed amendment to the Monocacy
Bancshares, Inc. 1994 Stock Incentive Plan to increase the
number of authorized shares of Common Stock available for
issuance under the plan by 31,592 shares;
4. To ratify the selection of Stegman & Company, Certified Public
Accountants, as the independent auditors for the Corporation
for the year ending December 31, 1997; and
5. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement
thereof.
In accordance with the By-laws of the Corporation and action of the
Board of Directors, only those shareholders of record at the close of business
on March 20, 1997 will be entitled to notice of and to vote at the Annual
Meeting and any adjournment or postponement thereof.
<PAGE>
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1996 is enclosed with this Notice. Copies of the Corporation's
Annual Report for the 1995 fiscal year may be obtained at no cost by contacting
Brian M. Etzler, Secretary, 222 East Baltimore Street, P.O. Box 491, Taneytown,
Maryland 21787, telephone: (410) 756-2655.
You are urged to mark, sign, date and promptly return your Proxy in the
enclosed envelope so that your shares may be voted in accordance with your
wishes and in order that the presence of a quorum may be assured. The prompt
return of your signed Proxy, regardless of the number of shares you hold, will
aid the Corporation in reducing the expense of additional proxy solicitation.
The giving of such Proxy may be revoked at any time before it is voted and
therefore does not alter your right to attend the meeting and vote in person.
By Order of the Board of Directors,
Brian M. Etzler
Secretary
March 27 , 1997
<PAGE>
MONOCACY BANCSHARES, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 28, 1997
GENERAL
Introduction, Date, Time and Place of Annual Meeting
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of MONOCACY BANCSHARES, INC. (the "Corporation"), a
Maryland business corporation, of proxies to be voted at the Annual Meeting of
Shareholders of the Corporation to be held on Monday, April 28, 1997, at 3:00
p.m., prevailing time, in the lobby at the main office of Taneytown Bank & Trust
Company, 222 East Baltimore Street, Taneytown, Maryland, 21787, and at any
adjournment or postponement of the Annual Meeting.
The principal executive office of the Corporation is located at
Taneytown Bank & Trust Company (the "Bank"), 222 East Baltimore Street, P.O. Box
491, Taneytown, Maryland 21787. The telephone number for the Corporation is
(410) 756-2655. All inquiries should be directed to Brian M. Etzler, Secretary
of the Corporation. The Bank is a wholly-owned subsidiary of the Corporation.
Solicitation and Voting of Proxies
This Proxy Statement and the enclosed form of proxy (the "Proxy") are
first being sent to shareholders of the Corporation on or about March 28, 1997.
Shares represented by proxies on the accompanying Proxy, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the shareholders. Any Proxy not specifying to the contrary will be
voted FOR the election of the nominees for director named below, FOR the
approval and adoption of the Monocacy Bancshares, Inc. 1997 Independent
Directors' Stock Option Plan, FOR the approval and adoption of the proposed
amendment to the Monocacy Bancshares, Inc. 1994 Stock Incentive Plan, and FOR
the ratification of the selection of Stegman & Company as the independent
auditors for the Corporation for the year ending December 31, 1997. Execution
and return of the enclosed Proxy will not alter a shareholder's right to attend
the Annual Meeting and vote in person. The cost of preparing, assembling,
printing, mailing and soliciting proxies, and any additional material which the
Corporation may furnish shareholders in connection with the Annual Meeting, will
be borne by the Corporation. In addition to the use of the mails, certain
directors, officers and employees of the Corporation and the Bank may solicit
proxies personally by telephone and by telecopier. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
proxy solicitation material to the beneficial owners of stock held of record by
these persons, and, upon request thereof, the Corporation will reimburse them
for their reasonable forwarding expenses.
Revocability of Proxy
- 1 -
<PAGE>
A shareholder who returns a Proxy may revoke the Proxy at any time
before it is voted. This right of revocation is not limited or subject to
compliance with any formal procedure. Revocations should be delivered to Brian
M. Etzler, Secretary of Monocacy Bancshares, Inc., at 222 East Baltimore Street,
P.O. Box 491, Taneytown, Maryland 21787. Shareholders may also effect a
revocation of a previously executed Proxy by attending the Annual Meeting and
voting in person.
Voting Securities, Record Date, and Quorum
At the close of business on March 20, 1997, the Corporation had issued
and outstanding 1,618,803 shares of common stock, par value $5.00 per share, the
only authorized, issued and outstanding class of stock (the "Common Stock").
Only holders of Common Stock of record at the close of business on
March 20, 1997, will be entitled to notice of and to vote at the Annual Meeting.
Cumulative voting rights do not exist with respect to the election of directors.
On all matters to come before the Annual Meeting, each share of Common Stock is
entitled to one vote.
Under Maryland law and the By-laws of the Corporation, the presence of
a quorum is required for each matter to be acted upon at the Annual Meeting.
Pursuant to Article I, Section 1.05 of the By-laws of the Corporation, the
presence, in person or by proxy, of shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting shall constitute a quorum for
the transaction of business at the Annual Meeting. Votes withheld and
abstentions will be counted in determining the presence of a quorum for the
particular matter. Broker non-votes will not be counted in determining the
presence of a quorum for the particular matter as to which the broker withheld
authority.
Assuming the presence of a quorum, the four (4) nominees for director
receiving the highest number of votes cast by shareholders entitled to vote for
the election of directors shall be elected. Votes withheld from a nominee and
broker non-votes will not be cast for such nominee.
Assuming the presence of a quorum, the affirmative vote of a majority
of all votes cast by shareholders is required for the approval and adoption of
the Monocacy Bancshares, Inc. 1997 Independent Directors' Stock Option Plan, for
the approval and adoption of the increase by 31,592 shares the number of stock
options eligible to be granted under the Monocacy Bancshares, Inc. 1994 Stock
Incentive Plan and for the ratification of the selection of independent
auditors. Abstentions and broker non-votes are not votes cast and therefore do
not count either for or against such ratification. Abstentions and broker
non-votes, however, have the practical effect of reducing the number of
affirmative votes required to achieve a majority by reducing the total number of
shares voted from which the required majority is calculated.
- 2 -
<PAGE>
PRINCIPAL BENEFICIAL OWNERS OF THE CORPORATION'S STOCK
Principal Owners
The following table sets forth, as of March 20, 1997, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than five percent (5%) of the
Corporation's outstanding Common Stock, the number of shares beneficially owned
by such person and the percentage of the Corporation's outstanding Common Stock
so owned.
Percent of
Number of Outstanding
Shares Common Stock
Beneficially Beneficially
Name and Address Owned(l) Owned
---------------- ------------ ------------
Eric E. Glass 105,070(2) 6.49%
16117 Toms Creek Church Road
Emmitsburg, MD 21727
Jacob M. Yingling 84,667(3) 5.23%
24 Kalten Road
Westminster, MD 21158
- --------------
(1) For the definition of "beneficially owned", see footnote 1 below under
the caption entitled "Beneficial Ownership by Officers, Directors and
Nominees".
(2) Includes 91,945 shares owned individually; 4,432 shares held jointly
with, and 2,077 shares held individually by, Mr. Glass' wife; 1,532
shares held by the Taney Corporation of which Mr. Glass is Chairman of
the Board; and 5,084 shares held by the Taney Corporation's employees'
profit sharing trust over which Mr. Glass has investment discretion.
(3) Includes 83,813 shares owned individually; and 854 shares held by Mr.
Yingling's wife.
- 3 -
<PAGE>
Beneficial Ownership by Officers, Directors and Nominees
The following table sets forth as of March 20, 1997, and from
information supplied by the respective individual, the amount and percentage of
the Common Stock beneficially owned by each director, each nominee, each named
executive officer, and all officers, directors and nominees of the Corporation
and the Bank as a group.
Amount and Nature
Name of Individual of Beneficial Percent
or Identity of Group Ownership(1)(2) of Class (3)
-------------------- --------------- ------------
David M. Abramson 1,884(4) ---
E. Wayne Baumgardner 62,514(5) 3.86%
George B. Crouse 27,808(6) 1.72%
Glenn E. Eaves 13,032(7) ---
Eric E. Glass 105,070(8) 6.49%
Donald R. Hull 58,591(9) 3.62%
Frank W. Neubauer 12,800(10) ---
Jacob M. Yingling 84,667(11) 5.23%
Michael K. Walsch 5,108(12) ---
All Officers, Directors and
Nominees as a Group (13 persons) 377,401(13) 23.10% (14)
- --------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in
the General Rules and Regulations of the Securities and Exchange
Commission and may include securities owned by or for the individual's
spouse and minor children and any other relative who has the same home,
as well as securities to which the individual has or shares voting or
investment power or has the right to acquire beneficial ownership
within 60 days after March 20, 1997. Beneficial ownership may be
disclaimed as to certain of the securities.
(2) Information furnished by the directors and the Corporation.
(3) Less than one percent (1%) unless otherwise indicated.
(4) Includes 252 shares owned individually; and 1,632 shares held as
trustee of the Irma Abramson Pollack Revocable Intervivos Trust.
(5) Includes 4,217 shares owned individually; 54,667 shares held by Mr.
Baumgardner jointly with his mother; and 3,630 shares held jointly by
Mr. Baumgardner's wife and mother.
(6) Includes 7,113 shares owned individually; 7,841 shares held by Mr.
Crouse jointly with his wife; 495 shares held by Mr. Crouse's wife; and
12,359 shares held by Mr. Crouse as a trustee of a trust under the will
of his father.
(7) Includes 2,054 shares owned individually; and 10,978 shares held by Mr.
Eaves jointly with his wife.
- 4 -
<PAGE>
(8) See footnote 2 above under the caption entitled "Principal Owners" as
to the shares of Common Stock held beneficially by Mr. Glass.
(9) Includes 8,813 shares owned individually; 38,301 shares held by Mr.
Hull jointly with his wife; and 11,477 shares held by the Residuary
Trust of the Estate of Robert W. Smith, for which Mr. Hull is trustee.
(10) Includes 2,787 shares owned individually; 7,040 exercisable shares
granted as Stock Options; and 2,973 shares granted as Restricted Stock
Awards.
(11) See footnote 3 above under the caption entitled "Principal Owners" as
to the shares of Common Stock held beneficially by Mr. Yingling.
(12) Includes 777 shares owned individually; 3,520 exercisable shares
granted as Stock Options; and 811 shares granted as Restricted Stock
Awards.
(13) Includes 14,850 exercisable shares granted as Stock Options to
Officers; and 3,784 shares granted as Restricted Stock Awards to
Officers.
(14) The percent of class assumes all outstanding Stock Options issued to
the directors and officers have been exercised and, therefore, on a
proforma basis, 1,633,653 shares of Common Stock would be outstanding.
ELECTION OF DIRECTORS
The By-laws of the Corporation provide that the Corporation's business
shall be managed by its Board of Directors. Sections 2.02 and 2.03 of the
By-laws provide that the number of directors that shall constitute the whole
Board of Directors shall not be less than five nor more than twenty-four and
that the Board of Directors shall be classified into three classes, each class
to be elected for a term of three years. Within the foregoing limits, the Board
of Directors may, from time to time, fix the number of directors and their
respective classifications. No person shall serve as a director after he or she
has attained the age of seventy (70) years, except those directors who were
serving at the formation of the Corporation. Pursuant to Section 2.05 of the
By-laws, vacancies on the Board of Directors, including vacancies resulting from
an increase in the number of directors, shall be filled by a majority vote of
the remaining members of the Board of Directors and each person so appointed
shall be a director until the next Annual Meeting of the shareholders, at which
time the shareholders shall elect a director for the balance of the term then
remaining. Alternatively, vacancies may be filled at a Special Meeting of the
shareholders by a majority vote of the shareholders, in which case a director so
chosen shall hold office for the balance of the term then remaining.
The Board of Directors, pursuant to Section 2.02 and 2.03 of the
By-laws of the Corporation, has fixed the number of Directors of the Corporation
at eight (8) members. Four (4) directors shall stand for election at the 1997
Annual Meeting whose term will expire in 2000. There are two (2) directors in
the class whose term expires in 1998 and two (2) directors in the class whose
terms expire in 1999. Therefore, as described above, the Articles of
Incorporation and the By-laws provide for a classified Board of Directors with
staggered, three-year terms of office. Notwithstanding the foregoing, the Board
of Directors may, pursuant to its powers conferred upon it by Sections 2.02 and
2.03 of the By-laws of the Corporation, fix the number of the Board of Directors
at a greater or lower number in order to best accommodate the interests of the
Corporation and its shareholders.
- 5 -
<PAGE>
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the election of the four (4) nominees named below. If any
nominee should become unavailable for any reason, Proxies will be voted in favor
of a substitute nominee as the Board of Directors of the Corporation shall
determine. The Board of Directors has no reason to believe that the nominees
named will be unable to serve, if elected. Any vacancy occurring on the Board of
Directors of the Corporation for any reason may be filled by a majority vote of
the directors then in office until the expiration of the term of the vacancy.
