ITEM 1. BUSINESS
GENERAL
Talbot Bancshares, Inc. (the "Company") is a Maryland corporation organized on March 10, 1997 which became a registered bank holding company on May 1, 1997 under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company engages in the business of banking through its sole subsidiary The Talbot Bank of Easton, Maryland (the "Bank"), a commercial bank chartered under the laws of the State of Maryland. The Company acquired the Bank under a Plan of Reorganization and Share Exchange (the "Plan") proposed by management and approved by the Bank's stockholders at their annual meeting held April 23, 1997. Pursuant to the Plan each share of Bank stock was exchanged for two shares of Company stock. The Bank's charter was not affected by the reorganization. The Company has issued and outstanding 1,192,222 shares of common stock , par value $0.01 per share ("Shares") held by 463 holders of record March 22, 1999.
The Bank currently accounts for substantially all of the Company's assets. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Company's and the Bank's main office is located in Talbot County, Maryland, at 18 East Dover Street, Easton, Maryland 21601. The Bank commenced operation in 1885 and is engaged in general commercial and retail banking business serving individuals and businesses in Talbot and Dorchester Counties, Maryland. The Bank currently operates four banking offices in Talbot County, three in Easton, Maryland and one in Saint Michaels, Maryland. The Bank also operates a branch in Dorchester County, Maryland in the city of Cambridge. At December 31, 1998 the Company had total assets of $302 million, total loans of $194 million and total deposits of $250 million.
The Bank owns 33% of the outstanding common stock of Eastern Shore Mortgage Corporation, a Maryland corporation. Eastern Shore Mortgage Corporation ("ESMC") is located in Easton, Maryland as of March 22, 1998. ESMC is in the process of liquidation. During 1998 and previous years ESMC was engaged in mortgage banking activities, primarily the origination of residential mortgage loans and the subsequent sale of those loans to permanent investors. ESMC service area was primarily the Eastern Shore of Maryland.
PRINCIPAL SERVICES
The Bank is an independent community bank providing service to businesses and individuals in its market area. Services offered are essentially the same as those offered by larger regional institutions which compete with the Bank. Services provided to businesses include commercial checking, savings, certificate of deposit and overnight investment sweep accounts. The Bank offers all forms of commercial lending including secured and unsecured loans, working capital loans, lines of credit, term loans, accounts receivable financing, real estate acquisition development, construction loans and letters of credit. Direct Deposit of payroll, PC banking and telephone banking services are also available.
Services to individuals include checking accounts, various savings programs, mortgage loans, home improvement loans, installment and other personal loans, credit cards, personal lines of credit, automobile and other consumer financing, safe deposit services, debit cards, 24 hour telephone banking, PC banking, and 24 hour automatic teller machine services through the HONOR network. The Bank has a branch in Cambridge, Maryland offering full service banking 7 days per week.
LENDING ACTIVITIES
The Company originates secured and unsecured loans for business purposes. It is typical for commercial loans to be secured by real estate, accounts receivable, inventory equipment or other assets of the business. Commercial loans generally involve a greater degree of credit risk than one to four family residential mortgage loans. Repayment is often dependent on the successful operation of the business and may be affected by adverse conditions in the local economy or real estate market. The financial condition and cash flow of commercial borrowers is therefore, carefully analyzed during the loan approval process, and continues to be monitored by obtaining business financial statements, personal financial statements and income tax returns. The frequency of this on going analysis depends upon the size and complexity of the credit and collateral which secures the loan. It is also the Company's general policy to obtain personal guarantees from the principals of the commercial loan borrowers.
The Company provides residential real estate construction loans to builders and individuals for single family dwellings. Residential construction loans are usually granted based upon "as completed" appraisals and are secured by the property under construction. Additional collateral may be taken if loan to value ratios exceed 75%. Site inspections are performed to determine
pre-specified stages of completion before loan proceeds are disbursed. These loans typically have maturities of six to twelve months and may be fixed or variable rate. Permanent financing for individuals offered by the Company includes fixed rate loans with three year balloons, or variable rate loans with five year balloons. Permanent financing is often provided by third party lenders for borrowers seeking longer term fixed rate loans.
