STATE CAPITAL BANCORP INC, SB-2, 1997-01-13

STATE CAPITAL BANCORP INC
SB-2, 1997-01-13

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As filed with the Securities and Exchange Commission on January 13, 1997
Registration No. 333-__________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

STATE CAPITAL BANCORP, INC.
(exact name of registrant as specified in its certificate of incorporation)

MARYLAND 6712 Being applied for
(State or other jurisdiction of incorporation or (Primary Standard (IRS Employer Identification No.)
organization) Classification Code Number)

</TABLE>

State Capital Bancorp, Inc.
1905 White Heron Road
Annapolis, Maryland 20411
(301) 757-5372

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

John W. Marhefka, Jr.
President and Chief Executive Officer
State Capital Bancorp, Inc.
1905 White Heron Road
Annapolis, Maryland 20411
(301) 757-5372

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:
Mary M. Sjoquist, Esquire
Philip G. Feigen, Esquire
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|

If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|

<TABLE>
<CAPTION>
===================================================================================================================================
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price per Aggregate Offering Price Registration Fee
Unit (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Common Stock 800,000
$1.00 par Value Shares $10.00 $8,000,000 $2,500
===================================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.

<PAGE>

STATE CAPITAL BANCORP, INC.

Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form
SB-2:

Registration Statement Item and Caption Prospectus Headings
<S><C>
1. Front of Registration Statement and Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Offering
9. Legal Proceedings Not Applicable
10. Directors, Executive Officers, Promoters and Management
Control Persons
11. Security Ownership of Certain Beneficial Management -- General
Owners and Management
12. Description of Securities Dividend Policy; Description of the Capital Stock of
the Company

13. Interests of Named Experts and Counsel Not Applicable

14. Disclosure of Commission Position on Management -- Liability and Indemnification of
Indemnification for Securities Act Liabilities Directors and Officers

15. Organization Within Last Five Years Management -- Transactions with the Company and
Bank
16. Description of Business Prospectus Summary; The Company and the Bank;
Proposed Business: Supervision and Regulation
17. Management's Discussion and Analysis or Proposed Business; Management's Discussion and
Plan of Operation Analysis of Financial Condition and Results of
Operations
18. Description of Property The Company and the Bank
19. Certain Relationships and Related Management -- Transactions with the Company and
Transactions Bank
20. Market for Common Equity and Related Risk Factors -- Absence of a Trading Market
Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Balance Sheet of State Capital Bancorp, Inc.
23. Changes In and Disagreements With Not Applicable
Accountants on Accounting and Financial
Disclosure
</TABLE>

<PAGE>

STATE CAPITAL BANCORP, INC.
A Proposed Bank Holding Company for
STATE CAPITAL BANK
550,000 to 800,000 SHARES OF COMMON STOCK
$10.00 PER SHARE

State Capital Bancorp, Inc., a Maryland corporation (the "Company"),
hereby offers for sale to the public (the "Offering") at a price of $10.00 per
share (the "Offering Price") a minimum of 550,000 and a maximum of 800,000
shares of the Company's common stock ("Common Stock"), par value $1.00 per share
(the "Shares"). There currently is no market for the Company's Common Stock and
it is not likely that an active trading market for the shares will develop in
the near future. The Offering Price was established arbitrarily by the
Organizers. See "RISK FACTORS" - "Offering Price" and "Absence of Trading
Market."

The Company has been organized primarily to own and control, upon
receipt of regulatory approvals, all of the capital stock of State Capital Bank
( the "Bank"), a Maryland-chartered, Federal Reserve System member trust
company. The Company and the Bank have not yet conducted active business
operations, and the commencement of such operations is conditioned upon receipt
of various regulatory approvals from state and federal agencies and the sale of
a minimum of 550,000 shares of the Common Stock offered hereby. If the required
regulatory approvals are not received and/or the minimum number of shares are
not sold by ______, 1997 or by such subsequent date not beyond ______, 1997 (the
"Extended Expiration Date") to which the Offering may be extended by the
Company, all subscription proceeds will be returned promptly to the subscribers,
together with the full amount of interest earned thereon in escrow, without
deduction of any fees, commissions or expenses. See "THE OFFERING - Conditions
to the Offering and Release of Funds."

The Common Stock is being offered by the Company through Charles Webb &
Company, A Division of Keefe, Bruyette & Woods, Inc. (the "Agent") and selected
broker/dealers (the "Selected Dealers") that are registered broker/dealers and
members of the National Association of Securities Dealers, Inc., on a "best
efforts" agency basis. The Agent and the Selected Dealers have no obligation or
commitment to purchase any of the shares offered or to assure the sale of the
minimum or maximum number of shares offered hereby.

INVESTMENT IN THE COMMON STOCK INVOLVES A SUBSTANTIAL DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE ____ FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD
BE CONSIDERED BY POTENTIAL INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC") OR ANY OTHER FEDERAL AGENCY OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY OTHER FEDERAL AGENCY OR ANY
STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF COMMON STOCK
OFFERED HEREBY ARE NOT DEPOSITS OR SAVINGS ACCOUNTS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER ENTITY.

FOR INFORMATION ON HOW TO SUBSCRIBE, PLEASE CONTACT THE STOCK INFORMATION
CENTER AT ______________.

- ------------------------------------------------------------------------------------------------------------------------------
Underwriting Fees and
Price to Public (1) Offering Expenses (2) Proceeds to Company
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Per Share Minimum $10.00 $0.76 $9.24
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Maximum $10.00 $0.68 $9.32
- ------------------------------------------------------------------------------------------------------------------------------
Total Minimum (3) $5,500,000 $420,000 $5,080,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Maximum (3) $8,000,000 $545,000 $7,455,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Offering Price has been arbitrarily established by the Company. See
"RISK FACTORS - Offering Price" on page ___.
(2) Includes commissions to be paid to the Agent and Selected Dealers of
$225,000 at the Total Minimum and $350,000 at the Total Maximum, and
expenses related to the Offering of $195,000 at both the Total Minimum and
Total Maximum. Total Minimum and Total Maximum Commissions and Proceeds
to the Company assume that 100,000 shares are purchased by Organizers and
members of their immediate families. The Organizers

<PAGE>

may elect to purchase more than 100,000 shares.
(3) Subscription proceeds will be deposited in an interest bearing escrow
account at First National Bank of Maryland (the "Escrow Account"), pending
receipt of subscriptions for not less than 550,000 shares and completion
of certain other matters on or before _______, 1997, unless the Offering
is earlier terminated or extended. Any subscription proceeds accepted
after satisfaction of the above conditions and release of the subscription
amounts from the Escrow Account, but before termination of the Offering,
will not be deposited in the Escrow Account but will be available for
immediate use by the Company, subject to satisfaction of the conditions of
closing set forth in the Agency Agreement between the Company and the
Agent, to fund organizational, offering, and pre-opening expenses of the
Company and the Bank and for working capital. See "THE OFFERING".

The Offering will commence on or about _______, 1997 and will be
terminated by the Company upon the sale of 800,000 shares or on ______, 1997
whichever occurs first, unless the offering is extended, at the sole discretion
of the Company, for additional periods ending no later than ________, 1997. The
Company reserves the right to terminate the offering at any time.

The Company has established a minimum subscription of 100 shares and a maximum
subscription of 5% of the shares of Common Stock sold in the Offering; however,
the Company reserves the right to waive these limits without notice to any
subscriber. Subscriptions are binding on subscribers and may not be revoked
except with the consent of the Company. The Company may reject or cancel any
subscription in whole or in part. See "THE OFFERING - General".

The date of this Prospectus is ___, 1997 (end of cover page)

CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.

<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock, reference is hereby made to
the Registration Statement and the exhibits thereto. The Registration Statement
may be examined at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, DC 20549, and at the following Regional Offices
of the SEC: New York Regional Office, 7 World Trade Center, New York, NY 12048
and Chicago Regional Office, 500 W. Madison, Suite 1400, Chicago IL 60661.
Copies of the Registration Statement may be obtained at prescribed rates from
the Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W.,
Washington, DC 20549. In addition, the SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the SEC.

The Company and the Organizers have filed or will file various
applications with the Federal Reserve Bank of Richmond, the Federal Deposit
Insurance Corporation, and the Maryland State Bank Commissioner. As required by
the applicable regulatory authorities, these applications contain financial
projections relating to the Bank. These projections are not a part of this
Prospectus and while they are based on assumptions that the Organizers believe
are reasonable, they should not be relied on by prospective investors.
Prospective investors should rely only on information contained in this
Prospectus and in the Company's related Registration Statement in making an
investment decision. To the extent that other available information not
presented in this Prospectus, including information available from the Company
and information in public files and records maintained by the Federal Reserve
Bank of Richmond, the Federal Deposit Insurance Corporation, and the Maryland
State Bank Commissioner, is inconsistent with information presented in this
Prospectus, such other information is superseded by the information presented in
this Prospectus.

REPORTS TO SHAREHOLDERS

In connection with the Offering, the Company intends to register the
Common Stock with the SEC under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). The Company will be required to file annual
reports on Form 10-K and quarterly reports on Form 10-Q with the SEC containing
consolidated financial statements and other information concerning the
consolidated financial conditions and operations of the Company and its
subsidiaries. Pursuant to the proxy soliciting rules of the SEC, the Company
will also furnish its stockholders with annual reports containing audited
financial information for each fiscal year and will distribute quarterly reports
for the first three quarters of each fiscal year containing unaudited summary
financial information. The Company's fiscal year ends on December 31.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by more detailed
information contained elsewhere in this Prospectus.

The Company

State Capital Bancorp, Inc. was incorporated under the laws of the
State of Maryland on November 18, 1996, primarily to hold all of the capital
stock of a proposed Maryland trust company with the name of State Capital Bank.
The Company may not acquire the Bank without the prior approval of the Federal
Reserve Bank of Richmond (the "Federal Reserve"), as delegate of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), and the
Maryland State Bank Commissioner (the "Commissioner"). The Company is in the
process of filing applications for these approvals and anticipates receiving
such approvals in _______, 1997. The Company initially will engage in no
business other than owning and managing the Bank.

The Bank

The Organizers (as hereinafter defined) filed an application with the
Commissioner to charter the Bank as a Maryland trust company on December 10,
1996. The Organizers currently expect to obtain preliminary approval of the
Bank's application for a charter in February 1997. On ____________, 1997, the
Organizers filed an application with the Federal Deposit Insurance Corporation
(the "FDIC") for insurance of the Bank's deposit accounts. Upon receipt of
preliminary approval of the Bank's application for a Charter, the Organizers
will file applications with (i) the Federal Reserve Board for the Bank to become
a state bank member of the Federal Reserve System, (ii) the Federal Reserve
Board for approval to become a bank holding company and to acquire all of the
capital stock of the Bank, and (iii) the Commissioner for authorization for the
Bank to have the Company as an affiliate. Preliminary approval of the Federal
Reserve Board and FDIC applications are expected to be received in March or
April of 1997. The Bank may not conduct its banking business until the
Commissioner grants final approval of the Bank's application and issues the Bank
a charter. The issuance of a charter will depend, among other things, upon
compliance with certain legal requirements that may be imposed by the
Commissioner, including capitalization of the Bank with not less than
$5,000,000, approval of the branch site, and various other matters relating to
the proposed operations of the Bank. In order to become a state member bank of
the Federal Reserve System, the Bank must also comply with capital requirements
imposed by the Federal Reserve Board which require the Bank to maintain a
minimum total capital to assets ratio of 10% during the Bank's first three years
of operation. Upon approval of its application by the FDIC, the Bank will obtain
insurance of its deposit accounts. Upon approval by the Federal Reserve Board,
the Company will be a bank holding company and, at the completion of the
Offering, will acquire all the capital stock of the Bank.

Although competition between financial institutions in Anne Arundel
County is intense, the Organizers perceive a void in the Annapolis area for a
locally-owned, headquartered and managed community bank. Local competition
consists primarily of outside banks with Annapolis offices who, the Organizers
believe, are unable to identify with the local community to the same extent as a
locally-owned and managed bank. The Bank intends to target small to medium-sized
businesses, professional concerns and individuals by providing a level of
personal service to such customers which the Organizers believe generally is not
available at larger, non-local banks. The Bank intends to be competitive and to
provide such services by providing customers with access to decision-makers and
a staff who knows them and is attentive to their needs.

<PAGE>

John W. Marhefka, Jr., the President & Chief Executive Officer of the
Bank has over eighteen years of high level experience in the banking industry
including experience as a federal regulator and as President & Chief Executive
Officer of a bank holding company and a Maryland-chartered, Federal Reserve
member trust company in Annapolis, Maryland. As President & Chief Executive
Officer of Annapolis Bancshares, Inc. and Bank of Annapolis, he guided those
companies through the start-up phase, then through more than seven consecutive
years of earnings and asset growth before they were acquired by Sandy Spring
Bancorp, Inc. in 1996. See "MANAGEMENT - Biographies." The Organizers believe
that the experience of the President & Chief Executive Officer and the extensive
business experience and contacts of the Organizers in the Anne Arundel County
area should create immediate business opportunities for the Bank. The Organizers
presently are engaged in completing the tasks necessary to open the Bank by
April or May of 1997, although no assurances can be given that the Bank will
open for business or that the projected opening date can be achieved.

The Bank will engage in a general commercial and retail banking
business, emphasizing the needs of small businesses, professional concerns, and
individuals, primarily in the Anne Arundel County, Maryland area. The Bank
intends to offer a full range of deposit services that are typically available
in most banks and savings and loan associations, including checking accounts,
NOW accounts, savings accounts and other time deposits of various types, ranging
from daily money market accounts to longer-term certificates of deposit. The
Bank intends to solicit these accounts from individuals, businesses,
associations and organizations, and governmental authorities. The Organizers
believe that there is a need for, and that the community will support, what
would be a locally owned and operated banking institution. The Bank will not
initially have trust powers. The Bank may in the future offer a full-service
trust department, but it cannot do so without the prior approval of the Federal
Reserve and the Commissioner.

The Bank also plans to offer a full range of short-to-medium term
commercial and consumer loans. Commercial loans include both secured and
unsecured loans for working capital (including inventory and receivables),
business expansion (including acquisition of real estate and improvements) and
purchase of equipment and machinery. Consumer loans include secured and
unsecured loans for financing automobiles, home improvements, education and
personal investments. The Bank also anticipates that it will originate and hold
or sell into the secondary market fixed and variable rate mortgage loans and
real estate construction and acquisition loans. See "PROPOSED BUSINESS."

The principal executive offices of the Company and the Bank will be
located together in leased space being negotiated in, or in close proximity to,
a retail shopping center in the greater Annapolis, Maryland area. Pending
finalization of lease negotiations and commencement of operations, the Company's
interim address is P.O. Box 2148, Annapolis, MD 21404. The interim telephone
number is (410) 757-5372.

The Organizers

The organizers of the Company and the Bank (the "Organizers") are
Michael J. Bermel, William G. Chavanne, Ronald E. Gardner, Stanley J. Klos, Jr.,
John W. Marhefka, Jr., Michael B. Monias, James W. Thomasson, Sr., and Philip M.
Wackerhagen. All of the Organizers currently serve as directors of the Company
and propose to serve initially as directors of the Bank. For a description of
the experience and backgrounds of the Organizers see "MANAGEMENT- Biographies."

The Organizers, together with members of their immediate families,
intend to purchase an aggregate of _______ shares of the Common Stock to be sold
in the Offering. The Organizers will be substantially invested in the common
stock so as to assume a common purpose of building shareholder

<PAGE>

value. All shares purchased by the Organizers will be purchased for investment
and not with a view of resale of those shares.

To facilitate the Bank's formation, the Organizers have personally
guaranteed a line of credit to the Company in a maximum amount of $200,000 with
First National Bank of Maryland to be used by the Company for the purpose of
paying certain organizational, offering, and pre-opening expenses incurred by
the Company and the Bank through the date of the release of funds held in
escrow. The line of credit and interest costs will be repaid from the Offering
proceeds. Should the Offering fail to close for lack of regulatory approvals,
for lack of subscriptions for the minimum shares, or for any other reason, the
line of credit and interest costs will be repaid by the Organizers. In
recognition of the financial risks incurred by the Organizers, and in lieu of
directors fees during the initial start-up period until the Bank attains
profitability, and also as further incentive to build shareholder value as
Directors, the Company will issue Common Stock Warrants (the "Warrants") to the
Organizers. The Warrants will entitle each Organizer to purchase up to an
additional 5,000 shares of the Company's Common Stock at the Offering Price
($10.00 per share) for a period of up to ten years following completion of the
Offering. The Warrants will have a five year vesting schedule with 20% becoming
exercisable on each anniversary date of the release of funds held in the Escrow
Accounts long as the Organizer remains a Director for at least five years. See
"THE OFFERING" and "MANAGEMENT - Common Stock Warrants".

The Offering

Common Stock of the Company, par value.......... $1.00 per share

Offering Price.................................. $10.00 per share

Number of Shares
Offered ...................................... Minimum 550,000
Maximum 800,000
Use of Proceeds

The Company will use substantially all of the net proceeds of the
Offering, estimated to be between $5,080,000 and $7,455,000 but at least
$5,000,000 to capitalize the Bank through the purchase of all of the capital
stock of the Bank, subject to regulatory approval; to pay organizational
expenses of the Company and the expenses of this offering; and to provide
working capital. The Bank will use the minimum of $5,000,000 received from the
sale of its stock to the Company to pay organizational and pre-opening expenses
of the Bank including rent and leasehold improvements; and to provide working
capital to be used for business purposes, including paying salaries and making
loans and investments. See "USE OF PROCEEDS".

Conditions to Offering

This offering will be terminated and all subscription funds will be
returned promptly to subscribers, together with the full amount of interest
earned thereon in escrow and without deduction of any fees, commissions, or
expenses, unless, on or before________, 1997, (unless extended by the Company
for additional periods not to extend beyond ________, 1997), (i) the Company has
accepted subscriptions and payment in full for a minimum of 550,000 shares of
Common Stock, (ii) the Company has obtained regulatory approval from the Federal
Reserve to acquire the stock of the Bank and thereafter to become a bank holding
company, (iii) the Bank has received preliminary approval of its application for
a charter from the Commissioner, (iv) the Bank has received preliminary approval

<PAGE>

of its application for membership in the Federal Reserve System from the Federal
Reserve Board, (v) the Bank has received preliminary approval of insurance of
its deposit accounts from the FDIC. Subscription proceeds for shares subscribed
for will be deposited promptly in an escrow account with First National Bank of
Maryland (the "Escrow Account"), pending the satisfaction of the conditions set
forth above or the termination of the Offering. Any subscription proceeds
accepted after satisfaction of the conditions set forth above but before
termination of the Offering will not be deposited in the Escrow Account but will
be available for immediate use by the Company to fund offering and
organizational expenses. See "THE OFFERING."

Risk Factors

An investment in the shares of Common Stock offered hereby involves
certain risks, including, among others, lack of an operating history, dependence
on a key employee, stock ownership and control of the Company by the Organizers,
potential dilution, absence of an existing market for the Common Stock and lack
of assurance that an active market in the Common Stock will develop, no
intention to pay dividends for the foreseeable future, and competition from a
number of other financial institutions with substantially greater financial and
other resources.

RISK FACTORS

AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES CERTAIN RISKS. A
SUBSCRIPTION FOR SHARES SHOULD BE MADE ONLY AFTER CAREFUL CONSIDERATION OF THE
RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS, AND SHOULD BE
UNDERTAKEN ONLY BY PERSONS WHO CAN AFFORD AN INVESTMENT INVOLVING SUCH RISKS.

New Enterprise

The Company and the Bank are currently in the organizational stage and
neither has any operating history. As a consequence, prospective purchasers of
the shares have limited information on which to base an investment decision. As
a bank holding company, the Company's profitability will depend on the Bank's
operations. The Bank's proposed operations are subject to the risks inherent in
the establishment of any new business and, specifically, of a new bank. New
banks may incur substantial initial expenses and may not be profitable for
several years after commencing business, if ever.

Dependence on Key Employee

As a new enterprise, the Company and the Bank will be materially
dependent on the performance of John W. Marhefka, Jr., who will be the President
and Chief Executive Officer of the Company and the Bank. The loss of the
services of Mr. Marhefka or his failure to perform his management functions in
the manner anticipated by the Organizers could have a material adverse effect on
the Bank and the Company. On December 4, 1996, Mr. Marhefka entered into an
Employment Agreement with the Company and his employment commenced on that date.
The Employment Agreement provides for an initial term of five years and contains
certain provisions relating to a change in control of the Company. See
"MANAGEMENT - Employment Agreement".

<PAGE>

Control of the Company, Exercise of Warrants, and Dilution

The Organizers, all of whom will serve as directors of the Bank, and
members of their immediate families intend to purchase a minimum of 100,000
shares, equal to 18.2% of the minimum number of shares offered hereby and 12.5%
of the maximum number of shares offered hereby. Organizers may purchase
additional shares in the offering. Additionally, in recognition of their
acceptance of the financial risks incurred in connection with the organization
of the Company and the Bank, in lieu of the payment of directors' fees during
the start-up period of the Company and as further incentive for them to build
shareholder value as directors, the Company will issue an aggregate of 40,000
Common Stock Warrants to the Organizers. The Warrants will be exercisable at a
price of $10.00 per share for a period of ten years following completion of the
Offering, subject to a five year vesting schedule, with 20% of the Warrants
become exercisable on the anniversary date for each of the five years following
the Date of Satisfaction of Escrow Conditions (as defined below). See
"MANAGEMENT - Common Stock Warrants." Assuming that all of the Warrants issued
to the Organizers are exercised (subject to the five year vesting schedule) and
the Organizers acquire an aggregate of 100,000 shares in the Offering, the
Organizers as a group would own 140,000 shares. If the minimum number of shares
are sold, this would represent 23.7% of the Common Stock to be outstanding at
the completion of the Offering assuming the exercise of all warrants. If the
maximum number of shares are sold, this would represent and 16.7% of the Common
Stock to be outstanding at the completion to the Offering assuming the exercise
of all warrants. As a result of the anticipated stock ownership of the Company
by the Organizers as described above, together with the influence which may be
exerted by the Organizers due to their positions as directors of the Company and
the Bank, the Organizers will have effective control of the Company and the Bank
following the Offering.

Also, 35,000 shares of Common Stock have been allocated to a Stock
Option Plan for the purpose of recruiting and providing appropriate incentives
to officers and key employees (the "Option Holders") of the Company and the
Bank. Pursuant to an Employment Agreement with the Company, a non-transferable
option to purchase, at a price of $10.00 per share, between 5,500 and 8,000
shares (1% of the aggregate number of shares sold in the Offering) will be
granted to the Company's President & Chief Executive Officer. It is anticipated
that additional stock options will be granted in connection with the recruitment
of certain other officers and key employees of the Bank. The purchase price of
all Stock Options granted will be not less than the fair market value of the
Common Stock on the date of the grant. See "MANAGEMENT - Stock Option Plan and
Employment Agreement."