There is no cumulative voting for the election of directors. Each share
of Common Stock is entitled to cast only one vote for each nominee. For example,
if a shareholder owns ten shares of Common Stock, he or she may cast up to ten
votes for each of the four (4) directors in the class to be elected.
INFORMATION AS TO NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect to the
nominees for director and the current directors:
<TABLE>
<CAPTION>
Principal Occupation
Age as of for Past Five Years Director
March 20, and Position Held with the Since
Name 1997 Corporation and the Bank Corp/Bank
---- ---- ------------------------ ---------
<S> <C>
NOMINEES FOR DIRECTOR
WHOSE TERM EXPIRES IN 2000 AND
CURRENT DIRECTORS
WHOSE TERM EXPIRES IN 1997
David M. Abramson 44 Senior VP and General 1993/1992
Counsel,
JP Foodservice, Inc.
Glenn E. Eaves 61 Dairy Farmer 1993/1988
(2)(4)
Jacob M. Yingling 66 Independent Consultant and 1993/1986
(4)(5) Investor
Frank W. Neubauer 54 Commercial Banker; President 1994/1994
(1)(6) and CEO of the Corporation
and the Bank
</TABLE>
- 6 -
<PAGE>
<TABLE>
DIRECTORS
WHOSE TERM EXPIRES IN 1998
<S> <C>
E. Wayne Baumgardner 60 Independent Investor 1993/1984
(2)
George B. Crouse 57 Vice President, Crouse Ford 1993/1985
(5) Sales, Inc.
DIRECTORS
WHOSE TERM EXPIRES IN 1999
Eric E. Glass 57 Chairman of the Board of the 1993/1977
(1)(3)(6) Taney Corporation; Chairman
of the Board of the
Corporation and the Bank
Donald R. Hull 58 Accountant, E.A., Vice 1993/1976
(1)(6) Chairman of the Board and
Chairman of the Executive
Committee of the Corporation
and the Bank
</TABLE>
- -----------------
(1) The President/CEO, the Chairman of the Board, and the Vice Chairman of
the Board are each ex-officio members of all standing committees of the
Bank's Board of Directors.
(2) Member of the Bank's Audit/Compliance Committee. The Audit/Compliance
Committee has as its primary functions the review and recommendation of
an outside auditor for each fiscal year and the oversight of the Bank's
audit and compliance functions. This committee is also the source for
reports concerning factual conflicts of interest and reviews
circumstances regarding conflicts of interest and reports same to the
full Board of Directors, if necessary. This committee met four (4)
times in 1996. Mr. Baumgardner was Chairman of the Audit/Compliance
Committee in 1996.
(3) Member of the Bank's Compensation Committee. This committee reviews
salary administration, including salary ranges, salary surveys and
benefits, and approves changes in salary ranges as needed. This
committee met four (4) times in 1996. Mr. Glass was Chairman of the
Compensation Committee in 1996. Other members of the Board of
Directors sit on the Compensation Committee on a rotating basis each
quarter.
(4) Member of the Bank's Funds Management Committee. This committee
reviews major policies of the Bank with respect to interest rate
exposure, liquidity, investments, earnings analysis and forecasts, tax
planning, capital, funding and pricing. This committee met three (3)
times in 1996. Mr. Yingling was Chairman of the Funds Management
Committee in 1996.
(5) Member of the Bank's Trust Committee. This committee oversees the
operations of the Trust Department of the Bank. This committee met
four (4) times in 1996. Mr. Crouse was Chairman of the Trust Committee
in 1996.
(6) Permanent member of the Bank's Executive Committee. This committee
oversees the operations of the Bank. This committee met twelve (12)
times in 1996. Mr. Glass was Chairman of the Executive Committee in
1996. Other members of the Board of Directors sit on the Executive
Committee on a rotating basis each quarter.
The aforementioned committees are committees of the Bank and not the
Corporation.
- 7 -
<PAGE>
During 1996, the Bank's Board of Directors held 12 meetings. During
1996, the Corporation's Board of Directors held 12 meetings. Each of the
Directors attended at least 75% of the combined total number of meetings of the
Corporation's and Bank's Board of Directors and the committees of which he is a
member, except Mr. Abramson who attended 66.67% of such meetings.
The Board of Directors of the Corporation has at present one standing
committee, the Executive Committee, which met twelve (12) times in 1996. The
same persons who are members of the Bank's Executive Committee are members of
the Corporation's Executive Committee.
A shareholder who desires to propose an individual for consideration by
the Board of Directors as a nominee for director should submit a proposal in
writing to the Secretary of the Corporation in accordance with Article Eighth
(a)(8) of the Corporation's Articles of Incorporation. Any shareholder who
intends to nominate any candidate for election to the Board of Directors must
notify the Secretary of the Corporation in writing not less than 30 days nor
more than 60 days prior to such meeting; provided, however, that if less than 31
days' notice of the meeting is given to shareholders, such notice must be given
to the Secretary of the Corporation not later than the close of business on the
tenth (10th) day following the day on which notice of the meeting was mailed to
shareholders. Each such notice must conform with the requirements set forth in
Article Eighth (a)(8) of the Corporation's Articles of Incorporation.
SECTION 16(a) BENEFICIAL
OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Corporation's officers and directors, and persons who own more than
ten percent (10%) of the registered class of the Corporation's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
ten percent (10%) shareholders are required by SEC regulation to furnish the
Corporation with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Form's 5 were
required for those persons, the Corporation believes that during the period
January 1, 1996, through December 31, 1996, its officers and directors were in
compliance with all filing requirements applicable to them.
- 8 -
<PAGE>
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for
services in all capacities to the Corporation for the fiscal year ended December
31, 1996, 1995 and 1994 of those persons who were, at December 31, 1996, (i) the
Chief Executive Officer, and (ii) the four other most highly compensated
executive officers of the Corporation to the extent such persons' total annual
salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------- -------------------------------------------------
Awards Payouts
---------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Compen- Stock Options LTIP Compen-
Name and Salary Bonus sation Award(s) /SARs Payouts sation
Principal Position Year ($) ($) ($) ($)(1) (#) ($) ($)
------------------ ---- ------ ----- -------- --------- ------- ------- ---------
<S> <C>
Frank W. Neubauer 1996 140,000 30,000 0 16,100 2,200 0 14,827 (2)
President and CEO 1995 126,500 27,638 0 14,556 2,200 0 19,046 (2)
1994 115,000 23,449 0 13,225 4,480 0 17,100 (2)
Michael K. Walsch 1996 102,500 25,000 0 5,980 1,100 0 16,939 (3)
Executive VP, CFO, 1995 93,000 19,411 0 5,354 1,100 0 18,059 (3)
and COO 1994 88,000 12,638 0 5,060 2,420 0 17,447 (3)
</TABLE>
- ----------------
(1) The aggregate restricted stock holdings by Mr. Neubauer are 2,973
shares of Common Stock valued using the price of the Corporation's
Common Stock on December 31, 1996 at $20.91 per share, or $62,165 in
the aggregate. The aggregate restricted stock holdings of Mr. Walsch
are 811 shares of Common Stock valued using the price of the
Corporation's Common Stock on December 31, 1996 at $20.91 per share, or
$16,958 in the aggregate. Dividends are reinvested on the restricted
stock holdings of Mr. Neubauer and Mr. Walsch pursuant to the
Corporation's Dividend Reinvestment Plan ("DRIP").
(2) Includes deferred cash contribution pursuant to a Supplemental
Retirement Plan, Bank contributions to 401(k) plan, and group term life
insurance premiums paid by Bank.
(3) Includes deferred cash contribution pursuant to a Supplemental
Retirement Plan, split dollar life insurance premiums paid by Bank,
Bank contributions to 401(k) plan, and group term life insurance
premiums paid by Bank.
- 9 -
<PAGE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e) (f) (g)
5%($) 10%($)
Potential Realizable
Number of % of Total Value at Assumed
Securities Options/SAR's Exercise Annual Rates of
Underlying Granted to or Base Stock Price
Options/SAR's Employees in Price Expiration Appreciation for
Name Granted (#) Fiscal Year ($/Share) Date Option Term
---- ----------- ----------- --------- ---- -----------
<S> <C>
Frank W. Neubauer January 10,
President and CEO 2,200 25.64% 20.00 2007 $30,932 $75,328
Michael K. Walsch
Executive VP, CFO January 10,
and COO 1,100 12.82% 20.00 2007 $15,466 $37,664
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options/SAR's Options/SAR's
at FY-End(#) at FY-End(#)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise(#) Value Realized($) Unexercisable Unexercisable
---- ------------------ ----------------- ------------- -------------
<S> <C>
Frank W. Neubauer 0 0 7,040/2,200 $12,892/$2,002
President and CEO
Michael K. Walsch 0 0 3,520/1,100 $6,446/$1,001
Executive VP, CFO and
COO
</TABLE>
- 10 -
<PAGE>
401(k) Plan
Neither the Corporation nor the Bank has a retirement or pension plan.
The Bank has a contributory thrift plan qualifying under Section 401(k) of the
Internal Revenue Code (the "Plan"). Employees with six months of service are
eligible for participation in the Plan. Participants are allowed to defer up to
15% of their annual compensation by contributing amounts to the Plan. The Bank
contributes to the Plan for each participant $1.00 for each $2.00 of the
participants' contributions which do not exceed 6% of annual compensation. Each
year, the Board of Directors, at its discretion authorizes additional
contributions to the Plan. Plan participants are fully vested after five (5)
full years of service or upon death, disability or retirement. Contributions by
participants, matching contributions and annual discretionary contributions by
the Bank are invested in pre-selected investment funds at the direction of the
participants. Annual discretionary contributions by the Bank are invested at the
direction of the participants of the Plan or distributed in cash.
Mr. Neubauer has five (5) credited years of service and is one hundred
percent (100%) vested in the Plan. Mr. Walsch has four (4) credited years of
service and is eighty percent (80%) vested in the Plan. The total amount of Bank
contributions to all employees, including $42,000 in discretionary profit
sharing distributions, under the plan in 1996 was $102,968.35.
Supplemental Retirement Plan
The Bank has entered into supplemental retirement agreements with Mr.
Neubauer (beginning in 1993) and Mr. Walsch (beginning in 1994) which are
performance-based. The Bank maintains deferred cash accounts for Mr. Neubauer
and Mr. Walsch to which is allocated each year an amount equal to .455% and
.2275%, respectively, of the pre-tax net income of the Bank for each year;
provided that, the financial and other performance goals of the Bank, as set and
determined by the Board of Directors, have been achieved during the year. Such
goals were achieved in 1996. In addition to the Deferred Cash Account, the Bank
annually transfers to Mr. Neubauer and Mr. Walsch shares of the Common Stock of
the Corporation valued at 11.5% of Mr. Neubauer's base salary and 5.75% of Mr.
Walsch's base salary, respectively; provided that the financial and other
performance goals of the Bank, as set and determined by the Board of Directors,
have been achieved during the year. Such goals were achieved in 1996. All such
shares awarded under this Supplemental Retirement Plan shall be restricted and
may not be transferred during the period prior to being fully vested and are
subject to forfeiture if employment is terminated prior to vesting. Mr.
Neubauer's deferred cash account and shares awarded shall vest beginning in 2001
at a rate of 20% per year. Mr. Walsch's deferred cash account and shares awarded
shall vest beginning in 2002 at a rate of 10% per year.
In the event of death, disability, termination of employment without
good cause, or a change in control of the Corporation, all awards will fully
vest. The Deferred Cash Accounts will be invested in such investment vehicles as
proposed in writing by Mr. Neubauer and Mr. Walsch, respectively, and approved
by the Bank's Board of Directors. The restricted shares will earn dividends
pursuant to the Corporation's Dividend Reinvestment Plan. No payments will be
made from the Deferred Cash Accounts until retirement (assuming there is no
premature death or disability) at which time the full balance shall be paid,
unless the Bank and the named executive agree otherwise.
Compensation of Directors
During 1996, the Chairman and Vice Chairman of the Bank's Board of
Directors received an
- 11 -
<PAGE>
annual retainer of $15,000. The non-employee Bank directors received an annual
retainer of $10,800. The Chairman of the Board of Directors of the Bank's
wholly-owned subsidiary, TBT Investments, Inc., received an annual retainer of
$12,000. In the aggregate, the Bank's Board of Directors received $101,680 for
service in 1996. This amount includes all directors fees paid to all individuals
who served as directors of the Bank in 1996. Directors received no remuneration
for attendance at meetings of the Board of Directors of the Corporation.