The risk of loss associated with real estate construction lending is controlled through conservative underwriting procedures such as loan to value ratios of 75% or less, obtaining additional collateral when prudent, and closely monitoring construction projects to control disbursement of funds on loans.
The Company originates fixed and variable rate residential mortgage loans. As with any consumer loan, repayment is dependent on the borrower's continuing financial stability which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy. Underwriting standards recommend loan to value ratios of 75% based on appraisals performed by approved appraisers of the Company. Title insurance protecting the Company's lien priority as well as fire, and casualty insurance are required.
Commercial real estate loans are primarily those secured by office condominiums, retail buildings, warehouses and general purpose business space. The risk associated with these loans is reduced by low loan to value ratio standards as well as the thorough financial analysis performed and the Company's knowledge of the local economy in which it lends.
A variety of consumer loans are offered to customers including home equity loans, credit cards and other secured and unsecured lines of credit and term loans. Careful analysis of an applicant's creditworthiness is performed before granting credit and on going monitoring of loans outstanding is performed in an effort to minimize risk of loss by identifying problem loans early.
COMPETITIVE CONDITIONS
The Bank is subject to substantial competition in all aspects of its business. The Bank competes principally with five other commercial banks which operate offices in Talbot County, four of which have resources substantially greater than the Bank's. In Dorchester County the Bank competes principally with seven other commercial banks and one savings bank. The Bank also encounters competition from consumer loan companies, brokerage firms, credit unions and other nonbank institutions in both Talbot and Dorchester counties. The Bank engages in traditional marketing activities such as advertising in local newspapers, trade journals and other publications, and radio advertising. Officers, Directors and employees of the Bank represent the bank through their involvement on boards of nonprofit organizations and other community organizations, as well as their participation in community events. The Bank also relies on referrals from satisfied customers.
The following table sets forth deposit data for Talbot and Dorchester Counties as of June 30, 1998, the most recent date for which comparative information is available.
Source: FDIC DataBook
Source: FDIC DataBook
SUPERVISION AND REGULATION
The following is a summary of the material regulations and policies applicable to the Company and its subsidiaries and is not intended to be a comprehensive discussion. Changes in applicable laws and regulations may have a material effect on the business of the Company and Bank.
General
The Company is a bank holding company, registered with the Federal Reserve under the BHC Act and as such is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve Board (the "FRB").
The Bank is a state chartered bank in Maryland and is a member of the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is subject to the regulation, supervision, and reporting requirements of the FDIC, as well as the Maryland Commissioner of Financial Regulation. The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities
Regulation of Bank Holding Companies
Under the BHC Act, the company may not directly or indirectly acquire the ownership or control of five percent or more of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the FRB. The BHC Act also restricts the types of businesses and activities in which a bank holding company and its subsidiaries may engage. Activities are generally limited to those which the FRB finds to be closely related to, or incidental to, the business of banking.
Subsidiary banks of bank holding companies are subject to certain statutory limits of the transfer of funds to the holding company or any of its nonbank subsidiaries, whether in the form of loans or other extensions of credit, investments in their securities and on the use of their securities as collateral for loans to any borrower. Such transfers of a subsidiary bank to a holding company or one of its nonbanking subsidiaries is limited in amount, and such loans and extensions of credit are required to be collateralized in specified amounts.
Under FRB policy, the Company is expected to act as a source of strength to its subsidiary bank and the FRB may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. Accordingly in the event that any insured subsidiary of the Company causes a loss to the FDIC, other insured subsidiaries of the Company could be
required to compensate the FDIC by reimbursing it for the estimated amount of such loss. Such cross guaranty liabilities generally are superior in priority to obligations of a financial institution to its stockholders and obligations to other affiliates.
Capital Requirements
The Company is 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 financial statements. Under capital adequacy guidelines there are two basic measures: a risk-based measure and a leverage measure.
The risk-based capital guidelines are established to make regulatory capital requirements more sensitive to risk profiles of banks and bank holding companies and to account for off balance sheet exposure. Assets and off balance sheet items are assigned to broad risk categories, each with appropriate weights.