The Organizers and Option Holders in the event of any stock rise, can
be expected to exercise the already vested Warrants and Stock Options which
would result in the dilution of the interests of other investors purchasing
shares in the Offering. Furthermore, the exercise of a substantial number of the
Warrants and Stock Options could adversely impact the market value and/or book
value of the Common Stock. In addition, the terms on which the Company may be
able to obtain additional capital could be adversely affected, and the holders
of the Warrants and Stock Options could possibly exercise the Warrants and Stock
Options at a time when the Company could obtain any needed capital by a new
offering of securities at a price above or on other terms more favorable to the
Company than those provided for by the Warrants and Stock Options.

Offering Price

Because the Company and the Bank are in organization, the Offering
Price of $10.00 per share was determined by the Organizers without reference to
traditional criteria for determining stock value, such as book value or
historical or projected earnings, since such criteria are not applicable to

<PAGE>

companies with no history of operations. The price per share was set to enable
the Company to raise gross proceeds of between $5,500,000 and $8,000,000 in the
Offering, and the price per share is essentially equivalent to the initial book
value per share. No assurance is or can be given that any of the shares could be
resold for the Offering Price or any other amount.

Absence of Trading Market

There currently is no market for the shares, and it is not likely that
an active trading market will develop for the shares in the near future. The
Company will not initially meet applicable listing criteria and therefore does
not intend in the near future to list the Common Stock on a national securities
exchange or to qualify such securities for quotation on The NASDAQ Stock Market.
The Company anticipates that, upon completion of the Offering, the Agent and any
Selected Dealers will make a market in the Company's Common Stock. Additionally,
the Company anticipates trading on the Nasdaq Bulletin Board, and intends to
file application for listing on the Nasdaq SmallCap Market once it has met the
applicable criteria. However, there can be no assurance that an active trading
market for the Common Stock will develop or that Common Stock will be listed on
either the Nasdaq Bulletin Board or the Nasdaq SmallCap Market. As a result,
investors who may need or wish to dispose of all or part of their shares may be
unable to do so except in private, directly negotiated sales. See "DESCRIPTION
OF CAPITAL STOCK - Shares Eligible for Future Sale".

Dividend Policy

The Company will be dependent upon the Bank for its earnings and funds
to pay dividends on the Company's Common Stock. The Board of Directors of the
Company expects initially to follow a policy of retaining any earnings to
provide funds to operate and expand the business. Consequently, it is unlikely
that any cash dividends will be paid in the near future. It is the intention of
the Board of Directors to pay a small dividend after the Company becomes
profitable. However, there can be no assurance as to when or if a dividend will
be paid. The payment of dividends by the Company and the Bank also is subject to
legal and regulatory restrictions. Any payment of dividends by the Company in
the future will depend, in large part, on the Bank's earnings, capital
requirements, financial condition and other factors considered relevant by the
Board of Directors of the Company. See "RISK FACTORS - New Enterprise,"
"DIVIDEND POLICY," "PROPOSED BUSINESS," and "SUPERVISION AND REGULATION."

Competition

In the conduct of certain aspects of its banking business, the Bank
will encounter strong competition from other commercial banks, savings and loan
associations, credit unions, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market mutual funds, and
other financial institutions. A number of these competitors are well established
in the Anne Arundel County area. Most of the Bank's competitors have
substantially greater resources and lending limits than the Bank and offer
certain services, such as extensive and established branch networks and trust
services, that the Bank either does not expect to provide or will not provide
initially. See "PROPOSED BUSINESS - Competition." The Organizers believe that
the Bank will be able to compete effectively with these institutions, but no
assurances can be given in this regard.

<PAGE>

Regulation

The Company and the Bank will operate in a highly regulated environment
and will be subject to supervision by several governmental regulatory agencies,
including the Commissioner, the Federal Reserve Board, the FDIC, and the SEC.
Laws and regulations currently applicable to the Company and the Bank may
change, and there is no assurance that such changes will not adversely affect
the business of the Company and the Bank. See "SUPERVISION AND REGULATION."

Economic Conditions

The success of the Company and the Bank will depend, to a certain
extent, upon economic and political conditions, both local and national, as well
as governmental monetary policies. Conditions such as inflation, recession,
unemployment, changes in interest rates, short money supply and other factors
beyond the control of the Company and the Bank may adversely affect the Bank's
deposit levels and loan demand and, therefore, the earnings of the Bank and the
Company. Although the Organizers believe that the diversified economy of Anne
Arundel County provides the opportunity for favorable economic development in
the Bank's market area, there is no assurance that favorable economic
development will occur or that the Bank's expectation of corresponding growth
will be achieved.

THE COMPANY AND THE BANK

The Company was incorporated under the laws of the State of Maryland on
November 18, 1996, for the purpose of becoming a bank holding company by
acquiring all of the Common Stock of the Bank upon its formation. The Bank is
presently in the process of being organized as a state trust company under the
laws of the State of Maryland. The Organizers of the Bank filed an application
for a charter for the Bank with the Commissioner on December 10, 1996. Upon
receipt of preliminary approval for a charter from the Commissioner, the
Organizers will file an application to become a state bank member of the Federal
Reserve System. The Company will soon file an application with the Federal
Reserve seeking approval to become a bank holding company by acquiring all of
the capital stock to be issued by the Bank and the Bank will soon file an
application with the FDIC for insurance of its deposit accounts. If and when the
Company and the Bank receive the required regulatory approvals, the Company will
use at least $5,000,000 of the aggregate net proceeds of the Offering to
purchase all of the shares of Common Stock of the Bank. See "USE OF PROCEEDS."
The Company initially will engage in no business other than owning and managing
the Bank.

The Bank will engage in a general commercial and retail banking
business in Anne Arundel County, Maryland, emphasizing the banking needs of
small businesses, professional concerns, and individuals in its primary service
area. The Bank will not initially exercise trust powers. Appropriate regulatory
approvals must be obtained before trust powers are exercised.

The Organizers are engaging in the tasks necessary to open the Bank by
April or May of 1997, although no assurances can be given that the Bank can be
opened or that the projected opening date can be met. See "PROPOSED BUSINESS."
See "MANAGEMENT" for a discussion of the backgrounds of the Organizers.

The principal executive offices of the Company and the Bank will be
located together in leased space being negotiated in a retail shopping center in
the greater Annapolis, Maryland area. Pending finalization of lease negotiations
and commencement of operations, the Company's interim address is P.O. Box 2148,
Annapolis, MD 21404.

<PAGE>

THE OFFERING

General

The Company is offering for sale a minimum of 550,000 and a maximum of
800,000 shares of its Common Stock at a price of $10.00 per share to raise gross
proceeds of between $5,500,000 and $8,000,000 for the Company. The minimum
purchase for any investor is 100 shares and the maximum purchase is 5% of the
Common Stock sold in the Offering, unless the Company, in its sole discretion,
accepts a subscription for a lesser or greater number of shares. Subscribers
should be aware that beneficial ownership of more than 5% of the outstanding
shares could obligate the beneficial owner to comply with certain reporting and
disclosure requirements of federal and state banking and securities laws.

It is expected that the Organizers as a group, together with members of
their immediate families, will purchase a minimum of 100,000 shares offered
hereby; The Organizers may elect to purchase additional shares in the Offering.
Any shares purchased by the Organizers will be purchased for investment and not
with a view to resale of such shares. See "MANAGEMENT."

Subscriptions to purchase shares will be received until 5:00 p.m.,
Annapolis, Maryland time on _______, 1997, unless all of the shares are earlier
sold or the offering is earlier terminated or extended by the Company. See
"Conditions to the Offering and Release of Funds" below. The Company reserves
the right to terminate the Offering at any time or to extend the expiration date
for additional periods not to extend beyond_______, 1997. The date the Offering
terminates is referred to herein as the "Expiration Date". Written notice of an
extension of the offering period shall be given prior to the commencement of
each extended offering period to all persons who are already subscribers at the
time of the extension but such notice will not alter the binding nature of
subscriptions already accepted by the Company. Extension of the Expiration Date
might cause an increase in the Company's organizational and pre-opening expenses
and in the expenses incurred in the Offering.

Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers except with the consent of the
Company. In addition, the Company reserves the right to cancel subscriptions
received at any time and for any reason until the proceeds of the Offering are
released from the Escrow Account (as discussed in greater detail in "Conditions
to the Offering and Release of Funds" below), and the Company reserves the right
to reject, in whole or in part and in its sole discretion, any subscription. The
Company may, in its sole discretion, allocate shares among subscribers in the
event of an over-subscription for the shares of Common Stock. In determining
which subscriptions to accept, in whole or in part, the Company may take into
account the order in which subscriptions are received, a subscriber's potential
to do business with, or to direct customers to, the Bank, and the Company's
desire to have a broad distribution of stock ownership, and other
considerations.

In the event the Company rejects all, or accepts less than all, of any
subscription, the Company will refund promptly without interest the amount
remitted that corresponds to $10.00 multiplied by the number of shares as to
which the subscription is not accepted. If the Company accepts a subscription
but in its discretion subsequently elects to cancel all or part of such
subscription, the Company will refund promptly the amount remitted which
corresponds to $10.00 multiplied by the number of shares as to which the
subscription is canceled, together with any interest earned thereon.

<PAGE>

Certificates representing shares duly subscribed and paid for will be
issued by the Company promptly after the Offering conditions are satisfied and
escrowed funds are delivered to the Company.

Conditions to the Offering and Release of Funds

Subscription proceeds accepted by the Company for the initial 550,000
shares subscribed for in this offering will be promptly deposited in an escrow
account with First National Bank of Maryland (the "Escrow Agent"), until the
conditions to the Offering have been satisfied and the Company has requested
such funds, or until the earlier termination of the Offering. The Escrow Agent
has not investigated the desirability or advisability of an investment in the
shares by prospective investors and has not approved, endorsed, or passed upon
the merits of an investment in the shares of Common Stock. Subscription proceeds
held in the Escrow Account will be invested in one or more interest bearing bank
money-market accounts secured by U.S. Government securities. In no event will
the subscription proceeds held in the Escrow be invested in instruments that
would mature after the date on which escrowed funds may be required to be paid
to the Company or returned to investors. The Offering will be terminated, no
shares will be issued, and no subscription proceeds will be released from the
Escrow Account by the Escrow Agent to the Company unless on or before the
Expiration Date, (i) the Company has accepted subscriptions for and payment in
full for at least 550,000 shares, (ii) the Company has received the approval of
the Federal Reserve to acquire the stock of the Bank and thereafter to become a
bank holding company, (iii) the Bank has received preliminary approval from the
Commissioner of its application for a charter, (iv) the Bank has received
preliminary approval of its application for membership in the Federal Reserve
System from the Federal Reserve Board, and (v) the Bank has received preliminary
approval from the FDIC for insurance of its deposit accounts. The Escrow Agent
is not affiliated with the Company, the Agent, or any Selected Dealers.

If the above conditions are not satisfied by the Expiration Date, or
the Extended Expiration Date, or if the Offering is otherwise earlier
terminated, accepted subscription agreements will be of no further force or
effect and the full amount of subscription funds will be returned promptly to
subscribers, together with the full amount of interest earned thereon in the
Escrow Account, without deduction of any fees, commissions, or expenses. In such
event, organizational, offering, and pre-opening costs and expenses will be paid
by the Organizers.

If the above conditions are satisfied, the Escrow Account will be
terminated by the Company, in which event the subscription amounts held in
Escrow Account, and any interest earned thereon, will be paid to the Company.
Thereafter, any subscription proceeds accepted by the Company will not be
deposited in the Escrow Account but will be available for immediate use by the
Company, subject to satisfaction of the conditions of closing set forth in the
Agency Agreement set forth between the Company and the Agent (See "Selling
Arrangements" below), to fund organizational, offering and pre-opening expenses
of the Company and the Bank and for working capital.

It is possible that subsequent to the release of the subscription funds
from the Escrow Account (the requisite shares having been sold and the
determination having been made that the other regulatory conditions will be
satisfied) events could occur which could have the effect of preventing the Bank
from commencing business. If that were to occur, the Company intends to
liquidate and would return to the then shareholders of the Company the portion
of their investment which is equal to their total investment less their pro rata
share of the expenses incurred by the Company and the Bank. See "USE OF
PROCEEDS," and "CAPITALIZATION." While no assurance can be given that the
foregoing will not take place, the organizers cannot foresee any such events and
believe it is highly unlikely that such events will occur.

<PAGE>

How to Subscribe

Shares may be subscribed for by delivering the Subscription Agreement
attached hereto as Exhibit A, completed and executed, to the Stock Information
Center, established by the Agent, on or before the Expiration Date. The address
of the Stock Information Center is _________________. Subscribers should retain
a copy of the completed Subscription Agreement for their records. The
subscription price is due and payable when the Subscription Agreement is
delivered. Payment must be made in United States dollars by check, bank draft or
money order drawn to the order of "First National Bank of Maryland, as Escrow
Agent for State Capital Bancorp, Inc.", in the amount of $10.00 multiplied by
the number of shares subscribed for. Funds also may be delivered to the Escrow
Agent by wire transfer as set forth in the Subscription Agreement.

Prospectus Delivery and Procedure for Purchasing Shares

To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the Expiration Date, or Extended Expiration Date, in accordance with
Rule 15c2-8 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), no Prospectus will be mailed any later than five days prior to the
Expiration Date, or Extended Expiration Date, or hand delivered any later than
two days prior to such date. Order forms will only be distributed with a
Prospectus. Execution of the order form will confirm receipt of the Prospectus
in accordance with Rule 15c2-8. The Company is not obligated to accept orders
not submitted on original order forms. Order forms unaccompanied by an executed
acknowledgment form will not be accepted. Payment by check, money order,
bank-draft, cash, or wire transfer must accompany the order and acknowledgment
forms.

Selling Arrangements

The Company has engaged Charles Webb & Company, A Division of Keefe,
Bruyette, & Woods, Inc., (the "Agent") as financial and marketing advisor to
advise the Company with respect to the Offering. The Agent is a member of the
National Association of Securities Dealers, Inc. (the "NASD"). The Agent will
assist the Company in the Offering by, among other things, (i) developing
marketing materials; (ii) targeting potential investors in the Offering; (iii)
soliciting potential investors by phone or in person; and (iv) managing the
subscription campaign.

The Company will pay the Agent a fee equal to 5.0% of the dollar value
of all stock sold in the Offering, excluding shares sold to the Organizers and
members of their immediate families. Such fees will be paid upon the sale of
550,000 shares of Common Stock, the termination of the Escrow Account, the
release of funds to the Company, and the issuance of shares to subscribers whose
subscriptions have been accepted (the "Closing"). If the shares continue to be
sold after the Closing, the fees due to the Agent will be paid at the
termination of the Offering. The Agent shall be reimbursed for its expenses,
including its legal fees, in an amount not to exceed $25,000. The Agent has not
prepared any report or opinion constituting a recommendation or advice to the
Company or to persons who subscribe in the Offering, nor has it prepared an
opinion as to the fairness to the Company of the Offering Price or the terms of
the Offering. The Agent expresses no opinion as to the price at which the Common
Stock to be issued in the Offering may trade after the Offering. The Company has
agreed to indemnify the Agent against certain liabilities, including certain
liabilities under the Securities Act relating to the Agreement with the Agent.

The Agent may seek to form a syndicate of registered broker-dealers
(the "Selected Dealers") to assist in the sale of such Common Stock on a best
efforts basis, subject to the terms and conditions set forth in an agreement
with Selected Dealers. The Agent will endeavor to distribute the Common

<PAGE>

Stock among Selected Dealers in a fashion which best meets the distribution
objectives of the Company. The Agent will be paid a fee not to exceed 5.0% of
the aggregate purchase price of the shares of Common Stock sold by them. The
Agent will pass onto Selected Dealers, who assist in the Offering, an amount
competitive with gross underwriting discounts charged at such time for
comparable amounts of stock sold at a comparable price per share in a similar
market environment. Fees with respect to purchases effected with the assistance
of Selected Dealers other than the Agent shall be transmitted by the Agent to
such Selected Dealers. Total marketing fees are expected to be $225,000 and
$350,000 at the minimum and maximum of the Offering, respectively.

Directors and executive officers of the Company may participate in the
solicitation of offers to purchase Common Stock. The Company will rely on Rule
3a4-1 under the Exchange Act, and sales of Common Stock will be conducted within
the requirements of Rule 3a4-1, so as to permit directors and executive officers
of the Company to participate in the sale of Common Stock. No director, officer,
or employee of the Company will be compensated in connection with his/her
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.

USE OF PROCEEDS

By the Company

Upon satisfaction of all of the conditions discussed in "The Offering -
Conditions to the Offering and Release of Funds", all subscription funds held in
the Escrow Account, together with interest earned thereon, will be released and
will become capital of the Company. The net proceeds to the Company from the
sale of the shares offered hereby, after deducting the underwriting commissions
of 5% of gross offering proceeds and following deduction of expenses estimated
to be $195,000 including repayment of the Company's loan which is guaranteed by
the Organizers for organizational and pre-opening expenses, is estimated to be
between $5,080,000 and $7,455,000. The Company will use substantially all of the
net proceeds and at least $5,000,000 to purchase all of the capital stock of the
Bank. The Company will retain the balance of the proceeds, for working capital
and other general corporate purposes, including payment of expenses of the
Company and the provision of additional capital for the Bank, if necessary or
desirable. See "Proposed Business"

By the Bank

The Bank intends to use the proceeds resulting from the sale of its
capital stock to the Company for general corporate purposes including the
origination of loans, the purchase of investment securities, officer and
employee salaries, rental of office space and purchase of related leasehold
improvements, purchase of furniture, fixtures and equipment, and other general
corporate purposes.

It is the opinion of the Organizers that the minimum net proceeds of
$5,080,000 from the Offering will satisfy the cash requirements of the Company
and the Bank for their respective first five years of operations and that the
Company and the Bank will not need to raise additional funds for operations
during this period, but there can be no assurance that this will be the case.
This opinion is based on the level of expenses commensurate with the number of
employees and the size of the operations of the Bank planned during this period
and the amount of capital normally required for a bank with total assets in the
range in which the Organizers expect the Bank's assets to be during its first
five years of operations.

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996, and the pro forma consolidated capitalization of the Company
and the Bank, as adjusted to give effect to receipt by the Company of the net
proceeds from the sale of the minimum 550,000 shares and the maximum 800,000
shares in the Offering. The Company has established May 1, 1997 as the target
date for opening of the Bank; accordingly, the "As Adjusted " column reflects
estimated pre-opening expenses of the Company and the Bank through April 30,
1997. There can be no assurances that the Bank can be opened or that this target
date can be met, or that pre-opening expenses will not be more than that
estimated by the Organizers and set forth below.

One Hundred shares of Common Stock are currently issued and outstanding
and are owned by John W. Marhefka, Jr. The shares were purchased by Mr. Marhefka
to provide the initial capitalization of the Company as required under Maryland
law and will be redeemed by the Company as soon as practicable after the
issuance of the shares of Common Stock offered hereby at a price of $10.00 per
share, the same price at which they were issued.

Sale of Sale of
550,000 shares 800,000 shares
Stockholders' Equity Dec. 31, 1996 As adjusted As Adjusted
- -------------------- ------------- -------------- --------------
<S><C>
Common Stock, par value $1.00 per share;
5,000,000 shares authorized; 100 shares
issued and outstanding; 550,000 shares
issued and outstanding As Adjusted
(minimum offering) $ 100 $ 550,000 $ 800,000

Surplus (1) $ 900 $4,530,000 $6,655,000

Deficit accumulated during
pre-opening period(2) $ -0- $ (50,000) $ (50,000)
------ ---------- ----------

Total Stockholders' Equity $1,000 $5,030,000 $7,405,000
</TABLE>

(1) The fees, commissions and expenses of the offering will be charged
against this account. The fees and commissions are expected to be
$225,000 at the minimum and $350,000 at the maximum, and expenses are
estimated to be $195,000 and such amounts were used in the
calculation of the amount shown in the "As Adjusted" columns.
(2) The deficit results from the expensing of estimated pre-opening
expenses from the time when the Offering is completed, projected to be
_______, 1997, and the time when the Bank commences operations,
projected to be May 1, 1997. These expenses include rent, salaries of
officers and employees, and other general operating expenses.

DIVIDEND POLICY

The Board of Directors of the Company expects initially to follow a
policy of retaining any earnings to provide funds to operate and expand the
business. Consequently, it is unlikely that any cash dividends will be paid in
the near future. It is the intention of the Board of Directors to pay a small
dividend after the Company becomes profitable. However, there can be no
assurance as to when or if a dividend will be paid.

<PAGE>

The Company's ability to pay any cash dividends to its shareholders in
the future will depend primarily on the Bank's ability to pay dividends to the
Company, and to a lesser extent the amount of proceeds raised in the Offering.
In order to pay dividends to the Company, the Bank must comply with the
requirements of all applicable laws and regulations. Under Maryland law, the
Bank may pay a cash dividend only from the following, after providing for due or
accrued expenses, losses, interest, and taxes: (i) its undivided profits, or
(ii) with the prior approval of the Commissioner, its surplus in excess of 100%
of its required capital stock. In addition, the Bank must obtain the approval of
the Federal Reserve Board if the total amount of all dividends declared by the
Bank in any calendar year exceeds the Bank's net profits to date for that year
combined with its retained net profits for the preceding two years.
Additionally, the Federal Reserve Board may prohibit the payment of any dividend
by the Bank if such payment would constitute an unsafe and unsound banking
practice. The Federal Reserve has expressed the view that banks and bank holding
companies should refrain from or limit dividend increases or reduce or eliminate
dividends under circumstances in which the bank or bank holding company fails to
meet minimum capital requirements or in which earnings are impaired.
See "SUPERVISION AND REGULATION".

In addition to the availability of funds from the Bank, the future
dividend policy of the Company is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
financial condition, cash needs and general business conditions. If dividends
should be declared in the future, the amount of such dividends presently cannot
be estimated and it cannot be known whether such dividends, once commenced,
would continue for future periods.

PROPOSED BUSINESS

General

The Company was incorporated as a Maryland corporation on November 18,
1996, primarily to own and control all of the capital stock of the Bank. The
Company initially will engage in no business other than owning and managing the
Bank and the Company has not considered engaging in any additional business. The
Organizers have chosen a holding company structure under which the Company will
acquire all of the capital stock of the Bank because, in the judgment of the
Organizers, the holding company structure provides flexibility to the Company
that would not otherwise be available.

The holding company structure can assist the Bank in maintaining its
required capital ratios because, subject to compliance with Federal Reserve
Board debt guidelines, the Company may borrow money and contribute the proceeds
to the Bank as primary capital. Moreover a holding company may engage in certain
non-banking activities that the Federal Reserve Board has deemed to be closely
related to banking. See "SUPERVISION AND REGULATION" below. Although the Company
has no present intention of engaging in any of these activities, if
circumstances should lead the Company's management to believe that there is a
need for these services in the Bank's market area and that such activities could
be profitably conducted, management of the Company would have the flexibility of
commencing these activities upon filing a notice or application therefor with
the Federal Reserve.

The Bank is being organized as a state chartered trust company under
the laws of the State of Maryland and, subject to regulatory approval, the Bank
will engage in a commercial banking business from a main office location in its
primary service area, Anne Arundel County, Maryland, with deposits insured by
the FDIC. The Bank will seek approval from the Federal Reserve Board to become a
state bank member of the Federal Reserve System. The Bank may not commence
business until the Commissioner issues a charter for the Bank. There is no
assurance that the Bank will be successful in

<PAGE>

receiving regulatory approval and satisfying any conditions that may be imposed
upon the Bank by the Commissioner or the Federal Reserve Board prior to the
commencement of its business.