Employment Contract
On June 16, 1993, the Bank and Mr. Frank W. Neubauer, then Executive Vice
President of the Corporation and the Bank (currently President and Chief
Executive Officer of the Corporation and the Bank), entered into an employment
agreement. The employment agreement had a term of two (2) years, which term
renews automatically for an additional one (1) year at the end of each calendar
year unless either Mr. Neubauer or the Bank provides 180 days prior written
notification of termination of the employment agreement. Such renewal is
currently in effect. The agreement specifies Mr. Neubauer's position and duties,
compensation and benefits and termination. The employment agreement contains a
non-compete provision and a confidentiality provision. Also, the employment
agreement provided for the relocation of Mr. Neubauer to Westminster, Carroll
County and a relocation bonus equal to the amount of loss, ($88,235), Mr.
Neubauer sustained in 1993 on the sale of his former principal residence. The
relocation bonus was paid to Mr. Neubauer in 1993 and vests over a five year
period beginning in 1994. In 1996, the Bank accrued an additional $17,647 (20%)
of the relocation bonus of $88,235 for compensation on the loss sustained on the
sale of a residence by Mr. Neubauer under his employment agreement. The
remainder will be accrued in equal installments in 1997 and 1998. Mr. Neubauer
also received $5,000 to defray moving expenses in 1993.
Under the terms of his employment agreement, Mr. Neubauer currently
serves as the President and Chief Executive Officer of the Bank. ln 1996, Mr.
Neubauer's annual direct salary was set by the Board of Directors at $140,000.
In the event of Mr. Neubauer's disability, the employment agreement provides
that Mr. Neubauer shall continue to receive his salary for a period of 90 days.
In addition, the Board of Directors of the Bank may provide for payment of a
periodic bonus if such bonus is deemed appropriate by the Board of Directors.
Mr. Neubauer is also entitled to receive the customary employee benefits made
available by the Bank to its employees, as well as twenty (20) days of paid
vacation.
- 12 -
<PAGE>
CERTAIN TRANSACTIONS
Except as set forth below, there have been no material transactions
between the Corporation and the Bank, nor any material transactions proposed,
with any director or executive officer of the Corporation and the Bank, or any
associate of the foregoing persons. The Corporation and the Bank have had and
intend to continue to have banking and financial transactions in the ordinary
course of business with directors and officers of the Corporation and the Bank
and their associates on comparable terms and with similar interest rates as
those prevailing from time to time for other customers of the Corporation and
the Bank.
Total loans outstanding from the Corporation and the Bank at December
31, 1996, to the Corporation's and the Bank's officers and directors as a group
and to members of their immediate families and companies in which they had an
ownership interest of 10% or more was $2,321,478.11, or approximately 10.6% of
the total equity capital of the Bank. Loans to such persons were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features. The
aggregate amount of indebtedness outstanding as of the latest practicable date,
February 28, 1997, to the above described group was $2,174,616.00.
Certain loans from the Bank to directors were outstanding in 1996 in an
amount considered by management of the Corporation and the Bank to be material.
Glenn E. Eaves, Director, had two (2) loans outstanding on December 31, 1996 in
the amount of $816,265.69 and $411,606.21, respectively. Each loan is secured by
real estate. All of the loans to Mr. Eaves are current as to payments of
principal and interest, and were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons as
discussed above.
- 13 -
<PAGE>
Principal Officers of the Corporation
The following table sets forth selected information about the principal
officers of the Corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of Directors:
<TABLE>
<CAPTION>
Number of
Bank Shares Age as of
Held Employee Beneficially March 20,
Name Since Since Owned 1997
---- ----- ----- ----- ----
<S> <C>
Eric E. Glass 1997 (1) 105,070(2) 57
Chairman of the Board
Donald R. Hull 1997 (1) 58,591(3) 58
Vice Chairman of the Board
Frank W. Neubauer 1994 1992 12,800(4) 54
President and Chief Executive
Officer
Michael K. Walsch 1995 1993 5,108(5) 41
Executive Vice President,
Treasurer, Chief Financial
Officer, and Chief Operating
Officer
Edward D. Leister 1993 1977 5,398(6) 56
Senior Vice President
Brian M. Etzler 1994 1974 1,118(7) 42
Secretary
</TABLE>
(1) Messrs. Glass and Hull are not employees of the Bank.
(2) See footnote 2 above under the caption entitled "Principal Owners" as
to the shares of Common Stock held beneficially by Mr. Glass.
(3) See footnote 9 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Hull.
(4) See footnote 10 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Neubauer.
(5) See footnote 12 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Walsch.
(6) Includes 1 share owned individually; 2,970 exercisable shares granted
as Stock Options; and 2,427 shares held jointly with Mr. Leister's
wife.
(7) Includes 220 exercisable shares granted as Stock Options and 898 shares
held jointly with Mr. Etzler's wife.
Principal Officers of the Bank
- 14 -
<PAGE>
The following table sets forth selected information about the principal
officers of the Bank, each of whom is elected by the Board of Directors and each
of whom holds office at the discretion of the Board of Directors:
<TABLE>
<CAPTION>
Number of
Bank Shares Age as of
Office and Position Held Employee Beneficially March 20,
Name with the Bank Since Since Owned 1997
- ---- ------------- ----- ----- ----- ----
<S> <C>
Eric E. Glass Chairman of the 1997 (1) 105,070(2) 57
Board
Donald R. Hull Vice Chairman of 1997 (1) 58,591(3) 58
the Board
Frank W. Neubauer President and Chief 1994 1992 12,800(4) 54
Executive Officer
Michael K. Walsch Executive Vice 1995 1993 5,108(5) 41
President, Treasurer,
Chief Financial
Officer, and Chief
Operating Officer
Edward D. Leister Senior Vice 1982 1977 5,398(6) 56
President
Francis X. Bossle, Jr. Senior Vice 1996 1996 1,111(8) 51
President of the
Bank(7)
Craig H. McConnell Senior Vice 1996 1996 0 48
President
Brian M. Etzler Vice President and 1994 1974 1,118(9) 42
Secretary
</TABLE>
(1) Messrs. Glass and Hull are not employees of the Bank.
(2) See footnote 2 above under the caption entitled "Principal Owners" as
to the shares of Common Stock held beneficially by Mr. Glass.
(3) See footnote 9 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Hull.
(4) See footnote 10 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Neubauer.
(5) See footnote 12 above under the caption entitled "Beneficial Ownership
by Officers, Directors and Nominees" as to the shares of Common Stock
held beneficially by Mr. Walsch.
(6) See footnote 6 above under the caption entitled "Principal Officers of
the Corporation" as to the shares of Common Stock held beneficially by
Mr. Leister.
- 15 -
<PAGE>
(7) Mr. Bossle is Chief Executive Officer of Classic Mortgage Company, a
Division of the Bank.
(8) Includes 11 shares owned individually and 1,100 exercisable shares
granted as Stock Options.
(9) See footnote 7 above under the caption entitled "Principal Officers of
the Corporation" as to the shares of Common Stock held beneficially by
Mr. Etzler.
PROPOSAL TO APPROVE AND ADOPT
THE MONOCACY BANCSHARES, INC. 1997
INDEPENDENT DIRECTORS' STOCK OPTION PLAN
The Board of Directors on February 24, 1997 adopted the Monocacy
Bancshares, Inc. 1997 Independent Directors' Stock Option Plan ("Plan") and
reserved 60,000 shares of Common Stock for issuance under the Plan. The purpose
of the Plan is to advance the interests of the Corporation by providing
incentives to attract, retain, and motivate non-employee members of the Board of
Directors of the Corporation through participation in the appreciation of the
capital stock of the Corporation.
The Plan will become effective upon approval by the shareholders and
will continue in effect until all awards under the Plan either have lapsed, been
exercised, satisfied or canceled according to the terms under the Plan. The
shares of stock that may be issued under the Plan shall not exceed in the
aggregate 60,000 shares of the Common Stock, par value $5.00 per share, as may
be adjusted from time to time due to stock splits, payments of stock dividends
or other changes in the structure of the Corporation's capital.
Persons eligible to receive awards under the Plan shall be those
directors who are not employees of either the Corporation or its subsidiaries
("Outside Directors"). Each Outside Director who has been elected or re-elected
or who is continuing as a member of the Board of Directors subsequent to the
1997 Annual Meeting shall automatically receive a stock option for 5,000 shares
of Common Stock ("Stock Option") immediately following the 1997 Annual Meeting.
The purchase price of Common Stock subject to a Stock Option shall be the fair
market value (as defined in the Plan) at the time of grant. Options granted
under the Plan may only be exercised after the Stock Options have vested.
Options shall vest over a three year period as specified in the Stock Option
Agreement. No Stock Option, however, shall be exercised after ten years from the
date of grant thereof.
In the event that a participant ceases to be a director of the
Corporation for any cause other than retirement, death or disability, the
remaining portion of a participant's unexercised Stock Options shall terminate
one year after the date of termination as a director subject to the ten year
limitation on exercisability. In the event that a participant retires, dies or
becomes disabled prior to the expiration of the participant's Stock Options, and
without having fully exercised such Stock Options, and to the extent that the
Stock Options are exercisable at the time of such retirement, death or
disability, the participant or his legal representative shall have the right to
exercise the Stock Options during their respective terms within three years
after such termination of Board membership.
Every award made to a director under the Plan shall be
non-transferrable other than by will or the laws of descent and distribution as
otherwise previously described herein. During the director's lifetime, Stock
Options granted to him shall only be exercisable by such director or in the
- 16 -
<PAGE>
event of his disability or death by his legal representative.
Federal Income Tax Consequences of the Plan
It is not intended that options issued pursuant to the Plan will
qualify as incentive stock options issued pursuant to a qualified plan within
the meaning of Sections 421 and 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Under the provisions of the Code as in effect on the date
hereof, a director who receives a Non-Qualified Option will not recognize
taxable income on the grant of the option, however, upon exercise, he or she
will recognize ordinary income in an amount equal to the excess of the fair
market value of the stock on the date that the option is exercised over the
purchase price paid for the stock. The Corporation will be entitled to an income
tax deduction in the year of exercise in an amount equal to the amount of income
recognized by the director.
NEW PLAN BENEFITS(1)
Name and Position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Frank W. Neubauer $0 -0-
President and CEO
Michael K. Walsch $0 -0-
Executive Vice President, CFO and COO
Executive Group $0 -0-
Non-Executive Director Group $52,500 35,000
Non-Executive Officer Employee Group $0 -0-
- -----------------
(1) If this Plan had been in effect during calendar year 1996, the dollar
value of 35,000 Stock Options would be $52,500, or $1.50 per share,
based upon the increase in the price of the Corporation's Common Stock
from $21.50 to $23.00 per share during calander year 1996.
The foregoing discussion of the Plan consists of only a summary and is
qualified in its entirety by reference to the full text of the Plan attached as
Exhibit "A" to this Proxy Statement. Exhibit "A" is deemed to be an integral
part of this Proxy Statement and incorporated in its entirety by reference.
The Board of Directors recommends a vote FOR the following resolution
which will be presented at the Annual Meeting:
"RESOLVED, that the Monocacy Bancshares, Inc. 1997 Independent
Directors' Stock Option Plan, the text of which is set forth in full
and its entirety in the Proxy Statement for the 1997 Annual Meeting of
Shareholders as Exhibit"A", is hereby approved, adopted, ratified and
confirmed by the shareholders of the Corporation."
The approval and adoption of the Plan requires the affirmative vote of
at least a majority of all votes cast by shareholders. Proxies solicited by the
Board of Directors will be voted for the foregoing resolution unless
shareholders specify to the contrary on their proxies.
- 17 -
<PAGE>
The Board of Directors recommends a vote FOR the resolution approving
and adopting the Monocacy Bancshares, Inc. 1997 Independent Directors' Stock
Option Plan.
PROPOSAL TO APPROVE AND ADOPT THE AMENDMENT TO
THE MONOCACY BANCSHARES, INC.
1994 STOCK INCENTIVE PLAN
At the 1994 Annual Meeting of Shareholders, the shareholders approved
and adopted the Corporation's 1994 Stock Incentive Plan (the "Stock Incentive
Plan") and reserved 65,000 shares of Common Stock for issuance under the Stock
Incentive Plan. Because of stock dividends, the number of shares available for
issuance under the Stock Incentive Plan has increased to 78,408 shares by means
of the adjustment clause to the Stock Incentive Plan. The purpose of the Stock
Incentive Plan is to advance the development, growth and financial condition of
the Corporation and its subsidiaries by providing incentives through
participation in the appreciation of capital stock of the Corporation in order
to secure, retain and motivate personnel responsible for the operation and
management of the Corporation and its subsidiaries. The Stock Incentive Plan is
designed to attract and retain individuals of outstanding ability as employees
of the Corporation and its subsidiaries, to encourage employees to acquire a
proprietary interest in the Corporation, to continue their employment with the
Corporation and its subsidiaries and to render superior performance during such
employment. Currently, 59,480 shares have been allocated under the Stock
Incentive Plan to the Bank's employees.
