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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
0-22345
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Commission File No.
SHORE BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 52-1974638
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
18 EAST DOVER STREET, EASTON, MARYLAND 21601
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(Address of Principal Executive Offices) (Zip Code)
(410) 822-1400
Registrant's Telephone Number, Including Area Code
Securities Registered pursuant to Section 12(b) of the Act:
None.
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $.01
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 definitive
proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
The aggregate market value of the Corporation's voting stock held by
non-affiliates of the registrant as of March 22, 2002 was $101,328,343.
The number of shares outstanding of the registrant's common
stock, as of March 22, 2002 was 5,333,023.
Documents Incorporated by Reference
Portions of the Shore Bancshares, Inc. definitive Proxy Statement for its 2002
Annual Stockholders' Meeting, as filed with the Securities and Exchange
Commission on April 1, 2002 are incorporated by reference into Part III of this
report. Portions of the Annual Report to Stockholders for the year ended
December 31, 2001 are incorporated by reference into Parts I and II of this
report. Except for parts of the Shore Bancshares, Inc. Annual Report expressly
incorporated herein by reference, the Annual Report is not to be deemed filed
with the Securities and Exchange Commission.
FORM 10-K INDEX
Page(s)
Part I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 16
-2-
PART I
ITEM 1. BUSINESS
GENERAL
Shore Bancshares, Inc. (the "Company"), a Maryland corporation incorporated on
March 15, 1996, is a financial holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The Company engages in the
business of banking through its two subsidiaries, The Centreville National Bank
of Maryland ("Centreville National Bank") and The Talbot Bank of Easton,
Maryland ("Talbot Bank"), collectively referred to as the "Banks". Centreville
National Bank commenced operations in 1876 and is a national banking
organization. Talbot Bank commenced operations in 1885 and is a commercial bank
chartered under the laws of the State of Maryland. The Banks operate eleven full
service branches and sixteen Automated Teller Machines ("ATM's"), providing a
full range of commercial and consumer banking products and services to
individuals, businesses, and other organizations in Kent, Queen Anne's,
Caroline, Talbot and Dorchester counties in Maryland. Deposits are insured by
the Federal Deposit Insurance Corporation (the "FDIC").
On November 30, 2000, the Company completed its merger with Talbot Bancshares,
Inc. ("Talbot"), whereby Talbot was merged into the Company in a tax-free
exchange of stock accounted for as a pooling of interests and the Company
acquired Talbot Bank.
On December 21, 2001, the Company entered into an Asset Purchase Agreement with
The Avon-Dixon Agency, Inc., Elliott Wilson Insurance, Inc., Avon-Dixon
Financial Services, Inc., Joseph M. George & Son, Inc. and 59th Street Finance
Company, whereby the Company will purchase certain assets and assume certain
liabilities of these entities. In contemplation of this transaction (the "Asset
Purchase"), the Company has established The Avon Dixon Agency, LLC, a Maryland
limited liability company, Elliott Wilson Insurance, LLC, a Maryland limited
liability company, and Mubell Finance, LLC, a Maryland limited liability company
(collectively, the "Avon-Dixon Subsidiaries"). The Avon-Dixon Subsidiaries do
not currently engage in any activities. After the Asset Purchase is consummated,
which is expected to take place in the second quarter of 2002, The Avon-Dixon
Subsidiaries will engage in insurance producer activities and insurance premium
finance activities.
The Company currently has 5,333,023 shares of common stock, par value $0.01 per
share ("shares") held by 1,437 holders of record March 1, 2002.
The Company's and Talbot Bank's main office is located in Talbot County,
Maryland, at 18 East Dover Street, Easton, Maryland 21601. Centreville National
Bank's main office is located at 109 North Commerce Street, Centreville,
Maryland 21617. As of December 31, 2001 the Company had assets of approximately
$582 million, net loans of approximately $388 million, and deposits of
approximately $487 million. Stockholders' equity at December 31, 2001 was
approximately $71 million.
BANKING PRODUCTS AND SERVICES
The Banks are independent community banks providing service to businesses and
individuals in their respective market areas. Services offered are essentially
the same as those offered by larger regional institutions that compete with the
Banks. Services provided to businesses include commercial checking, savings,
certificate of deposit and overnight investment sweep accounts. The Banks offer
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.
Merchant credit card clearing services are available as well as direct deposit
of payroll, internet banking and telephone banking services.
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 boxes, debit cards, 24 hour telephone banking, PC and internet
banking, and 24-hour automatic teller machine services. The Banks also offer
nondeposit products, such as mutual funds and annuities, and discount brokerage
services to their customers. Additionally, the Banks have Saturday hours and
extended hours on certain evenings during the week for added customer
convenience.
