<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended Commission file number
September 30, 1994 1-9821
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
BALTIMORE BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1351635
----------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
120 East Baltimore Street, Baltimore, Maryland 21202
-----------------------------------------------------
(Address of principal executive offices)
(410) 244-3360
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The number of shares outstanding of Baltimore Bancorp common stock, $5.00
par value, was 16,775,790 at October 28, 1994.
<PAGE>
BALTIMORE BANCORP
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1994 and December 31, 1993 3
Consolidated Statements of Income for the three month and nine
month periods ended September 30, 1994 and 1993 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 16
Item 1.Legal Proceedings
Item 2.Changes in Securities
Item 3.Defaults upon Senior Securities
Item 4.Submission of Matters to a Vote of Security Holders
Item 5.Other Information
Item 6.Exhibits and Reports on Form 8-K
SIGNATURES 17
EXHIBITS 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
September 30, December 31,
(Thousands of dollars) 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 38,080 $ 41,905
Federal funds sold and securities purchased under resale agreements 27,000 41,500
Other short-term investments 328 11,067
Loans held for sale 49,017 167,336
Available-for-sale securities 564,308 542,196
Loans:
Real estate - construction - residential 96,505 78,585
- commercial 9,864 15,672
Real estate - first mortgage - residential 115,922 52,696
- commercial 371,191 419,500
Real estate - second mortgage and home equity 277,295 301,799
Consumer installment 148,286 205,406
Credit card 203,803 144,000
Commercial 90,562 64,207
Lease financing 61,197 73,673
- ---------------------------------------------------------------------------------------------------------
Total loans 1,374,625 1,355,538
Less: Allowance for possible loan losses 30,576 38,684
Unearned income 32,014 47,093
- ---------------------------------------------------------------------------------------------------------
Net loans 1,312,035 1,269,761
Premises and equipment, net 29,617 31,013
Assets acquired in foreclosure 35,356 47,852
Other assets 113,742 79,561
- ---------------------------------------------------------------------------------------------------------
Total assets $2,169,483 $2,232,191
=========================================================================================================
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 151,761 $ 169,714
Interest-bearing deposits:
Checking accounts 117,197 125,461
Money market 453,134 497,665
Savings 280,752 263,914
Other time 771,352 887,983
Brokered 6,821 12,418
Jumbo certificates of deposit 8,216 4,362
- ---------------------------------------------------------------------------------------------------------
Total deposits 1,789,233 1,961,517
Securities sold under agreements to repurchase
and other short-term borrowings 180,733 60,980
Long-term borrowings 16,987 18,246
Accrued taxes, interest and other liabilities 34,793 29,163
- ---------------------------------------------------------------------------------------------------------
Total liabilities 2,021,746 2,069,906
Commitments and Contingencies
Stockholders' Equity
Common stock ($5.00 par value) shares authorized 50,000,000;
shares outstanding 16,775,790 at September 30, 1994, and 16,672,049
at December 31, 1993 83,879 83,360
Capital surplus 28,541 27,839
Retained earnings 62,000 50,400
Unrealized gain (loss) on available-for-sale securities (26,683) 686
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 147,737 162,285
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,169,483 $2,232,191
=========================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
(Thousands of dollars, except per share data) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 31,740 $ 31,681 $ 89,196 $ 96,684
Interest and dividends on securities:
Taxable interest 8,554 7,173 24,524 23,520
Interest exempt from federal income taxes 27
Other interest income 684 3,670 5,425 8,797
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 40,978 42,524 119,145 129,028
Interest Expense
Interest on deposits 14,637 17,763 44,548 56,932
Interest on securities sold under agreements to
repurchase and other short-term borrowings 1,178 94 1,623 187
Interest on long-term borrowings 371 403 1,158 1,252
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 16,186 18,260 47,329 58,371
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 24,792 24,264 71,816 70,657
Provision for possible loan losses 2,100 6,000 7,100 18,000
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 22,692 18,264 64,716 52,657
Other Operating Income
Service charges on deposit accounts 1,343 1,648 4,182 5,196
Mortgage banking income 5,724 3,024 14,792 12,216
Gains (losses) on sale of available-for-sale securities (5) 521 6,101
Gains on sale of investment securities 670 1,031
Other 2,056 2,128 5,947 5,559
- ----------------------------------------------------------------------------------------------------------------------------
Total other operating income 9,118 7,470 25,442 30,103
- ----------------------------------------------------------------------------------------------------------------------------
Other Operating Expense
Compensation and employee benefits 10,823 11,978 33,640 34,117
Net occupancy expense of premises 2,350 2,504 6,932 6,707
Equipment expense 1,577 2,247 5,003 6,815
FDIC insurance 1,223 1,575 3,775 5,081
Other real estate owned expense, net 219 3,480 2,600 6,953
Other 5,723 4,496 18,370 15,841