The Board of Directors on February 24, 1997 approved an amendment to
the Stock Incentive Plan to increase the number of shares available for issuance
under the Stock Incentive Plan by 31,592 shares. The shares of stock that may be
issued under the Stock Incentive Plan, if amended, shall not exceed in the
aggregate 110,000 shares of the Common Stock, par value $5.00 per share, as may
be adjusted from time to time due to stock splits, payments of stock dividends
or other changes in the structure of the Corporation's capital.
The Stock Incentive Plan will be administered by a committee consisting
of two or more non-employee directors (the "Committee") and, except as otherwise
permitted by certain securities laws, who have not, during the year prior to
commencing service on the Committee been, nor will, while a member of the
Committee, be granted any awards under the Stock Incentive Plan, or any other
Stock Incentive Plan of the Corporation that provides for discretionary grants
or awards. Persons eligible to receive awards under the Stock Incentive Plan are
those key officers and other management employees of the Corporation and its
subsidiaries as determined by the Committee.
- 18 -
<PAGE>
Awards
Awards made under the Stock Incentive Plan may be in the form of: (i)
options to purchase stock intended to qualify as incentive stock options under
Sections 421 and 422 of the Code (referred to herein as "Qualified Options");
(ii) options which do not so qualify (referred to herein as "Non- Qualified
Options"); (iii) stock appreciation rights ("SARs"); and (iv) restricted stock
(referred to herein as "Restricted Stock"). Every award made to a person under
the Stock Incentive Plan is exercisable during his or her lifetime only by the
recipient and is not saleable, transferable or assignable by the recipient
except by will or pursuant to applicable laws of descent and distribution.
Generally, awards may be exercised in whole or in part. Funds received by the
Corporation from the exercise of any award shall be used for its general
corporate purposes. The Committee may permit an acceleration of previously
established exercise terms of any award as, when, under such facts and
circumstances, and subject to such other or further requirements and conditions
as the Committee may deem necessary or appropriate, including, but not limited
to, upon a change of control of the Corporation (as defined in the Stock
Incentive Plan).
Qualified Options
Qualified Options may not be awarded under the Stock Incentive Plan
more than ten (10) years after the earlier of the date the Stock Incentive Plan
is adopted by the Board of Directors or the date on which the Stock Incentive
Plan is approved by the shareholders are only exercisable upon the expiration of
six months after the date of the award and may not continue beyond the
expiration of ten (10) years beyond the date of the award. The purchase price of
the stock subject to any Qualified Option, as determined by the Committee, may
not be less than the stock's fair market value (as defined in the Stock
Incentive Plan) at the time the option is awarded or less than its par value. If
the recipient of a Qualified Option ceases to be employed by the Corporation, or
subsidiary thereof, the Committee may permit the recipient to exercise such
option during its remaining term for a period of not more than three (3) months.
This period may be extended to a 12 month period if such employment cessation
was due to the recipient's disability, as defined in the Stock Incentive Plan.
If the recipient ceases to be employed by the Corporation, or subsidiary
thereof, due to his or her death, the committee may permit the recipient's
qualified personal representatives, or any persons who acquire the options
pursuant to his or her will or the laws of descent and distribution, to exercise
such option during its remaining term for a period not to exceed 12 months after
the recipient's death to the extent that the option was then and remains
exercisable.
Non-Qualified Options
Similar to Qualified Options, Non-Qualified Options are only
exercisable upon the expiration of six (6) months after the date of the award
and shall not continue beyond the expiration of ten (10) years beyond the date
of the award. If a recipient of a Non-Qualified Option ceases to be eligible
under the Stock Incentive Plan before the option lapses or before it is fully
exercised, the Committee may permit the recipient to exercise the option during
its remaining term, to the extent that the option was then and remains
exercisable, for such time period and under such terms and conditions as may be
prescribed by the Committee. The purchase price of a share of stock pursuant to
a Non-Qualified Option, as determined by the Committee, shall not be less than
the stock's fair market value (as defined in the Stock Incentive Plan) at the
time such option is awarded.
Stock Appreciation Rights
- 19 -
<PAGE>
SARs may be granted either alone, or in connection with another
previously or contemporaneously granted award (other than another SAR). Each SAR
entitles its recipient to receive, upon exercise, all or a portion of the excess
of: the fair market value at the time of such exercise of a specified number of
shares of stock as determined by the Committee; and (ii) a specified price as
determined by the Committee of such number of shares of stock that, on a per
share basis, is not less than the stock's fair market value at the time the SAR
is awarded. Upon exercise of any SAR, the recipient is either paid in cash, in
stock or a combination thereof, as determined by the Committee. SARs are only
exercisable upon the expiration of six (6) months after the date of the award
and shall not continue beyond the expiration of ten (10) years beyond the date
of the award; however, no SAR connected with another award shall be exercisable
beyond the last date that such other connected award may be exercised. If a
recipient of a SAR ceases to be eligible under the Stock Incentive Plan before
it lapses or before it is fully exercised, the Committee may permit the
recipient to exercise such SAR during its remaining term, to the extent that the
SAR was then and remains exercisable, for such time period and under such terms
and conditions as may be prescribed by the Committee.
Restricted Stock
Restricted Stock is stock that may be acquired by and issued to a
recipient at such time, for such or for no purchase price, and under and subject
to such transfer, forfeiture and other restrictions, conditions, or terms as are
determined by the Committee, including but not limited to, prohibitions against
transfer, substantial risks of forfeiture within the meaning of Section 83 of
the Code, and attainment of performance or other goals, objectives or standards,
all for or applicable to time periods, determined by the Committee. A recipient
of restricted stock has the rights of a shareholder, including, without
limitation, the right to vote the shares and receive dividends on the shares.
During the period of any restrictions, conditions, or terms applicable to the
Restricted Stock, however, the shares, the right to vote the shares and to
receive dividends on the shares may not be sold, assigned, transferred,
exchanged, pledged, hypothecated, encumbered or otherwise disposed of except as
permitted by the Stock Incentive Plan or by the award. Each certificate for
shares of Restricted Stock will bear a restrictive legend until all conditions
or restrictions lapse or are satisfied. If a recipient's employment with the
Corporation or its subsidiaries ceases, for any reason, prior to lapse or
satisfaction of the restrictions, conditions or terms applicable to the
restricted stock, all stock subject to unexpired restrictions is forfeited
absolutely by the recipient to the Corporation.
Federal Tax Consequences
An employee who receives Qualified Options will not recognize taxable
income on the grant or the exercise of the option. If the stock acquired by the
exercise of a Qualified Option is held until the later of: (i) two (2) years
from the date of the grant; and (ii) one (1) year from the date of exercise, any
gain (or loss) recognized on the sale or exchange of the stock will be treated
as long-term capital gain (or loss), and the Corporation will not be entitled to
any income tax deduction. If stock acquired on exercise of a Qualified Option is
sold or exchanged before the expiration of the required holding period, the
employee will recognize ordinary income in the year of disposition in an amount
equal to the difference between the option price and the lesser of the fair
market value of the
- 20 -
<PAGE>
stock on the date of exercise, or the selling price. In the event of a
disqualifying disposition, the Corporation will be entitled to an income tax
deduction in the year of such disposition in an amount equal to the amount of
ordinary income recognized by the employee.
An employee who receives a Non-Qualified Option will not recognize
taxable income on the grant of the option, however, upon exercise, he or she
will recognize ordinary income in an amount equal to the excess of the fair
market value of the stock on the date that the option is exercised over the
purchase price paid for the stock. The Corporation will be entitled to an income
tax deduction in the year of exercise in an amount equal the amount of income
recognized by the employee.
A SAR is not taxed at the time it is granted, even if it is immediately
exercisable. A SAR is taxed at exercise. If cash is received at exercise, the
payment is considered compensation income to the recipient, and the Corporation
may take a deduction for this expense. In addition, the Corporation receives a
deduction equal to the amount included in income by the recipient.
The recipient of restricted stock is deemed to have received gross
income in an amount equal to the excess of the fair market value of the stock
over the amount paid for the stock, if any, by the recipient at the time that
all restrictions applicable to the stock lapse or are satisfied. If the
restricted stock is forfeited prior to the lapse or satisfaction of
restrictions, there are tax consequences to the recipient. The Corporation will
be entitled to a deduction equal to the amount included in the income of the
recipient in the Corporation's taxable year in which or with which ends the
taxable year of the recipient in which the income was included.
New Plan Benefits (1)
Name and Position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Frank W. Neubauer $3,300 2,200
President and CEO
Michael K. Walsch $1,650 1,100
Executive Vice President and CFO
Executive Group $7,755 5,170
Non-Executive Director Group $0 0
Non-Executive Officer $3,630 2,420
Employee Group
- -----------------
(1) This plan was in effect during calendar year 1996, when the dollar
value of each Stock Option was $1.50 per share, based upon the increase
in the price of the Corporation's Common Stock from $21.50 to $23.00
per share during 1996. The number of units reflects the number of Stock
Options granted under the plan during 1996.
The foregoing discussion of the Stock Incentive Plan consists of only a
summary and is qualified in its entirety by reference to the full text of the
Stock Incentive Plan as amended is attached as Exhibit "B" to this Proxy
Statement. Exhibit "B" is deemed to be an integral part of this Proxy Statement
and incorporated in its entirety by reference.
- 21 -
<PAGE>
The Board of Directors recommends a vote FOR the following resolution
which will be presented at the Annual Meeting:
"RESOLVED, that the amendment to the Monocacy Bancshares, Inc.
1994 Stock Incentive Plan, and the Plan as amended, the text of which
is set forth in full and in its entirety in the Proxy Statement for the
1997 Annual Meeting of Shareholders as Exhibit "B," is hereby approved,
adopted, ratified and confirmed by the shareholders of the
Corporation."
The approval and adoption of the amendment to the Stock Incentive Plan
requires the affirmative vote of at least a majority of all votes cast by
shareholders. Proxies solicited by the Board of Directors will be voted for the
foregoing resolution unless shareholders specify to the contrary on their
proxies.
The Board of Directors recommends a vote FOR the resolution approving
and adopting the amendment to the Monocacy Bancshares, Inc. 1994 Incentive Stock
Option Plan.
RATIFICATION OF INDEPENDENT AUDITORS
Unless instructed to the contrary, it is intended that votes will be
cast pursuant to the proxies for the ratification of the selection of Stegman &
Company as the Corporation's independent auditors for its 1997 fiscal year. The
Corporation has been advised by Stegman & Company that none of its members has
any financial interest in the Corporation. Ratification of Stegman & Company
will require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting. Stegman & Company
served as the Corporation's independent auditors for the 1996 fiscal year,
assisted the Corporation and the Bank with the preparation of their federal and
state tax returns, provided assistance in connection with regulatory matters,
and provided data processing consulting services, charging the Bank for such
services at its customary hourly billing rates. These non-audit services were
approved by the Corporation's and the Bank's Board of Directors after due
consideration of the effect of the performance thereof on the independence of
the auditors and after the conclusion by the Corporation's and the Bank's Board
of Directors that there was no effect on the independence of the auditors.
In the event that the shareholders do not ratify the selection of
Stegman & Company as the Corporation's independent auditors for the 1997 fiscal
year, another accounting firm may be chosen to provide independent audit
services for the 1997 fiscal year. The Board of Directors recommends that the
shareholders vote FOR the ratification of the selection of Stegman & Company as
the independent auditors for the Corporation for the year ending December 31,
1997.
- 22 -
<PAGE>
ANNUAL REPORT
A copy of the Corporation's Annual Report for its fiscal year ended
December 31, 1996 is enclosed with this Proxy Statement. A representative of
Stegman & Company, the accounting firm which examined the financial statements
in the Annual Report, will attend the meeting. The representative will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to any appropriate questions concerning the Annual Report presented
by shareholders at the Annual Meeting.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions
of the proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in the Corporation's Proxy Statement for its 1998 Annual
Meeting of Shareholders must deliver such proposal in writing to the President
of Monocacy Bancshares, Inc. at its principal executive offices, 222 East
Baltimore Street, Taneytown, Maryland 21787, not later than December 1, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the accompanying Notice of
Annual Meeting of Shareholders, but if any matters are properly presented, it is
the intention of the persons named in the accompanying Proxy to vote on such
matters in accordance with their best judgment.
ADDITIONAL INFORMATION
UPON WRITTEN REQUEST OF ANY SHAREHOLDER, A COPY OF THE CORPORATION'S
REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1996 INCLUDING THE
FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, MAY BE OBTAINED, WITHOUT CHARGE, FROM MICHAEL
K. WALSCH, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, MONOCACY
BANCSHARES, INC., 222 EAST BALTIMORE STREET, P.O. BOX 491, TANEYTOWN, MARYLAND
21787.