A banking organization's capital is divided into two tiers. "Tier 1", or core capital, includes common equity, retained earnings, minority interest in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets. "Tier 2", or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations, and less required deductions. "Total Capital" is the sum of Tier 1 and Tier 2 capital. The Tier 1 component must comprise at least 50% of qualifying total capital. Regulatory guidelines require a minimum of total capital to risk-adjusted assets ratio of 8 percent and a minimum Tier 1 capital to risk weighted assets ratio of 4 percent. Institutions which meet or exceed a Tier 1 ratio of 6 percent, a total capital ratio of 10 percent and a tier 1 leverage ratio of 5 percent are considered well capitalized by regulatory standards.
Federal Deposit Insurance Corporation Improvement Act of 1991
In December 1991 , Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made significant revisions to several other federal banking statutes. FDICIA provides for, among other things, (i) a recapitalization of the Bank Insurance Fund of the FDIC (the "BIF") by increasing the FDIC's borrowing authority and providing for adjustments in its assessment rates; (ii) annual on-site examinations of federally-insured depository institutions by banking regulators; (iii) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants; (iv) the establishment of uniform accounting standards by federal banking agencies; and (v) the establishment of a "prompt corrective action" system of regulatory supervision and intervention, based on capitalization levels, with more scrutiny and restrictions placed on institutions with lower levels of capital.
FDICIA establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system the federal banking regulators are required to rate supervised institutions on the basis of five capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized;" and to take certain mandatory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories. The severity of the actions will depend upon the category in which the institution is placed. A depository institution is "well capitalized" if it has a total risk based capital ratio of 10% of greater, a Tier 1 risk based capital ratio of 6% of greater, and a leverage ratio of 5% or greater and is not subject to any order, regulatory agreement, or written directive to meet and maintain a specific capital level for any capital measure. An "adequately capitalized" institution is defined as one that has a total risk based capital ratio of 8% of greater, a Tier 1 risk based capital ratio of 4% or greater and a leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a composite CAMEL rating of 1).
FDICIA generally prohibits a depository institution from making any capital distribution, including the payment of cash dividends, or paying a management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. For a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee (subject to certain limitations) that the institution will comply with such capital restoration plan.
Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized and requirements to reduce total assets and stop accepting
deposits from correspondent banks. Critically undercapitalized depository institutions are subject to the appointment of a receiver or conservator, generally within 90 days of the date such institution is determined to be critically undercapitalized.
At December 31, 1997 the Bank had the necessary capital levels to be considered "well capitalized."
Interstate Banking Legislation
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted into law on September 29, 1994. The law provides that, among other things, substantially all state law barriers tot he acquisition of banks by out of state bank holding companies are eliminated effective September 29, 1995. The law also permitted interstate branching by banks effective June 1, 1997, subject to the ability of states to opt-out completely or to set an earlier effective date. Maryland generally established an earlier effective date of September 29, 1995.
Effects of Monetary Policy
The Company and its bank subsidiary are effected by the ongoing and changing monetary policies set forth by regulatory authorities including the FRB. Through its powers the FRB can influence the supply of bank credit and affect the level of economic activity. Changes in the discount rate and reserve requirements are among the instruments used to influence the market. These influences can impact the overall growth and distribution of bank loans, investments, and deposits, and can also, affect the rates charged on loans and paid for deposits.
The monetary policies of the FRB have in the past and will continue to affect the operating results of all financial institutions including Talbot Bancshares, Inc., and its subsidiary.
Federal Securities Law
The Company's common stock is registered with the SEC under Section 12(g) of the Securities and Exchange Act of 1934 , as amended (the "Exchange Act"). The Company is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.
EMPLOYEES At March 22, 1999 the Company and the Bank had 78 full-time employees and 5 part-time employees.
SEASONALITY Seasonality does not have a material impact on the Company's operations.