-3-
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 ongoing analysis
depends upon the size and complexity of the credit and collateral that 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 80%. 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 and
variable rate loans with three-year or five-year balloons, and one, three or
five year Adjustable Rate Mortgages. Third party lenders often provide permanent
financing 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 80%
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 not to exceed 80% 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, is required.
Commercial real estate loans are primarily those secured by office condominiums,
retail buildings, warehouses and general purpose business space. 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, can reduce the
risk associated with these loans.
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.
BANKING SERVICE CORPORATION
Centreville National Bank, the Company's subsidiary, owns 29.25% of the issued
and outstanding common stock of The Delmarva Bank Data Processing Center, Inc.
("Delmarva"). Delmarva is a Maryland corporation located in Easton, Maryland,
which provides data processing services to banks located in Maryland, Delaware,
Virginia and the District of Columbia. Delmarva provides these services to
Centreville National Bank and Talbot Bank.
COMPETITIVE CONDITIONS
The Company is subject to substantial competition in all aspects of its
business. Recent changes in federal banking laws have resulted in an even
greater degree of competition in the banking industry. The Company competes with
larger regional banks and other locally owned banks within its market area.
Regional banks have resources substantially greater than the Company, which can
often give them a competitive advantage. The Company competes for loans and
deposits against these institutions, as well as credit unions, savings
institutions, brokerage firms, insurance companies and mortgage companies.
The Company engages in traditional marketing activities, such as advertising in
local newspapers, trade journals and other publications, and radio advertising
to attract new customers. In addition, personal contact by officers, directors
and employees their involvement on boards of nonprofit organizations and other
community organizations, as well as their participation in community events,
often results in new business. The Banks also rely on referrals from satisfied
customers.
-4-
The following table sets forth deposit data for Kent, Queen Anne's, Caroline,
Talbot and Dorchester Counties as of June 30, 2001, the most recent date for
which comparative information is available.
% of
Kent County Deposits Total
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(in thousands)
Peoples Bank of Kent County, Maryland $116,307 32.24%
The Chestertown Bank of Maryland 112,924 31.30
Chesapeake Bank and Trust Co. 52,857 14.65
Farmers Bank of Maryland 30,734 8.52
SunTrust Bank 24,464 6.78
THE CENTREVILLE NATIONAL BANK OF MARYLAND 23,500 6.51
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Total $360,786 100.00%
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SOURCE: FDIC DATABOOK
% of
Queen Anne's County Deposits Total
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(in thousands)
The Queenstown Bank of Maryland $166,251 37.06%
THE CENTREVILLE NATIONAL BANK OF MARYLAND 142,276 31.72
The Chestertown Bank of Maryland 40,071 8.93
Bank of America, National Association 39,776 8.87
Allfirst Bank 29,418 6.56
BankAnnapolis 17,295 3.86
Farmers Bank 13,514 3.00
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Total $448,601 100.00%
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SOURCE: FDIC DATABOOK
% of
Caroline County Deposits Total
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(in thousands)
Provident State Bank of Preston, Maryland $82,558 29.46%
Peoples Bank of Maryland 78,266 27.93
Allfirst Bank 34,023 12.14
Farmers Bank of Maryland 28,195 10.06
THE CENTREVILLE NATIONAL BANK OF MARYLAND 22,418 8.00
Bank of America, National Association 16,054 5.73
Atlantic Bank 14,224 5.08
Easton Bank & Trust 4,473 1.60
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Total $280,211 100.00%
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SOURCE: FDIC DATABOOK
-5-
% of
Talbot County Deposits Total
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(in thousands)
THE TALBOT BANK OF EASTON, MARYLAND $257,310 40.69%
St. Michaels Bank 112,555 17.80
Bank of America, National Association 71,599 11.32
Easton Bank & Trust 59,419 9.40
SunTrust Bank 54,138 8.56
Allfirst Bank 32,330 5.11
Farmers Bank 25,571 4.04
First Mariner Bank 11,279 1.78
The Queenstown Bank of Maryland 8,223 1.30
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Total $632,424 100.00%
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SOURCE: FDIC DATABOOK
% of
Dorchester County Deposits Total
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(in thousands)
The National Bank of Cambridge $140,848 33.51%
Bank of the Eastern Shore 110,968 26.40
Hebron Savings Bank 35,717 8.50
Bank of America, National Association 29,132 6.93
Atlantic Bank 27,114 6.45
Allfirst Bank 25,945 6.17
Provident State Bank of Preston, Maryland 20,480 4.87
SunTrust Bank 17,198 4.09
THE TALBOT BANK OF EASTON, MARYLAND 12,868 3.08
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Total $420,270 100.00%
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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 Banks.
GENERAL
The Company is a financial holding company registered with the Board of
Governors of the Federal Reserve System (the "FRB") 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 FRB.
Talbot Bank is a state chartered bank in Maryland and is a member of the FDIC.