- 23 -
<PAGE>
MONOCACY BANCSHARES, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 28 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Michael K. Walsch and
Brian M. Etzler and each or any of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of Monocacy Bancshares, Inc.
(the "Corporation") that the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Corporation to be held at the main office of
Taneytown Bank & Trust Company, 222 East Baltimore Street, Taneytown, Maryland
21787, on Monday, April 28 1997 at 3:00 p.m., prevailing time, and at any
adjournment or postponement thereof as follows:
1. ELECTION OF FOUR DIRECTORS WHOSE TERM EXPIRES IN 2000.
David M. Abramson, Glenn E. Eaves, Jacob M. Yingling, Frank W. Neubauer
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed above (except to vote for all
as marked to the nominees listed
contrary below) above
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE AND ADOPT THE MONOCACY BANCSHARES, INC. 1997
INDEPENDENT DIRECTORS' STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
- --------------------------------------------------------------------------------
3. PROPOSAL TO APPROVE AND ADOPT THE PROPOSED AMENDMENT TO THE
MONOCACY BANCSHARES, INC. 1994 INCENTIVE STOCK OPTION PLAN TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
AVAILABLE FOR ISSUANCE UNDER THE PLAN BY 31,592 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
- --------------------------------------------------------------------------------
<PAGE>
4. PROPOSAL TO RATIFY THE SELECTION OF STEGMAN & COMPANY, CERTIFIED PUBLIC
ACCOUNTANTS, AS THE INDEPENDENT AUDITORS FOR THE CORPORATION FOR THE
YEAR ENDING DECEMBER 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
- --------------------------------------------------------------------------------
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
- --------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL NOMINEES LISTED ABOVE AND FOR PROPOSALS 2, 3 and 4.
Dated: , 1997
______________________________
___________________________________________
Signature(s) of Shareholders
___________________________________________
Signature(s) of Shareholders
Number of Shares Held
of Record on March 20,
1997
_________________
THE PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER(S) AND RETURNED PROMPTLY TO
THE TRANSFER AGENT IN THE ENCLOSED ENVELOPE. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE. IF MORE
THAN ONE TRUSTEE, ALL SHOULD SIGN. IF STOCK IS HELD JOINTLY, EACH OWNER SHOULD
SIGN.
<PAGE>
EXHIBIT "A"
MONOCACY BANCSHARES, INC.
1997 INDEPENDENT DIRECTORS' STOCK OPTION PLAN
1. Purpose. The purpose of this Stock Option Plan (the "Plan") is to
advance the development, growth and financial condition of Monocacy
Bancshares, Inc. and its subsidiaries (the "Corporation"), by providing
incentives through participation in the appreciation of capital stock
of the Corporation so as to secure, retain and motivate members of the
Corporation's Board of Directors (the "Board") who are not officers and
employees of the Corporation or any subsidiary thereof ("non-employee
directors"). This Plan shall be interpreted and implemented in a
manner so that non-employee directors will not fail, by reason of this
Plan or their participation in it, to be "disinterested persons" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended ("Exchange Act") as to any employee benefit plan of the
Corporation or its affiliates.
2. Term. The Plan shall become effective as of the date the Corporation's
stockholders duly approve the Plan (the "Effective Date"). If the Plan
is so approved, it shall continue in effect until any stock options
granted under the Plan either have lapsed or been exercised, satisfied
or canceled according to their terms under the Plan.
3. Stock. The shares of stock that may be issued under the Plan shall not
exceed, in the aggregate, sixty thousand (60,000) shares of the
Corporation's common stock, par value $5.00 per share (the "Stock").
The aggregate amount of Stock under the Plan may be adjusted pursuant
to paragraph 10. Such shares of Stock may be either authorized and
unissued shares of Stock, or authorized shares of Stock issued by the
Corporation and subsequently reacquired by it as treasury stock. Under
no circumstances shall any fractional shares of Stock be issued under
the Plan. The Corporation shall reserve and keep available, and shall
duly apply for any requisite governmental authority to grant the stock
options under this Plan, and issue or sell the number of shares of
Stock needed to satisfy the requirements of the Plan while in effect.
The Corporation's failure to obtain any such governmental authority
deemed necessary by the Corporation's legal counsel for the proper
grant of the stock options under this Plan and/or the issuance and sale
of Stock under the Plan shall relieve the Corporation of any duty, or
liability for the failure to grant the stock options under this Plan
and/or issue or sell the Stock as to which such authority has not been
obtained.
4. Stock Options. Stock options shall be granted under the Plan to all
current non-employee directors of the Corporation, and any non-employee
director, other than current or prior members of the Board, who become
a member of the Board at any time within a five (5) year period after
the Effective Date (such directors shall be referred to under this Plan
as a "Director"). Every stock option granted to a Director shall be
exercisable during his or her lifetime only by the Director, and shall
not be salable, transferable or assignable by the Director except by
his or her Will or pursuant to applicable laws of descent and
distribution. Commencing on the Effective Date, or in the case of a
Director who becomes a member of the Board at any time within a five
(5) year period after the Effective Date, commencing on the date he or
she is elected or appointed to the Board, a Director shall be granted a
stock option to purchase five thousand (5,000) shares of Stock (the
"Stock Option") under the following terms and conditions:
(a) The time period during which any Stock Option is exercisable
shall be ten (10) years after the date the Stock Option is
granted to the Director. However, no option may be exercised
after the expiration of its term or after the date set forth
in subsections (b), (c) or (d) below, if earlier. Options are
exercisable only to the extent they are vested.
(b) If the Optionee ceases to be a Director after attaining
mandatory retirement age (as defined in the Corporation's
By-Laws) or on account of death or disability, all outstanding
options granted to such Optionee shall vest and the Optionee
(or the Optionee's legatees or distributees or the personal
representative of the Director's estate, in the event of the
Optionee's death) may exercise the Optionee's outstanding
options at any time until the first of the following to occur
(1) that date that is two years after the date on which the
Optionee ceases to be a Director or (2) the date on which such
outstanding options expire according to their terms.
(c) If an Optionee ceases to be a Director for any reason other
than described in subsection (b) above, the Director may
exercise his or her outstanding options to the extent vested
at any time (subject to the limitations of subsection (f)
below) until the first of the following to occur (1) the date
that is three months
A-1
<PAGE>
after the date on which the Optionee ceases to be a Director
or (2) the date on which such outstanding options expire
according to their terms.
(d) If an Optionee dies after the Optionee ceases to be a
Director, but within the time period during which his or her
outstanding Options are still exercisable, the Optionee's
outstanding Options may be exercised by his or her legatees or
distributees or the personal representative of his or her
estate. Such outstanding Options may be exercised at any time
(subject to the limitations of subsection (f) below) until the
first of the following to occur (1) the date that is two years
after the date on which the Optionee ceases to be a Director
or (2) the date on which such outstanding Options expire
according to their terms.
(e) The purchase price of a share of Stock subject to a Stock
Option shall be the fair market value of the Stock as
determined under paragraph 6 hereof.
(f) Options are exercisable only to the extent they are vested,
and no option may be exercised during the first six months
after the Option Grant Date, unless the Optionee dies or
becomes disabled (as determined under Title II of the Social
Security Act, 42 U.S.C. ss.ss.301 et seq.) before the
expiration of the six-month period. The Stock Option shall be
made by a written agreement attached hereto as Exhibit "1",
which written agreement contains the vesting schedule of the
Stock Option, as follows:
Period From
Option Grant Vested Number of
Date Percentage Shares Vested
------------ ---------- -------------
Less Than 1 Year 25% 1,250
1 Year But Less Than 2 Years 50% 2,500
2 Years But Less Than 3 Years 75% 3,750
3 Or More Years 100% 5,000
5. Exercise. Except as otherwise provided in the Plan, the Stock Option
may be exercised in whole or in part by giving written notice thereof
to the Secretary of the Corporation, or his or her designee,
identifying the Stock Option being exercised, the number of shares of
Stock with respect thereto, and other information pertinent to the
exercise of the Stock Option. The purchase price of the shares of
Stock with respect to which a Stock Option is exercised shall be paid
with the written notice of exercise, either in cash or in Stock which
has been held by the Director for at least six (6) months at its then
current fair market value, or in any combination thereof. Funds
received by the Corporation from the exercise of any Stock Option shall
be used for its general corporate purposes. The number of shares of
Stock subject to a Stock Option shall be reduced by the number of
shares of Stock with respect to which the Director has exercised rights
under the Stock Option.
If the Corporation or its stockholders execute an agreement to dispose
of all or substantially all of the Corporation's assets or capital
stock by means of sale, merger, consolidation, reorganization,
liquidation or otherwise, as a result of which the Corporation's
stockholders as of immediately before such transaction will not own at
least fifty percent (50%) of the total combined voting power of all
classes of voting capital stock of the surviving entity (be it the
Corporation or otherwise) immediately after the consummation of such
transaction, thereupon any and all Stock Options which the Director
would be entitled to receive under the Plan shall be immediately
granted to the Director until the consummation of such transaction, or
if not consummated, until the agreement therefor expires or is
terminated, in which case thereafter all Stock Options shall be treated
as if said agreement never had been executed. If during any period of
two (2) consecutive years, the individuals who at the beginning of such
period constituted the Board, cease for any reason to constitute at
least a majority of the Board, unless the election of each director of
the Board, who was not a director of the Board at the beginning of such
period, was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such
period, thereupon any and all Stock Options which the Director would be
entitled to receive under the Plan shall be immediately granted to the
Director. If there is an actual, attempted or threatened change in the
ownership of at least twenty-five percent (25%) of any classes of
voting capital stock of the Corporation through the acquisition of, or
an offer to acquire such percentage of the Corporation's voting capital
stock by any person or entity, or persons or entities acting in concert
or as a group, and such acquisition or offer has not been duly approved
by the Board, thereupon any and all Stock Options which the Director
would be entitled to receive under the Plan shall be immediately
granted.
6. Value. Where used in the Plan, the "fair market value" of Stock shall
mean and be determined as follows: (i) in the event that the Stock is
listed on an established exchange, the closing price of the Stock on
the date when the
A-2
<PAGE>
Stock Option is granted to the Director (the "Relevant Date") or, if no
trade did occur on that day, on the next preceding day on which a trade
occurred; or (ii) in the event that the Stock is not listed on an
established exchange, but is then quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), the average
of the average of the closing bid and asked quotations of the Stock for
the five (5) trading days immediately preceding the Relevant Date. In
either case, in the event that no closing bid or asked quotation is
available on one (1) or more of such trading days, the fair market
value shall be determined by reference to the five (5) trading days
immediately preceding the Relevant Date on which closing bid and asked
quotations are available.
7. Continued Relationship. Nothing in the Plan or any Stock Option shall
confer upon any Director or any right to continue his or her
relationship with the Corporation as a director, or limit or affect any
rights, powers or privileges that the Corporation or its affiliates may
have to supervise, discipline and terminate such Director, and the
relationships thereof.
8. General Restrictions. Each Stock Option shall be subject to the
requirement and provision that if at any time the Board determines it
necessary or desirable as a condition of or in consideration of making
such Stock Option, or the purchase or issuance or Stock thereunder, (a)
the listing, registration or qualification of the Stock subject to the
Stock Option, or the Stock Option itself, upon any securities exchange
or under any federal or state securities or other laws, (b) the
approval of any governmental authority, or (c) an agreement by the
Director with respect to disposition of any Stock (including without
limitation that at the time of the Director's exercise of the Stock
Option, any Stock thereby acquired is being and will be acquired solely
for investment purposes and without any intention to sell or distribute
such Stock), then such Stock Option shall not be consummated in whole
or in part unless such listing, registration, qualification, approval
or agreement shall have been appropriately effected or obtained to the
satisfaction of the Board and legal counsel for the Corporation.
Notwithstanding anything to the contrary herein, a Director shall not
sell, transfer or otherwise dispose of any shares of Stock acquired
pursuant to a Stock Option unless at least six (6) months have elapsed
from the date the Stock Option was granted, the election of such
transaction is made at least six months following the date of the
Director's most recent "opposite-way election" under any plan of the
Corporation or the transaction is otherwise made in accordance with
Section 16 of the Exchange Act, as the same my be amended, if at the
time of such disposition the Director is subject to Section 16 of the
Exchange Act.
9. Rights. Except as otherwise provided in the Plan, the Director shall
have no rights as a holder of the Stock subject thereto unless and
until one or more certificates for the shares of such Stock are issued
and delivered to the Director. No adjustments shall be made for
dividends, either ordinary or extraordinary, or any other distributions
with respect to Stock, whether made in cash, securities or other
property, or any rights with respect thereto, for which the record date
is prior to the date that any certificates for Stock subject to a Stock
Option are issued to the Director pursuant to his or her exercise
thereof. No Stock Option, or the grant thereof, shall limit or affect
the right or power of the Corporation or its affiliates to adjust,
reclassify, recapitalize, reorganize or otherwise change its or their
capital or business structure, or to merge, consolidate, dissolve,
liquidate or sell any or all of its or their business, property or
assets.