- ----------------------------------------------------------------------------------------------------------------------------
Total other operating expense 21,915 26,280 70,320 75,514
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 9,895 (546) 19,838 7,246
Income taxes (benefits) 2,671 (2,138) 5,727 (1,874)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,224 $ 1,592 $ 14,111 $ 9,120
============================================================================================================================
Earnings per share $ .42 $ .10 $ .82 $ .60
============================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(Thousands of dollars) 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 14,111 $ 9,120
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for possible loan losses 7,100 18,000
Provision for depreciation and amortization 3,219 3,451
Amortization of purchased servicing rights 2,153 5,421
Amortization of excess servicing rights 414 531
Amortization of discount on securities 234 2,799
Other amortization 235 686
Realized gain on available-for-sale securities (521) (6,101)
Realized gain on investment securities (1,031)
Realized gain on sale of deposits (229) (398)
Realized gain on sale of servicing rights (7,283) (5,551)
Contribution of common stock under 401(k) plan 109 147
Decrease in other assets and liabilities 4,265 5
Gain on sale of premises and equipment (428) (89)
Other (329) (451)
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,050 26,539
- ----------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sales of available-for-sale securities 75,512 233,541
Principal repayments of available-for-sale securities 63,168 9,730
Purchase of available-for-sale securities (202,608) (242,264)
Proceeds from sales of investment securities 299,266
Maturities of investment securities 139,731
Principal repayments of investment securities 97,986
Purchase of investment securities (513,569)
Sales of mortgage loans held for sale 598,610 780,550
Originations of mortgage loans held for sale (480,291) (869,504)
Proceeds from sale of servicing rights 4,697 4,160
Purchase of servicing rights (18,519) (7,505)
(Increase) decrease in loans (36,549) 143,662
Purchase of premises and equipment (1,395) (3,228)
Other 221 1,034
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,846 73,590
- ----------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from sale of deposits 18,552 20,399
Net increase (decrease) in deposits, excluding deposits sold:
Noninterest-bearing deposits (18,999) 73,507
Interest-bearing deposits (171,608) (294,713)
Net increase in securities sold under agreements to
repurchase and other short-term borrowings 119,753 66,198
Retirement of long-term borrowings (1,259) (1,235)
Cash dividends paid (2,510)
Proceeds from issuance of common stock 1,111 25,462
- ----------------------------------------------------------------------------------------------------
Net cash used for financing activities (54,960) (110,382)
- ----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (29,064) (10,253)
Cash and cash equivalents at beginning of period 94,472 109,976
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 65,408 $ 99,723
====================================================================================================
Supplemental information:
Interest paid $ 46,340 $ 64,277
Net income tax paid (refunded) 3,916 (2,767)
- ----------------------------------------------------------------------------------------------------
Noncash transactions:
Assets acquired in foreclosure $ 9,250 $ 14,613
Loans to facilitate sale of assets acquired in foreclosure 1,320 5,488
Unrealized loss on valuation of available-for-sale securities 27,369
Issuance of common stock under 401(k) plan 109 147
Reclassification of investment securities to loans 4,974
====================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
BALTIMORE BANCORP AND SUBSIDIARIES
(Thousands of dollars, except per share data)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month and nine month periods
ended September 30, 1994 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1994. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1993.
NOTE B - AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities at September 30, 1994 are summarized as follows:
September 30, 1994
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- -------- -------
U.S. Treasury securities . . . $ 55,072 $- $ 966 $ 54,106
Federal agency obligations . . 58,641 5,127 53,514
Foreign government debt. . . . 1,000 1,000
Mortgage-backed securities . . 476,856 34,559 442,297
Other asset-backed securities. 13,787 396 13,391
Total available-for-sale securities $605,356 $- $41,048 $564,308
Available-for-sale securities at December 31, 1993 are summarized as follows:
December 30, 1994
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- -------- -------
U.S. Treasury securities . . . $ 1,994 $ 1,994
Federal agency obligations . . 75,071 $ 53 $ 267 74,857
Foreign government debt. . . . 1,000 1,000
Mortgage-backed securities . . 452,564 1,593 328 453,829
Other asset-backed securities. 10,512 5 1 10,516
Total available-for-sale securities $541,141 $1,651 $ 596 $542,196
<PAGE>
NOTE C - EARNINGS PER SHARE
Earnings per share were determined based on the weighted average number of
common shares outstanding for the period and the assumed exercise of stock
options using the treasury stock method to the extent that the effect is
dilutive. The weighted average number of shares outstanding was 16,755,790 and
16,556,393 for the three month periods ended September 30, 1994 and 1993,
respectively, and 16,724,570 and 15,145,290 for the nine month periods ended
September 30, 1994 and 1993, respectively. The effect of stock options was not
dilutive to earnings per share.