Talbot Bank is subject to the regulation, supervision, and reporting
requirements of the FDIC, as well as the Maryland Commissioner of Financial
Regulation. Centreville National Bank is a federally chartered national bank and
member of the FDIC. Centreville National Bank is subject to the regulation,
supervision, and reporting requirements of the Office of the Comptroller of the
Currency ("OCC"). The Banks are also subject to numerous state and federal
statutes and regulations that affect the business of banking.
-6-
REGULATION OF FINANCIAL HOLDING COMPANIES
Pursuant to the Gramm-Leach-Bliley Act (the "GLBA"), the Company elected to
become a "financial holding company" as of April 26, 2001 and, as such, may
engage in activities that are in addition to the business of banking. A
financial holding company may engage in a full range of financial activities,
including, insurance and securities sales and underwriting activities, and real
estate development, with new expedited notice procedures. The Gramm-Leach-Bliley
Act is described in more detail below.
Subsidiary banks of financial 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 banks, and the FRB may charge the 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.
FEDERAL BANKING REGULATION
Federal Banking regulators, such as the OCC and the FDIC, may prohibit the
institutions over which they have supervisory authority from engaging in
activities or investments that the agency believes are unsafe or unsound banking
practices. Federal banking regulators have extensive enforcement authority over
the institutions they regulate to prohibit or correct activities which violate
law, regulation or a regulatory agreement or which are deemed to be unsafe or
unsound practices. Enforcement actions may include the appointment of a
conservator or receiver, the issuance of a cease and desist order, the
termination of deposit insurance, the imposition of civil money penalties on the
institution, its directors, officers, employees and institution-affiliated
parties, the issuance of directives to increase capital, the issuance of formal
and informal agreements, the removal of or restrictions on directors, officers,
employees and institution-affiliated parties, and the enforcement of any such
mechanisms through restraining orders or other court actions.
The Banks are subject to certain restrictions on extensions of credit to
executive officers, directors, and principal stockholders or any related
interest of such persons, which generally require that such credit extensions be
made on substantially the same terms as are available to third parties dealing
with the Banks and not involve more than the normal risk of repayment. Other
laws tie the maximum amount that may be loaned to any one customer and its
related interests to capital levels.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies have adopted standards covering internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. An institution which fails to meet those standards may be required by
the agency to develop a plan acceptable to meet the standards. Failure to submit
or implement such a plan may subject the institution to regulatory sanctions.
The Company, on behalf of the Banks, believes that the Banks meet substantially
all standards which have been adopted. FDICIA also imposes new capital standards
on insured depository institutions.
See "Capital Requirements."
DEPOSIT INSURANCE
As FDIC member institutions, the Banks' deposits are insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund ("BIF"), administered by
the FDIC, and each institution is required to pay semi-annual deposit insurance
premium assessments to the FDIC. The BIF assessment rates have a range of 0 to
27 cents for every $100 in assessable deposits. In addition, as a result of the
April 1997 merger of Kent Savings and Loan Association, F.A. into Centreville
National Bank, approximately $27.8 million of the Centreville National Bank's
deposits are assessed at SAIF rates. The SAIF assessment rates are determined
quarterly and the SAIF is also administered by the FDIC. The federal Economic
Growth and Regulatory Paperwork Reduction Act of 1996 (the"1996 Act") included
provisions that, among other things, recapitalized the Savings Association
Insurance Fund ("SAIF") through a special assessment on savings association
deposits and bank deposits that had been acquired from savings associations.
-7-
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.
Before establishing new branch offices, the Banks must meet certain minimum
capital stock and surplus requirements and obtain regulatory approval.
At December 31, 2001, both Banks had the necessary capital levels to be
considered "well capitalized."
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted 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 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% or greater, a
Tier 1 risk based capital ratio of 6% or 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% or 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.
-8-
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.
INTERSTATE BANKING LEGISLATION
The Riegle-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 to the 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.
GRAMM-LEACH-BLILEY ACT
In November 1999, the GLBA was signed into law. Effective in pertinent part on
March 11, 2000, GLBA revises the Bank Holding Company Act of 1956 and repeals
the affiliation provisions of the Glass-Steagall Act of 1933, which, taken
together, limited the securities, insurance and other non-banking activities of
any company that controls an FDIC insured financial institution. Under GLBA, a
bank holding company can elect, subject to certain qualifications, to become a
"financial holding company." GLBA provides that a financial holding company may
engage in a full range of financial activities, including insurance and
securities sales and underwriting activities, and real estate development, with
new expedited notice procedures.
Maryland law generally permits Maryland State chartered banks, including Talbot
Bank, to engage in the same activities, directly or through an affiliate, as
national banking associations. GLBA permits certain qualified national banking
associations, including Centreville National Bank, to form financial
subsidiaries, which have broad authority to engage in all financial activities
except insurance underwriting, insurance investments, real estate investment or
development, or merchant banking. Thus GLBA has the effect of broadening the
permitted activities of both of the Banks.