10. Adjustments. In the event that the shares of Common Stock of the
Corporation, as presently constituted, shall be changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Corporation or of other securities of the Corporation
or of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares or
otherwise) or if the number of such shares of stock shall be increased
through the payment of a stock dividend, then, there shall be
substituted for or added to each share of stock of the Corporation
which was theretofore appropriated, or which thereafter may become
subject to an option under the Plan, the number and kind of shares of
stock or other securities into which each outstanding share of the
stock of the Corporation shall be so changed or for which each such
share shall be exchanged or to which each such shares shall be
entitled, as the case may be. Outstanding Options shall also be
appropriately amended as to price and other terms, as may be necessary
to reflect the foregoing events.
If there shall be any other change in the number or kind of the
outstanding shares of the stock of the Corporation, or of any stock or
other securities in which such stock shall have been changed, or for
which it shall have been exchanged, and if a majority of the
disinterested members of the Board shall, in its sole discretion,
determine that such change equitably requires an adjustment in any
Option which was theretofore granted or which may thereafter be granted
under the Plan, then such adjustment shall be made in accordance with
such determination.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, to merge, to
A-3
<PAGE>
consolidate, to dissolve, to liquidate or to sell or transfer all or
any part of its business or assets.
A dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving
Corporation, shall cause each outstanding Option to terminate, except
to the extent that another corporation may and does in the transaction
assume and continue to the Option or substitute its own options.
Fractional shares resulting from any adjustment in Options pursuant to
this Article 10 may be settled as a majority of the disinterested
members of the Board or the Committee (as the case may be) shall
determine.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by a
majority of the disinterested members of the Board, whose determination
in that respect shall be final, binding and conclusive. Notice of any
adjustment shall be given by the Corporation to each holder of an
Option which shall been so adjusted.
11. Forfeiture. Notwithstanding anything to the contrary in this Plan, if
the involved Director has been engaged in fraud, embezzlement, theft,
commission of a felony, or dishonesty in the course of his or her
relationship with the Corporation or its affiliates that has damaged
them, or that the Director has disclosed trade secrets of the
Corporation or its affiliates, the Director shall forfeit all rights
under and to all unexercised Stock Options, and all exercised Stock
Options under which the Corporation has not yet delivered certificates
for shares of Stock (as the case may be), and all rights to receive
Stock Options shall be automatically canceled.
12. Miscellaneous. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation, including but not
limited to the Internal Revenue Code of 1986 and the Exchange Act, both
as amended, shall include any subsequently enacted or promulgated
section or provision of law, rule or regulation, as the case may be, of
similar import. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or any successor rule that may
be promulgated by the Securities and Exchange Commission. To the
extent any provision of this Plan fails to so comply, it shall be
deemed null and void, to the extent permitted by applicable law,
subject to the provisions of paragraph 13 below. Where used in this
Plan: the plural shall include the singular, and unless the context
otherwise clearly requires, the singular shall include the plural; and,
the term "affiliates" shall mean each and every subsidiary of the
Corporation. The captions of the numbered paragraphs contained in this
Plan are for convenience only, and shall not limit or affect the
meaning, interpretation or construction of any of the provisions of the
Plan.
13. Amendment. The Plan may not be amended, suspended or terminated except
as may be provided for herein, or as may be required under the
provisions of the Internal Revenue Code of 1986, as amended, and
Section 16 of the Exchange Act, and the rules regulations thereunder.
If any provision of the Plan would cause a non-employee director not to
be a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act as then applicable to any employee benefit plan of the
Corporation, such provision shall be construed or deemed amended to the
extent necessary to preserve such non-employee director's status as a
"disinterested person".
14. Taxes. The issuance of shares of Stock under the Plan shall be subject
to any applicable taxes or other laws or regulations of the United
States of America and any state or local authority having jurisdiction
thereover.
- - - - - - -
END
- - - - - - -
A-4
<PAGE>
EXHIBIT "1"
MONOCACY BANCSHARES, INC.
1997 INDEPENDENT DIRECTORS' STOCK OPTION PLAN
STOCK OPTION AGREEMENT
A STOCK OPTION for a total of five thousand (5,000) shares of common
stock, par value $5.00 per share, of Monocacy Bancshares, Inc., a Maryland
business corporation (herein the "Corporation") is hereby granted to
(herein the "Director"), subject in
all respects to the terms and provisions of Monocacy Bancshares, Inc. 1997
Independent Directors' Stock Option Plan (herein the "Plan"), dated April 28,
1997, which has been adopted by the Corporation's shareholders and which is
incorporated herein by reference. The "Option Price" as determined under
paragraphs 4 and 6 of the Plan is $ per share.
1. This Option shall vest and become exercisable in accordance with the
following schedule:
Period From
Option Grant Vested Number of
Date Percentage Shares Vested
------------ ---------- -------------
Less Than 1 Year 25% 1,250
1 Year But Less Than 2 Years 50% 2,500
2 Years But Less Than 3 Years 75% 3,750
3 Or More Years 100% 5,000
Notwithstanding the foregoing, the Option shall vest and become
immediately exercisable upon the occurrence of an event constituting a
Change in Control if the Option has been outstanding for at least six
(6) months after the Option Grant Date. Vesting shall cease on the date
on which the Optionee ceases to serve as a Director, except as provided
in the Plan and Section 4 of this Agreement.
2. Method of Exercise of Option. The Option may be exercised (in full or
in part) by delivery of a written notice to the Corporation at its
principal executive office, accompanied by payment of the Option Price
for the Shares as to which such Option is exercised. The Option Price
of each Share as to which this Option is exercised shall be paid in
full at the time of exercise (i) in cash, or (ii) by surrender of
Shares owned by the Optionee exercising the Option having a fair market
value on the date of exercise equal to the aggregate Option Price, or
(iii) any combination thereof.
3. Withholding. Upon exercise of all or any part of this Option, the
Optionee shall make arrangements with the Corporation for the
withholding of any applicable federal, state and local income taxes.
The Director may elect to satisfy such withholding obligations in any
manner permitted under the Plan.
4. Expiration Date. Subject to earlier termination as provided in the Plan
or this Agreement, this Option shall expire ten (10) years after the
Option Grant Date. Unless the Optionee ceases to be a Director after
the Optionee attains his or her mandatory retirement age (as defined in
the corporation's bylaws) or on account of the Optionee's death or
Disability, vesting of the Option shall cease on the date on which the
Optionee ceases to be a Director and the Option shall terminate on the
date which is three (3) months after the date on which the Optionee
ceases to be a Director. In the event of death or disability, the
Option shall terminate two (2) years after the date on which the
Optionee ceases to be a Director.
5. Agreement to Terms of Plan. By signing this Agreement, the Optionee
accepts the Option subject to the terms and conditions of the Plan and
this Agreement. Unless otherwise provided in this Agreement,
capitalized terms used in this Agreement shall have the meanings set
forth in the Plan. As provided in the Plan, this Agreement shall be
governed by, and construed in accordance with the laws of the State of
Maryland.
6. Receipt of Prospectus. By signing this Agreement, the Optionee
acknowledged receipt of the Prospectus filed by
<PAGE>
the Corporation with the Securities and Exchange Commission under the
Securities Act of 1933.
Dated: April 28, 1997
____________________
ATTEST: MONOCACY BANCSHARES, INC.
By
___________________________ ____________________________
Brian M. Etzler, Secretary Frank W. Neubauer, President
The Optionee acknowledges receipt of a copy of the Plan, and represents
that he or she is familiar with the terms and provisions thereof. The Optionee
hereby accepts this Option subject to all the terms and provisions of the Plan.
Dated: April 28, 1997
____________________
____________________________
Optionee
<PAGE>
EXHIBIT "B"
MONOCACY BANCSHARES, INC.
1994 STOCK INCENTIVE PLAN
(as amended)
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
advance the development, growth and financial condition of Monocacy
Bancshares, Inc. (the "Corporation") and each subsidiary thereof as
defined in Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code"), by providing incentives through participation in the
appreciation of capital stock of the Corporation so as to secure,
retain and motivate personnel who may be responsible for the operation
and management of the affairs of the Corporation and any such
subsidiary now or hereafter existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is adopted by
the Corporation's Board of Directors (the "Board"), so long as the
Corporation's stockholders duly approve the Plan within twelve (12)
months either before or after the date of the Board's adoption of the
Plan. Any and all options and rights awarded under the Plan ("Awards")
before it is so approved by the Corporation's stockholders shall be
conditional upon and may not be exercised before timely obtainment of
such approval, and shall lapse upon the failure thereof. If the Plan is
so approved, it shall continue in effect until all Awards either have
lapsed or been exercised, satisfied or canceled according to their
terms under the Plan.
3. Stock. The shares of stock that may be issued under the Plan shall not
exceed in the aggregate 110,000 shares of the Corporation's common
stock, par value $5.00 per share (the "Stock"), as may be adjusted
pursuant to paragraph 18 hereof. Such shares of Stock may be either
authorized and unissued shares of Stock, or authorized shares of Stock
issued by the Corporation and subsequently reacquired by it as treasury
stock. Under no circumstances shall any fractional shares of Stock be
issued or sold under the Plan or any Award. Except as may be otherwise
provided in the Plan, any Stock subject to an Award that for any reason
lapses or terminates prior to its exercise as to such Stock shall
become and again be available under the Plan. The Corporation shall
reserve and keep available, and shall duly apply for any requisite
governmental authority to issue or sell the number of shares of Stock
needed to satisfy the requirements of the Plan while in effect. The
Corporation's failure to obtain any such governmental authority deemed
necessary by the Corporation's legal counsel for the lawful issuance
and sale of Stock under the Plan shall relieve the Corporation of any
duty, or liability for the failure to issue or sell such Stock as to
which such authority has not been obtained.
4. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of two (2) or more directors from the Board
serving for such terms as determined, selected and appointed by the
Board. The Board shall fill all vacancies occurring in the Committee's
membership, and at any time and for any reason may add additional
members to the Committee or may remove members from the Committee and
appoint their successors. Except as otherwise permitted under Section
16(b) of the Securities Exchange Act of 1934, as amended, and
applicable rules and regulations thereto, a member of the Committee
must be a director of the Corporation and during the year prior to
commencing service on the Committee, and while a member of the
Committee, was not granted or awarded any Awards, allocations or other
options or rights of or with respect to Stock or any other equity
securities of the Corporation or its affiliates pursuant to the Plan or
any other plan of the Corporation or its affiliates which provides for
grants or awards. A majority of the Committee's membership shall
constitute a quorum for the transaction of all business of the
Committee, and all decisions and actions taken by the Committee shall
be determined by a majority of the members of the Committee attending a
meeting at which a quorum of the Committee is present.
The Committee shall be responsible for the management and operation of
the Plan and, subject to its provisions, shall have full, absolute and
final power and authority, exercisable in its sole discretion: to
interpret and construe the provisions of the Plan, adopt, revise and
rescind rules and regulations relating to the Plan and its
administration, and decide all questions of fact arising in the
application thereof; to determine what, to whom, when and under what
facts and circumstances Awards shall be made, and the form, number,
terms, conditions and duration thereof, including but not limited to
when exercisable, the number of shares of Stock subject thereto, and
Stock option purchase prices; to adopt, revise and rescind procedural
rules for the transaction of the Committee's business, subject to any
directives of the Board not inconsistent with the provisions or intent
of the Plan or applicable provisions of law; and to make all other
determinations and decisions, take all actions and do all things
necessary or appropriate in and for the administration of the Plan. The
Committee's determinations, decisions and actions
B-1
<PAGE>
under the Plan, including but not limited to those described above,
need not be uniform or consistent, but may be different and selectively
made and applied, even in similar circumstances and among similarly
situated persons. Unless contrary to the provisions of the Plan, all
decisions, determinations and actions made or taken by the Committee
shall be final and binding upon the Corporation and all interested
persons, and their heirs, personal and legal representatives,
successors, assigns and beneficiaries. No member of the Committee or of
the Board shall be liable for any decision, determination or action
made or taken in good faith by such person under or with respect to the
Plan or its administration.