Location and Service Area

The Bank plans to conduct a general commercial and retail banking
business in its service area, emphasizing the banking needs of small businesses,
professional concerns and individuals. The Bank proposes to operate initially
from a leased facility in the greater Annapolis area. See "Facility" below. The
Organizers expect that the Bank will draw most of its customer deposits and
conduct most of its lending transactions in the Anne Arundel County and nearby
surrounding areas. The Organizers believe that there is a need for, and that the
community will support, what would be a locally owned and operated banking
institution.

Anne Arundel County is centrally located at the heart of a mid-Atlantic
metropolitan area bounded to the north by Baltimore, to the east by the
Chesapeake Bay, and to the southwest by the suburbs of Washington, DC.
Annapolis, which serves as both the Anne Arundel County seat and the Maryland
State capital, is conveniently located only 24 highway miles from Baltimore, MD
and 33 highway miles from Washington, DC. The county has experienced rapid
population growth, with total population having increased from 370,775 in 1980
to 427,239 in 1990 to 459,700 in 1995 (sources Anne Arundel County Department of
Planning, Maryland Office of Planning, U.S. Bureau of the Census). The
population of Anne Arundel County is relatively young (42.4% between the ages of
20 and 44 and 20.6% between 45 and 64 with only 9.7% being 65 and over as of
1993 as estimated by the Maryland Department of Health & Mental Hygiene) and
affluent (1994 median household disposable personal income of $49,671 as
compared to $44,439 for Maryland and $37,070 for the entire United States of
America according to the Office of Business and Economic Research).

The local economy in Anne Arundel County has historically been very
strong and its strength is based upon its diversity. As state capital and county
seat, Annapolis serves as a major government center. Annapolis is home to the
United States Naval Academy which, in addition to enrolling about 4,000 students
from every state in the country, serves as a significant employer and a major
tourist attraction. Anne Arundel County is home to Baltimore-Washington
International Airport ("BWI"), the fastest growing airport in the country, whose
surrounding supporting business district includes more than 30 business parks
with over 11 million square feet of commercial space to meet the needs of
manufacturers, distributors, high-tech and service companies, and specialized
firms. As a 300 year old colonial sea town on the Chesapeake Bay, Annapolis
serves as a major tourist attraction. Tourism is a strong and growing industry
which pumps $1.4 Billion a year into the county economy. The visitors industry
is one of the largest sources of employment in Anne Arundel County, with over
12,000 people employed by visitor-related businesses. The hospitality industry
is vital to the local economy where hotels at BWI and Annapolis attract not only
tourists but also business travelers and conferences. In additional to fostering
a large recreational boating industry, the Chesapeake Bay also supports a
significant waterman's industry for many people who earn their living working
the bay. Other major Anne Arundel County employers (with number of employees)
include the National Security Agency (35,000), Ft. George C. Meade defense
facility (14,000), State of Maryland (8,725), Northrop Grumman (7,000), Anne
Arundel County Public School System (7,651), Anne Arundel County (3,500), U.S.
Naval Academy (2,510), USAir (2,400), Anne Arundel Health System, Inc. (1,800),
North Arundel Hospital (1,700), Baltimore Gas & Electric (1,372), McDonald's
Corporation (1,300), Giant Food Company (1,281), ARINC (1,100), Wal-Mart Stores
(1,050), International Paper (892), IIT Research Institute (660), and Martin
Marietta (630). Additionally, in 1995, Potomac Electric Power Company and
Baltimore Gas and Electric announced merger plans, to be completed in 1997, that
will create Constellation Energy Corporation, a major power company to be
headquartered

<PAGE>

in Annapolis. Although the Organizers are optimistic about the future economic
prospects for Anne Arundel County, no assurances can be given that growth in
population and number of businesses and increases or improvement in income
levels, housing values and other economic indicators will occur or continue in
the future.

Banking Services

The Bank intends to offer a full range of deposit services that are
typically available in most banks and savings and loan associations, including
checking accounts, NOW accounts, savings accounts and other time deposits of
various types, ranging from daily money market accounts to longer-term
certificates of deposit. The transaction accounts and time certificates will be
tailored to the Bank's principal market area at rates competitive to those
offered in the area. In addition, the Bank intends to offer certain retirement
account services, such as Individual Retirement Accounts (IRAs). All deposit
accounts will be insured by the FDIC up to the maximum amount allowed by law
(generally $100,000 per depositor subject to aggregation rules). The Bank
intends to solicit these accounts from individuals, businesses, associations and
organizations, and governmental authorities.

The principal economic risk associated with each of the categories of
anticipated loans is the creditworthiness of the Bank's prospective borrowers.
Within each such loan category, the level of risk is increased or decreased
depending upon economic conditions prevailing from time to time. The unsecured
loans in all categories have a higher risk than secured loans. Unsecured loans
will be extended only to properly qualified borrowers in the opinion of the
Bank. In addition, it is anticipated that a substantial portion of the Bank's
loans will be made to small businesses and professional persons, who may be less
able to withstand unforeseen competitive, economic and financial conditions than
borrowers of a more substantial size. The risk associated with real estate
mortgage loans and installment loans to individuals varies based upon the
strength and activity of the local economies of the Bank's proposed market
areas. The risk associated with real estate construction loans varies based on
supply of and demand for the type of real estate under construction. Further,
real estate construction loans are subject to special risks due to conditions
beyond the control of the borrower, including cost overruns, adverse weather,
labor strikes, unavailability of materials and inability to obtain government
approvals. The Company anticipates that most of the Bank's real estate
construction loans will be for pre-sold or contract homes.

The Bank's loan underwriting standards will be comparable to those
adopted by other commercial lenders for similar loans made in the Bank's market
area and will be based upon management's experience with other financial
institutions. These standards will include, but will not be limited to, such
factors as loan-to-value ratios, credit risk insurance, lien positions and
lending officer and credit committee approval authorities. For example, loans
secured by real estate will generally require that the loan-to-appraised value
ratio not exceed 80%. Any second mortgage loan generally will, when added to the
outstanding balance of any first mortgage, not exceed an 80%

<PAGE>

loan-to-appraised value ratio. The Bank will not as a general practice require
credit insurance for its secured loans and generally will not go beyond a second
lien position on the collateral for such loans. Although the specifics of the
Bank's credit approval process have not yet been determined, it is expected
that, depending on the size and the nature of the loan, such approval process
will consist of one or more of the following credit authorities: (i) individual
officer loan authorities, (ii) an officer loan committee, (iii) a director loan
committee and/or (iv) the full Board of Directors.

The Bank's lending activities will be subject to a variety of lending
limits imposed by federal law. While differing limits apply in certain
circumstances based on the type of loan or the nature of the borrower (including
the borrower's relationship to the Bank), in general the Bank will be subject to
a loan-to-one borrower limit of an amount equal to (i) 15% of the Bank's
unimpaired capital and surplus in the case of loans which are not fully secured
by readily marketable collateral, or (ii) 25% of the unimpaired capital and
surplus if the excess over 15% is fully secured by readily marketable
collateral. Based on the minimum $5,000,000 initial capitalization of the Bank,
the Bank's lending limit will be approximately $750,000 for loans not fully
secured and $1,250,000 for loans for which the excess over 15% is fully secured.
The limits will increase and decrease as the Bank's capital increases and
decreases. The Bank expects to sell participations in its loans to other
financial institutions to enable it to meet all of the lending needs of loan
customers requiring aggregate extensions of credit above these limits.
Additionally, the Bank voluntarily may choose to impose a policy limit on loans
to a single borrower that is less than the legal lending limit. The Bank may not
make any extensions of credit to any director, executive officer, or principal
shareholder of the Bank, or to any related interest of such person, unless the
extension of credit is approved by the Board of Directors of the Bank and is
made on terms not more favorable to such person than would be available to a
person not affiliated with the Bank.

In recognition of the inherent risks which the Bank assumes in
connection with the business of extending credit, the Bank will maintain an
allowance for loan losses. The loan loss allowance will be maintained through
periodic provisions for loan losses, based upon management's evaluation of the
collectibility of loans, prior loan loss experience, and other portfolio
quality, review of specific problem loans, and current economic conditions that
may affect a borrower's ability to repay. The Bank's policy will be to maintain
the allowance at a level considered adequate based on the above factors. The
allowance may be for specific anticipated loan losses in the portfolio, or it
may be general in nature. Management will continually evaluate the allowance for
loan losses and make adjustments as necessary to assure its adequacy. The
allowance for loan losses will be based on estimates, and ultimate loan losses
may vary from those estimates.

Other anticipated bank services include travelers checks, money orders,
direct deposit of payroll and social security checks and automatic drafts for
various accounts. The Bank plans to become associated with a shared network of
automated teller machines that may be used by Bank customers throughout Maryland
and other regions. The Bank also plans to offer MasterCard and VISA credit card
services through a correspondent bank or other agent for the Bank.

It is not anticipated that the Bank will have trust powers during its
initial years of operation. The Bank may in the future offer a full-service
trust department, but cannot do so without the prior approval of the
Commissioner and the Federal Reserve. The Bank may also contract for the
provision of trust services to its customers through outside vendors.

The Bank intends to maintain a portfolio of investment securities to
enhance its net interest margin while providing additional liquidity. Maturities
of the various investments in the portfolio will be staggered so as to provide
recurring opportunities to either reinvest funds or liquidate investments

<PAGE>

to provide for other uses of funds. Additionally, securities in the portfolio
may be pledged to secure funding sources in connection with the Bank's overall
liquidity management policy.

Competition

The banking business is highly competitive. The Bank will compete as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in Anne Arundel County and elsewhere.

The Bank's Anne Arundel County service area is a highly concentrated,
highly branched banking market. Competition in Anne Arundel County for loans to
small businesses and professionals, the Bank's target market, is intense, and
pricing, service and access to decision-making is important. Most of the Bank's
competitors have substantially greater resources and lending limits than the
Bank and offer certain services, such as extensive and established branch
networks and trust services, that the Bank does not expect to provide or will
not provide initially. Deposit competition among institutions in Anne Arundel
County also is strong. As a result, it is possible that the Bank may pay
above-market rates to attract deposits.

Although the Anne Arundel County market is heavily banked (presumably
because of its relatively affluent population representing a relatively large
deposit base), the competition comes primarily from branch offices of
out-of-county or out-of-state banks. Therefore, the Bank must compete in a niche
where it can succeed against large banks which offer a greater variety of
products and services and are more convenient to the population by virtue of
having more office locations The bank intends to be competitive by providing
customers with access to decision-makers and a staff who knows them and is
attentive to their needs.

As of June 30, 1995, while there were eighteen commercial banks
operating a total of one-hundred nineteen offices in Anne Arundel County holding
deposits totaling more than $3 billion, only three of these commercial banks
(Bank of Glen Burnie, five Anne Arundel County offices, total Anne Arundel
County deposits of $208.0 million; Annapolis National Bank, four county offices,
$61.6 million; and Bank of Annapolis, one office, $60.4 million) were
independently owned and locally managed banks headquartered in Anne Arundel
County. The largest commercial bank holders of deposits in Anne Arundel County
were branch offices of out-of-market owned banks (Nationsbank, headquartered in
North Carolina, $580.8 million in 17 offices; Farmers Bank of Maryland, owned by
First Virginia Bancorp in Virginia, $473.6 million in 13 offices; First National
Bank of Maryland, owned by Allied Irish Bank of Dublin, Ireland, $442.5 million
in 17 offices).

Similarly, as of June 30, 1995, while there were eighteen savings and
loan associations/savings banks operating a total of thirty-three offices in
Anne Arundel County holding deposits totaling more than $835 million, only four
of these savings and loan associations/savings banks (Arundel Federal Savings
Bank, three Anne Arundel County offices, total Anne Arundel County deposits of
$115.6 million; Severn Savings Bank, FSB, two offices, $100.3 million; Odenton
Federal Savings & Loan Association, one office, $28.0 million; and North Arundel
Savings Bank, one office, $18.0 million) were independently owned and locally
managed savings and loan associations/savings banks headquartered in Anne
Arundel County.

Additionally, the deposit base required to meet the growth goals of the
Bank represents only a small portion of the more than $4.5 billion of insured
deposits held by federally-insured financial

<PAGE>

institutions in Anne Arundel County as of June 30, 1995. The Organizers believe
that the Bank will be able to compete effectively in this market as an
independently-owned, locally managed bank headquartered in Anne Arundel County.
The Organizers believe that the area will react favorably to the Bank's proposed
community bank focus and emphasis on service to small businesses, individuals
and professional concerns. However, there can be no assurance of the Bank's
success in this regard.

Facility

The Organizers anticipate that the Company and the Bank will initially
operate from the same facility in the greater Annapolis, Maryland area. The
facility will be leased space in, or in close proximity to, a retail shopping
center which is highly visible, easily accessible, and heavily trafficked.
Negotiations for such space are ongoing and are expected to be concluded in a
timely manner to accomplish an orderly opening of the Bank's operations as soon
as practicable following completion of the Offering and receipt of appropriate
regulatory approvals.

Employees

The Company anticipates that, upon commencement of operations, the Bank
will have approximately ten (10) full-time employees and no part-time employees.
The Company will not have any employees other than its officers, none whom will
initially receive any remuneration for their services to the Company.

Legal Proceedings

Neither the Company nor the Bank are party to any legal proceedings.

SUPERVISION AND REGULATION

General. The Company and the Bank will operate in a highly regulated
environment and their business activities will be governed by a number of
federal and state statutes, regulations and administrative policies. The
business activities of the Company will be supervised and regulated by the
Federal Reserve Board and the Company will be required to file periodic reports
with the SEC. Additionally, the business activities of the Bank will be
supervised and regulated by a number of regulatory agencies, including the
Federal Reserve Board, the FDIC, and the Commissioner. The scope of regulation
and permissible activities of the Company and the Bank will be subject to change
by future federal and state legislation.

Bank Regulation. The Bank will be organized as a state trust company
under the laws of the State of Maryland and its deposits will be insured by the
FDIC up to a maximum amount (generally $100,000 per depositor subject to
aggregation rules). Consequently, most of the Bank's operations will be
regulated and examined by the Federal Reserve Board, the Commissioner, and the
FDIC, including reserves, loans, investments, borrowings, deposits, mergers,
issuances of securities, payments of dividends, interest rates or fees
chargeable on loans, establishment of branches, consolidation or corporate
reorganization, and maintenance of books and records. In an effort to achieve a
measure of capital adequacy that is more sensitive to the individual risk
profiles of financial institutions, the Federal Reserve Board has adopted
risk-based capital rules in addition to a leverage requirement. The risk-based
capital regulations redefine traditional capital ratios to take into account
assessments of risks related to each balance sheet category, as well as
off-balance sheet financing activities. Failure to meet the capital requirements
would mean that a state member bank would be required to develop and file a plan
with the Federal Reserve Board describing the means of and a schedule for
achieving the

<PAGE>

minimum capital requirements within a reasonable period of time. In addition,
such a state member bank could not pay dividends and would generally not receive
the Federal Reserve Board's approval of any application that requires the
consideration of capital adequacy, such as a branch application, unless the
Federal Reserve Board found that the bank had a reasonable plan to meet the
capital requirement within a reasonable period of time. Further, federal law
established certain mandatory and optional regulatory responses to
undercapitalized institutions, the severity of which depends upon the degree of
undercapitalization. The Federal Reserve Board requires state chartered member
banks, such as the Bank, to maintain a minimum tier 1 capital to total assets
ratio of 4%, total capital to risk based assets of 8% and Tier 1 capital to
risk-based assets of 4%. In addition, it is anticipated the Federal Reserve
Board will require the Bank to maintain a minimum total capital to assets ratio
of 10% during the Bank's first three years of operation. The Bank intends to
control its asset growth in order to maintain capital levels in excess of these
ratios. The Bank will be required by the Federal Reserve Board to prepare annual
reports on the Bank's financial condition and to conduct an annual internal
audit of its financial affairs in compliance with minimum standards and
procedures prescribed by the Federal Reserve Board. The Bank will be required by
the Commissioner to prepare quarterly reports on the Bank's financial condition
and to have a certified public accountant audit the Bank every five years.

A state member bank may not pay dividends from its capital; all
dividends must be paid out of net profits then on hand, after deducting
expenses, including losses and bad debts. In addition, the approval of the
Federal Reserve Board is required if the total of all dividends declared by a
state member bank in any calendar year exceeds the total of its net profits for
that year combined with its retained net profits for the preceding two years,
less any required transfers to surplus.

The Commissioner prohibits the declaration of cash dividends by a
Maryland state bank except to the extent that the dividends are from the
following, after providing for due or accrued expenses, losses, interest, and
taxes: (I) the Bank's undivided profits, or (ii) with the prior approval of the
Commissioner, the Bank's surplus in excess of 100% of its required capital
stock.

Federal law restricts the amount of and prescribes conditions with
respect to loans, investments, asset purchases and other transactions ("Covered
Transactions") between banks and their affiliates. The aggregate of all Covered
Transactions is limited in amount, as to any one affiliate, to 10% of the Bank's
capital and surplus and, as to all affiliates combined, to 20% of the Bank's
capital and surplus. Furthermore, within the foregoing limitations as to amount,
certain Covered Transactions must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the Bank's
acquisition of low quality assets. These restrictions and conditions will apply
to Covered Transactions between the Company and the Bank. Federal law also
generally requires that transactions between the Bank and its affiliates,
including the Company, be on terms and conditions, including credit standards,
that are no less favorable to the Bank as comparable transactions involving
nonaffiliated companies.

The Bank will be subject to state usury laws governing interest rates
and other finance charges collectible by the Bank on loans. The Bank's loan
operations will also be subject to certain federal laws applicable to credit
transactions, such as the Federal Truth-in-Lending Act governing disclosures of
credit terms to consumer borrowers, the Equal Credit Opportunity Act prohibiting
discrimination on the basis of race, creed or other prohibited factors in
extending credit, the Fair Credit Reporting Act governing the use and provision
of information to credit reporting agencies, the Fair Debt Collection Act
governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of the Bank will also be subject to the Electronic Funds

<PAGE>

Transfer Act and Regulation E issued by the Federal Reserve Board to implement
that Act, which govern automatic deposits to and withdrawals from deposit
accounts and customers' rights and liabilities arising from the use of automated
teller machines and other electronic banking services.

The Commissioner, Federal Reserve Board and FDIC have a variety of
formal and informal enforcement measures available to them to enforce compliance
with applicable law and safe and sound banking practices. Formal enforcement
action may range from the issuance of a capital directive or cease and desist
order to removal of officers and directors, appointment of a receiver or
conservator or termination of deposit insurance. Civil money penalties may also
be issued against an institution and its "institution-affiliated parties,"
including directors, officers, employees, controlling stockholders or others who
participate in the conduct of the institution's business. Subject to a narrow
exception, the eventual appointment of a conservator or receiver is required for
an institution whose tangible capital to total assets ratio falls to 2% or less.

Insurance of Deposits. Following FDIC approval, deposits of the Bank
will be insured by the Bank Insurance Fund ("BIF") of the FDIC. Both the BIF and
the Savings Association Insurance Fund ("SAIF"), the deposit insurance fund that
covers most savings and loan association deposits, are statutorily required to
be recapitalized to a 1.25% of insured deposits reserve ratio. A portion of the
insurance assessment paid by SAIF members has been required by statute to be
used to make payments on bonds issued by the Financing Corporation ("FICO"),
which were issued in the late 1980's to recapitalize the predecessor to the
SAIF.

The BIF has achieved the 1.25% ratio and the FDIC adopted a new
assessment rate schedule of 0 to 27 basis points for BIF members. Under the new
schedule, approximately 92% of BIF members were required to pay only $2,000 per
year, the legal minimum, in insurance premiums. Management, however, can make no
assurance as to its premium or that such premium will not change in the future.
With respect to SAIF member institutions, the FDIC adopted a final rule
retaining the existing assessment rate schedule applicable to SAIF member
institutions of 23 to 31 basis points. The SAIF was several years away from
achieving the required ratio largely due to the required FICO payments.
Consequently, a significant differential in the insurance premiums paid by BIF
and SAIF members arose.

Legislation was recently enacted to mitigate the effect of the BIF/SAIF
premium disparity. Among other things, the legislation also spreads to BIF
members a portion of the burden of making FICO payments. Beginning on January 1,
1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits and, based on current estimates, BIF deposits
will be assessed a FICO payment of 1.3 basis points, while SAIF deposits will
pay an estimated 6.4 basis points on FICO. Full pro rata sharing of the FICO
payments by BIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged. The legislation specifies that the BIF and SAIF
will be merged on January 1, 1999, provided that there are no more savings
associations as of that date. This will require subsequent legislation
eliminating the thrift charter. Management cannot predict the exact amount of
the assessment rates on BIF deposits for FICO obligations or whether the BIF and
SAIF will eventually be merged.

Bank Holding Company Regulation. Because it will own the outstanding
stock of the Bank, the Company will be a bank holding company within the meaning
of the federal Bank Holding Company Act of 1956. As a bank holding company, the
Company will be required to register with the Federal Reserve Board and to file
with this agency reports and other information regarding its business operations
and those of its subsidiaries. It will also be subject to examination by the
Federal Reserve Board. Under the federal Bank Holding Company Act of 1956, it is
unlawful, without the

<PAGE>

prior approval of the Federal Reserve Board (i) for any bank holding company to
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank, (ii) for any bank holding company or subsidiary thereof,
other than a bank, to acquire all or substantially all of the assets of a bank,
or (iii) for any bank holding company to merge or consolidate with any other
bank holding company.

Generally, a bank holding company is prohibited from acquiring direct
or indirect ownership or control of any voting stock of any company which is not
a bank or a bank holding company and must engage only in the business of banking
or managing or controlling banks or furnishing services to or performing
services for its subsidiary banks. The Federal Reserve Board, by order or
regulation, may authorize a holding company to engage in or acquire stock in a
company engaged in activities so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities
that the Federal Reserve Board has determined by regulation to be incidental to
the business of a bank holding company are making or servicing loans or certain
types of leases; engaging in securities brokerage and limited insurance
activities; performing certain data processing services; acting in certain
circumstances as a fiduciary or investment or financial advisor; ownership and
operation of savings associations; and making investments in certain
corporations of projects designed primarily to promote community welfare.

The Company also will be restricted in its activities by the provisions
of the Glass-Steagall Act of 1933, which will prohibit the Company from owning
subsidiaries that are engaged principally in the issue, flotation, underwriting,
public sale, or distribution of securities. The interpretation, scope and
application of the provisions of the Glass-Steagall Act currently are being
considered and reviewed by regulators and legislators.

Subject to certain restrictions, the Company may borrow money to make a
capital contribution to the Bank and such loans may be repaid from dividends
paid from the Bank to the Company (although the ability of the Bank to pay
dividends will be subject to regulatory restrictions).

Effect of Governmental Monetary Policies

The earnings of the Bank will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Board's monetary policies have had, and
will likely continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary
policies of the Federal Reserve Board have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.

<PAGE>

MANAGEMENT

General

The following table sets forth the respective names, ages, positions
with the Company and the Bank, and anticipated subscriptions of the Organizers.
The Organizers may elect to purchase more than the shares indicated below.