RISK FACTORS
Regulatory Risks. The banking industry is subject to many laws and regulations. Regulations protect depositors, not stockholders. The Maryland Division of Financial Regulation, Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System regulate the Company and the Bank. Regulations and laws increase the Company's operating expenses, affect the Company's earnings, and put the Company at a disadvantage with less regulated competitors, such as finance companies, mortgage banking companies, and leasing companies.
Exposure to Local Economic Conditions. Most of the loans made by the Bank are made to Maryland borrowers. A decline in local economic conditions would affect the Company's earnings.
Credit Risks and Inadequacy of Loan Loss Reserve. When borrowers default and do not repay the loans made to them by the Bank, the Company loses money. Experience shows that some borrowers either will not pay on time or will not pay at all. In these cases, the Bank will cancel, or "write off," the defaulted loan or loans. A "write off" reduces the Company's assets and affects the Company's earnings. The Company anticipates losses by reserving what it believes to be an adequate cushion so that it does not have to take a large loss at any one time. However, actual loan losses cannot be predicted, and the Company's loan loss reserve may not be sufficient.
Interest Rate Risk. The Company's earnings depend greatly on its net interest income, the difference between the interest earned on loans and investments and the interest paid on deposits. If the interest rate paid on deposits is high and the interest rate earned on loans and investments is low, net interest income is small and the Company earns less. Because interest rates are established by competition, the Company cannot completely control its net interest income.
Risks Associated with Real Estate Lending. The Bank makes many real estate secured loans. Real estate loans are in demand when interest rates are low and economic conditions are good. Even when economic conditions are good and interest rates are low, these conditions may not continue. The Company may lose money if the borrower does not pay a real estate loan. If real estate values decrease, then the Company may lose more money when borrowers default.
No Assurance of Growth. The Company's ability to increase assets and earnings depends upon many factors, including competition for deposits and loans, the Company's branch and office locations, avoidance of credit losses, and hiring and training of personnel. Many of these factors are beyond the Company's control.
Competition. Other banks and non-banks, including savings and loan associations, credit unions, insurance companies, leasing companies, small loan companies, finance companies, and mortgage companies, compete with the Company. Some of the Company's competitors offer services and products that the Company does not offer. Larger banks and non-bank lenders can make larger loans and service larger customers. Law changes now permit interstate banks which may increase competition. Increased competition may decrease the Company's earnings.
No Assurance of Cash or Stock Dividends. Whether dividends may be paid to stockholders depends on the Company's earnings, its capital needs, law and regulations, and other factors. The Company's payment of dividends in the past does not mean that the Company will be able to pay dividends in the future.
Stock Not Insured. Investments in the shares of the Company's common stock are not deposits that are insured against loss by the government.
Risk Involved in Acquisitions. Part of the Company's growth may come from buying other banks and companies. A newly purchased bank or company may not be profitable after the Company buys it and may lose money, particularly at first. The new bank or company may bring with it unexpected liabilities or bad loans, bad employee relations, or the new bank or company may lose customers.
Risk of Claims. Customers may sue the Company for losses due to the Company's alleged breach of fiduciary duties, errors and omissions of employees, officers and agents, incomplete documentation, the Company's failure to comply with applicable laws and regulations, or many other reasons. Also, employees of the Company conduct all of the Company's business. The employees may knowingly or unknowingly violate laws and regulations. Company management may not be aware of any violations until after their occurrence. This lack of knowledge will not insulate the Company from liability. Claims and legal actions may result in legal expenses and liabilities that may reduce the Company's profitability and hurt its financial condition.
Developments in Technology. Financial services use technology, including telecommunications, data processing, computers, automation, Internet-based banking, debit cards, and "smart" cards. Technology changes rapidly. The Company's ability to compete successfully with other banks and non-banks may depend on whether it can exploit technological changes. The Company may not be able to exploit technological changes and expensive new technology may not make the Company more profitable.