NOTE D - LITIGATION
Various claims and lawsuits are pending against the Company and its
subsidiaries. It is generally anticipated that final disposition of such claims
and lawsuits may not occur for several years. Management, after reviewing
developments with legal counsel, establishes loss contingency reserves as
considered necessary; however, no such reserves have been established as of
September 30, 1994. Although the amount of any ultimate liability with respect
to legal matters cannot be determined, management is of the opinion that losses,
if any, resulting from the ultimate resolution of current legal actions will not
have a material adverse effect on the financial condition of the Company.
During 1993, the Company settled a lawsuit originally filed in 1990 by a class
of stockholders against the Company and certain previous executive officers and
former directors relating to the rejection of a conditional proposal to acquire
the Company made by Allied Irish Bank in 1990. The total settlement paid by the
Company amounted to $1,750 and was charged to other expense during the quarter
ended March 31, 1993.
NOTE E - REGULATORY MATTERS
In April 1994, the Company received notification that the Order to Cease and
Desist, which The Bank of Baltimore, the Company's principal subsidiary, entered
into with the Federal Deposit Insurance Corporation and the Maryland Bank
Commissioner in July 1992, had been terminated and that the Written Agreement,
which the Company entered into with the Federal Reserve Bank of Richmond and the
Maryland Bank Commissioner in July 1992, had been terminated.
<PAGE>
NOTE F - MERGER AGREEMENT
On March 21, 1994, the Company announced the execution of a definitive
Agreement and Plan of Merger ("the Agreement and Plan of Merger") with First
Fidelity Bancorporation ("FFB") and a wholly owned subsidiary of FFB ("Merger
Sub"), pursuant to which FFB will acquire all of the outstanding shares of the
Company's common stock in a merger of Merger Sub into the Company, which will
thereby become a wholly owned subsidiary of FFB. Under the terms of the
Agreement and Plan of Merger, holders of the Company's common stock will receive
$20.75 in cash for each of their shares.
In connection with the acquisition, the Company on March 22, 1994 granted FFB
an option to purchase 3,300,000 shares of the Company's common stock (subject to
adjustment in certain events), or approximately 19.9% of the Company's
outstanding common stock, at $19.31 per share (the average of the high and low
sales prices on March 22, 1994). The option is exercisable in the event of (i)
the acquisition by any person other than FFB or any of its subsidiaries of
ownership, control or the right to vote 25% or more of the Company's outstanding
common stock, or (ii) the Company or any of its subsidiaries entering into, or
the board of directors recommending for stockholder approval, certain
acquisition transactions with any person other than FFB or any of its
subsidiaries.
The acquisition of the Company by FFB is subject to various closing
conditions, including the receipt of all regulatory approvals required for the
transaction and the approval of the transaction by the Company's stockholders at
a special meeting. The acquisition is expected to close during the fourth
quarter of 1994 or in early 1995, subject to the satisfaction of closing
conditions.
On October 17, 1994, the Agreement and Plan of Merger was amended to effect
certain changes primarily to provide FFB with the option of electing to
consummate certain additional alternative transactions designed to allow FFB to
acquire the Company under existing regulatory restrictions.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Earnings Review
Net income of Baltimore Bancorp ("the Company") for the quarter ended
September 30, 1994 was $7.2 million, or $.42 per share, as compared with net
income of $1.6 million for the third quarter of 1993, or $.10 per share.
Year-to-date, net income for the nine months ended September 30, 1994 amounted
to $14.1 million, or $.82 per share, as compared with net income of $9.1
million, or $.60 per share, for the corresponding period in 1993. For the first
nine months of 1994, return on average total assets was .88% compared to .52%
for the first nine months of 1993.
Net interest income. Net interest income grew slightly to $24.8 million in the
third quarter of 1994 from $24.3 million in the same period of 1993. For the
first nine months of 1994, net interest income amounted to $71.8 million, as
compared with $70.7 million for the corresponding period in 1993, both the
quarter and and year-to-date comparison show a 2% increase. While average
earning assets declined by 8% during the nine month period in 1994 compared with
the same period in 1993, the net yield on average earning assets, on a tax
eqvivalent basis, has risen by 9% to 4.98% for the third quarter of 1994 from
4.57% for the same period in 1993 and has increased by 10% to 4.79% for the
first nine months of 1994 from 4.35% for the same period in 1993. A $75.3
million, or 57%, reduction in nonperforming assets since September 30, 1993
combined with the repayment at maturity of $61.3 million in high cost brokered
deposits since September 30, 1993, as well as the overall favorable interest
rate environment has accounted for most of the improvement in the net yield on
average earning assets.