% of % of
Positions with Number of Minimum Maximum
Name (Age) the Company Shares Offering(1)(2) Offering(1)(3)
<S><C>
Michael J. Bermel, 39 Director 10,000 1.82% 1.25%

William G. Chavanne, 57 Director, Treasurer 10,000 1.82% 1.25%

Ronald E. Gardner, 43 Director, 15,000 2.73% 1.88%
Vice President

Stanley J. Klos Jr., 44 Director, Secretary 10,000 1.82% 1.25%

John W. Marhefka, Jr., 42 Director, Chairman, 15,000 2.73% 1.88%
President, & CEO

Michael B. Monias, 68 Director 10,000 1.82% 1.25%

James W. Thomasson, Sr., 63 Director 10,000 1.82% 1.25%

Philip M. Wackerhagen, 57 Director 20,000 3.64% 2.50%
- ---------------------------------------------------------------------------------------------------------------------
Total 100,000 18.18% 12.5 %
</TABLE>

- --------------------
(1) All such purchases will be at a price of $10.00 per share, the same
price at which shares are being offered to the public. Does not include
the exercise of Options which will be granted to the named Organizer,
20% of which will become exercisable on the anniversary date for each
of the five years following the Date of Satisfaction of Escrow
Conditions (as hereinafter defined). See "MANAGEMENT - Stock Option
Plan." Does not include the exercise of Warrants which will be granted
to each of the Organizers, 20% of which will become exercisable on the
anniversary date for each of the five years following the Date of
Satisfaction of Escrow Conditions. See "MANAGEMENT - Common Stock
Warrants."

(2) Indicates the percentage of outstanding shares owned assuming that the
minimum 550,000 shares are sold in the Offering.

(3) Indicates the percentage of outstanding shares owned assuming that the
maximum 800,000 shares are sold in the Offering.

No person is expected to own more than 5% of the shares of the Company.

All of the Organizers are directors of the Company and will serve as directors
of the Bank. Biographical information concerning the Organizers is set forth
below. None of the Organizers are related. All of the Directors of the Company
and the Bank shall serve for one year terms.

<PAGE>

Biographies

John W. Marhefka, Jr. has held high level positions in the Maryland financial
institution industry since 1978. Most recently he founded Annapolis Bancshares,
Inc. and Bank of Annapolis in 1988 and 1989, respectively, and led those
organizations through more than seven consecutive years of earnings and asset
growth before they were sold to Sandy Spring Bancorp, Inc. in August 1996 for
___ times the book value of the Company's common stock and ___ times the
Company's earnings at the time the acquisition was completed. These companies
were high performing, strong earning companies with an exceptional record of
complying with applicable laws and regulations. Mr. Marhefka served as President
& Chief Executive Officer of the companies for their entire duration, and served
as Chairman of the Board and Chief Financial Officer from 1988 to 1992. Under
Mr. Marhefka's leadership, the Bank of Annapolis went from a start-up bank with
$1.1 million in assets to $81.1 million at June 30, 1996, immediately prior to
the time it was acquired. At that date, the bank had a return on assets of 1.85
and a return on equity of 16.03. There can be no assurances that the financial
success of these companies can be repeated. Mr. Marhefka currently serves as
Chairman of the Board, President, Chief Executive Officer and Chief Financial
Officer of State Capital Bancorp, Inc. and proposes to assume those positions
with State Capital Bank upon its inception. He is active in community affairs
and serves on the Board of Directors of Leadership Anne Arundel.

Michael J. Bermel has been a practicing optometrist and investor in Fairfax,
Virginia for thirteen years. Having been on the Board of Directors of both ABI
and BOA since their inception, he has substantial experience in overseeing a
start-up community bank in Annapolis, Maryland. He also served as a member of
BOA's Audit & Personnel Committees, as well as Chairman of its Marketing
Committee. He is a graduate of the University of Maryland Baltimore County and
the Pennsylvania College of Optometry. He is a member of numerous trade
organizations and serves on the Executive Committee of the Virginia Optometric
Association.

William G. Chavanne retired as a Colonel after 30 years in the US Air Force, a
year in the Naval Reserve, and four years at the Naval Academy. Numerous
projects ranged from Project Officer to Commander. He served as Comptroller for
the Air Force's Southern Communications Area and as Chief Information Officer
for the worldwide Defense Fuels Supply Center. His education includes a BS in
Engineering Sciences from the US Naval Academy and an MS in Industrial
Engineering from the University of Pittsburgh. Additional training includes the
Professional Comptroller School in Montgomery, Alabama. He has lived in Anne
Arundel County since 1982 and is active in community affairs. He teaches the
Advanced Computer class at Anne Arundel County's Pascal Senior Center and is an
IRS trained Volunteer Income Tax Assistor. He is a Sponsor for Midshipmen and
Treasurer of the Hermitage Hills Community Association.

Ronald E. Gardner was an Owner, Director, and Vice President of E.L. Gardner,
Inc. from 1969 to July 1996, at which time he sold his interest in the Company
and resigned. Mr. Gardner was responsible for day to day operations of E.L.
Gardner, Inc., which is a major producer of ready mix concrete in Anne Arundel
county. By virtue of his position with the Company, he gained extensive
familiarity with the Anne Arundel County construction industry. Mr. Gardner is
a life long resident of Anne Arundel County.

Stanley J. Klos, Jr. has been a practicing attorney in Anne Arundel and Prince
George's Counties since 1977. He is currently a principal of the Annapolis law
firm of Klos & Hackner, P.A. He is a member of the Maryland, District of
Columbia, Anne Arundel County, and Prince George's County Bar Associations. Mr.
Klos is very active in community affairs and serves on the Boards of Directors

<PAGE>

of Leadership Anne Arundel, the American Heart Association of Anne Arundel
County, and the YMCA of Anne Arundel County.

Michael B. Monias has been a practicing physician and investor in Annapolis for
many years. Having been on the Board of Directors of both ABI and BOA since
their inception, he has substantial experience in overseeing a start-up
community bank in Annapolis, Maryland. He also served as a member of BOA's Audit
& Personnel Committees.

James W. Thomasson, Sr. is President of Brookfield Builders & Developers, Inc.
He has been a homebuilder and developer in Anne Arundel County for forty years.
He is active in community affairs, serving a President of Christmas in April for
Anne Arundel County, a non-profit organization which improves homes for low
income families. He is also a member of the Maryland Homebuilders Association
and the Kent Island Yacht Club. Mr. Thomasson served as a Sergeant in the U.S.
Army from 1953 to 1956.

Philip A. Wackerhagen has been with the IIT Research Institute in Annapolis
since 1968. That firm provides technical support to the Department of Defense
Joint Spectrum Center. A senior engineer, he has analyzed communications and
electronics systems to ascertain the impact of electromagnetic interference on
the operational capabilities of such systems. Also, as an independent tester of
software systems, he evaluates the design, robustness, and user-friendliness of
in-house designed PC- and work station-based software. Mr. Wackerhagen graduated
from Union College, Schenectady, New York in 1963 with a Bachelor of Science in
Electrical Engineering. He then served in the US Air Force for 4.5 years,
attaining the rank of Captain, where he designed and evaluated communications
and electronics receiving systems. He has lived in Annapolis for more than 17
years.

Employment Agreement

On December 4, 1996, John W. Marhefka, Jr., who is President and Chief
Executive Officer of the Company, entered into an Employment Agreement ("the
Agreement") with the Company, and his employment commenced on that date. The
Agreement contains provisions relating to the employment of Mr. Marhefka by the
Company and/or the Bank prior to and after the Date of Satisfaction of Escrow
Conditions. For purposes of this discussion of the Agreement, the Date of
Satisfaction of Escrow Conditions is the first day of the month following the
last to occur of the following: (i) the Company's acceptance of subscriptions
and payment in full to purchase a minimum of 550,000 shares of Common Stock in
the Offering; (ii) the Company obtaining regulatory approvals to acquire the
stock of the Bank and thereafter to become a bank holding company; (iii) the
Bank receiving preliminary approval of its application for a charter from the
Commissioner; (iv) the Bank receiving preliminary approval of its application
for membership in the Federal Reserve System from the Federal Reserve Board, and
(v) the Bank receiving preliminary approval of its application for insurance of
deposit accounts from the FDIC.

Prior to the Date of Satisfaction of Escrow Conditions. Pursuant to the
Agreement, Mr. Marhefka is currently employed by the Company to head the effort
to organize the Bank at an annual base salary of $70,000, plus reimbursement for
reasonable business expenses. Prior to the Date of Satisfaction of Escrow
Conditions, the Company may terminate the Agreement and will have no liability
to Mr. Marhefka except for rights earned through the date of termination.

After the Date of Satisfaction of Escrow Conditions After the Date of
Satisfaction of Escrow Conditions, the Bank will join in the Agreement and Mr.
Marhefka will begin serving as President and Chief Executive Officer of the Bank
in addition to continuing his duties as President and

<PAGE>

Chief Executive Officer of the Company. The Company and the Bank are hereinafter
collectively referred to as "the Companies". At that time, Mr. Marhefka's base
salary will be increased to $100,000 per annum, which amount will be increased
by 10% annually at the beginning of each of the succeeding four years of the
Agreement. Additionally, the Bank will provide and maintain an automobile for
Mr. Marhefka's use, and provide family health insurance coverage, reimbursement
of reasonable business related expenses, group benefits to the extent provided
for other executives, and cash bonuses as deemed appropriate by the Board of
Directors. Mr. Marhefka will not participate in any Board discussions of bonuses
that he may receive and no such bonuses will be paid until the Companies become
profitable. The Agreement also provides that, on the Date of Satisfaction of
Escrow Conditions, the Companies will grant to Mr. Marhefka a non-transferable
option under the Company's Stock Option Plan to purchase, at a price of $10.00
per share, that number of shares of Common Stock equal to 1% of the aggregate
number of shares sold in the Offering. Such options will be exercisable for a
period of ten years thereafter so long as Mr. Marhefka remains an employee of
the Companies, subject to a five year vesting schedule with 20% of the options
becoming exercisable on the anniversary date for each of five years following
the Date of Satisfaction of Escrow Conditions. All of the then currently
exercisable options will expire 90 days following termination of Mr.
Marhefka's employment for any reason.

The Agreement may be terminated by written notice to either party with
or without "cause". Mr. Marhefka must provide 180 eighty days notice of his
intention to terminate the Agreement. The Agreement provides that if Mr.
Marhefka terminates the Agreement by voluntary resignation, Mr. Marhefka will
not work for or advise, consult, or otherwise serve with, directly or
indirectly, and entity who materially competes with the Companies for a percent
of two years following such resignation. The Agreement further provides that if
the Companies terminate the Agreement for any reason, other than for "cause" or
due to Mr. Marhefka's death or disability, Mr. Marhefka will be paid a lump sum
payment equal to one and one-half (1.5) times the base salary and bonus earned
during the preceding twelve month period. Notwithstanding the above, in the
event of a "change of control" of the Companies (as defined in the Agreement),
Mr. Marhefka will have the option within six months of the "change in control"
to either enter into a new employment agreement with the Companies, on mutually
agreeable terms, or receive a lump sum payment equal to one and one-half (1.5)
times the base salary and bonus earned during the preceding twelve month period.
Additionally, upon the event of (i) termination other than for "cause", (ii)
termination due to death or disability, or (iii) a "change of control" of the
Company all of the Warrants and Options granted to Mr. Marhefka would become
immediately exercisable. The Agreement does not provide benefits to Mr. Marhefka
in the event of his death or disability, his discharge by the Companies for
"cause", or his resignation. The term of the Agreement continues until the
earlier of (i) the close of business on the date which is five years after the
Date of Satisfaction of Escrow Conditions, or (ii) termination of the Agreement
pursuant to the above provisions of the Agreement.

Director Compensation

The Organizers do not intend for the Company or the Bank to pay
directors' fees in the initial years of operation and at least until the Company
and Bank achieve profitability. In lieu thereof, the Organizers will receive
warrants to purchase Common Stock. See "Common Stock Warrants."

Common Stock Warrants

The Organizers of the Company and members of their immediate families
have indicated their intention to purchase shares of the Common Stock offered
hereby at a price of $10.00 per share, the same price at which shares of Common
Stock are being offered to others hereby. Each of the

<PAGE>

Organizers is a director of the Company and will become a director of the Bank.
Additionally, to facilitate the Bank's formation, each of the Organizers has
personally guaranteed a loan to the Company, the proceeds of which will be used
to pay certain organizational, offering, and pre-opening expenses. The loan is a
$200,000 line of credit with First National Bank of Maryland and to the extent
utilized prior to the completion of the Offering will be repaid from the
Offering proceeds. If the conditions to the release of funds to the Company are
not satisfied for any reason (see "THE OFFERING - Conditions to the Offering and
Release of Funds"), the Organizers shall be obligated to repay the loan
personally.

The Company and the Bank do not intend initially to pay directors a
fee, at least until the Bank attains profitability. In lieu thereof, and in
recognition of the financial risks undertaken by the Organizers in personally
guaranteeing the loan, and as additional incentive for them to build stockholder
value as directors of the Company and the Bank, each of the Organizers will be
granted non-transferable warrants (the "Warrants") to purchase up to 5,000
shares of the Company's Common Stock at the price of $10.00 per share, the same
price at which the shares are being offered hereby. The Warrants will be issued
upon completion of the Offering and will be exercisable, so long as the
Organizer continues to be a Director, for a period of ten years thereafter
subject to a five year vesting schedule, with 20% of the Warrants becoming
exercisable on the anniversary date for each of the five years following the
Date of Satisfaction of Escrow Conditions. Should an Organizer discontinue
serving as a Director during such five year period, that Organizer's then vested
Warrants will expire 30 days following such discontinuance of service and no
additional warrants shall vest.

Stock Option Plan

The Company has adopted a Stock Option Plan, covering 35,000 shares of
the Common Stock, which is intended to qualify for favorable tax treatment under
Section 422 of the Internal Revenue Code. The Stock Option Plan will be
administered by the Board of Directors of the Company and will provide for the
granting of options to purchase shares of the Common Stock to officers and
certain key employees of the Company and the Bank. The Company does not intend
to grant any options under the Stock Option Plan to Organizers, other than to
Mr. Marhefka as President & Chief Executive Officer of the Company and the Bank
(See "Employment Agreement" above). The purchase price under all such options
intended to qualify as incentive options will not be less than the fair market
value of the shares of Common Stock on the date of grant. Options will be
exercisable 20% each year on the anniversary date for each of the five years
following the Date of Satisfaction of Escrow Conditions. The stock options are
intended to be used to recruit and motivate the highest quality management team.
The Stock Option Plan has been approved by the initial shareholder of the
Company and no further shareholder approval will be sought.

If options granted under the Stock Option Plan qualify as incentive
options under Section 422, no taxable income will be recognized by the recipient
of the options as a result of the grant or exercise of the options. If options
do not qualify as incentive options, income will be recognized by the recipient
upon exercise of the option to the extent of the difference in the option
exercise price and the fair market value of the Common Stock, and a
corresponding deduction to taxable income will be created for the Company.

Pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended, holders of options issued under the Stock Option Plan may be able to
exercise options and resell the underlying shares, provided that six months have
elapsed from the date of grant to the date of sale of the underlying stock, thus
profiting from any appreciation of the Company's shares during the option period
while avoiding any market risk attendant to holding shares of the Company.

<PAGE>

Liability and Indemnification of Directors and Officers

The Maryland Code permits corporations, such as the Company, to limit
the personal liability of directors, officers, employees and agents for a breach
of fiduciary duty. The Articles of Incorporation and Bylaws of the contain
provisions which limit the liability of directors to the fullest extent under
Maryland law. The Company's Bylaws also provide that to the extent permitted by
Maryland law, no director or officer of the Company shall be liable to the
Company or its stockholders for money damages. The Company believes that such
actions will assist the Company in continuing to attract and retain talented
directors and officers in light of the growing risk of litigation against
directors and officers of publicly held corporations.

The provisions of the Maryland Code permit a corporation to indemnify
any director made a party to any proceeding by reason of services in that
capacity if the director acted in good faith and reasonably believed that (I) in
the case of conduct in the director's official capacity with the corporation,
such conduct was in the best interests of the corporation; and (ii) in all other
cases, such conduct was at least not opposed to the best interests of the
corporation. In the case of any criminal proceeding, the director must have had
no reasonable cause to believe that the conduct was unlawful.

Indemnification may be against judgments, penalties, fines,
settlements, and reasonable expenses, including attorney's fees, actually
incurred by the director in connection with the proceeding. However, if the
proceeding was one by or in the right of the Company, indemnification may be
made only against reasonable expenses and may not be made in respect to any
proceeding in which the director shall have been adjudged liable to the Company.
In addition, no indemnity is permitted to a director with respect to any
proceeding charging improper personal benefit, whether or not involving action
in the director's official capacity, in which the director was adjudged to be
liable on the basis that personal benefit was improperly received. Maryland law
provides that a director who has been successful in the defense of a proceeding
shall be indemnified against reasonable expenses incurred in connection with the
proceeding. The provision also permits the advancement of reasonable expenses if
the director undertakes to repay the amount if it is ultimately determined that
the director has not met the standard of conduct necessary for indemnification.
Officers, employees and agents of the Company may be indemnified by the Company
to the same extent as directors.

As a result of the inclusion of such provision, the stockholders of the
Company may be unable to recover monetary damages against directors pursuant to
actions taken against them. Although the provision would have no effect on
certain equitable remedies, such as injunction or rescission, the availability
of such equitable remedies may be of limited usefulness.

Transactions with the Company and the Bank

The Company and the Bank may have banking and other transactions in the
ordinary course of business with directors and officers of the Company and the
Bank, and their affiliates, to the extent permitted by law. These transactions
will occur upon substantially the same terms and conditions (including price, or
interest rates and collateral) as those prevailing at the time for comparable
transactions with unrelated parties and will require the prior approval of a
majority of the Board of Directors. Such transactions are not expected to
involve more than the normal risk of collectibility nor present other
unfavorable features to the Company or the Bank. Directors and officers with a
personal interest in any loan application will be excluded from the
consideration of such loan application.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

As of December 31, 1996, the Company has Total Assets of $23,809. The
Company has recorded Common Stock of $100 resulting from the purchase by an
Organizer of 100 shares of Common Stock, $1.00 par value per share, to complete
the initial capitalization of the Company. These shares will be redeemed by the
Company for $10.00 per share (the price at which they were issued) as soon as
practicable after issuance of the shares of Common Stock in the Offering.
Through December 31, 1996, all costs associated with the forming of the Company
and the Bank, including attorneys' fees, filing fees, and salary all totaling
$22,799, have been capitalized as Organizational Costs and either accrued or
funded through advances on a line of credit to the Company from First National
Bank of Maryland which is personally guaranteed by the Organizers. The Company
will continue to pay and capitalize organizational expenses estimated to total
$195,000 by drawing advances on the line of credit up to a maximum of $200,000.
Upon successful completion of the Offering, the balance of the line of credit
will be repaid from the proceeds of the Offering, and all capitalized expenses
will be charged against Paid-in-Surplus prior to commencing operations. Prior to
the commencement of operations, the Company and the Bank will incur pre-opening
expenses estimated to total $50,000 which will be charged against operating
results, and will incur additional costs of leasehold improvements and the
purchase of furniture fixtures and equipment which will be capitalized and
depreciated over applicable useful lives. The amount of capitalized expenses for
leasehold improvements, furniture, fixtures, and equipment will not be readily
determinable until finalization of site negotiations which are currently in
progress, but are estimated to be between $200,000 and $500,000.

DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

General

The Company's Articles of Incorporation authorize it to issue up to
5,000,000 shares of Common Stock, $1.00 par value per share, of which a minimum
of 550,000 shares and a maximum of 800,000 shares are being offered hereby.

At December 31, 1996, there were 100 shares of the Common Stock issued
and outstanding. See "CAPITALIZATION."

It is anticipated that the Company will reserve a number of the
remaining authorized but unissued shares of Common Stock for issuance to
officers and key employees of the Company and the Bank pursuant to options to be
issued under the Company's Stock Option Plan and for issuance to Organizers
pursuant to the Common Stock Warrants. See "MANAGEMENT" - "Stock Option Plan"
and "Common Stock Warrants."

The owners of the Company's Common Stock will not have preemptive
rights to subscribe for or to purchase any shares of Common Stock or other
securities that may from time to time be issued by the Company, nor will such
owners have the right to convert the Company's Common Stock to another type or
class of security. There will be no cumulative voting, right of conversion,
redemption right or sinking fund provisions with respect to the Company's Common
Stock. All shares of the Company's Common Stock issued in accordance with the
terms of this offering as described in this Prospectus will be fully paid and
nonassessable.

<PAGE>

All shares of Common Stock of the Company will be entitled to share
equally in dividends from funds legally available therefore, when, as and if
declared by the Board of Directors. The Company does not plan to declare any
dividends in the immediate future. See "DIVIDEND POLICY". Upon liquidation of
the Company, any assets remaining after payment in full of all creditors,
including holders, if any, of subordinated debt or capital notes, will be
distributed pro rate among holders of the Company's Common Stock.

Holders of the Company's Common Stock will be entitled to one vote for
each share of Common Stock they own in all matters requiring a stockholder vote.
Cumulative voting is not permitted for the election of directors. The Board of
Directors will fix a record date for each annual and special stockholders'
meeting.

Transfer Agent

The Company will act as registrar and transfer agent for the Company's
Common Stock.

Shares Eligible for Future Sale

Upon completion of this offering, the Company will have a minimum of
550,000 and a maximum of 800,000 shares of Common Stock outstanding. The shares
sold in the Offering will be freely tradable, without restriction or
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company, which will be subject to resale restrictions under
the Securities Act. An affiliate of the Company, as defined in Rule 144 under
the Securities Act is a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company. Rule 405 under the Securities Act defines the term "control" to mean
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity, whether through the ownership
of voting securities, by contract or otherwise. All directors and executive
officers of the Company and the Bank will be deemed to be affiliates. All shares
issued upon exercise of warrants granted to the Organizers or options granted
under the Stock Option Plan (unless shares issued under the Stock Option Plan
are covered by a separate registration statement under the Securities Act) will
be "restricted securities" under the Securities Act and will also be subject to
resale restrictions. These restricted securities and securities held by
affiliates may be eligible for sale in the open market without registration in
accordance with the provisions of Rule 144.

In general, under Rule 144 an affiliate of the Company may sell, within
any three month period, a number of shares equal to the greater of 1% of the
then outstanding shares of the Company's Common Stock or, if the shares are
listed on a national securities exchange and/or are over-the-counter securities
traded on the NASDAQ Stock Market, the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the sale. Rule 144 also
requires the securities to be sold in "brokers' transactions", as defined by the
Securities Act, and the person selling the securities may not solicit orders or
make any payment in connection with the offer or sale of securities to any
person other than the broker who executes the order to sell the securities. This
requirement may make the sale of the Common Stock by affiliates of the Company
pursuant to Rule 144 difficult if no trading market develops in the Common
Stock. The requirement does not apply to sales of restricted securities held by
non-affiliates for at least three years.

<PAGE>

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for
the Company by Muldoon, Murphy, & Faucette, Attorneys at Law, 5101 Wisconsin
Avenue, N.W., Washington, D.C.
20016.