Year 2000. The "Year 2000 Issue" describes the problems that may result from the improper processing of dates and date-sensitive calculations beginning in the Year 2000. Many existing computer programs use only two digits to identify the year in the date field of a program. These programs could experience serious malfunctions when the last two digits of the year change to "00" as a result of identifying a year designated "00" as the Year 1900 rather than the Year 2000. A system failure or other disruptions of operations could occur if the Company's computer programs and other equipment identify a year designated "00" as the Year 1900 rather than the Year 2000. The Company cannot be certain that its computer programs and other equipment, and the computer programs and other equipment of its customers, vendors, suppliers and even the government will be Year 2000 compliant. Any systems failure, disruption, or other losses could affect the Company's earnings.
Market for Common Stock. The Company's shares of common stock are not listed on any exchange, and there is currently no organized trading market. Prices for the Company's common stock may not be the actual value or the trading price in a liquid trading market.
Anti-Takeover Effects of Certain Charter and Bylaw Provisions. The Company's Articles of Incorporation and Bylaws divide the Company's Board of Directors into three classes and each class serves for a staggered three-year term. No director may be removed except for cause, and then only by a vote of at least two-thirds of the total eligible stockholder votes. In addition, Maryland law contains anti-takeover provisions that apply to the Company. These provisions may discourage or make it more difficult for another company to buy the Company or may reduce the market price of the Company's common stock.
* Yields adjusted to reflect a tax equivalent basis assuming a federal tax rate of 34%.
The Company has established an allowance for credit losses, which is increased by provisions charged against earnings and recoveries of previously charged off debts. The allowance is decreased by current period charge-off of uncollectible loans. Management evaluates the adequacy of the allowance for credit losses on a quarterly basis and adjusts the provision for credit losses based upon this analysis. The evaluation of the adequacy of the allowance for credit losses is based upon a risk rating system of individual loans as well as collective evaluation of smaller balance homogenous loans based on factors such as past credit loss experience, local economic trends, and other factors which may impact collectibility such as Year 2000. In 1996 management increased the provision for credit losses due to concerns over local economic trends, continuing high levels of charge-offs, and the rapid growth of the portfolio including an increase in extensions of credit in excess of $500,000. Average loans outstanding in 1996 increase over $17 million or 11.4%. Growth returned to more modest levels in 1997 and stable economic conditions throughout the year allowed management to significantly reduce the provision for credit losses to $225 thousand, a decline of 76.4% for the year. In 1998, the Company once again experienced significant growth in the average loans outstanding for the year, however lower interest rates, favorable economic conditions, improvements in nonperforming assets and overall good asset quality resulted in only a slight increase in the provision for credit losses of 6.6% bringing it to $240,000 for the year.
(1) All amounts are reported an a tax equivalent basis computed using the statutory federal income tax rate exclusive of the alternative minimum tax rate of 34% and nondeductible interest expense. (2) Average loan balances include non-accrual loans. (3) Loan fee income is included in interest income for each loan category and yields are stated to include all.
Item 2.
Item 2. PROPERTIES
The Company's and the Bank's main office is located at 18 East Dover Street, Easton, Maryland. A second Easton office is located on Marlboro Road at Tred Avon Square and the Third Easton office is located on Elliott Road in the Carlton Business Park. The Saint Michaels office is located on Route 33 at Saint Michaels Village.
The Bank owns three of the four banking offices it currently operates in Talbot County. The Bank leases the office located on Route 33 in Saint Michaels Village. The annual rent for this office which lease expires in 2001 is $32,400.
The Bank also owns the building at 21 Dover Street, Easton, Maryland which contains its bookkeeping and loan services departments.
The Bank operates a branch in Cambridge, Maryland, located at 2745 Dorchester Square Shopping Center pursuant to a lease agreement. The annual rent under this lease agreement, which began in 1998, is $34,310 for year 1, $35,340 for year 2, and $36,400 for year 3.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than the ordinary routine litigation incidental to the business to which the Company, the Bank, or its subsidiaries is party or to which any of their properties is subject. There are also no material proceedings known to management to which any Director, officer, or affiliate of the Company, any person holding beneficially in excess of five (5) percent of the Company's Shares, or any associate of any such Director, officer or security holder is a party.