5. Awards. Awards may be made under the Plan in the form of: (a)
"Qualified Options" to purchase Stock that are intended to qualify for
certain tax treatment as incentive stock options under Sections 421 and
422 of the Code, (b) "Non-Qualified Options" to purchase Stock that are
not intended to qualify under Sections 421-424 of the Code, (c) Stock
appreciation rights ("SARs"), or (d) "Restricted Stock". More than one
Award may be granted to an eligible person, and the grant of any Award
shall not prohibit the grant of any other Award, either to the same
person or otherwise, or impose any obligation upon the person to whom
granted to exercise the Award. All Awards and the terms and conditions
thereof shall be set forth in written agreements, in such form and
content as approved by the Committee from time to time, and shall be
subject to the provisions of the Plan whether or not contained in such
agreements. Multiple Awards for a particular person may be set forth
in a single written agreement or in multiple agreements, as determined
by the Committee, but in all cases each agreement for one or more
Awards shall identify each of the Awards thereby represented as a
Qualified Option, Non-Qualified Option, SAR, or Restricted Stock, as
the case may be. Every Award made to a person (a "Recipient") shall be
exercisable during his or her lifetime only by the Recipient, and shall
not be salable, transferable or assignable by the Recipient except by
his or her Will or pursuant to applicable laws of descent and
distribution.
6. Eligibility. Persons eligible to receive Awards shall be those key
officers and other management employees of the Corporation and each
Subsidiary as determined by the Committee. In no case, however, shall
any current member of the Committee be eligible to receive any Awards.
A person's eligibility to receive Awards shall not confer upon him or
her any right to receive any Awards; rather, the Committee shall have
the sole authority, exercisable in its discretion consistent with the
provisions of the Plan, to select when, to whom and under what facts
and circumstances Awards will be made. Except as otherwise provided, a
person's eligibility to receive, or actual receipt of Awards under the
Plan shall not limit or affect his or her benefits under or eligibility
to participate in any other incentive or benefit plan or program of the
Corporation or its affiliates.
7. Qualified Options. In addition to other applicable provisions of the
Plan, all Qualified Options and Awards thereof shall be under and
subject to the following terms and conditions:
(a) No Qualified Option shall be awarded more than ten (10) years
after the date the Plan is adopted by the Board or the date
the Plan is approved by the Corporation's stockholders,
whichever date is earlier;
(b) The time period during which any Qualified Option is
exercisable, as determined by the Committee, shall not
commence before the expiration of six (6) months or continue
beyond the expiration of ten (10) years after the date such
Option is awarded;
(c) If the Recipient of a Qualified Option ceases to be employed
by the Corporation or any Subsidiary for any reason other than
his or her death, the Committee may permit the Recipient
thereafter to exercise such Option during its remaining term
for a period of not more than three (3) months after such
cessation of employment to the extent that the Option was
then and remains exercisable, unless such employment cessation
was due to the Recipient's disability as defined in Section
22(e)(3) of the Code, in which case such three (3) month
period shall be twelve (12) months; if the Recipient dies
while employed by the Corporation or a Subsidiary, the
Committee may permit the Recipient's qualified personal
representatives, or any persons who acquire the Qualified
Option pursuant to his or her Will or laws of descent and
distribution, thereafter to exercise such Option during its
remaining term for a period of not more than twelve (12)
months after the Recipient's death to the extent that the
B-2
<PAGE>
Option was then and remains exercisable; the Committee may
impose terms and conditions upon and for said exercise of such
Qualified Option after such cessation of the Recipient's
employment or his or her death;
(d) The purchase price of a share of Stock subject to any
Qualified Option, as determined by the Committee, shall not be
less than the Stock's fair market value at the time such
Option is awarded, as determined under paragraph 13 hereof, or
less than the Stock's par value.
8. Non-Qualified Options. In addition to other applicable provisions of
the Plan, all Non-Qualified Options and Awards thereof shall be under
and subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is
exercisable, as determined by the Committee, shall not
commence before the expiration of six (6) months or continue
beyond the expiration of ten (10) years after the date such
Option is awarded;
(b) If a Recipient of a Non-Qualified Option, before its lapse or
full exercise, ceases to be eligible under the Plan, the
Committee may permit the Recipient thereafter to exercise such
Option during its remaining term, to the extent that the
Option was then and remains exercisable, for such time period
and under such terms and conditions as may be prescribed by
the Committee;
(c) The purchase price of a share of Stock subject to any
Non-Qualified Option, as determined by the Committee, shall
not be less than the Stock's fair market value at the time
such Option is awarded, as determined under paragraph 13
hereof.
9. Stock Appreciation Rights. In addition to other applicable provisions
of the Plan, all SARs and Awards thereof shall be under and subject to
the following terms and conditions:
(a) SARs may be granted either alone, or in connection with
another previously or contemporaneously granted Award (other
than another SAR) so as to operate in tandem therewith by
having the exercise of one affect the right to exercise the
other, as and when the Committee may determine; however, no
SAR shall be awarded in connection with a Qualified Option
more than ten (10) years after the date the Plan is adopted by
the Board or the date the Plan is approved by the
Corporation's stockholders, whichever date is earlier;
(b) Each SAR shall entitle its Recipient to receive upon exercise
of the SAR all or a portion of the excess of (i) the fair
market value at the time of such exercise of a specified
number of shares of Stock as determined by the Committee, over
(ii) a specified price as determined by the Committee of such
number of shares of Stock that, on a per share basis, is not
less than the Stock's fair market value at the time the SAR is
awarded;
(c) Upon exercise of any SAR, the Recipient shall be paid either
in cash or in Stock, or in any combination thereof, as the
Committee shall determine; if such payment is to be made in
Stock, the number of shares thereof to be issued pursuant to
the exercise shall be determined by dividing the amount
payable upon exercise by the Stock's fair market value at the
time of exercise;
(d) The time period during which any SAR is exercisable, as
determined by the Committee, shall not commence before the
expiration of six (6) months or continue beyond the expiration
of ten (10) years after the date such SAR is awarded; however,
no SAR connected with another Award shall be exercisable
beyond the last date that such other connected Award may be
exercised;
(e) If a Recipient of a SAR, before its lapse or full exercise,
ceases to be eligible under the Plan, the Committee may permit
the Recipient thereafter to exercise such SAR during its
remaining term, to the extent that the SAR was then and
remains exercisable, for such time period and under such terms
and conditions as may be prescribed by the Committee;
B-3
<PAGE>
(f) No SAR shall be awarded in connection with any Qualified
Option unless the SAR (i) lapses no later than the expiration
date of such connected Option, (ii) is for not more than the
difference between the Stock purchase price under such
connected Option and the Stock's fair market value at the time
the SAR is exercised, (iii) is transferable only when and as
such connected Option is transferable and under the same
conditions, (iv) may be exercised only when such connected
Option may be exercised, and (v) may be exercised only when
the Stock's fair market value exceeds the Stock purchase price
under such connected Option.
10. Restricted Stock. In addition to other applicable provisions of the
Plan, all Restricted Stock and Awards thereof shall be under and
subject to the following terms and conditions:
(a) Restricted Stock shall consist of shares of Stock that may be
acquired by and issued to a Recipient at such time, for such
or no purchase price, and under and subject to such transfer,
forfeiture and other restrictions, conditions or terms as
shall be determined by the Committee, including but not
limited to prohibitions against transfer, substantial risks of
forfeiture within the meaning of Section 83 of the Code, and
attainment of performance or other goals, objectives or
standards, all for or applicable to such time periods as
determined by the Committee;
(b) Except as otherwise provided in the Plan or the Restricted
Stock Award, a Recipient of shares of Restricted Stock shall
have all the rights as does a holder of Stock, including
without limitation the right to vote such shares and receive
dividends with respect thereto; however, during the time
period of any restrictions, conditions or terms applicable to
such Restricted Stock, the shares thereof and the right to
vote the same and receive dividends thereon shall not be sold,
assigned, transferred, exchanged, pledged, hypothecated,
encumbered or otherwise disposed of except as permitted by the
Plan or the Restricted Stock Award;
(c) Each certificate issued for shares of Restricted Stock shall
be deposited with the Secretary of the Corporation, or the
office thereof, and shall bear a legend in substantially the
following form and content:
This Certificate and the shares of Stock hereby represented
are subject to the provisions of the Corporation's Stock
Incentive Plan and a certain agreement entered into between
the owner and the Corporation pursuant to said Plan. The
release of this Certificate and the shares of Stock hereby
represented from such provisions shall occur only as provided
by said Plan and agreement, a copy of which are on file in the
office of the Secretary of the Corporation.
Upon the lapse or satisfaction of the restrictions, conditions
and terms applicable to such Restricted Stock, a certificate
for the shares of Stock free thereof without such legend shall
be issued to the Recipient;
(d) If a Recipient's employment with the Corporation or a
Subsidiary ceases for any reason prior to the lapse of the
restrictions, conditions or terms applicable to his or her
Restricted Stock, all of the Recipient's Restricted Stock
still subject to unexpired restrictions, conditions or terms
shall be forfeited absolutely by the Recipient to the
Corporation without payment or delivery of any consideration
or other thing of value by the Corporation or its affiliates,
and thereupon and thereafter neither the Recipient nor his or
her heirs, personal or legal representatives, successors,
assigns, beneficiaries, or any claimants under the Recipient's
Last Will or laws of descent and distribution, shall have any
rights or claims to or interests in the forfeited Restricted
Stock or any certificates representing shares thereof, or
claims against the Corporation or its affiliates with respect
thereto.
11. Exercise. Except as otherwise provided in the Plan, Awards may be
exercised in whole or in part by giving written notice thereof to the
Secretary of the Corporation, or his or her designee, identifying the
Award being exercised, the number of shares of Stock with respect
thereto, and other information pertinent to exercise of the Award. The
purchase price of the shares of Stock with respect to which an Award is
exercised shall be paid
B-4
<PAGE>
with the written notice of exercise, either in cash or in Stock at its
then current fair market value, or in any combination thereof, as the
Committee shall determine; provided, that if the Stock tendered as
payment for a Qualified Option was acquired through the exercise of a
Qualified Option, the Recipient must have held such Stock for a period
not less than the holding period described in Code Section 422(a)(1).
Funds received by the Corporation from the exercise of any Award shall
be used for its general corporate purposes.
The number of shares of Stock subject to an Award shall be reduced by
the number of shares of Stock with respect to which the Recipient has
exercised rights under the Award. If a SAR is awarded in connection
with another Award, the number of shares of Stock that may be acquired
by the Recipient under the other connected Award shall be reduced by
the number of shares of Stock with respect to which the Recipient has
exercised his or her SAR, and the number of shares of Stock subject to
the Recipient's SAR shall be reduced by the number of shares of Stock
acquired by the Recipient pursuant to the other connected Award.
The Committee may permit an acceleration of previously established
exercise terms of any Awards or the lapse of restrictions thereon as,
when, under such facts and circumstances, and subject to such other or
further requirements and conditions as the Committee may deem necessary
or appropriate. In addition: (a) if the Corporation or its stockholders
execute an agreement to dispose of all or substantially all of the
Corporation's assets or capital stock by means of sale, merger,
consolidation, reorganization, liquidation or otherwise, as a result of
which the Corporation's stockholders as of immediately before such
transaction will not own at least fifty percent (50%) of the total
combined voting power of all classes of voting capital stock of the
surviving entity (be it the Corporation or otherwise) immediately after
the consummation of such transaction, thereupon any and all Awards
immediately shall become and remain exercisable with respect to the
total number of shares of Stock still subject thereto for the remainder
of their respective terms unless the transaction is not consummated and
the agreement expires or is terminated, in which case thereafter all
Awards shall be treated as if said agreement never had been executed;
(b) if there is an actual, attempted or threatened change in the
ownership of at least twenty-five percent (25%) of all classes of
voting capital stock of the Corporation, as determined by the Committee
in its sole discretion, through the acquisition of, or an offer to
acquire such percentage of the Corporation's voting capital stock by
any person or entity, or persons or entities acting in concert or as a
group, and such acquisition or offer has not been duly approved by the
Board, thereupon any and all Awards immediately shall become and remain
exercisable with respect to the total number of shares of Stock still
subject thereto for the remainder of their respective terms; or (c) if
during any period of two (2) consecutive years, the individuals who at
the beginning of such period constituted the Board, cease for any
reason to constitute at least a majority of the Board, unless the
election of each director of the Board, who was not a director of the
Board at the beginning of such period, was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of such period, thereupon any and all Awards
immediately shall become and remain exercisable with respect to the
total amount of shares of Stock still subject thereto for the remainder
of their respective terms. If an event described in (a), (b) or (c)
occurs, the Committee shall immediately notify the Recipients in
writing of the occurrence of such event and their rights under this
paragraph 11.
12. Withholding. Whenever the Corporation is about to issue or transfer
Stock pursuant to any Award, the Corporation may require the Recipient
to remit to the Corporation an amount sufficient to satisfy fully any
federal, state and other jurisdictions' income and other tax
withholding requirements prior to the delivery of any certificates for
such shares of Stock. Whenever payments are to be made in cash to any
Recipient pursuant to his or her exercise of an Award, such payments
shall be made net after deduction of all amounts sufficient to satisfy
fully any federal, state and other jurisdictions' income and other tax
withholding requirements.