EXPERTS

The financial statements of the Company included in this Prospectus
have been included in reliance on the report of Rowles & Company, LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Index to Financial Statements

<TABLE>
<CAPTION>
Page
<S><C>
Independent Auditor's Report

Financial Statements: F-2

Statement of Condition of December 31, 1996. F-3

Statement of Operations for the Period November 18, 1996
(date of inception) through December 31, 1996 F-4

Statement of Changes in Stockholder's Equity for the Period
November 18, 1996 (date of inception) through December 31, 1996. F-5

Statement of Cash Flows for the Period November 18, 1996
(date of inception) through December 31, 1996. F-6

Notes to Financial Statements

All schedules have been omitted because they are inapplicable or the required
information is provided in the financial statements, including the notes thereto. F-7
</TABLE>

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
State Capital Bancorp, Inc.

We have audited the accompanying Statement of Condition of State Capital
Bancorp, Inc., a development stage enterprise, as of December 31, 1996, and the
related Statements of Operations, Changes in Stockholder's Equity, and Cash
Flows for the period November 18, 1996, date of inception, through December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of State Capital Bancorp, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the period November 18, 1996, date of inception, through December 31, 1996, in
conformity with generally accepted accounting principles.

ROWLES & COMPANY, LLP

Baltimore, Maryland
January 9, 1997

F-2

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Statement of Condition

December 31, 1996
-----------------
Assets:

Cash.............................................. $ 1,010

Organizational Costs.............................. 22,799
-------

Total Assets................................... $23,809
=======

Liabilities:

Borrowings........................................ $ 7,000

Accrued Expenses.................................. 15,809
-------

Total Liabilities.............................. $22,809
-------

Stockholder's Equity:

Capital Stock, $1.00 par value; 5,000,000 shares
authorized, 100 shares issued and outstanding..... $ 100

Paid-in-Surplus................................... 900

Retained Earnings................................. --
-------

Total Stockholder's Equity..................... $ 1,000
-------

Total Liabilities & Stockholder's Equity....... $23,809
=======

See accompanying notes to financial statements.

F-3

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Statement of Operations

For the Period November 18, 1996
(Date of Inception)
Through December 31, 1996
--------------------------------

Total Income......................... $ --

Total Expense........................ --

Net Income........................... --

Net Income per share................. --

See accompanying notes to financial statements.

F-4

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Statement of Changes in Stockholder's Equity

<TABLE>
<CAPTION>
For the period November 18, 1996
(Date of Inception)
Through December 31, 1996
------------------------------------------------------------------------
Common Stock
----------------------
Total
Par Paid-in Retained Stockholder's
Shares Value Surplus Earnings Equity
---------- ---------- ------------ -------------- ------------------
<S><C>
Balance, November 18, 1996................. -- $ -- $ -- $ -- $ --

Issuance of Common Stock .................. 100 100 900 -- 1,000
--- ---- ---- ---- ------

Balance, December 31, 1996................. 100 $100 $900 -- $1,000
=== ==== ==== ==== ======
</TABLE>

See accompanying notes to financial statements.

F-5

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Statement of Cash Flows

For the Period
November 18, 1996
(Date of Inception)
Through
December 31, 1996
-------------------

Cash flows from operating activities:

Net Income....................................................... $ --
--------

Adjustments to reconcile net income to net case used in operating
activities:

Increase in organizational costs................................. $(22,799)

Increase in accrued expenses..................................... 15,809
--------

Net cash used for operating activities........................... $ (6,990)
========

Cash flows from investing activities:

Net cash used in investing activities............................ $ --
========

Cash flows form financing activities:

Proceeds from sale of organizational shares...................... $ 1,000

Proceeds from borrowings......................................... 7,000
--------

Net cash provided by financing activities........................ $ 8,000
========

Net increase in cash and cash equivalents........................... $ 1,010
========

Cash and cash equivalents at beginning of period.................... --
========

Cash and cash equivalents at end of period.......................... $ 1,010
========

Supplemental disclosures of cash flow information:

No cash was paid during the period for interest or income taxes

See accompanying notes to financial statements.

F-6

<PAGE>

STATE CAPITAL BANCORP, INC.
(A Development Stage Enterprise)

Notes to Financial Statements

December 31, 1996

(1) Summary of Significant Accounting Policies

(a) General

State Capital Bancorp, Inc. (the "Company"), a development stage
enterprise, was incorporated as a Maryland corporation effective November 18,
1996 for the purpose of becoming a bank holding company for its proposed
wholly-owned subsidiary, State Capital Bank (the "Bank"), which will operate in
the Anne Arundel County, Maryland area. The organizers of the Bank have filed an
application with the Maryland Bank Commissioner to charter the Bank, and are in
the process of completing the filing of applications for additional required
approvals from the Federal Deposit Insurance Corporation and the Federal Reserve
Board. The Company is also making application to the Federal Reserve Board for
permission to become a bank holding company by acquiring all of the common stock
of the Bank.

Neither the Company nor the Bank has commenced their respective
operations as a bank holding company or as a commercial bank and neither will do
so unless regulatory approvals are obtained and the required capitalization of
the Bank by the Company is obtained from the proceeds of the sale of the
Company's common stock.

(b) Organizational Costs

Organizational costs incurred during the development stage of the
Company will be capitalized. These costs will be charged against Paid-in-Surplus
following completion of the stock offering, and will be repaid by the organizers
if the stock offering is not successfully completed (see Note 2 below).
Additional costs are expected to be incurred for the stock offering and
organization of the Company and the Bank.

The Company is subject to state and federal income taxes. No taxes have
been paid or accrued and no deferred tax asset has been recorded because the
Company has not earned taxable income.

The Company's year end for both financial reporting and tax purposes is
December 31.

(2) Borrowings

The Company has obtained a line of credit (the "Line") from First
National Bank of Maryland in the maximum amount of $200,000, the proceeds of
which have and will be used to fund organizational costs. The Line has a
maturity date of September 30, 1997 and carries an initial interest rate of
8.25%, which varies with the prime interest rate. Upon successful completion of
the Company's proposed sale of common stock, the Line is to be repaid from the
proceeds of the offering. Amounts advanced on the line total $7,000 as of
December 31, 1996. The Line is personally guaranteed by the organizers of the
Company, who will repay the Line if the offering is not successful.

F-7

<PAGE>

(3) Common Stock Offering

The Company intends to file a registration statement on Form SB-2 with
the Securities and Exchange Commission offering for sale a minimum of 550,000
and a maximum of 800,000 shares of the Company's $1.00 par value common stock at
$10.00 per share.

(4) Stock Warrants and Incentive Stock Option Plan

Upon successful completion of the stock offering, the Company plans to
issue stock warrants to its organizers to purchase up to 40,000 aggregate shares
of its common stock at $10.00 per share, subject to a five year vesting
schedule. Additionally, the Company has an Incentive Stock Option Plan which has
reserved up to 35,000 shares for issuance to officers and key personnel. Of this
amount, options to purchase between 5,500 and 8,000 shares at $10.00 per share,
subject to a five year vesting schedule, are intended to be issued to the
Company's President & Chief Executive Officer upon successful completion of the
stock offering in accordance with an employment agreement.

(5) Commitments

The Company has entered into an employment agreement with one of the
organizing directors to serve as President & Chief Executive Officer of the
Company prior to the completion of the Stock Offering and of the Company and the
Bank following completion of the Offering. The agreement provides for an initial
term of five years, an annual salary, the right to receive bonuses (at the
discretion of the board of directors), the right to receive stock options, and
other customary executive benefits. Should the stock offering not be successful,
the agreement terminates without further liability to the Company.

F-8

<PAGE>

EXHIBIT A

SUBSCRIPTION AGREEMENT

<PAGE>

================================================================================

No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such information or representation shall not be relied upon as having been
authorized by the Company, the Bank or Charles Webb & Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company or the Bank since any of the dates as of which information is furnished
herein or since the date hereof.

______________________________

TABLE OF CONTENTS

Page

Additional Information ..........................................
Reports to Shareholders .........................................
Prospectus Summary ..............................................
Risk Factors ....................................................
The Company and The Bank ........................................
The Offering ....................................................
Use of Proceeds .................................................
Capitalization ..................................................
Proposed Business ...............................................
Supervision and Regulation ......................................
Management ......................................................
Management Discussion and Analyses ..............................
Description of Capital Stock of the Company .....................
Legal Matters ...................................................
Experts .........................................................
Financial Statements ............................................
Subscription Agreement ..........................................

------------------------------

Until __________, 1997 or 25 days after commencement of the Offering, if
any, whichever is later, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

================================================================================

800,000 Shares

State Capital Bancorp, Inc.

(Proposed Holding Company for
State Capital Bank)

COMMON STOCK

__________

PROSPECTUS
__________

Charles Webb & Company
A Division of Keefe, Bruyette & woods, Inc.

_______________ ___, 1997

================================================================================

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

In accordance with Section 2-418 of the Corporations and Associations Article of
the Annotated Code of Maryland, Articles Ninth and Tenth of the Registrant's
Articles of Incorporation provide as follows:

NINTH:

(a) As used in this Article NINTH, any word or words that are defined in
Section 2-418 of the Corporations and Associations Article of the Annotated Code
of Maryland, as amended from time to time, (the "Indemnification Section"),
shall have the same meaning as provided in the Indemnification Section.

(b) The Corporation may, as determined by the Board of Directors of the
Corporation, indemnify and advance expenses to a director, officer, employee or
agent in connection with a proceeding to the extent permitted by and in
accordance with the indemnification Section.

TENTH:

To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers, no director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any provision of the charter or bylaws
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.

<PAGE>

Item 25. Other Expenses of Issuance and Distribution

SEC filing fee(1).................................... $ 2,500
Bank Regulatory Filings.............................. 500
Printing, postage and mailing........................ 12,000
Legal fees and expenses.............................. 70,000
Selling commissions(1) and expenses.................. 365,000
Marketing expenses................................... 10,000
Salary of CEO........................................ 32,000
Accounting fees and expenses......................... 25,000
Blue Sky fees and expenses .......................... 10,000
Bank Escrow Agreement................................ 5,000
Interest on Line of Credit........................... 3,000
Miscellaneous........................................ 10,000
--------

TOTAL................................................ $545,000
========

(1) Actual expenses based upon the registration of 800,000 shares at $10.00 per
share. All other expenses are estimated.

Item 26. Recent Sales of Unregistered Securities

One hundred (100) shares of common stock of the Company were sold to John W.
Marhefka, Jr., President and Chief Executive Officer of the Company, at a cost
of $1.00 per share on the condition that such shares shall be redeemed and
cancelled prior to the completion of the sale of the Company's common stock
contemplated by this registration statement.

<PAGE>

Item 27. Exhibits

The exhibits filed as a part of this Registration Statement are as follows:

(a) List of Exhibits (filed herewith unless otherwise noted)

1.1 Engagement Letter between State Capital Bancorp and Charles Webb &
Company, A Division of Keefe, Bruyette & Woods, Inc.
1.2 Draft Form of Underwriting Agreement between State Capital Bancorp and
Charles Webb & Company, A Division of Keefe, Bruyette & Woods, Inc.*
3.1 Articles of Incorporation of State Capital Bancorp, Inc.
3.2 Bylaws of State Capital Bancorp, Inc.
3.3 Form of Articles of Incorporation of State Capital Bank
3.4 Bylaws of State Capital Bank
4.0 Draft Stock Certificate of State Capital Bancorp, Inc.
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
10.1 Employment Agreement between State Capital Bancorp, Inc. and John W.
Marhefka, Jr.
10.2 Form of State Capital Bancorp, Inc. Stock Option Plan*
10.3 Form of State Capital Bancorp, Inc. Warrant Agreement*
10.4 Escrow Agreement between State Capital Bancorp, Inc. and the First
National Bank of Maryland
23.1 Consent of Muldoon, Murphy & Faucette
23.2 Consent of Rowles & Company, LLP
24.1 Powers of Attorney (appears on the signature pages to the Registration
Statement on Form SB-2).
27.0 Financial Data Schedule

*To be filed by amendment.

<PAGE>

Item 28. Undertakings.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement:

(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the Prospectus any facts or events
which, individually or together, represent a
fundamental change in the information set forth in
the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and

(iii) To include any additional or changed information on
the plan of distribution;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, treat each post-effective amendment as
a new Registration Statement of the securities offered, and
the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain
unsold at the end of the offering.

The undersigned Registrant hereby undertakes to furnish stock
certificates to or in accordance with the instructions of the respective
purchasers of the Common Stock, so as to make delivery to each purchaser
promptly following the closing under the Plan of Conversion.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 will be governed by the final
adjudication of such issue.

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Annapolis, State of Maryland, on January 13, 1997.

State Capital Bancorp, Inc.

By:
---------------------------------------------------
John W. Marhefka, Jr.
Chairman of the Board, President,
Chief Executive Officer and Chief Financial Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.

Name Title Date

<S><C>

- --------------------------------------- Chairman of the Board, President, January 13, 1997
John W. Marhefka, Jr. Chief Executive Officer and Chief
Financial Officer (principal executive officer,
principal accounting and financial officer)

- --------------------------------------- Director January 13, 1997
Michael J. Bermel

- --------------------------------------- Director January 13, 1997
William G. Chavanne

- --------------------------------------- Director January 13, 1997
Ronald E. Gardner

- --------------------------------------- Director January 13, 1997
Stanley J. Klos, Jr.

- --------------------------------------- Director January 13, 1997
James W. Thomasson, Sr.

- --------------------------------------- Director January 13, 1997
Philip M. Wackerhagen

- --------------------------------------- Director January 13, 1997
Michael B. Monias
</TABLE>

<PAGE>

CONFORMED
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certified that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Annapolis, State of Maryland, on January 13, 1997.

State Capital Bancorp, Inc.

By: /s/ John W. Marhefka, Jr.
---------------------------------------------------
John W. Marhefka, Jr.
Chairman of the Board, President,
Chief Executive Officer and Chief Financial Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.

Name Title Date

<S><C>
/s/ John W. Marhefka, Jr. Chairman of the Board, President, January 13, 1997
- ----------------------------------- Chief Executive Officer and Chief
John W. Marhefka, Jr. Financial Officer (principal executive officer,
principal accounting and financial officer)

/s/ Michael J. Bermel Director January 13, 1997
- ------------------------------------
Michael J. Bermel

/s/ William G. Chavanne Director January 13, 1997
- ----------------------------------
William G. Chavanne

/s/ Ronald E. Gardner Director January 13, 1997
- ------------------------------------
Ronald E. Gardner

/s/ Stanley J. Klos, Jr. Director January 13, 1997
- --------------------------------------
Stanley J. Klos, Jr.

/s/ James W. Thomasson, Sr. Director January 13, 1997
- ---------------------------------
James W. Thomasson, Sr.

/s/ Philip M. Wackerhagen Director January 13, 1997
- ----------------------------------
Philip M. Wackerhagen

/s/ Michael B. Monias Director January 13, 1997
- -----------------------------------
Michael B. Monias
</TABLE>

<PAGE>

POWERS OF ATTORNEY

KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints John W. Marhefka, Jr. as the true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to the Form SB-2 Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
U.S. Securities and Exchange Commission granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and things
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
and any rules and regulations promulgated thereunder, the foregoing Power of
Attorney prepared in conjunction with the Registration Statement has been duly
signed by the following persons in the capacities and on the dates indicated.

NAME DATE

- --------------------------------------------- January 13, 1997
John W. Marhefka, Jr.
Chairman of the Board, President, Chief
Executive Officer and Chief Financial
Officer (principal executive officer, principal
accounting and financial officer)
State Capital Bancorp, Inc.

- --------------------------------------------- January 13, 1997
Michael J. Bermel
Director

- --------------------------------------------- January 13, 1997
William G. Chavanne
Director

- --------------------------------------------- January 13, 1997
Ronald E. Gardner
Director

- --------------------------------------------- January 13, 1997
Stanley J. Klos, Jr.
Director

- --------------------------------------------- January 13, 1997
James W. Thomasson, Sr.
Director

- --------------------------------------------- January 13, 1997
Philip M. Wackerhagen
Director

- --------------------------------------------- January 13, 1997
Michael B. Monias
Director

<PAGE>

CONFORMED

POWERS OF ATTORNEY

NAME DATE

/s/ John W. Marhefka, Jr. January 13, 1997
- -------------------------------------------------------
John W. Marhefka, Jr.
Chairman of the Board, President, Chief
Executive Officer and Chief Financial
Officer (principal executive officer, principal
accounting and financial officer)
State Capital Bancorp, Inc.

/s/ Michael J. Bermel January 13, 1997
- --------------------------------------------------------
Michael J. Bermel
Director

/s/ William G. Chavanne January 13, 1997
- ------------------------------------------------------
William G. Chavanne
Director

/s/ Ronald E. Gardner January 13, 1997
- --------------------------------------------------------
Ronald E. Gardner
Director

/s/ Stanley J. Klos, Jr. January 13, 1997
- ----------------------------------------------------------
Stanley J. Klos, Jr.
Director

/s/ James W. Thomasson, Sr. January 13, 1997
- -----------------------------------------------------
James W. Thomasson, Sr.
Director

/s/ Philip M. Wackerhagen January 13, 1997
- -----------------------------------------------------
Philip M. Wackerhagen
Director

/s/ Michael B. Monias January 13, 1997
- -----------------------------------
Michael B. Monias
Director

<PAGE>

LIST OF EXHIBITS

List of Exhibits (filed herewith unless otherwise noted)

__________________________
*To be filed by amendment.

Exhibit 1.1 Engagement Letter between State Capital Bancorp and
Charles Webb & Company, A Division of Keefe, Bruyette &
Woods, Inc.

<PAGE>

EXHIBIT 1.1

[Charles Webb & Company Letterhead]

October 21, 1996

Mr. John W. Marhefka, Jr.
1905 White Heron Road
Annapolis, Maryland 21401

Dear Mr. Marhefka:

This is in connection with the your proposal to form a de novo Maryland
chartered trust company (the "Bank") to be capitalized through a public offering
of stock (the "Organization"). In order to effect the Organization, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Organization will be issued to a holding company (the "Company") to be
formed by the Bank, and that the Company will offer and sell shares of its
common stock to the public.

Charles Webb & Company, a Division of Keefe Bruyette & Woods, Inc. ("Webb" and
"KBW") will act as the Bank's and the Company's exclusive financial advisor and
marketing agent/managing dealer in the offering of stock in connection with the
Organization. This letter sets forth selected terms and conditions of our
engagement.

1. Advisory/Organization Services. As the Bank's and Company's financial advisor
and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of services designed to promote an orderly, efficient,
cost-effective and long-term stock distribution. Webb will provide financial and
logistical advice to the Bank and the Company concerning the offering and
related issues, including methods to best accomplish the goal of a broad local
distribution of the stock. Webb will provide services intended to maximize stock
sales to residents of the Bank's market area. This will be accomplished through
direct solicitation of orders from a Stock Sales Center to be managed by Webb
and through selected local brokers. If necessary, Webb will assist in placing
any remaining shares through a syndicate to be managed by Webb. KBW may
participate in such syndicated offering.

Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.

<PAGE>

Mr. John W. Marhefka, Jr.
October 21, 1996
Page 2 of 6

Additionally, post Organization financial advisory services will include advice
on shareholder relations, NASDAQ listing, dividend policy, capital management
strategy and communication with market makers. Prior to the closing of the
offering, Webb shall furnish to client a Post-Organization reference manual
which will include specifics relative to these items. (The nature of the
services to be provided by Webb as the Bank's and the Company's financial
advisor and marketing agent are further described in Exhibit A attached hereto.)

2. Preparation of Offering Documents. The Bank, the Company and their counsel
will draft the Registration Statement, Prospectus and other documents to be used
in connection with the offering and Organization. Webb will attend meetings to
review these documents and advise you on their form and content. Webb and their
counsel will draft appropriate agency agreement and related documents as well as
marketing materials other than the Prospectus.

3. Due Diligence Review. Prior to filing the Registration Statement or any
offering or other documents naming Webb as the Bank's and the Company's
financial advisor and marketing agent, Webb and their representatives will
undertake necessary investigations to learn about the Bank's proposed business
and operations ("due diligence review") in order to confirm information provided
to us and to evaluate information to be contained in the Bank's and/or the
Company's offering documents. The Bank agrees that it will make available to
Webb all relevant information, whether or not publicly available, which Webb
shall reasonably request, and will permit Webb to discuss personnel and the
operations and prospects of the Bank with management. Webb will treat all
material non-public information is confidential. The Bank acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Bank, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter of intent to serve as the Bank's
and the Company's financial advisor and marketing agent.

4. Regulatory Filings. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.

5. Agency Agreement. The specified terms of Webb's services, including offering
enhancement and syndicated offering services contemplated in this letter, shall
be set forth in an Agency Agreement between Webb and the Bank and the Company to
be executed prior to commencement of the offering, and dated the date that the
Company's Prospectus is declared effective and/or authorized to be disseminated
by the appropriate regulatory agencies, the SEC,

<PAGE>

Mr. John W. Marhefka, Jr.
October 21, 1996
Page 3 of 6

the NASD and such state securities commissioners and other regulatory agencies
as required by applicable law.

6. Representations, Warranties and Covenants. The Agency Agreement will provide
for customary representations, warranties and covenants by the Bank and Webb,
and for the Company to indemnify Webb and their controlling persons (and, if
applicable, the members of the selling group and their controlling persons), and
for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1933.

7. Fees. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:

(a) A Success Fee of 5.0% of the aggregate Purchase Price of Common Stock
sold in the Offering excluding shares purchased by the Bank's officers,
directors, or employees (or members of their immediate families).

(b) During the initial offering period, stock may be offered through local
brokers/dealers selected and agreed upon by the Bank and Webb. The Bank,
in consultation with Webb, shall determine the number of shares which
any such broker/dealer shall be allotted. Webb will be paid a fee not to
exceed 5.0% of the aggregate Purchase Price of the shares of common
stock sold by local broker/dealers. Webb will pass onto such selected
local broker-dealers an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at a
comparable price per share in a similar market environment. Fees with
respect to purchases affected with the assistance of a selected local
broker/dealers other than Webb shall be transmitted by Webb to such
broker/dealer. The decision to utilize selected broker-dealers will be
made by the Bank upon consultation with Webb. In the event, with respect
to any stock purchases, fees are paid pursuant to this subparagraph
7(b), such fees shall be in lieu of, and not in addition to, payment
pursuant to subparagraph 7(b).

(c) If any shares of the Company's stock remain available, Webb, at the
request of the Bank, will seek to form a syndicate of registered
broker-dealers to assist in the sale of such common stock on a best
efforts basis, subject to the terms and conditions set forth in the
selected dealers agreement. Webb will endeavor to distribute the common
stock among dealers in a fashion which best meets the distribution
objectives of the Bank. Webb will be paid a fee not to exceed 5.0%

<PAGE>

Mr. John W. Marhefka, Jr.
October 21, 1996
Page 4 of 6

of the aggregate Purchase Price of the shares of common stock sold by
them. Webb will pass onto selected broker-dealers, who assist in the
syndicated community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold at a
comparable price per share in a similar market environment. Fees with
respect to purchases affected with the assistance of a broker/dealer
other than Webb shall be transmitted by Webb to such broker/dealer. The
decision to utilize selected broker-dealers will be made by the Bank
upon consultation with Webb. In the event, with respect to any stock
purchases, fees are paid pursuant to this subparagraph 7(c), such fees
shall be in lieu of, and not in addition to, payment pursuant to
subparagraph 7(a) and 7(b).