EFFECTS OF MONETARY POLICY
The Company and its bank subsidiaries 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 affected the operating results
of all financial institutions, including the Company and its subsidiaries, and
will continue to do so in the future.
FEDERAL SECURITIES LAW
The Company's common stock is registered with the SEC under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to information reporting, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
EMPLOYEES
At March 22, 2002 the Company had no employees and the Banks had 147 full-time
employees and 29 part-time employees.
SEASONALITY
Management of the Company does not believe that the deposits or business of the
Company are seasonal in nature. Deposits may vary depending on local and
national economic conditions, however, not enough to have a material impact on
the Company's planning or policy-making.
-9-
RISK FACTORS
THE COMPANY'S FUTURE DEPENDS ON THE SUCCESSFUL GROWTH OF ITS SUBSIDIARIES
The Company's primary business activity for the foreseeable future will be to
act as the holding company of the Banks and of the recently-established
Avon-Dixon Subsidiaries. Therefore, the Company's future profitability will
depend on the success and growth of these subsidiaries. In the future, part of
the Company's growth may come from buying other banks and buying or establishing
other companies. Such entities may not be profitable after they are purchased or
established, and they may lose money, particularly at first. A new bank or
company may bring with it unexpected liabilities, bad loans, or bad employee
relations, or the new bank or company may lose customers.
THE MAJORITY OF THE COMPANY'S BUSINESS IS CONCENTRATED IN MARYLAND;
A SIGNIFICANT AMOUNT OF THE COMPANY'S BUSINESS IS CONCENTRATED IN
REAL ESTATE LENDING
Because most of the Banks' loans are made to Maryland borrowers, a decline in
local economic conditions may have a greater effect on the Company's earnings
and capital than on the earnings and capital of larger financial institutions
whose loan portfolios are geographically diverse. Further, the Banks make many
real estate secured loans, which are in greater 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. Additionally, the
market values of the real estate securing these loans may deteriorate, and the
Company may lose money if a borrower fails to repay a real estate loan.
THE BANKS MAY EXPERIENCE LOAN LOSSES IN EXCESS OF THEIR ALLOWANCES
The risk of credit losses on loans varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value and marketability of the collateral for the loan. Management of each
of the Banks maintains an allowance for credit losses based upon, among other
things, historical experience, an evaluation of economic conditions and regular
reviews of delinquencies and loan portfolio quality. Based upon such factors,
management makes various assumptions and judgments about the ultimate
collectability of the loan portfolio and provides an allowance for loan losses
based upon a percentage of the outstanding balances and for specific loans when
their ultimate collectability is considered questionable. If management's
assumptions and judgments prove to be incorrect and the allowance for loan
losses is inadequate to absorb future losses, or if the bank regulatory
authorities require the Banks to increase their respective allowance for loan
losses as a part of their examination process, the Banks' earnings and capital
could be significantly and adversely affected. Although management uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
substantially from the assumptions used or adverse developments arise with
respect to the Banks' non-performing or performing loans. Material additions to
the allowance for loan losses of one of the Banks would result in a decrease in
that Bank's net income and capital, and could have a material adverse effect on
the Company.
INTEREST RATES AND OTHER ECONOMIC CONDITIONS WILL IMPACT RESULTS OF OPERATION
Results of operations for financial institutions, including the Company and its
subsidiaries, may be materially and adversely affected by changes in prevailing
economic conditions, including declines in real estate values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
The Company's profitability is in part a function of the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities (I.E., net interest income), including
advances from the Federal Home Loan Bank of Atlanta (the "FHLB"). Interest rate
risk arises from mismatches (I.E., the interest sensitivity gap) between the
dollar amount of repricing or maturing assets and liabilities and is measured in
terms of the ratio of the interest rate sensitivity gap to total assets. More
assets repricing or maturing than liabilities over a given time period is
considered asset-sensitive and is reflected as a positive gap, and more
liabilities repricing or maturing than assets over a given time period is
considered liability-sensitive and is reflected as negative gap. An
asset-sensitive position (I.E., a positive gap) could enhance earnings in a
rising interest rate environment and could negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (I.E., a
negative gap) could enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment. Fluctuations
in interest rates are not predictable or controllable. The Company has attempted
to structure its asset and liability management strategies to mitigate the
impact on net interest income of changes in market interest rates.
-10-
THE MARKET VALUE OF THE COMPANY'S INVESTMENTS COULD DECLINE
As of December 31, 2001, the Company had classified 91.3% of its investment
securities as available-for-sale pursuant to Statement of Financial Accounting
Standards No. 115 ("SFAS 115") relating to accounting for investments. SFAS 115
requires that unrealized gains and losses in the estimated value of the
available-for-sale portfolio be "marked to market" and reflected as a separate
item in stockholders' equity (net of tax) as accumulated other comprehensive
income. The remaining investment securities are classified as held-to-maturity
in accordance with SFAS 115, and are stated at amortized cost.