13. Value. Where used in the Plan, the "fair market value" of Stock or
Options or rights with respect thereto, including Awards, shall mean
and be determined by: (a) in the event that the Stock is listed on an
established exchange, the closing price of the Stock on the relevant
date or, if no trade occurred on that day, on the next preceding day on
which a trade occurred, (b) in the event that the Stock is not listed
on an established exchange, but is then quoted on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ"), the average of the average of the closing bid and asked
quotations of the Stock for the five (5) trading days immediately
preceding the relevant date, or (c) in the event that the Stock is not
then listed on an established exchange or quoted on NASDAQ, the average
of the average of the closing bid and asked
B-5
<PAGE>
quotations of the Stock for five (5) trading days immediately preceding
the relevant date as reported by such brokerage firms which are then
making a market in the Stock. In the event that the Stock is not listed
on an established exchange and no closing bid and asked quotations are
available, fair market value shall be determined in good faith by the
Committee. In the case of (b) or (c) above, in the event that no
closing bid or asked quotation is available on one or more of such
trading days, fair market value shall be determined by reference to the
five (5) trading days immediately preceding the relevant date on which
closing bid and asked quotations are available.
14. Amendment. To the extent permitted by applicable law, the Board may
amend, suspend, or terminate the Plan at any time; provided, however,
that: (a) no amendment may be adopted that permits an Award to be
granted to any member of the Committee; (b) with respect to qualified
options, except as specified in paragraph 18 hereof, no amendment may
be adopted that will increase the number of shares reserved for Awards
under the Plan, change the option price, or change the provisions
required for compliance with Section 422 of the Code and regulations
issued thereunder; and (c) notwithstanding anything to the contrary
herein, no amendment may be adopted to increase the number of
securities that may be issued under the Plan, except as specified in
paragraph 18 hereof, materially increase the benefits accruing to
recipients or materially modify the requirements for eligibility to
participate in the Plan, without the approval of the shareholders of
the Corporation, to the extent that shareholder approval is required
under Section 16 of the Securities Exchange Act of 1934, as amended,
and the regulations thereunder, as from time to time in effect. The
amendment or termination of this Plan shall not, without the consent of
the Recipients, alter or impair any rights or obligations under any
Award previously granted hereunder.
In addition and subject to the foregoing, the Committee may prescribe
other or additional terms, conditions and provisions with respect to
the grant or exercise of any or all Awards as the Committee may
determine necessary or appropriate for such Awards and the Stock
subject thereto to qualify under and comply with all applicable laws,
rules and regulations, and changes therein, including but not limited
to the provisions of Sections 421 and 422 of the Code, Section 16 of
the Securities Exchange Act of 1934, as amended, and Rule 16b-3
promulgated by the Securities and Exchange Commission. Without limiting
the generality of the preceding sentence, each Qualified Option, and
any SAR awarded in connection therewith, shall be subject to such other
and additional terms, conditions and provisions as the Committee may
deem necessary or appropriate in order to qualify such Option, or
connected Option and SAR, as an incentive stock option under Section
422 of the Code, including but not limited to the following provisions:
(i) the aggregate fair market value, at the time such
Option is awarded, of the Stock subject thereto and
of any Stock or other capital stock with respect to
which incentive stock options qualifying under
Sections 421 and 422 of the Code are exercisable for
the first time by the Recipient during any calendar
year under the Plan and any other plans of the
Corporation or its affiliates, shall not exceed
$100,000.00; and
(ii) No Qualified Option, or any SAR in connection
therewith, shall be awarded to any person if at the
time of such Award, such person owns Stock possessing
more than ten percent (10%) of the total combined
voting power of all classes of capital stock of the
Corporation or its affiliates, unless at the time
such Option or SAR is awarded the Stock purchase
price under such Option is at least one hundred and
ten percent (110%) of the fair market value of the
Stock subject to such Option and the Option (and any
SAR connected therewith) by its terms is not
exercisable after the expiration of five (5) years
from the date it is awarded.
From time to time, the Committee may rescind, revise and add to any of
such terms, conditions and provisions as may be necessary or
appropriate to have any Awards be or remain qualified and in compliance
with all applicable laws, rules and regulations, and may delete, omit
or waive any of such terms, conditions or provisions that are no longer
required by reason of changes in applicable laws, rules or regulations.
B-6
<PAGE>
15. Continued Employment. Nothing in the Plan or any Award shall confer
upon any Recipient or other persons any right to continue in the
employment of, or maintain any particular relationship with the
Corporation or its affiliates, or limit or affect any rights, powers or
privileges that the Corporation or its affiliates may have to
supervise, discipline and terminate such Recipient or other persons,
and the employment and other relationships thereof. However, the
Committee may require as a condition of making and/or exercising any
Award that its Recipient agree to, and in fact provide services, either
as an employee or in another capacity, to or for the Corporation or any
Subsidiary for such time period following the date the Award is made
and/or exercised as the Committee may prescribe. The immediately
preceding sentence shall not apply to any Qualified Option to the
extent such application would result in disqualification of said Option
as an incentive stock option under Sections 421 and 422 of the Code.
16. General Restrictions. Each Award shall be subject to the requirement
and provision that if at any time the Committee determines it necessary
or desirable as a condition of or in consideration of making such
Award, or the purchase or issuance or Stock thereunder, (a) the
listing, registration or qualification of the Stock subject to the
Award, or the Award itself, upon any securities exchange or under any
federal or state securities or other laws, (b) the approval of any
governmental authority, or (c) an agreement by the Recipient with
respect to disposition of any Stock (including without limitation that
at the time of the Recipient's exercise of the Award, any Stock thereby
acquired is being and will be acquired solely for investment purposes
and without any intention to sell or distribute such Stock), then such
Award shall not be consummated in whole or in part unless such listing,
registration, qualification, approval or agreement shall have been
appropriately effected or obtained to the satisfaction of the Committee
and legal counsel for the Corporation.
17. Rights. Except as otherwise provided in the Plan, the Recipient of any
Award shall have no rights as a holder of the Stock subject thereto
unless and until one or more certificates for the shares of such Stock
are issued and delivered to the Recipient. No adjustments shall be
made for dividends, either ordinary or extraordinary, or any other
distributions with respect to Stock, whether made in cash, securities
or other property, or any rights with respect thereto, for which the
record date is prior to the date that any certificates for Stock
subject to an Award are issued to the Recipient pursuant to his or her
exercise thereof. No Award, or the grant thereof, shall limit or
affect the right or power of the Corporation or its affiliates to
adjust, reclassify, recapitalize, reorganize or otherwise change its or
their capital or business structure, or to merge, consolidate,
dissolve, liquidate or sell any or all of its or their business,
property or assets.
18. Adjustments. In the event of any change in the number of issued and
outstanding shares of Stock which results from a stock split, reverse
stock split, payment of a stock dividend or any other change in the
capital structure of the Corporation, the Committee shall
proportionately adjust the maximum number of shares subject to each
outstanding Award, and (where appropriate) the purchase price per share
thereof (but not the total purchase price under the Award), so that
upon exercise or realization of such Award, the Recipient shall receive
the same number of shares he or she would have received had he or she
been the holder of all shares subject to his or her outstanding Award
and immediately before the effective date of such change in the number
of issued and outstanding shares of Stock. Such adjustments shall not,
however, result in the issuance of fractional shares. Any adjustments
under this paragraph 18 shall be made by the Committee, subject to
approval by the Board. No adjustments shall be made that would cause a
Qualified Option to fail to continue to qualify as an incentive stock
option within the meaning of Section 422 of the Code.
In the event the Corporation is a party to any merger,
consolidation or other reorganization, any and all outstanding Awards
shall apply and relate to the securities to which a holder of Stock is
entitled after such merger, consolidation or other reorganization. Upon
any liquidation or dissolution of the Corporation, any and all
outstanding Awards shall terminate upon consummation of such
liquidation or dissolution, but prior to such consummation shall be
exercisable to the extent that the same otherwise are exercisable under
the Plan.
B-7
<PAGE>
19. Forfeiture. Notwithstanding anything to the contrary in this Plan, if
the Committee finds after full consideration of the facts presented on
behalf of the Corporation and the involved Recipient, that he or she
has been engaged in fraud, embezzlement, theft, commission of a felony,
or dishonesty in the course of his or her employment by the Corporation
or any Subsidiary that has damaged it, or that the Recipient has
disclosed trade secrets of the Corporation or its affiliates, the
Recipient shall forfeit all rights under and to all unexercised Awards,
and all exercised Awards under which the Corporation has not yet
delivered payment or certificates for shares of Stock (as the case may
be), all of which Awards and rights shall be automatically canceled.
The decision of the Committee as to the cause of the Recipient's
discharge from employment with the Corporation or any Subsidiary and
the damage thereby suffered shall be final for purposes of the Plan,
but shall not affect the finality of the Recipient's discharge by the
Corporation or Subsidiary for any other purposes. The preceding
provisions of this paragraph shall not apply to any Qualified Option to
the extent such application would result in disqualification of said
Option as an incentive stock option under Sections 421 and 422 of the
Code.
20. Indemnification. In and with respect to the administration of the
Plan, the Corporation shall indemnify each present and future member of
the Committee and/or of the Board, who shall be entitled without
further action on his or her part to indemnity from the Corporation for
all damages, losses, judgments, settlement amounts, punitive damages,
excise taxes, fines, penalties, costs and expenses (including without
limitation attorneys' fees and disbursements) incurred by such member
in connection with any threatened, pending or completed action, suit or
other proceedings of any nature, whether civil, administrative,
investigative or criminal, whether formal or informal, and whether by
or in the right or name of the Corporation, any class of its security
holders, or otherwise, in which such member may be or have been
involved, as a party or otherwise, by reason of his or her being or
having been a member of the Committee and/or of the Board, whether or
not he or she continues to be such a member. The provisions,
protection and benefits of this paragraph shall apply and exist to the
fullest extent permitted by applicable law to and for the benefit of
all present and future members of the Committee and/or of the Board,
and their respective heirs, personal and legal representatives,
successors and assigns, in addition to all other rights that they may
have as a matter of law, by contract, or otherwise, except (a) as may
not be allowed by applicable law, (b) to the extent there is
entitlement to insurance proceeds under insurance coverage provided by
the Corporation on account of the same matter or proceeding for which
indemnification hereunder is claimed, or (c) to the extent there is
entitlement to indemnification from the Corporation, other than under
this paragraph, on account of the same matter or proceeding for which
indemnification hereunder is claimed.
21. Miscellaneous. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation, including but not
limited to the Internal Revenue Code of 1986 and the Securities
Exchange Act of 1934, both as amended, shall include any subsequently
enacted or promulgated section or provision of law, rule or regulation,
as the case may be, of similar import. With respect to persons subject
to Section 16 of the Securities Exchange Act of 1934, as amended,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or any successor rule that may be promulgated
by the Securities and Exchange Commission, and to the extent any
provision of this Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by applicable
law and deemed advisable by the Committee. Where used in this Plan:
the plural shall include the singular, and unless the context otherwise
clearly requires, the singular shall include the plural; and, the term
"affiliates" shall mean each and every Subsidiary and any parent of the
Corporation. The captions of the numbered paragraphs contained in this
Plan are for convenience only, and shall not limit or affect the
meaning, interpretation or construction of any of the provisions of the
Plan.
- - - - - - - - - - - -
END
- - - - - - - - - - - -
B-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Taneytown, State of Maryland on , 1994.
MONOCACY BANCSHARES, INC.
By:
_________________________________
Frank W. Neubauer, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Frank W. Neubauer and Michael
K. Walsch, and each of them, his true and law attorney-in-fact, as agent with
full power of substitution and resubstitution for him and in his name, place
and stead, in any and all capacity, to sign any or all amendments to this
registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as they might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Capacity Date
<S> <C>
- ------------------------- President and Chief Executive , 1994
Frank W. Neubauer Officer and Director (Principal
Executive Officer)
- ------------------------- Senior Vice President , 1994
Michael K. Walsch and Treasurer (Principal
Financial and Accounting
Officer)
- ------------------------- Chairman of the Board , 1994
Donald R. Hull and Director
- ------------------------- Vice Chairman of the Board , 1994
Eric E. Glass and Director
- ------------------------- Director , 1994
David M. Abramson
B-9
<PAGE>
- ------------------------- Director , 1994
E. Wayne Baumgardner
- ------------------------- Director , 1994
George B. Crouse
- ------------------------- Director , 1994
Harry B. Dougherty, Sr.
- ------------------------- Director , 1994
Glenn E. Eaves
- ------------------------- Director , 1994
George A. Fream
- ------------------------- Director , 1994
Jacob M. Yingling
B-10
</TABLE>