8. Expenses. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Organization; the fees set forth in Section 7; and fees for "Blue Sky" legal
work.

In addition, the bank shall reimburse Webb for its reasonable out-of-pocket
expenses, including expenses of its counsel, not to exceed $25,000.00.

9. Conditions. Webb's willingness and obligation to proceed hereunder shall be
subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the proposed condition or
operations of the Bank subsequent to the execution of the agreement; and (c) no
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.

10. Benefit. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and to the parties indemnified hereunder and
their successors, and the obligations and liabilities assumed hereunder by the
parties hereto shall be binding upon their respective successors provided,
however, that this Agreement shall not be assignable by Webb.

11. Definitive Agreement. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed Organization. It does not
create a binding obligation on the part of the Bank, the Company or Webb except
as set forth below and except as to the agreement to maintain the
confidentiality of non-public information set forth in Section 3, the payment of
certain fees as set forth in Section 7(a) and 7(b) and the assumption of
expenses as set forth in

<PAGE>

Mr. John W. Marhefka, Jr.
October 21, 1996
Page 5 of 6

Section 8, all of which shall constitute the binding obligations of the parties
hereto and which shall survive the termination of this Agreement or the
completion of the services furnished hereunder and shall remain operative and in
full force and effect. You acknowledge that the Bank and/or Company shall ratify
the pre-organization actions of you and the Board, including the execution of
this agreement, and that the Bank and/or Company shall assume any and all
pre-organization fees, expenses and liabilities incurred by you and the Board,
including those fees, expenses and liabilities contemplated by this agreement.
You further acknowledge that any report or analysis rendered by Webb pursuant to
this engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Organization. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.

Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will be
pleased to elaborate on any of the matters discussed in this letter at your
convenience.

<PAGE>

Mr. John W. Marhefka, Jr.
October 21, 1996
Page 6 of 6

If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.

Very truly yours,

CHARLES WEBB & COMPANY

By: /s/ JOHN BRUNO
-------------------------
John Bruno
Senior Vice President

State Capital Bancorp, Inc.

By: /s/ JOHN W. MARHEFKA, JR. Nov. 18, 1976
------------------------- -------------
John W. Marhefka, Jr., Date
President & Chief Executive Officer

Exhibit 1.2 Draft Form of Underwriting Agreement between State Capital
Bancorp and Charles Webb & Company, A Division of Keefe,
Bruyette & Woods, Inc.*

Exhibit 3.1 Articles of Incorporation of State Capital Bancorp, Inc.

<PAGE>

EXHIBIT 3.1

ARTICLES OF INCORPORATION
OF
STATE CAPITAL BANCORP, INC.

THIS IS TO CERTIFY:

FIRST: That I, John W. Marhefka, Jr., whose post office address is 1905
White Heron Road, Annapolis, Anne Arundel County, Maryland 21401, being at least
18 years of age, hereby form a corporation under and by virtue of the General
Laws of the State of Maryland.

SECOND: That the name of the corporation is STATE CAPITAL BANCORP, INC.
(hereinafter referred to as the "Corporation").

THIRD: That the purposes for which the Corporation is formed are:

(a) To purchase, subscribe for, or otherwise acquire and
own, hold, use, sell, assign, transfer, mortgage, pledge, exchange, or otherwise
dispose of real and personal property of every kind, including shares of stock,
bonds, debentures, notes, evidences of indebtedness, and other securities,
contracts, or obligations of any corporation or corporations, association or
associations, domestic or foreign, and to pay in whole or in part or in part in
cash or by exchanging stocks, bonds, or other evidences of indebtedness or
securities of this or any other corporation, and while the owner or holder of
any real or personal property, stocks, bonds, debentures, notes, evidences of
indebtedness or other securities, contracts or obligations, to receive, collect,
and dispose of the interest, dividends and income arising from the property, and
to possess and exercise in respect of the same, all the rights, powers and
privileges of ownership, including all voting powers on any stocks so owned.

(b) To aid either by loans or by guaranty of securities or
in any other manner, any corporation, domestic or foreign, any shares of stock,
or any bonds, debentures, evidences of indebtedness or other securities of which
are held by this Corporation or in which it shall have any interest, and to do
any acts designed to protect, preserve, improve, or enhance the value of any
property at any time held or controlled by this Corporation or in which it at
that time may be interested.

(c) To enter into, make, perform and carry out contracts of
any kind for any lawful purpose with any persons, firms, associations or
corporations.

(d) To purchase, acquire, lease, own and enjoy any other
property, real or personal, as may be reasonably necessary for the carrying on
of the business of the Corporation.

(e) To engage in any other lawful purpose and business.

(f) To do anything permitted by Section 2-103 of the
Corporations and Associations Article of the Annotated Code of Maryland, as
amended from time to time.

<PAGE>

FOURTH: That the post office address of the principal office of the
Corporation in this State is 1905 White Heron Road, Annapolis, Anne Arundel
County, Maryland 21401.

FIFTH: That the name and post office address of the Resident Agent of
the Corporation in this State is John W. Marhefka, Jr., 1905 White Heron Road,
Annapolis, Anne Arundel County, Maryland 21401. Said Resident Agent is an
individual residing in the State of Maryland at the above address.

SIXTH: That the total number of shares of capital stock which
the Corporation has authority to issue is Five Million (5,000,000) shares of
Common Stock, with a par value One Dollar ($1.00) per share ("Common Stock")
and One Million (1,000,000) shares of Preferred Stock, with a par value of
One Dollar ($1.00) per share ("Preferred Stock"). The Board of Directors is
expressly vested with authority to divide the Preferred Stock into and issue
the same in series and, to the fullest extent permitted by law, to fix and
determine the preferences, limitations and relative rights of the shares
of any series so established, and to provide for the issuance thereof. Prior
to issuance of any shares of a series of stock, the Board of Directors shall
establish such series by adopting a resolution setting forth the designation
and number of shares of the series and the preferences, limitations and relative
rights thereof, and the Corporation shall file with the State Department of
Assessments and Taxation articles of amendment as required by law.

SEVENTH: That the number of Directors of the Corporation shall be at
least six (6), and not greater that fifteen (15), which number may be increased
or decreased pursuant to the Bylaws of the Corporation and in accordance with
the Corporations and Associations Article of the Annotated Code of Maryland.
That the names of the directors who shall act until the first annual meeting and
until their successors are duly chosen and qualified are: Louis H. Berman,
Michael J. Bermel, Linda Blackwood, William G. Chavanne, Ronald E. Gardner,
Stanley J. Klos, Jr., and John W. Marhefka, Jr.,

EIGHTH:

(a) That the board of Directors of the Corporation are
hereby empowered to authorize the issuance from time to time of shares of its
stock of any class, whether now or hereafter authorized, or securities
convertible into shares of its stock of any class or classes, whether now or
hereafter authorized.

(b) That the Board of Directors of the Corporation may
classify or reclassify any unissued shares of its stock by setting or changing,
from time to time before issuance of such shares of stock, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption of such shares.

(c) That, except as may otherwise be provided by the Board
of Directors of the Corporation, no holder of any shares of stock of the
Corporation shall have any pre-emptive right to purchase, subscribe for, or
otherwise acquire any shares of stock of the Corporation of any class now or
hereafter authorized, or any securities exchangeable for or convertible into
such shares, or any warrants or other instruments evidencing rights or options
to subscribe for, purchase or otherwise acquire such shares.

<PAGE>

That the enumeration and definition of a particular power of the Board
of Directors included in the foregoing shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or any
other article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.

NINTH:

(a) As used in this Article NINTH, any word or words that
are defined in Section 2-418 of the Corporations and Associations Article of the
Annotated Code of Maryland, as amended from time to time, (the "Indemnification
Section"), shall have the same meaning as provided in the Indemnification
Section.

(b) The Corporation may, as determined by the Board of
Directors of the Corporation, indemnify and advance expenses to a director,
officer, employee or agent in connection with a proceeding to the extent
permitted by and in accordance with the Indemnification Section.

TENTH: To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers, no director
or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any provision of the charter or bylaws
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.

IN WITNESS WHEREOF, I have signed these Articles of Incorporation this
________ day of _______________, 199__, and I acknowledge the same to be my act.

- --------------------------------------------------------
Witness John W. Marhefka, Jr.

Exhibit 3.2 Bylaws of State Capital Bancorp, Inc.

<PAGE>

EXHIBIT 3.2

STATE CAPITAL BANCORP, INC.

BY-LAWS

ARTICLE I

STOCKHOLDERS

SECTION 1. Place of Meeting. All annual and special meetings of
stockholders shall be held at the principal office of the Corporation or at such
other place in the State of Maryland as the Board of Directors may determine.

SECTION 2. Annual Meeting. A meeting of stockholders of the Corporation
for the election of directors and for transaction of any other business of the
Corporation shall be held annually on a date during the months of March or April
in each year at such date and time as the Board of Directors may determine.

SECTION 4. Conduct of Meetings. Meetings shall be conducted in
accordance with the rules as are prescribed by the Chairman of the meeting and
he shall determine the order of business at all meetings of the stockholders.

SECTION 5. Notice of Meeting. Notice stating the place, day and hour of
the meeting and the purpose of purposes for which the meeting is called shall be
delivered by mail or published not less than ten nor more than ninety days
before the date of the meeting, by or at the direction of the President, the
Chairman of the Board of Directors, the Secretary, or the directors calling the
meeting. Notice shall be given to all stockholders in accordance with the laws
of Maryland. It shall not be necessary to give any notice of the time and place
of any meeting adjourned for less than thirty days or of the business to be
transacted thereat, other than an announcement at the meeting at which such
adjournment is taken. Attendance of a person entitled to notice, in person or by
proxy, shall constitute a waiver of notice of such meeting except when such
person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.

SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the record
date for any such determination of stockholders, not less than ninety days prior
to the date on which the particular action requiring such determination of
stockholders is to be taken. When a determination of stockholders entitled to
vote at any meeting of

<PAGE>

stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.

SECTION 7. Voting List. The officer or agent having charge of the
records of the Corporation shall make at least ten days before each meeting of
the stockholders a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order with the
address of and the number of votes held by each, which list shall be kept on
file at the principal office of the Corporation and shall be subject to
inspection by any stockholder at any time during usual business hours for a
period of ten days prior to such meeting. The original stock transfer book shall
be prima facie evidence as to who are the stockholders entitled to examine such
list or to vote at any meeting of stockholders.

SECTION 8. Quorum. The presence in person or by proxy of the holders
of record of a majority of the shares of the capital stock of the
Corporation issued and outstanding and entitled to vote thereat shall constitute
a quorum at all meetings of the stockholders, except as otherwise provided by
law. Unless otherwise provided by law, any action of the stockholders may
be taken by a majority of the votes cast at any duly convened stockholders=92
meeting, except that a plurality of all the votes cast at a meeting at which a
quorum is present shall be sufficient to elect a director. Any action that
may be taken by the stockholders at a duly convened meeting may also be taken
pursuant to a waiver of notice thereof and upon the unanimous written consent
of all shareholders of the Corporation; such consent shall set forth the
action so taken and shall be filed with the Secretary.

<PAGE>

SECTION 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the Board of Directors.

SECTION 10. Voting Rights. At all meetings of the stockholders of the
Corporation, stockholders shall have the following voting rights: Each holder of
share of capital stock shall be entitled to one vote for each share of capital
stock that the stockholder owns of record. When ownership stands in the name of
two or more persons, in the absence of written directions to the Corporation to
the contrary, at any meeting of the stockholders of the Corporation any one or
more of the such stockholders may cast, in person or by proxy, all votes to
which such ownership is entitled. In the event an attempt is made to cast
conflicting votes, in person or by proxy, by the several persons in whose name
ownership stands, the vote or votes to which those persons are entitled shall be
cast as directed by a majority of the named owners present in person or by proxy
at such meeting, but no votes shall be cast if a majority cannot agree.

SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of receiver may be voted by such receiver without the
transfer thereof into this name if authority so to do is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.

A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares as transferred.

Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.

SECTION 12. Nominating Committee. The Board of Directors shall act as a
nominating committee for selecting the management nominees substituted as a
result of the death or other incapacity of a management nominee. The nominating
committee shall deliver written nominations to the Secretary at least twenty
days prior to the date of the annual meeting. Provided such committee makes such
nominations, no nomination for directors except those made by the nominating
committee shall be voted upon at the annual meeting.

SECTION 13. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Company
at least thirty (30) days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the

<PAGE>

annual meeting. Any stockholders may make any other proposal at the annual
meeting and the same may be discussed and considered, but unless stated in
writing and filed with the Secretary at least thirty (30) days before the
meeting such proposal shall be laid over for action at the adjourned, special or
annual meeting of the stockholders taking place thirty days or more thereafter.
This provision shall not prevent the consideration and approval or disapproval
at the annual meeting of reports of officers, directors and committees, but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided. Stockholders may not
participate telephonically.

ARTICLE II

BOARD OF DIRECTORS

SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman of the Board and a President from its members.
The Chairman of the Board or his designee shall preside at meetings of the Board
of Directors.

SECTION 2. Number and Term. The Board of Directors shall consist of not
less than six (6) and not more than fifteen (15) members, the exact number to be
set by resolution of a majority of the Board of Directors. The members of the
Board of Directors shall be elected to serve for terms of up to one (1) year and
until their successors are elected and qualified.

SECTION 3. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as are designated by the Board of
Directors.

SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President, the Chairman of the Board
of Directors, or a majority of the Directors. The persons authorized to call
special meetings of the Board of Directors may fix any place, within the
Corporation's regular lending area, as the place for holding any special meeting
of the Board of Directors called by such persons.

SECTION 5. Notice. Written notice of any special meeting shall be given
to each director at least two days previously thereto delivered personally or by
telegram, or at least five days previously thereto delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed delivered when deposited in the United States mail so addressed, with
postage thereon prepaid if mailed, or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted nor the purpose of any meeting
of the Board of Directors need be specified in the notice or waiver of such
meeting.

<PAGE>

SECTION 6. Quorum. A majority of the number of directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, but if less than such majority is present at a meeting, a majority
of the directors present may adjourn the meeting from time to time.

SECTION 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by these By-Laws.

SECTION 8. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.

SECTION 9. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the President. Unless otherwise specified therein, such resignation
shall take effect upon receipt thereof by the President.

SECTION 10. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors.
A director elected to fill a vacancy shall be elected to serve until the next
election of directors.

SECTION 11. Compensation. Directors, as such, may receive a stated
compensation for their services. By resolution of the Board of Directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at committee meetings as the Board of Directors
may determine.

SECTION 12. Removal of Directors. At a meeting of stockholders called
expressly for the purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part.

ARTICLE III

EXECUTIVE AND OTHER COMMITTEES

SECTION 1. Appointment. The Board of Directors, by resolution adopted
by a majority of the full Board, may designate from among its members two or
more of the directors to constitute an executive committee.

<PAGE>

or other disposition of all or substantially all other property and assets of
the Corporation other than in the usual and regular course of its business, or
recommending to the stockholders a voluntary dissolution of the Corporation or a
revocation thereof.

SECTION 3. Meetings. Meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution.

SECTION 4. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at which a quorum is
present.

SECTION 5. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.

SECTION 6. Resignation and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or the Secretary of the Corporation. Unless otherwise
specified thereon, such resignation shall take effect upon receipt. The
acceptance of such resignation shall be necessary to make it effective.

SECTION 7. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these By-Laws.

SECTION 8. Other Committees. The Board of Directors may by resolution
establish an audit committee, a loan committee or other committees composed of
directors as they may determine to be necessary or appropriate for the conduct
of business of the Corporation and may prescribe the duties, constitution and
procedures thereof.

ARTICLE IV

OFFICERS

SECTION 1. Positions. The officers of the Corporation shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors. The Board of Directors may also
designate a Chairman of the Board as an officer. The President shall be a
director of the Corporation. The Board of Directors may designate one or more
Vice Presidents as Executive Vice President or Senior Vice President. The Board
of Directors may also elect or authorize the appointment of such other officers
as the business of the Corporation may require. The officers shall have such
authority and perform such duties as the Board of Directors may from time to
time authorize or determine. In the absence of action by the Board of Directors,
the officers shall have such duties and

<PAGE>

powers as generally pertain to their respective offices, in addition to the
duties and powers described below.

SECTION 2. Duties and Powers of Officers.

a. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board, he
shall preside at all meetings of the Directors and of the Shareholders. He shall
have general and active management of the business of the Corporation, and see
that all orders and resolutions of the Board of Directors are carried into
effect. He shall have power and authority to sign checks, drafts, and
certificates of deposit, to make loans, in such amounts as the Board of
Directors shall approve, to accept any and all appointments as receiver,
personal representative, depositary or trustee, or any other escrow or trust
appointment, on such terms as the Board of Directors may deem proper. He shall
be a member of all standing committees and shall have the general powers and
duties of supervision and management usually vested in the office of president
of a corporation.

b. Vice Presidents. The Vice Presidents, in order of their
seniority, in the absence or disability of the President, shall perform the
duties and exercise the powers of the President, and shall perform such other
duties as the Board of Directors or the President shall prescribe.

c. Assistant Vice Presidents. The Assistant Vice Presidents,
in the order or their seniority, in the absence or disability of the Vice
Presidents, shall perform the duties and exercise the powers of the Vice
Presidents, and shall perform such other duties as the Board of Directors or the
President shall prescribe.

d. Secretary. The Secretary shall attend all sessions of the
Board of Directors meetings and all meetings of the stockholders, and record all
votes and the minutes of all proceedings in a book to be kept for that purpose
in the mode prescribed by law, and shall perform like duties for all committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors, when such notice is required. He
shall perform such other duties as may be prescribed by the Board of Directors
or the President.

e. Treasurer. The Treasurer shall (a) have the custody of
the corporate funds and securities; (b) keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation; (c) deposit
all moneys and other valuable effects in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of Directors;
and (d) in general perform all of the duties incident to the office of Treasurer
as from time to time may be assigned to him by the President or the Board of
Directors.

SECTION 3. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an

<PAGE>

officer, employee or agent shall not of itself create contract rights. The Board
of Directors may authorize the Corporation to enter into an employment contract
with any officer in accordance with the laws of the State of Maryland; but no
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.

SECTION 4. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the person so removed.

SECTION 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.

SECTION 6. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.

ARTICLE V

CONTRACTS, LOANS, CHECKS, AND DEPOSITS

SECTION 1. Contracts. To the extent permitted by applicable
regulations, and except as otherwise prescribed by these By-Laws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.

SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.

SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by the Board of Directors.

SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the Board of Directors may select.

<PAGE>

ARTICLE VI

CAPITAL STOCK

SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board of Directors in accordance with the laws of the State of Maryland and
the regulations of the Office of the State Banking Commissioner. Such
certificates shall be signed by the President or Vice President of the
Corporation, attested by the Secretary or an assistant secretary, and sealed
with the corporate seal or a facsimile thereof. Each certificate for shares of
capital stock shall be consecutively numbered. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer book of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost or destroyed certificate, a new certificate may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe.

SECTION 2. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender and
cancellation of the certificate for such shares. The person in whose name shares
of capital stock stands on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.

SECTION 3. Issuance of Shares. The Board of Directors may from time to
time authorize the issuance of additional shares of capital stock or securities
convertible into capital stock.

ARTICLE VII

INDEMNIFICATION

The Corporation shall indemnify, to the full extent permitted by the
laws of the State of Maryland, any present or former director, officer, agent,
or employee of the Corporation, who, by reason of such position, was, or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
absent a finding of gross negligence or willful misconduct.

<PAGE>

ARTICLE VIII

FISCAL YEAR

The fiscal year of the Corporation shall end on the last day of
December of each year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by an independent public accountant appointed by and
responsible to the Board of Directors. The appointment of such accountants shall
be subject to annual ratification by the stockholders.

ARTICLE IX

CORPORATE SEAL

The Board of Directors shall provide a corporate seal which shall be
concentric circles between which shall be the name of the Corporation. The year
of incorporation may appear in the center.

ARTICLE X

AMENDMENTS

These By-Laws may be amended at any time by a two-thirds vote of the
full Board of Directors.

Exhibit 3.3 Form of Articles of Incorporation of State Capital Bank

<PAGE>

EXHIBIT 3.3

ARTICLES OF INCORPORATION
OF
STATE CAPITAL BANK

THIS IS TO CERTIFY:

FIRST: The names and addresses of the Incorporators of State Capital
Bank are as follows:

Name Address City, State

William G. Chavanne 1696 Justin Drive Gambrills, Maryland

Ronald Gardner 1405 Goldenrain Drive Crofton, Maryland

Stanley J. Klos, Jr. 76 Chautaugua Road Arnold, Maryland

John W. Marhefka, Jr. 1905 White Heron Road Annapolis, Maryland

James Thomasson, Sr. 200 Shirley Lane Queenstown, Maryland

SECOND: Each of the above named incorporators is older than 18 years
of age and a citizen of the State of Maryland and the United States.

THIRD: The above named incorporators have associated together for the
purpose of forming a Maryland trust company, which shall have all of the powers
authorized for commercial banks and trust companies under Title 3, Subtitle 2,
of the Financial Institutions Article of the Annotated Code of the State of
Maryland, as may from time to time be amended.

FOURTH: The name by which the bank is to be known is State Capital
Bank, hereinafter referred to as the Bank.

FIFTH: The address of the principal office of the Bank is 1905 White
Heron Road, Annapolis, Anne Arundel County, MD 21401.

SIXTH: The resident agent of the Bank is John W. Marhefka, Jr., who
resides at 1905 White Heron Road, Annapolis, MD 21401. Said resident agent is a
citizen of the State of Maryland and actually resides therein.

SEVENTH: The number of Directors of the Bank shall be that number
established by the By-Laws of the Bank but shall be at least six (6) and not
more than fifteen (15), and the following persons shall serve as Directors of
the Bank until their successors are elected and qualify:

<PAGE>

Name Address City, State

Michael J. Bermel 10613 Railroad Avenue Fairfax, Virginia

William G. Chavanne 1696 Justin Drive Gambrills, Maryland

Ronald Gardner 1405 Goldenrain Drive Crofton, Maryland

Stanley J. Klos, Jr. 76 Chautaugua Road Arnold, Maryland

John W. Marhefka, Jr. 1905 White Heron Road Annapolis, Maryland

James Thomasson, Sr. 200 Shirley Lane Queenstown, Maryland

Each director during the full term of his directorship shall own stock
of the Bank or a parent corporation of the Bank as required by Maryland law.

EIGHTH: The total number of shares of capital stock which the Bank has
authority to issue shall consist of 1,000,000 shares with a par value of $10.00
per share, all of which shares are of one class and are designated as shares of
Common Stock. The aggregate par value of all shares which the Bank has authority
to issue is $10,000,000. Upon full payment, such shares shall be fully paid and
assessable in the hands of the holders thereof.

Each holder of capital stock of the Bank shall have one vote for each
share of capital stock that the shareholder owns of record.