Item 4.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth quarter of 1998. Information required for this Item for Executive Officers of the Registrant is included in Item 10 -- "Directors and Executive Officers of the Registrant" which is incorporated herein by reference.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from Annual Report to Stockholders for the year ended December 31, 1998 under "Managements Discussion and Analysis of Financial Condition and Results of Operations - Recent Stock Prices and Dividends," page 14, and "Notes to Financial Statements - Regulatory Capital Requirements" on pages 31 and 32. The Company has issued and outstanding 1,192,222 shares of common stock, par value $0.01 per share ("Shares") held by 463 holders of record March 22, 1999.
Item 6.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference from Annual Report to Stockholders for the year ended December 31, 1998, page 15.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from Annual Report to Stockholders for the year ended December 31, 1998 under "Managements Discussion and Analysis of Financial Condition and Results of Operations," pages 3 through 14. Reference is also made to the information provided under the heading "Statistical Information in Part I, Item I, incorporated by reference herein.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the Market Risk of the Company's financial instruments see "Managements Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, Market Risk and Interest Rate Sensitivity" on pages 10 and 11 of the Annual Report to Stockholders for the year ended December 31, 1998. The Company's principal market risk exposure is to interest rates.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the Annual Report to Stockholders for the year ended December 31, 1998 under "Consolidated Financial Statements and Independent Auditors' Report" on pages 16 through 37.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A listing of Directors of the Registrant is incorporated by reference from Definitive Proxy Statement to Stockholders for the 1999 Annual Meeting under "Election of Directors," pages 1 through 3.
A listing of Executive Officers of the Registrant is incorporated by reference from the Definitive Proxy Statement to Stockholders for the 1999 Annual Meeting under "Executive Officers, " pages 9 and 10.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Definitive Proxy Statement to Stockholders for the 1999 Annual Meeting under "Executive Compensation, Benefit Plans and Executive Compensation Committee Report," pages 6 through 9, under "Performance Graph," page 13, and the Director compensation discussion on page 4.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Definitive Proxy Statement to Stockholders for the 1999 Annual Meeting under "Beneficial Ownership of Common Stock," pages 5 and 6.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Definitive Proxy Statement to Stockholders for the 1999 Annual Meeting under "Election of Directors" page 3.
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1),(2) FINANCIAL STATEMENTS
Consolidated Statements of Income -- Years Ended December 31, 1998, 1997, and 1996
Consolidated Balance Sheets at December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -- Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements as of December 31, 1998, 1997 and 1996
Report of Independent Auditors
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K
EXHIBIT INDEX
3.1 Articles of Incorporation of the Company is incorporated by reference from the Company's Form 8-A, filed with the Commission on August 1, 1997 (File No. 000-22929)
3.2 Bylaws of the Company is incorporated by reference from the Company's Form 8-A, filed with the Commission on August 1, 1997 (File No. 000-22929)
13 1998 Annual Report to Stockholders filed herewith.
21 List of Subsidiaries is incorporated by reference from the Company's Form 8-K, filed with the Commission on August 25, 1997 (File No. 000-22929)
23 Consent of Independent Auditors filed herewith.
27 Financial Data Schedule is filed electronically herewith via EDGAR
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601 of Regulation S-K
See the Exhibits described in Item 14(a)(3) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 1999.
DIRECTORS
/s/ Herbert L. Andrew, III ------------------------------- Herbert L. Andrew, III
/s/ Jerome M. McConnell ------------------------------- Jerome M. McConnell
/s/ Blenda W. Armistead ------------------------------- Blenda W. Armistead
------------------------------- Shari L. McCord
/s/ Lloyd L. Beatty, Jr. ------------------------------- Lloyd L. Beatty, Jr.
------------------------------- William H. Myers
/s/ Donald D. Casson ------------------------------- Donald D. Casson
------------------------------- David L. Pyles
/s/ Gary L. Fairbank ------------------------------- Gary L. Fairbank
/s/ Christopher F. Spurry ------------------------------- Christopher F. Spurry
/s/ Ronald N. Fox ------------------------------- Ronald N. Fox
/s/ Richard C. Granville ------------------------------- Richard C. Granville
/s/ W. Moorhead Vermilye ------------------------------- W. Moorhead Vermilye