In the past, gains on sales of investment securities have not been a significant
source of income for the Company. There can be no assurance that future market
performance of the Company's investment portfolio will enable the Company to
realize income from sales of securities. Stockholders' equity will continue to
reflect the unrealized gains and losses (net of tax) of these investments. There
can be no assurance that the market value of the Company's investment portfolio
will not decline, causing a corresponding decline in stockholders' equity.
Management believes that several factors will affect the market values of the
Company's investment portfolio. These include, but are not limited to, changes
in interest rates or expectations of changes, the degree of volatility in the
securities markets, inflation rates or expectations of inflation and the slope
of the interest rate yield curve (the yield curve refers to the differences
between shorter-term and longer-term interest rates; a positively sloped yield
curve means shorter-term rates are lower than longer-term rates). Also, the
passage of time will affect the market values of our investment securities, in
that the closer they are to maturing, the closer the market price should be to
par value. These and other factors may impact specific categories of the
portfolio differently, and management cannot predict the effect these factors
may have on any specific category.
THE COMPANY'S ABILITY TO PAY DIVIDENDS IS LIMITED
Holders of shares of the Company's common stock are entitled to dividends if,
when, and as declared by the Company's Board of Directors out of funds legally
available for that purpose. Although the Board of Directors has declared cash
dividends in the past, the current ability to pay dividends is largely dependent
upon the receipt of dividends from the Banks. Federal and state laws impose
restrictions on the ability of the Banks to pay dividends. Additional
restrictions are placed upon the Company by the policies of federal regulators,
including the FRB's November 14, 1985 policy statement, which provides that bank
holding companies should pay dividends only out of the past year's net income,
and then only if their prospective rate of earnings retention appears consistent
with their capital needs, asset quality, and overall financial condition. In
general, future dividend policy is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including the future
earnings, capital requirements, regulatory constraints, and the Company's
financial condition as well as those of the Banks.
THE COMPANY'S STOCK IS NOT HEAVILY TRADED
The Company's common stock is traded on The NASDAQ Small Cap Market and is
thinly traded. Thinly traded stock can be more volatile than stock trading in an
active public market. Factors such as the Company's financial results, the
introduction of new products and services by the Company or its competitors, and
various factors affecting the banking industry generally may have a significant
impact on the market price of the Company's common stock. Management cannot
predict the extent to which an active public market for the Company's common
stock will develop or be sustained in the future. In recent years, the stock
market has experienced a high level of price and volume volatility, and market
prices for the stock of many companies have experienced wide price fluctuations
that have not necessarily been related to their operating performance.
Therefore, the Company's stockholders may not be able to sell their shares at
the volumes, prices, or times that they desire.
THE COMPANY'S STOCK IS NOT INSURED
Investments in the shares of the Company's common stock are not deposits and are
not insured against loss by the government.
-11-
THE COMPANY OPERATES IN A COMPETITIVE MARKET
The Company and its subsidiaries operate in a competitive environment, competing
for loans, deposits, and customers with commercial banks, savings associations
and other financial entities. Competition for deposits comes primarily from
other commercial banks, savings associations, credit unions, money market and
mutual funds and other investment alternatives. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. Competition for other
products, such as insurance and securities products, comes from other banks,
securities and brokerage companies, insurance companies, insurance agents and
brokers, and other nonbank financial service providers in the Company's market
area. Many of these competitors are much larger in terms of total assets and
capitalization, have greater access to capital markets, and/or offer a broader
range of financial services, such as trust services, than those offered by the
Company and its subsidiaries. In addition, banks with a larger capitalization
and financial intermediaries not subject to bank regulatory restrictions have
larger lending limits and are thereby able to serve the needs of larger
customers. Finally, the Company's growth and profitability will depend upon its
ability to attract and retain skilled managerial, marketing and technical
personnel. Competition for qualified personnel in the financial services
industry is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel.