NINTH: The Board of Directors of the Bank may authorize the issuance
from time to time of shares of the Bank's capital stock for such consideration
as the Board of Directors may deem advisable, subject to any requirements of
law.

TENTH: Unless otherwise provided by the Board of Directors, no holder
of stock of the Bank shall be entitled to preemptive rights to subscribe for or
to purchase or receive any part of any new or additional issue of stock of any
class from the Bank or securities convertible into stock of any class of the
Bank.

ELEVENTH: To the maximum extent that Maryland law in effect from time
to time permits limitation of the liability of directors and officers, no
director or officer of the Bank shall be liable to the Bank or its stockholders
for money damages. Neither the amendment or appeal of this Article, nor the
adoption of or amendment of any provision of the Charter or By-Laws inconsistent
with this Article, shall apply to or affect in any respect the applicability of
the preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.

TWELFTH: The duration of the Bank shall be perpetual.

<PAGE>

THIRTEENTH: The Bank shall indemnify each present or former Director or
Officer of the Bank, to the fullest extent now or hereafter permitted by that
section or sections of the Maryland General Corporation Law providing for the
indemnification of Directors, Officers and other persons against any and all
liabilities, costs or expenses incurred by him/her in connection with any
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, investigative or other and any appeal therein (whether brought by
or in the right of the Bank or otherwise) arising out of his service to the Bank
in any capacity, his service as a fiduciary of any employee benefit plan
established or maintained by the Bank or his service in any such capacity to any
other enterprise at the request of the Bank or as a result of his capacity as a
Director of Officer of the Bank. Persons who are not Directors or Officers of
the Bank may be similarly indemnified in connection with any such service to the
fullest extent now or hereafter permitted by applicable law and as authorized at
any time by the Board of Directors of the Bank. The Bank may purchase and
maintain insurance to protect itself and any such Director, Officer or other
person against any such liabilities, costs or expenses. The provisions of this
Article shall be applicable to persons who have ceased to be Directors, Officers
or employees of the Bank and shall inure to the benefit of the heirs, executors
and administrators of persons entitled to indemnity hereunder. The foregoing
rights of indemnification shall not be exclusive of any other rights to which
any such person, his heirs, executors and administrators may be entitled as a
matter of law. Nothing in this Article shall authorize the Bank to indemnify or
to provide insurance which would indemnify any person against expenses or
penalties incurred in an administrative proceeding or action instituted by an
appropriate bank regulatory agency which proceeding or action results in a final
order assessing civil money penalties, and nothing in this Article shall
authorize the Bank to indemnify any person against expenses or payments incurred
in such an administrative proceeding or action which results in a final order
requiring affirmative action by such person in the form of payment to the Bank.

FOURTEENTH: The Bank reserves the right from time to time to make any
amendments of these Articles of Incorporation that may now or hereafter be
authorized by law.

<PAGE>

IN WITNESS WHEREOF, the undersigned acknowledges these Articles of
Incorporation to be their act, and certify that to the best of their knowledge,
information, and belief, the matters and facts set forth on these Articles are
true in all material respects and that this statement is made under the
penalties of perjury.

Witness: Incorporator:

- ---------------------- --------------------------
William G. Chavanne

- ---------------------- --------------------------
Ronald Gardner

- ---------------------- --------------------------
Stanley J. Klos, Jr.

- ---------------------- --------------------------
John W. Marhefka, Jr.

- ---------------------- --------------------------
James Thomasson, Sr.

I DO HEREBY approve the foregoing Articles of Incorporation this _____
day of __________________, 199____.

------------------------
H. Robert Hergenroeder
Commissioner of Financial Regulation

Exhibit 3.4 Bylaws of State Capital Bank

<PAGE>

EXHIBIT 3.4

STATE CAPITAL BANK

BY-LAWS

ARTICLE I

CORPORATE NAME

SECTION 1. The corporate name of the Bank is "State Capital Bank",
(hereinafter referred to as the "Bank").

SECTION 2. The principal office of the Bank shall be at 1905 White
Heron Road, Annapolis, Maryland 21401.

ARTICLE II

STOCKHOLDERS

SECTION 1. Place of Meeting. All annual and special meetings of
stockholders shall be held at the principal office of the Bank or at such other
place in the State of Maryland as the Board of Directors may determine.

SECTION 2. Annual Meeting. A meeting of stockholders of the Bank for
the election of directors and for transaction of any other business of the Bank
shall be held annually in either March or April, at such date and time as the
Board of Directors may determine.

SECTION 3. Special Meeting. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the President, the Chairman
of the Board of Directors, or a majority of the Board of Directors and shall be
called by the President, Chairman of the Board of Directors or the Secretary
upon the written request of the holders of not less than 50 percent of all the
outstanding capital stock of the Bank entitled to vote at the meeting. Such
written request shall state the purpose or purposes of the meeting and shall be
delivered to the principal office of the Bank addressed to the President or the
Secretary.

SECTION 4. Conduct of Meetings. Meetings shall be conducted in
accordance with the most current edition of Robert's Rules of Order.

<PAGE>

person or by proxy, shall constitute a waiver of notice of such meeting except
when such person attends the meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.

SECTION 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the record
date for any such determination of stockholders, not less than twenty days prior
to the date on which the particular action requiring such determination of
stockholders is to be taken. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.

SECTION 7. Voting List. The officer or agent having charge of the
records of the Bank shall make at least ten days before each meeting of the
stockholders a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order with the
address of and the number of votes held by each, which list shall be kept on
file at the principal office of the Bank and shall be subject to inspection by
any stockholder at any time during usual business hours for a period of ten days
prior to such meeting. The original stock transfer book shall be prima facie
evidence as to who are the stockholders entitled to examine such list or to vote
at any meeting of stockholders.

SECTION 8. Quorum. The presence in person or by proxy of the holders of
record of a majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote thereat shall constitute a quorum at
all meetings of the stockholders, except as otherwise provided by law. Unless
otherwise provided by law, any action of the stockholders may be taken by a
majority of the votes cast at any duly convened stockholders meeting, except
that a plurality of all the votes cast at a meeting at which a quorum is present
shall be sufficient to elect a director. Any action that may be taken by the
stockholders at a duly convened meeting may also be taken pursuant to waiver of
notice thereof and upon the unanimous written consent of all shareholders of the
Bank; such consent shall set forth the action so taken and shall be filed with
the Secretary.

SECTION 10. Voting Rights. At all meetings of the stockholders of the
Bank, stockholders shall have the following voting rights: Each holder of share
of capital stock shall be entitled to one vote for each share of capital stock
that the stockholder owns of record. When ownership stands in the name of two or
more persons, in the absence of written directions to the Bank to the contrary,
at any meeting of the stockholders of the Bank any one or more of the such
stockholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in

<PAGE>

person or by proxy, by the several persons in whose name ownership stands, the
vote or votes to which those persons are entitled shall be cast as directed by a
majority of the named owners present in person or by proxy at such meeting, but
no votes shall be cast if a majority cannot agree.

Neither treasury shares of its own stock held by the Bank, nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Bank, shall
be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.

SECTION 13. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the Secretary of the Bank at
least thirty (30) days before the date of the annual meeting, and all business
so stated, proposed and filed shall be considered at the annual meeting, but no
other proposal shall be acted upon at the annual meeting. Any stockholders may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the Secretary at least
five days before the meeting such proposal shall be laid over for action at the
adjourned, special or annual meeting of the stockholders taking place thirty
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.

<PAGE>

ARTICLE III

BOARD OF DIRECTORS

SECTION 1. General Powers. The business and affairs of the Bank shall
be under the direction of its Board of Directors. The Board of Directors shall
annually elect a Chairman of the Board and a President from its members. The
Chairman of the Board or his designee shall preside at meetings of the Board of
Directors.

SECTION 3. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as are designated by the Board of
Directors.

SECTION 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President, or a majority of the
Directors. The persons authorized to call special meetings of the Board of
Directors may fix any place, within the Bank's regular lending area, as the
place for holding any special meeting of the Board of Directors called by such
persons.

<PAGE>

SECTION 9. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Bank addressed to
the President. Unless otherwise specified therein, such resignation shall take
effect upon receipt thereof by the President.

ARTICLE IV

EXECUTIVE AND OTHER COMMITTEES

SECTION 2. Authority. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors, except that no such committee shall have the authority
of the Board of Directors in reference to amending the Articles of Incorporation
or By-Laws, adopting a plan of merger or consolidation, recommending to the
stockholders the sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all other property and assets of the Bank other than in the
usual and regular course of its business, or recommending to the stockholders a
voluntary dissolution of the Bank or a revocation thereof.

SECTION 3. Meetings. Meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution.

<PAGE>

SECTION 6. Resignation and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or the Secretary of the Bank. Unless otherwise specified
thereon, such resignation shall take effect upon receipt. The acceptance of such
resignation shall be necessary to make it effective.

SECTION 7. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these By-Laws.

SECTION 8. Other Committees. The Board of Directors may by resolution
establish an audit committee, a loan committee or other committees composed of
directors as they may determine to be necessary or appropriate for the conduct
of business of the Bank and may prescribe the duties, constitution and
procedures thereof.

ARTICLE V

OFFICERS

SECTION 1. Positions. The officers of the Bank shall be a President,
one or more Vice Presidents, a Secretary, and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may also designate a
Chairman of the Board as an officer. The President shall be a director of the
Bank. The Board of Directors may designate one or more Vice Presidents as
Executive Vice President or Senior Vice President. The Board of Directors may
also elect or authorize the appointment of such other officers as the business
of the Bank may require. The officers shall have such authority and perform such
duties as the Board of Directors may from time to time authorize or determine.
In the absence of action by the Board of Directors, the officers shall have such
duties and powers as generally pertain to their respective offices, in addition
to the duties and powers described below.

SECTION 2. Duties and Powers of Officers.

a. President. The President shall be the chief executive
officer of the Bank. In the absence of the Chairman of the Board, he shall
preside at all meetings of the Directors and of the Shareholders. He shall have
general and active management of the business of the Bank, and see that all
orders and resolutions of the Board of Directors are carried into effect. He
shall have power and authority to sign checks, drafts, and certificates of
deposit, to make loans, in such amounts as the Board of Directors shall approve,
to accept any and all appointments as receiver, personal representative,
depositary or trustee, or any other escrow or trust appointment, on such terms
as the Board of Directors may deem proper. He shall be a member of the Board of
Directors and all standing committees and shall have the general

<PAGE>

powers and duties of supervision and management usually vested in the office of
president of a bank.

SECTION 3. Election and Term of Office. The officers of the Bank shall
be elected annually by the Board of Directors. Each officer shall hold office
until his successor shall have been duly elected and qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The Board of Directors may authorize
the Bank to enter into an employment contract with any officer in accordance
with the laws of the State of Maryland; but no contract shall impair the right
of the Board of Directors to remove any officer at any time in accordance with
Section 3 of this Article V.

SECTION 4. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contract rights, if any, of the person so removed.

SECTION 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.

<PAGE>

SECTION 6. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.

SECTION 7. Fidelity Bonds. The Bank shall provide a bond for each
director, officer, agent or employee of the Bank who, as determined by the Board
of Directors, has control over, or access to, the cash or securities of the
Bank, if so requested by the Board of Directors, in such sum and with such
surety or sureties as shall be acceptable to the Bank Commissioner of the State
of Maryland and as the Board of Directors shall determine is required for the
faithful performance of the duties of his office and for the restoration to the
Bank, in case of his death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Bank.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 1. Contracts. To the extent permitted by regulations of the
Office of the State Bank Commissioner, and except as otherwise prescribed by
these By-Laws with respect to certificates for shares, the Board of Directors
may authorize any officer, employee, or agent of the Bank to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Bank. Such authority may be general or confined to specific instances.

SECTION 2. Loans. No loans shall be contracted on behalf of the Bank
and no evidence of indebtedness shall be issued in its name unless authorized by
the Board of Directors. Such authority may be general or confined to specific
instances.

SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Bank shall be signed by one or more officers, employees or agents of
the Bank in such manner as shall from time to time be determined by the Board of
Directors.

SECTION 4. Deposits. All funds of the Bank not otherwise employed
shall be deposited from time to time to the credit of the Bank in any of its
duly authorized depositories as the Board of Directors may select.

ARTICLE VII

CAPITAL STOCK

SECTION 1. Certificates for Shares. Certificates representing shares of
capital stock of the Bank shall be in such form as shall be determined by the
Board of Directors in accordance with the laws of the State of Maryland and the
regulations of the Office of the State Bank Commissioner. Such certificates
shall be signed by the President or Vice President of the Bank, attested by the
Secretary or an assistant secretary, and sealed with the corporate seal or a
facsimile thereof. Each certificate for shares of capital stock shall be
consecutively numbered. The name and address of the person to whom the shares
are issued,

<PAGE>

with the number of shares and date of issue, shall be entered on the stock
transfer book of the Bank. All certificates surrendered to the Bank for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost or destroyed certificate, a new
certificate may be issued therefor upon such terms and indemnity to the Bank as
the Board of Directors may prescribe.

SECTION 2. Transfer of Shares. Transfer of shares of capital stock of
the Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Bank. Such transfer shall be made only on surrender and cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stands on the books of the Bank shall be deemed by the Bank to be the owner
thereof for all purposes.

SECTION 3. Issuance of Shares. The Board of Directors may from time to
time authorize the issuance of additional shares of capital stock or securities
convertible into capital stock.

ARTICLE VIII

SAVINGS DEPOSIT ACCOUNTS

SECTION 1. Ownership. Savings deposit accounts shall be subject to such
rules and regulations as the Board of Directors may from time to time prescribe
consistent with the laws and regulations of the State of Maryland and these
By-Laws. Savings deposit accounts of the Bank shall be evidenced by passbooks,
certificates, or such other evidence of account in such form as the Board of
Directors shall determine. Savings deposit accounts may be held individually, by
two or more persons in any manner, by any association, partnership, Bank, or
other entity, or pursuant to a trust. The Bank shall be entitled to recognize
the exclusive right to the holder registered on its books as the owner of a
savings deposit account.

SECTION 2. Transfers. Savings deposit accounts shall be transferable
only on the books of the Bank by the holder thereof, his legal representative
with proper evidence of authority, or his duly authorized attorney, upon
surrender of the passbook, certificate or such other evidence of account,
properly endorsed. Lost, stolen, or destroyed passbooks, certificates, or other
evidence of account may be replaced by the Bank, which replacement shall be
marked "Duplicate", upon such terms and indemnity to the Bank as the Board of
Directors may prescribe.

SECTION 3. Withdrawals. Any holder of a savings deposit account may at
any time present a written application for withdrawal, in a form prescribed by
the Board of Directors, of all or any part of such account. If the Bank so
elects, it may at any time pay in full each and every application for withdrawal
so presented. However, the Bank may, in appropriate situations, as determined by
the Board of Directors, pay all withdrawal applications on the basis of a
ratable or pro rata plan in accordance with laws of Maryland.

<PAGE>

The holder of a savings deposit account has the same claim priority in any
distribution of assets of the Bank on liquidation as a general creditor of the
Bank to the extent of the deposit account's withdrawal value.

ARTICLE IX

FISCAL YEAR

The fiscal year of the Bank shall end on the last day of December of
each year. The Bank shall be subject to an annual audit as of the end of its
fiscal year by an independent public accountant appointed by and responsible to
the Board of Directors. The appointment of such accountants shall be subject to
annual ratification by the stockholders.

ARTICLE X

CORPORATE SEAL

The Board of Directors shall provide a corporate seal which shall be
concentric circles between which shall be the name of the Bank. The year of
incorporation may appear in the center.

ARTICLE XI

AMENDMENTS

These By-Laws may be amended at any time by a two-thirds vote of the
full Board of Directors.

Exhibit 4.0 Draft Stock Certificate of State Capital Bancorp, Inc.

<PAGE>

EXHIBIT 4.0

COMMON STOCK COMMON STOCK
PAR VALUE $1.00 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP _________________

STATE CAPITAL BANCORP, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES THAT

S P E C I M E N
is the owner of:

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $1.00 PAR VALUE PER SHARE OF
STATE CAPITAL BANCORP, INC.

The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.

This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.

IN WITNESS THEREOF, State Capital Bancorp, Inc. has caused
this certificate to be executed by the facsimile signatures of its duly
authorized officers and has caused a facsimile of its corporate seal to be
hereunto affixed.

Dated: [SEAL]
President Secretary

<PAGE>

STATE CAPITAL BANCORP, INC.

The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The Corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.

The shares represented by this certificate may not be cumulatively
voted on any matter.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S><C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian __________
(Cust) (Minor)

TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act

--------------------
(State)

JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
</TABLE>

Additional abbreviations may also be used though not in the above list.

For value received, __________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE

- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee

_______________________________________________ shares of Common Stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint ___________________________________________________________ Attorney to
transfer the said shares on the books of the within-named Corporation
with full power of substitution in the premises.

DATED
- --------------------------- ------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE GUARANTEED: ________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15

Exhibit 5.0 Opinion of Muldoon, Murphy & Faucette re: legality

<PAGE>

EXHIBIT 5.0

[DRAFT FORM OF LEGAL OPINION]

January _, 1997

Board of Directors
State Capital Bancorp, Inc.
P.O. Box 2148
Annapolis, Maryland 21404

Re: The offering of up to 800,000 shares of State Capital Bancorp, Inc.
Common Stock

Gentlemen:

You have requested our opinion concerning certain matters of Maryland
law in connection with the offering (the "Offering") by State Capital Bancorp,
Inc., a Maryland corporation (the "Company"), of up to 800,000 shares of its
common stock, par value $1.00 per share, ("Common Stock").

In connection with your request for our opinion, you have provided to
us and we have reviewed the Company's articles of incorporation filed with the
Maryland Department of Assessment and Taxation on November 18, 1996 (the
"Certificate of Incorporation"); the Company's Bylaws; the Company's
Registration Statement on Form SB-2, as filed with the Securities and Exchange
Commission initially on January __, 1997 and as amended on _______________ (the
"Registration Statement"); resolutions of the Board of Directors of the Company
(the "Board") concerning the organization of the Company, the Offering and
designation of a Pricing Committee of the Board, and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Maryland Department of Assessment and
Taxation certifying the Company's good standing as a Maryland corporation.
Capitalized terms used but not defined herein shall have the meaning given them
in the Certificate of Incorporation.

<PAGE>

Board of Directors
State Capital Bancorp, Inc.
January __, 1997
Page 2

Based upon and subject to the foregoing, and limited in all respects to
matters of Maryland law, it is our opinion that:

1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Maryland.

2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common stock to be sold in the Offering, the
Common Stock to be issued in the Offering will be duly authorized and, when such
shares are sold and paid for in accordance with the terms set forth in the
Prospectus and such resolution of the Pricing Committee, and certificates
representing such shares in the form provided to us are duly and properly
issued, will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 and to the use of the name of our firm where
it appears in the Registration Statement and in the Prospectus.

Very truly yours,

MULDOON, MURPHY & FAUCETTE

Exhibit 10.1 Employment Agreement between State Capital Bancorp,
Inc. and John W. Marhefka, Jr.

<PAGE>

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

This agreement made this 4th day of December, 1996, between John W.
Marhefka, Jr., hereinafter referred to as "Employee", and State Capital Bancorp,
Inc., its successors and assigns, hereinafter referred to as "Employer".

1. Employer is a Maryland corporation in the process of completing the
tasks necessary to become a bank holding company which is to become the sole
stockholder of a full service commercial bank/trust company whose principal
office will be located in Annapolis, Maryland ("the Bank"). So as to accomplish
this task, Employer shall undertake a public offering of common stock ("the
Offering") the completion of which shall require both acceptance of
subscriptions for the minimum number of shares of common stock offered and
receipt of certain regulatory approvals. For the purpose of this agreement, "the
Date of Satisfaction of Escrow Conditions" shall be the first day of the month
following the last to occur of the following: (i) Employer's acceptance of
subscriptions and payment in full to purchase a minimum of 550,000 shares of
common stock in the Offering; (ii) the Company obtaining regulatory approvals to
acquire all of the stock of the Bank and thereafter to become a bank holding
company; and (iii) the Bank receiving preliminary approval of its application
for a charter from the Maryland Bank Commissioner, preliminary approval of its
application for membership in the Federal Reserve System from the Federal
Reserve Board, and preliminary approval of its application for insurance of
deposit accounts from the Federal Deposit Insurance Corporation.

2. Employee is willing to be employed by Employer and Employer is
willing to employ Employee on the terms, covenants, and conditions hereinafter
set forth.

For the reason set forth above and in consideration of the mutual
promises and agreements hereinafter set forth, Employer and Employee agree as
follows:

SECTION ONE - EMPLOYMENT

Employer hereby employs, engages and hires Employee as the President &
Chief Executive Officer of State Capital Bancorp, Inc., its successors and
assigns, and Employee hereby accepts and agrees to such hiring, engagement and
employment subject to the general supervision and pursuant to the orders, advice
and direction of the Board of Directors of Employer. Following the Date of
Satisfaction of Escrow Conditions, the term "Employer" shall be expanded to also
include the Bank. Employee shall perform such duties as are customarily
performed by persons holding such position in other similar businesses or
enterprises as that engaged in by Employer, and shall render such other and
unrelated services and duties as may be assigned to him from time to time by
Employer.

SECTION TWO - BEST EFFORTS OF EMPLOYEE

Employee agrees that he will at all times faithfully, industriously and
to the best of his ability, experience, and talents, perform all duties that may
be required of and from him pursuant to the express and implicit terms hereof,
to the reasonable satisfaction of Employer.

<PAGE>

Such duties shall be rendered at the principal office of Employer and at such
other place or places as Employer shall in good faith require or as the
interests, needs, business or opportunity of Employer shall require. Employer
will allow fifteen (15) working days vacation annually, during which time
Employee's compensation shall be paid in full.

SECTION THREE - TERM OF EMPLOYMENT

This agreement is effective on the date of its execution, and its term
shall continue to be in effect for a period of five (5) years commencing on the
Date of Satisfaction of Escrow Conditions, unless sooner terminated by either
party pursuant to the provisions of SECTION EIGHT of this agreement.

SECTION FOUR - COMPENSATION OF EMPLOYEE

Prior to the Date of Satisfaction of Escrow Conditions, Employer shall
pay Employee for Employee's services hereunder, compensation at a minimum salary
of Seventy Thousand Dollars ($70,000.00) per annum, payable biweekly while this
agreement is in force. Additionally, Employer shall reimburse Employee for all
reasonable business expenses incurred by Employee.

After the Date of Satisfaction of Escrow Conditions, Employer shall pay
Employee for Employee's services hereunder, compensation at an initial minimum
salary of One Hundred Thousand Dollars ($100,000.00) per annum, payable
bi-weekly while this agreement is in force. The amount of this salary shall
increase by ten percent (10.0% ) per annum effective on each anniversary of the
Date of Satisfaction of Escrow Conditions so long as this agreement is in force.
Additionally, Employer shall provide Employee will a company automobile and all
expenses pertaining to the use, repair, and maintenance of said automobile shall
be paid by Employer. Employer shall provide Employee with non-contributory
family health insurance, reimbursement of reasonable business expenses, and
group benefits as provided for other executive officers of Employer. Employee
may receive cash bonuses as deemed appropriate by the Board of Directors of
Employer, however, no such bonuses shall be paid until Employer attains
profitable operating results.

