F&M Bancorp of Frederick, Md., said it has signed a letter of intent to buy its second insurance agency through a tax-free stock swap.

Potomac Basin Group Associates Inc. of Beltsville, Md., primarily sells employee benefit plans to midsize businesses in Maryland, Washington, and Northern Virginia, said Faye E. Cannon, F&M Bancorp's president and CEO. "We believe that nontraditional lines of business provide opportunities for us," Ms. Cannon said.

She said the product line of Potomac Basin Group, which has 40 agents, would complement the property and casualty specialty of F&M's 20-agent Keller Stonebraker Agency in Hagerstown, Md. The bank bought that agency in March 1998.

Though she would not provide sales details, Ms. Cannon said Keller Stonebraker has been a successful addition to the bank.

No organizational changes are planned for Potomac Basin Group, which would keep its name and become an operating subsidiary of the bank, Ms. Cannon said.

A definitive agreement is expected to be issued within 60 days. The deal is expected to close in the second quarter. F&M Bancorp has $1.4 billion of assets and operates Farmers and Mechanics National Bank and Home Federal Savings Bank.

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