THE BANKING INDUSTRY IS HEAVILY REGULATED; SIGNIFICANT REGULATORY CHANGES COULD
ADVERSELY AFFECT THE COMPANY'S OPERATIONS
The Company's operations and those of the Banks are and will be affected by
current and future legislation and by the policies established from time to time
by various federal and state regulatory authorities. The Company is subject to
supervision by the FRB. The Talbot Bank is subject to supervision and periodic
examination by the Maryland Commissioner and the FDIC, and The Centreville
National Bank is subject to supervision and periodic examination by the OCC and
the FDIC. Banking regulations, designed primarily for the safety of depositors,
may limit a financial institution's growth and the return to its investors by
restricting such activities as the payment of dividends, mergers with or
acquisitions by other institutions, investments, loans and interest rates,
interest rates paid on deposits, expansion of branch offices, and the offering
of securities or trust services. The Banks are also subject to capitalization
guidelines established by federal law and could be subject to enforcement
actions to the extent that the Banks are found by regulatory examiners to be
undercapitalized. It is not possible to predict what changes, if any, will be
made to existing federal and state legislation and regulations or the effect
that such changes may have on the Company's future business and earnings
prospects, as well as those of the Banks. Management also cannot predict the
nature or the extent of the effect on the Company's business and earnings of
future fiscal or monetary policies, economic controls, or new federal or state
legislation. Further, the cost of compliance with regulatory requirements may
adversely affect the Company's ability to operate profitably.
THE COMPANY MAY BE ADVERSELY AFFECTED BY RECENT LEGISLATION
The GLBA was signed into law on November 12, 1999. Among other things, GLBA
repeals restrictions on banks affiliating with securities firms. It also permits
bank holding companies that become financial holding companies to engage in
additional financial activities, including insurance and securities underwriting
and agency activities, merchant banking, and insurance company portfolio
investment activities that are currently not permitted for bank holding
companies. GLBA may have the result of increasing the competition the Company
faces from larger banks and other companies. It is not possible to predict the
full effect that GLBA will have on the Company.
In addition, recent changes in other federal banking laws facilitate interstate
branching and merger activity among banks. Such changes may result in an even
greater degree of competition in the banking industry, and the Company may be
brought into competition with institutions with which it does not presently
compete. From time to time other changes are proposed to laws affecting the
banking industry, and these changes could have a material effect on the
Company's business and prospects. The Company's future profitability may be
adversely affected by increased competition resulting from this legislation.
THE COMPANY MAY BE SUBJECT TO CLAIMS
Customers may sue the Company and its subsidiaries for losses due to alleged
breaches of fiduciary duties, errors and omissions of employees, officers and
agents, incomplete documentation, the failure of the Company and/or its
subsidiaries to comply with applicable laws and regulations, or many other
reasons. Also, the employees of the Company and/or its subsidiaries 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 may not insulate the Company and its subsidiaries 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.
-12-
THE COMPANY MAY NOT BE ABLE TO KEEP PACE WITH DEVELOPMENTS IN TECHNOLOGY
The Company and its subsidiaries use various technologies in their respective
businesses, including telecommunication, data processing, computers, automation,
internet-based banking, and debit 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 any investment it does make may not
make it more profitable.
THE COMPANY'S ARTICLES OF INCORPORATION AND BY-LAWS MAY DISCOURAGE A CORPORATE
TAKEOVER
The Company's Amended and Restated Articles of Incorporation ("Articles") and
By-Laws contain certain provisions designed to enhance the ability of the Board
of Directors to deal with attempts to acquire control of the Company. These
provisions provide for the classification of the Company's Board of Directors
into three classes; directors of each class generally serve for staggered
three-year periods. 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. Although these provisions do not preclude a takeover, they may have the
effect of discouraging a future takeover attempt which would not be approved by
the Company's Board of Directors, but pursuant to which stockholders might
receive a substantial premium for their shares over then-current market prices.
As a result, stockholders who might desire to participate in such a transaction
might not have the opportunity to do so. Such provisions will also render the
removal of the Company's Board of Directors and of management more difficult
and, therefore, may serve to perpetuate current management. As a result of the
foregoing, such provisions could potentially adversely affect the market price
of the common stock.
STATISTICAL INFORMATION
The following statistical information required under the SEC's Guide 3 for the
respective periods and at the indicated respective dates is set forth on the
pages indicated below. The information should be read in conjunction with the
related Consolidated Financial Statements and Notes thereto for the year ended
December 31, 2001.