On the Date of Satisfaction of Escrow Conditions, Employer shall grant
Employee a non-transferable incentive stock option to purchase, at a price of
$10.00 per share, that number of shares of common stock equal to one percent
(1.0%) of the aggregate number of shares sold in the Offering ("the Options").
The Options shall be exercisable for a period of ten years, subject to a five
year vesting schedule with 20% of the Options becoming exercisable annually on
each anniversary of the Date of Satisfaction of Escrow Conditions. The Options
shall be subject to all other applicable provisions of Employer's Incentive
Stock Option Plan.

<PAGE>

SECTION FIVE - OTHER EMPLOYMENT

Employer shall be entitled to all benefits, profits, or other issues
arising from or incident to all work, services and advice of Employee. Employee
shall not, during the term hereof, be interested directly or indirectly, in any
manner, as a partner, officer, director, advisor, employee or in any other
capacity, in any other business similar to Employer's business or allied trade.
However, nothing herein contained shall be deemed to prevent or limit the right
of Employee to invest any of his funds in the capital stock or any other
security of any corporation, nor shall anything herein contained be deemed to
prevent or limit Employee's right to invest his funds in real estate or other
similar investments.

SECTION SIX - RECOMMENDATIONS FOR IMPROVING OPERATIONS

Employee and Employer shall make available to each other all
information of which each shall have any knowledge and shall make all
suggestions and recommendations that will be of mutual benefit to Employer and
Employee.

SECTION SEVEN - COMPLETENESS / MODIFICATION OF CONTRACT

This agreement contains the complete agreement concerning the
employment arrangement between the parties and shall, as of the effective date
hereof, supersede any and all other agreements between the parties. No waiver or
modification of this agreement or any covenant or limitation herein contained
shall be valid unless in writing and duly executed by both parties.

SECTION EIGHT - TERMINATION

This agreement may be terminated by either party at any time with or
without cause. For the purposes of this agreement, "cause" shall be defined as
Employee's intentional failure to perform stated duties, personal dishonesty
which results in a material loss to Employer, willful violation of any law,
rule, regulation or final cease and desist order which results in any material
loss to Employer, or any material breach of this agreement. For purposes of this
section, no act , or the failure to act, on Employee's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interest of the Employer.

Employee may terminate this agreement upon providing 180 days advance
written notice of resignation to Employer. Should Employee terminate this
agreement by voluntary resignation, Employee agrees not to compete with Employer
in Anne Arundel County, Maryland for a period of two years following such
resignation, except as agreed to pursuant to a resolution duly adopted by the
Board of Directors of Employer. Employee agrees that during such period and
within said county, Employee shall not work for or advise, consult, or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the banking or other business activities of Employer. The parties
hereto, recognizing

<PAGE>

that irreparable injury will result to Employer, its businesses and properties
in the event of Employees breach of this covenant, agree that in the event of
any such breach by Employee, Employer will be entitled, in addition to other
remedies and damages available, to an injunction to restrain the violation
hereof by Employee. Nothing contained in this section shall be construed to
limit Employee's ability to compete with Employer in Anne Arundel County,
Maryland or elsewhere in the event that (I) this agreement is terminated by
Employer for any reason, or (ii) this agreement is terminated by either party
subsequent to a change of control of Employer as herein defined.

Prior to the Date of Satisfaction of Escrow Conditions, this agreement
may be terminated by Employer, with no liability to Employee except for rights
earned through the date of termination.

After the Date of Satisfaction of Escrow Conditions, this agreement may
be terminated by Employer, with no liability to Employee except for rights
earned through the date of termination, upon: (i) Employee's discharge for cause
(as defined herein), or (ii) Employee's death, disability (as defined herein),
or resignation. Employer agrees to pay Employee a lump sum payment equal to one
and one-half (1.5) times the base salary and bonus which was paid to Employee
during the preceding twelve month period immediately upon termination of this
agreement by Employer other than for cause or Employee's death, disability, or
resignation. In addition, and not withstanding any other termination provision
herein contained, in the event of a change of control of Employer (as herein
defined), then and in that event, Employee shall have the option, exercised
within six (6) months from the date of said change of control of Employer (as
defined herein), to elect either (a) to execute a new Employment Agreement with
Employer on terms mutually agreeable, or (b) to receive a lump sum payment equal
to one and one-half (1.5) times the base salary and bonus which was paid to
Employee during the twelve month period immediately preceding said change of
control. For purposes of this agreement, a "change of control of Employer" shall
be defined as an event of a nature that (a) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, or (b) results in a Change of Control of Employer within the meaning of
the Change in Control Act and the rules and regulations promulgated by the
Federal Deposit Insurance Corporation at 12 C.F.R., 303.4(a) with respect to the
Bank, and the Board of Governors of the Federal Reserve System at 12 C.F.R.,
225.41(b) with respect to the bank holding company, as of the date hereof, or
(c) results in a change in the power, directly or indirectly, to direct the
management or policies of Employer or to vote twenty percent (20.0%) or more of
the any class of voting securities of Employer.

SECTION NINE - TERMINATION FOR DISABILITY

Not withstanding anything in this agreement to the contrary, Employer
is hereby given the option of terminating this agreement in the event that
Employee, during the term hereof, becomes permanently disabled as the term
"permanently disabled" is hereinafter fixed and defined. For the purpose of this
agreement, Employee shall be deemed to have become

<PAGE>

permanently disabled if, because of ill health, physical or mental disability,
or for other causes beyond his control, he shall have been continuously unable
or unwilling or shall have failed to perform his duties for a period of one
hundred eighty (180) days within any year, irrespective of whether such days are
consecutive. Following the one hundred eightieth day of nonperformance of duties
during any year by Employee, no further obligations shall exist between the
parties hereto, including but not limited to, any further compensation.

SECTION TEN -SEVERABILITY / ASSIGNMENT / LAWS AND REGULATIONS

All agreements contained herein are severable, and in the event any of
the provisions hereof, with the exception of those contained in Sections One,
Four, and Eight hereof, shall be held to be invalid by any competent court, this
agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein. This agreement is personal in nature and neither of the
parties hereto shall, without the written consent of the other, assign or
transfer this agreement or any rights or obligations hereunder. In the event
Employer shall attempt to terminate the employment of Employee for "cause", as
that term is defined in Section Eight of this agreement, Employer and Employee
hereby consent to the jurisdiction of and hereby agree to be bound by the final
decision of the American Arbitration Association with respect to whether said
termination shall preclude receipt of compensation under the terms of this
agreement. All reasonable legal fees paid or incurred by Employee pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by Employer, if Employee is successful on the merits pursuant
to a legal judgment, arbitration or settlement.

SECTION ELEVEN - INDEMNIFICATION

Employer shall provide Employee with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Employee to the fullest extent permitted under Maryland
law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of having been a director or officer of Employer (whether
or not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not
limited to, judgments, court costs and attorney's fees, and the cost of
reasonable settlements.

<PAGE>

In witness whereof, the parties hereto have set their hands and seals
on this fourth day of December, 1996.

"Employer"
Attest State Capital Bancorp, Inc.

_______________________________ By:_______________________
Stanley J. Klos, Jr., Secretary

Corporate Seal

Witness: "Employee"

- --------------------- --------------------------
John W. Marhefka, Jr.

Exhibit 10.2 Form of State Capital Bancorp, Inc. Stock Option Plan*

Exhibit 10.3 Form of State Capital Bancorp, Inc. Warrant Agreement*

Exhibit 10.4 Escrow Agreement between State Capital Bancorp, Inc.
and the First National Bank of Maryland

<PAGE>

EXHIBIT 10.4

ESCROW AGREEMENT

THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and entered into as
of this _______ day of by and between STATE CAPITAL BANCORP, Inc.
(the "Company"), a Maryland corporation and THE FIRST NATIONAL BANK OF MARYLAND,
a national banking association ("FNB").

RECITALS

WHEREAS, the Company is engaged in the offering for sale of a minimum of
550,000 and a maximum of 800,000 shares of common stock of the Company, at
$10.00 per share (the "Shares");

WHEREAS, the offering is conditioned upon the sale of 550,000 Shares (the
"Minimum Amount") on or before September 30, 1997 (the "Minimum Subscription
Termination Date"), unless extended by the Company in its sole discretion;

WHEREAS, the Company had engaged Charles P. Webb & Co., a division of
Keefe, Bruyette & Woods, Inc., to act as agent in offering the Shares and

WHEREAS, each interested party desiring to purchase shares (a
"Subscriber") will be required to forward to the Company a check payable to the
order of "The First National Bank of Maryland" in an amount equal to
his/her/their subscription computed on the basis of $10.00 per Share (the
"Escrow Funds"); and

WHEREAS, the Company proposes to establish an Escrow Account and desires
that FNB act as escrow agent (the "Escrow Agent") for the sole purpose of
depositing, holding and disbursing the Escrow Funds in accordance with the terms
and conditions hereinafter set forth.

NOW THEREFORE, in consideration of the foregoing recitals, the mutual
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1. ESTABLISHMENT OF ESCROW ACCOUNT

1.1 FNB hereby accepts appointment as Escrow Agent, to deposit, hold,
invest, and disburse the Escrow Funds as provided herein.

1.2 Upon the execution of this Escrow Agreement by the parties hereto, the
Escrow Agent shall establish a separate escrow account (the "Escrow Account") to
be designated substantially as follows: State Capital Bancorp Escrow Account,
The First National Bank of Maryland, Escrow Agent.

2. DEPOSIT OF FUNDS

2.1 The Escrow Agent shall receive checks made payable to The First
National Bank of Maryland along with a copy of the subscription agreement from
the Company. The Escrow Agent shall present the checks for payment and upon
receipt of the proceeds shall hold such proceeds in escrow. The Escrow Agent
shall notify the Agent of all dishonored checks immediately following the Escrow
Agent's notification of same.

2.2 The Escrow Agent shall deliver to the Company when requested the date
and amounts of each deposit.

3. INVESTMENT OF FUNDS

3.1 The Escrow Agent at the direction of the Company shall invest the
Escrow Funds in ARK U.S. Treasury Money Market Portfolio or ARK U.S. Government
Money Market Portfolio which are proprietary money market funds of the Escrow
Agent for which the Escrow Agent

-2-

<PAGE>

or an affiliate is investment advisor or provides other services to such money
market funds and receives reasonable compensation for such services, until
otherwise directed by the Company in writing. The ARK Funds seek to maintain a
constant net asset value of $1.00 per share. Shares can be redeemed each day the
fund is open.

3.2 The Escrow Agent shall not be allowed to invest the Escrow Funds until
the next banking day after receipt of the Escrow Funds.

4. DISBURSEMENT OF ESCROW FUNDS

4.1 Unless the Escrow Agreement has terminated pursuant to Section 5, at
such time as the Company determines that the funds representing the sale of the
Minimum Amount have been deposited in the Escrow Account, and (i) the Company
has received the approval of the Federal Reserve Board to become a bank holding
company; (ii) State Capital Bank has received preliminary approval from the
Maryland State Bank Commissioner of its charter; (iii) State Capital Bank has
received preliminary approval of its application for membership in the Federal
Reserve System from the Federal Reserve Board; and (iv) State Capital Bank has
received preliminary approval from the Federal Deposit Insurance Corporation for
insurance of its deposit accounts (together, the "Regulatory Approvals"), the
Company shall notify the Escrow Agent, in writing, that the Minimum Amount of
subscriptions has been accepted. Such written notification also shall instruct
the Escrow Agent to release and disburse the Escrow Funds to the Company, within
ten (10) banking days after receipt of such notice, but only after the Escrow
Agent has verified the Minimum Amount of subscriptions has been accepted, that
the Escrow Funds are collected, and that the Escrow Agent has received a
certification as to receipt by the Company of the Regulatory Approvals (the
"Certification").

4.2 In the event subscription for an insufficient number of

-3-

<PAGE>

Shares have been received, and upon written notification from the Company of the
termination of the Offering, the Company shall instruct the Escrow Agent to
return the subscription deposits (upon verification that subscription deposits
are collected funds), within ten (10) banking days after receipt of such notice
to the Subscribers whose names previously have been provided to the Escrow
Agent. Said disbursement to Subscribers shall be of their original capital
investment with interest but without penalty or deduction.

4.3 The Company is entitled to withdraw any interest earned on invested
funds when the Company has determined the Minimum Amount of subscriptions has
been deposited in the Escrow Account and has provided the Escrow Agent with the
Certification.

5. TERMINATION OF ESCROW AGREEMENT

5.1 The Escrow Agreement shall terminate upon the final disbursement of
all funds held by the Escrow Agent hereunder, but no later than the Termination
Date, unless the Termination Date is extended pursuant to Section 5.2. If the
funds have not been disbursed pursuant to Section 4 on or before the close of
business on the Termination Date, or such later date as specified in the
Extension Notice as provided in Section 5.2, the Escrow Agent shall, without
demand or direction from the Company, return the subscription deposits, without
interest, to the Subscribers whose names have previously been provided to the
Escrow Agent within ten (10) banking days after such date.

5.2 The Company shall have the option to extend the Termination Date and
the term of this Escrow Agreement at any time prior to the close of business on
the Termination Date of this Escrow Agreement by providing written notice to the
Escrow Agent (the "Extension Notice") in substantially the form attached hereto

-4-

<PAGE>

as Exhibit A. The Extension Notice shall state that the Termination Date has
been extended consistent with the terms and conditions of the offering and shall
specify the period of time for which the extension is effective. The Termination
Date may be extended by the Company for a period of time up to September 30,
1997.

6. REJECTED SUBSCRIPTIONS

The Company shall notify the Escrow Agent in writing of any subscription
Agreement rejected by the Company. The Company may reject any Subscription
Agreement in whole or in part. Upon the receipt of a notice of rejection, the
Escrow Agent shall return to the Subscriber signing the rejected Subscription
Agreement within ten (10) banking days after receipt of such notice, the amount
tendered therewith, or in the case of a partial rejection, the appropriate
portion of the original deposit.

7. RETURN OF ESCROW FUNDS TO SUBSCRIBERS

All returns and deliveries to a Subscriber hereunder shall be mailed by
regular first class mail to the residential or business address of such
Subscriber appearing in his Subscription Agreement. Any payment to a Subscriber
may be made by a check or draft drawn on FNB.

8. COMPENSATION

8.1 The Company agrees to pay to the Escrow Agent as compensation for
performing its duties, a $1,000.00 Acceptance fee, an Annual Administrative fee
of $2,500.00, plus $10.00 for each subscription received in excess of 250
subscriptions and $15.00 for each subscription returned in whole or in part, and
$15.00 for each payment of interest, by check or wire. A transaction fee of

-5-

<PAGE>

$20.00 per investment will be assessed for any investment other than an ARK
Money Market Funds. The Company will be assessed a $10.00 fee for each returned
check. Any out-of-pocket expenses will be reimbursed to the Escrow Agent by the
Company for all expenses paid or incurred by it in the performance of Escrow
Agent duties hereunder. In the event that the Minimum Amount is not achieved,
and/or the Certification is not received, and the Escrow Agreement is terminated
on the Minimum Amount Termination Date or such later date as extended pursuant
to Section 5.2 hereof, the Escrow Agent will invoice the Company for all the
above described fees due at that time. If the Minimum Amount and the
Certification are received then the Escrow Agent will deduct all fees due from
the final disbursement to the Company.

9. STANDARD OF CARE FOR ESCROW AGREEMENT

9.1 The Escrow Agent shall be responsible only for performance of its
duties as specified in the Escrow Agreement, and no implied covenants, duties,
or obligations shall bind or be enforceable against the Escrow Agent by any
person. The Escrow Agent shall be held free from all liability to the Company
except for any act or failure to act constituting gross negligence or willful
misconduct. It is expressly understood by the parties hereto that the Escrow
Agent's obligations under this Section 9.1, however, shall survive the
termination of this Escrow Agreement.

9.2 The Escrow Agent may rely conclusively and shall be protected in
acting upon any order, notice, demand, certificate, opinion of counsel, other
advice of counsel (including counsel selected by the Escrow Agent), statement,
instrument, report, or other document (not only as to its due execution and
validity and effectiveness thereof, but also as to the truth and acceptability
of any information therein contained) that is reasonably believed by the Escrow
Agent to be genuine and to be signed by the proper person or persons. The Chief
Executive Officer of the Company has

-6-

<PAGE>

been designated as the authorized representative of the Company to act on behalf
of the Company in respect of this Escrow Agreement, and is authorized to take
all actions and do all things as the authorized representative of the Company
required or permitted under the terms of this Escrow Agreement by the Company
and his true and genuine specimen signature appears below.

9.3 The Escrow Agent shall not be bound by and modification, termination,
or rescission of the Escrow Agreement, or any of the terms hereof, unless
executed in writing by the Company and the Escrow Agent and delivered to the
Escrow Agent.

9.4 The Company shall indemnify the Escrow Agent and hold it harmless from
any and all claims, liabilities, losses, or any other expenses, fees, or charges
of any character or nature, that it may incur or with which it may be threatened
by reason of its acting as Escrow Agent under the Escrow Agreement (except for
any act or failure to act on the part of the Escrow Agent constituting gross
negligence or willful misconduct), including, but not limited to, any and all
damages, direct, indirect, consequential, special or punitive, costs, losses,
and other expenses, including reasonable attorney's fees and expenses, resulting
from or arising in connection with any action, suit, or proceeding incident to
the Escrow Agent's acting as such hereunder.

10. DISAGREEMENTS

In the event of any dispute in respect of the disbursement of all or any
portion of the Escrow Funds, or if any disagreements arise among the parties
hereto in respect of the interpretation of this Escrow Agreement, or concerning
their rights and obligations hereunder, or the propriety of any action
contemplated by the Escrow Agent hereunder, or if the Escrow Agent in good faith
is in doubt as to what action should be taken hereunder, the Escrow Agent shall
not be obligated to resolve the dispute or disagreement or to

-7-

<PAGE>

make any disbursement of all or any portion of the Escrow Funds, but may
commence an action in the nature of an interpleader and seek to deposit such
funds in a court of competent jurisdiction, and thereby shall be discharged from
any further duty or obligation in respect to the Escrow Funds. The Escrow Agent,
in its sole discretion, may elect in lieu of filing such action in interpleader
to cease to perform under the Escrow Agreement and all instructions received in
connection herewith until the Escrow Agent has received a written notice of
resolution of such dispute or disagreement signed by the parties to such dispute
or disagreement.

11. RESIGNATION OF ESCROW AGENT

The Escrow Agent or any successor to the Escrow Agent ("Successor Escrow
Agent") may at any time resign and be discharged of the escrow hereby created by
giving written notice to the Company specifying the date upon which it desires
that such resignation shall take effect. Such resignation shall take effect on
the earlier of (a) the date specified in such notice, which date shall not be
earlier than thirty (30) banking days after giving such notice, or (b) the date
upon which the Company shall have appointed the Successor Escrow Agent. If no
Successor Escrow Agent shall have been appointed as of the effective date of the
resignation of the Escrow Agent as set forth above, the Escrow Agent may
petition but shall not be required to petition, a court of competent
jurisdiction for the appointment of a Successor Escrow Agent.

The Escrow Agent's sole duty shall be to hold, invest in permitted money
market funds and retain the Escrow Funds absent written notice by the Company or
a court of competent jurisdiction to release of funds to a Successor Escrow
Agent or directed recipient. All outstanding fees and expenses of the Escrow
Agent shall be deducted prior to the release of Escrow Funds to the Successor
Escrow Agent or the directed recipient of the Escrow

-8-

<PAGE>

Funds.

12. NOTICES

12.1 All notices and communications hereunder shall be in writing and
shall be deemed to be duly given if sent by first class mail, or by an overnight
delivery service, to the respective addresses hereafter set forth.

(a) To the Company: State Capital Bancorp
1905 White Heron Road
Annapolis, Maryland 21401
Attn: John Marhefka, President

(b) To Escrow Agent: The First National Bank of Maryland
Suite 1601 BANC 101-591
25 South Charles Street
Baltimore, Maryland 21201
Attention: State Capital Bancorp, Escrow
Account.

12.2 The Company and Escrow Agent shall each have the right to change the
addresses to which notices shall be delivered upon notice thereof to the other
party sent pursuant to the provisions of this Section 12.

13. GENERAL

13.1 The rights under this Escrow Agreement shall inure to the

-9-

<PAGE>

benefit of, and the obligations created hereby shall be binding upon, the
parties hereto and their respective successors and assigns.

13.2 This Escrow Agreement shall be construed, governed, and enforced
according to the laws of the State of Maryland.

13.3 This Escrow Agreement constitutes the entire agreement and
understanding of the parties hereto in respect of the matters herein set forth,
and all prior negotiations, writings and understanding relating to the subject
matter of the Escrow Agreement are merged herein and are superseded and
cancelled by this Escrow Agreement. The Company agrees to execute any and all
additional documents reasonably required by the Escrow Agent to carry into
effect the intent of this Escrow Agreement.

IN WITNESS WHEREOF, each party has caused this Escrow Agreement to be
signed and executed in its name by its proper and duly authorized officer or
officers on the day and year first above written.

ATTEST: STATE CAPITAL BANCORP

By:_________________________________
Chief Executive Officer

ATTEST: THE FIRST NATIONAL BANK OF MARYLAND,
Escrow Agent

By:___________________________ By:_________________________________
Authorized Officer Vice President

-10-

<PAGE>

EXHIBIT "A"

The First National Bank of Maryland
Suite 1601 BAN 101-591
25 South Charles Street
Baltimore, Maryland 21201
ATTN: State Capital Bancorp

Gentlemen:

Under the terms and conditions of the Offering Statement dated ,
1997, and the Escrow Agreement between State Capital Bancorp and The First
National Bank of Maryland dated , 1997, you are hereby
notified that the Termination Date of the Subscription Period has been extended
as indicated below. Official documentation confirming the change noted below is
attached.

The Termination date of the Subscription Period applicable to the Offering
Circular noted above is extended to _________________________, 19____.

Sincerely,

Chief Executive Officer

-11-

Exhibit 23.1 Consent of Muldoon, Murphy & Faucette

<PAGE>

EXHIBIT 23.1

CONSENT

We hereby consent to the references to this firm in the Registration
Statement on Form SB-2 filed by State Capital Bancorp, Inc. and all amendments.

MULDOON, MURPHY & FAUCETTE

Dated this ____ day of
January, 1997

Exhibit 23.2 Consent of Rowles & Company, LLP

<PAGE>

EXHIBIT 23.2

State Capital Bancorp, Inc.
Annapolis, Maryland

We hereby consent to the use in this registration statement on Form
SB-2 of our report dated January 9, 1997, on the financial statements of State
Capital Bancorp, Inc. appearing in the registration statement.

/s/ Rowles & Company, LLP

Baltimore, Maryland
January 10, 1997

Exhibit 24.1 Powers of Attorney (appears on the signature pages to
the Registration Statement on Form SB-2).

<ARTICLE> 9

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,010
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
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<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 23,809
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,809
<LONG-TERM> 0
0
0
<COMMON> 1,000
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 23,809
<INTEREST-LOAN> 0
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<CHANGES> 0
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<YIELD-ACTUAL> 0
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<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
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<ALLOWANCE-UNALLOCATED> 0

</TABLE>