MATURITIES OF LOAN PORTFOLIO
December 31, 2001
(In Thousands)
Maturing
Maturing After one Maturing
Within But Within After Five
One Year Five Years Years Total
Real Estate Construction
and land development $ 14,482 $5,773 $ - $ 20,255
Commercial, financial and agricultural 34,380 17,023 7,550 58,953
Mortgage 63,288 148,399 82,234 293,921
Consumer 7,168 10,934 1,475 19,577
-------- ------- -------- --------
Total $119,318 $182,129 $91,259 $392,706
======== ======== ======= ========
CLASSIFIED BY SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Fixed-Interest Rate Loans $65,032 $158,696 $40,260 $263,988
Adjustable-Interest Rate Loans 54,286 23,433 50,999 128,718
------- ------- -------- ---------
Total $119,318 $182,129 $91,259 $392,706
======== ======== ======= ========
-13-
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
(In Thousands)
December 31,
2001 2000 1999 1998 1997
--------------------------------------------------------------
Commercial Financial and Agricultural $1,563 1,694 $1,437 $947 $1,074
Real Estate-Construction 135 126 108 148 138
Real Estate-Mortgage 1,918 1,807 1,991 1,628 1,508
Consumer 387 412 438 296 350
Unallocated 186 160 17 912 871
-------- ---------- ------- -------- -----
$4,189 $4,199 $3,991 $3,931 $3,942
====== ====== ====== ====== ======
Other statistical information required in this Item 1 is incorporated by
reference from the information appearing in the Company's Annual Report to
Stockholders for the year ended December 31, 2001, as follows:
DISCLOSURE REQUIRED BY GUIDE 3 REFERENCE TO 2001 ANNUAL REPORT
- ------------------------------ -------------------------------
(I) Distribution of Assets, Liabilities and Average Balances; Yields and Rates (page 9)
Stockholders' Equity; Interest Rates and Rate/Volume Analysis (page 10)
Interest Differential Non-performing Assets (page 13)
(II) Investment Portfolio Weighted Average Maturities and
Weighted Average Yields (page 6)
Notes to Financial Statements, Note 4 - Investment in
Debt Securities - (pages 26 and 27)
(III) Loan Portfolio Year End Loan Composition (page 6)
Non-performing Assets (page 13)
(IV) Summary of Loan Loss Experience Provision and Allowance for Credit Losses (pages 11,12,13)
(V) Deposits Deposits (page 7)
(VI) Return on Equity and Assets Return on Equity and Assets (page 17)
(VII) Short Term Borrowings Short Term Borrowings (page 8)
Notes to Financial Statements, Note 9 -Short
Term Borrowings (page 29)
Notes to Financial Statements, Note 17 - Line
of Credit (page 33)
Item 2. PROPERTIES
The Company owns no real property. Talbot Bank owns real property at the
location of its main office at 18 East Dover Street, Easton, Maryland, and at
two of its four branch locations at 210 Marlboro Road, Easton, Maryland 21601
("Tred Avon Square Branch"), 8275 Elliott Road, Easton, Maryland 21601 ("Elliott
Road Branch") and 21 E. Dover Street, Easton, Maryland 21601 where certain
administrative offices of the bank are located. Two additional banking offices
are leased under operating leases. The Saint Michaels Branch is located at 1013
S. Talbot Street, St. Michaels, Maryland 21663 and the Cambridge Branch is
located at 2745 Dorchester Square, Cambridge, Maryland 21613. The St. Michaels
Branch operating lease expires in July 2006 and calls for annual rental payments
from $38,850 to $42,000 over the term of the lease. The Cambridge Branch lease
expires in July 2004 and calls for annual rental payments of $42,840. The
bookkeeping department of the Talbot Bank is located at 118 N. Dover Street.
This space is leased under an operating lease expiring in January 2004 for an
annual rent of $48,402.
Centreville National Bank owns real property at the location of its main office
at 109 North Commerce Street, Centreville, Maryland 21617, and at its five
branch locations at 2609 Centreville Road, Centreville Maryland 21617("Route 213
South Branch Office"), at 408 Thompson Creek Road, Stevensville, Maryland 21666
("Stevensville Branch Office"), at 21913 Shore Highway, Hillsboro, Maryland
21641 ("Hillsboro Branch Office"), at 305 East High Street, Chestertown,
Maryland 21620("Kent Office"), and at 850 S. 5th Avenue, Denton, Maryland 21629
("Denton Office"). Another property, the future site of a branch of The
Centreville National Bank, is owned at the intersection of Castle Marina Road
and MD Rte 18, Chester, Maryland 21619
-14-
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 a 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. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted for vote to shareholders in the Fourth quarter
of 2001.
PART II
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, 2001 under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Stock Prices and Dividends," page
16, and "Notes to Financial Statements - Regulatory Capital Requirements" on
pages 32 and 33. The Company has issued and outstanding 5,333,023 shares of
common stock, par value $0.01 per share held by 1,437 holders of record as of
March 1, 2002. See also "Risk Factors - The Company's Ability to Pay Dividends
is Limited" under Item I.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference from Annual Report to Stockholders for the year ended
December 31, 2001, page 17.
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, 2001 under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," pages 4 through 16. Reference is also made
to the information provided under the heading "Statistical Information" in Part
I, Item I, incorporated by reference herein.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the Market Risk of the Company's financial instruments
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations, Market Risk and Interest Rate Sensitivity" on pages 15 and 16 of the
Annual Report to Stockholders for the year ended December 31, 2001. The
Company's principal market risk exposure is to interest rates.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from the Annual Report to Stockholders for the year
ended December 31, 2001 under "Consolidated Financial Statements and Independent
Auditors' Report" on pages 18 through 37.
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.
-15-
PART III
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 2002 Annual Meeting under
"Election of Directors," pages 1 through 5.
A listing of Executive Officers of the Registrant is incorporated by reference
from the Definitive Proxy Statement to Stockholders for the 2002 Annual Meeting
under "Executive Officers, " page 12 and 13.
A description of compliance with reporting requirements under Section 16(a) of
the Securities and Exchange Act is incorporated by reference from the Definitive
Proxy Statement to Stockholders for the 2002 Annual Meeting under "Section 16(a)
Beneficial Ownership Reporting Compliance," page 12.
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Definitive Proxy Statement to Stockholders
for the 2002 Annual Meeting under "Executive Compensation," " Benefit Plans" and
"Executive Compensation Committee Report," pages 7 through 11, under
"Performance Graph," page 13, and the Director compensation discussion on page
5.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Definitive Proxy Statement to Stockholders
for the 2002 Annual Meeting under "Beneficial Ownership of Common Stock," pages
5 and 6.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Definitive Proxy Statement to Stockholders
for the 2002 Annual Meeting under "Election of Directors" pages 1 through 5.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1),(2) FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Income -- Years Ended December 31, 2001,
2000, and 1999
Consolidated Statements of Changes in Stockholders' Equity -- Years
Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -- Years Ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements as of December 31, 2001,
2000 and 1999
Report of Independent Auditors
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K
3.1 Shore Bancshares, Inc. Amended and Restated Articles of
Incorporation (incorporated by reference to Exhibit 3.1
on Form 8-K filed by Shore Bancshares, Inc. on December
14, 2000).
3.2 Shore Bancshares, Inc. Amended and Restated By-Laws
(incorporated by reference to Exhibit 3.2 on Form 8-K
filed by Shore Bancshares, Inc. on December 14, 2000).
10.1 Form of Employment Agreement with W. Moorhead Vermilye
(incorporated by reference to Appendix XIII of Exhibit
2.1 on Form 8-K filed by Shore Bancshares, Inc. on July
31, 2000).
10.2 Form of Employment Agreement with Daniel T. Cannon
(incorporated by reference to Appendix XIII of Exhibit
2.1 on Form 8-K filed by Shore Bancshares, Inc. on July
31, 2000).
-16-
13 2001 Annual Report of Shore Bancshares, Inc., filed
herewith.
21 Subsidiaries of Shore Bancshares, Inc., filed herewith.
23 Consent of Stegman & Company, filed herewith.
99.1 1998 Employee Stock Purchase Plan (incorporated by
reference from the Shore Bancshares, Inc. Registration
Statement on Form S-8 filed with the Commission on
September 25, 1998 Registration No. 333-64317).
99.2 1998 Stock Option Plan (incorporated by reference from
the Shore Bancshares, Inc. Registration Statement on
Form S-8 filed with the Commission on September 25, 1998
(Registration No. 333-64319)).
99.3 Talbot Bancshares, Inc. Employee Stock Option Plan
(incorporated by reference from the Shore Bancshares,
Inc. Registration Statement on Form S-8 filed May 4,
2001 (Registration No. 333-60214))
(b) Reports on Form 8-K
On December 21, 2001, the Company filed a Current Report on Form 8-K to
report the pending acquisition of certain assets and assumption of certain
liabilities of The Avon-Dixon Agency, Inc. and its subsidiaries.
(c) Exhibits required by Item 601 of Regulation S-K
See the Exhibits described in Item 14 (a)(3) above.
-17-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on March 29, 2002.
Shore Bancshares, Inc.
Date: March 29, 2002 by: /S/W. MOORHEAD VERMILYE
------------------------------
W. Moorhead Vermilye, President and CEO
Date: March 29, 2002 By: /S/SUSAN E. LEAVERTON
----------------------------------
Susan E. Leaverton, Treasurer
(Principal Accounting and Financial
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.
/s/Herbert L. Andrew, III Director March 29, 2002
- -------------------------
Herbert L. Andrew, III
- ------------------- Director March 29, 2002
Blenda W. Armistead
/s/Lloyd L. Beatty, Jr. Director March 29, 2002
- -----------------------
Lloyd L. Beatty, Jr.
/s/Paul M. Bowman Director March 29, 2002
- -----------------
Paul M. Bowman
/s/David C. Bryan Director March 29, 2002
- ------------------
David C. Bryan
/s/ Daniel T. Cannon Director March 29, 2002
- --------------------
Daniel T. Cannon
/s/B. Vance Carmean Director March 29, 2002
- -------------------
B. Vance Carmean
/s/Richard C. Granville Director March 29, 2002
- -----------------------
Richard C. Granville
/s/Neil R. LeCompte Director March 29, 2002
- -------------------
Neil R. Le Compte
/s/David L. Pyles Director March 29, 2002
- -----------------
David L. Pyles
/s/W. Moorhead Vermilye Director March 29, 2002
- -----------------------
W. Moorhead Vermilye
-18-