Provision for possible loan losses. The Company's provision for possible
loan losses was $2.1 million for the third quarter of 1994, as compared with
$6.0 million for the third quarter of 1993. Year-to-date, the provision for
possible loan losses was $7.1 million for the nine months ended September 30,
1994, as compared with $18.0 million for the same period in 1993. Net
charge-offs were $2.2 million and $19.5 million for the third quarter of 1994
and 1993, respectively, and $15.2 million and $39.1 million for the first nine
months of 1994 and 1993, respectively. The lower level of charge-offs in 1994
relates to the significant reduction in nonperforming loans over the past twelve
months. Nonperforming loans dropped from $61.3 million at September 30, 1993 to
$22.0 million at September 30, 1994.
<PAGE>
The current provision for possible loan losses is not necessarily indicative
of future provisions. Although the Company closely monitors the quality of its
loan portfolios, deterioration in the regional real estate market or the general
economy could result in the Company increasing the quarterly provision for
possible loan losses.
Other operating income. Other operating income increased by 21% in the third
quarter of 1994 to $9.1 million from $7.5 million for the corresponding period
in 1993. Most of the increase occurred in the Company's residential mortgage
banking business where higher profits on the sale servicing rights was partially
offset by lower profits on the sale of loans in comparison to the prior year.
Year-to-date, other operating income amounted to $25.4 million for the first
nine months of 1994, as compared with $30.1 million for the same period in 1993,
or a 16% decrease. The results for the first nine months of 1993 include $6.1
million in net gains from the Company's securities portfolios, as compared with
$0.5 million for the same period in 1994. Excluding the impact of gains from the
securities portfolio, noninterest income grew to $24.9 million in the first nine
months of 1994 from $24 million for the same period in 1993.
Other operating expense. Other operating expense decreased by 17% in the third
quarter of 1994 to $21.9 million from $26.3 million for the corresponding period
in 1993. Compensation and employee benefits expense decreased largely due to
lower volume driven commissions in the Company's residential mortgage banking
business where production levels in the third quarter of 1994, as compared with
1993, declined with the market rise in mortgage interest rates and the reduction
in refinancing. In comparison with the third quarter of 1993, the Company in the
third quarter of 1994 experienced decreases in equipment expense due to the
outsourcing of its data processing operations beginning in late 1993 as well as
in FDIC insurance expense due to lower deposits and lower assessment rates
resulting from the Company's improved financial condition. Other real estate
owned (OREO) expense also decreased as the Company's loss exposure from its OREO
holdings was reduced. Offsetting these decreases was an increase in other
expense in the third quarter of 1994, as compared with the same period in 1993,
largely attributable to higher outside data processing services expense and
higher advertising expense associated with the Company's retail operations.
Year-to-date, other operating expense amounted to $70.3 million for the first
nine months of 1994, as compared with $75.5 million for the same period in 1993,
or a 7% decrease, due largely to lower volume related compensation expenses in
the mortgage subsidiary, lower OREO expense and FDIC insurance, and 1993
restructuring expenses associated with the outsourcing of data processing
operations . Other expense for the first quarter of 1993 included a $1.8 million
charge for the settlement of a lawsuit filed in 1990 by a class of stockholders
against the Company and certain previous executive officers and former
directors.
<PAGE>
Income taxes. Income taxes increased to $2.6 million in the third quarter of
1994 from a credit of $2.1 million for the corresponding period in 1993. For the
nine months ended September 30, 1994, income taxes were $5.7 million, as
compared with a credit of $1.9 million for the first nine months of the prior
year. In 1993, the Company benefitted from the use of net operating loss
carryforwards to reduce federal income taxes.
Capital and Liquidity
Capital. For the third quarter of 1994, the adjusted Tier 1 leverage capital
ratio for the Company's principal subsidiary, The Bank of Baltimore ("the
Bank"), reached 8.19%. This represents an improvement over the Bank's leverage
capital ratio of 7.13% for the third quarter of 1993 and compares to a leverage
capital ratio of 7.08% for the fourth quarter of 1993. At September 30, 1994,
the Bank's Tier 1 risk-based and Total risk- based capital ratios were 10.82%
and 12.08%, respectively, continuing to exceed the regulatory requirements for a
"well-capitalized" bank of 6.00% and 10.00%, respectively. The Bank's Tier 1
risk-based and Total risk- based ratios were 9.24% and 10.51%, respectively, at
September 30, 1993 and 9.72% and 10.99%, respectively, at December 31, 1993.
On a consolidated basis, the Company's ratio of stockholders' equity to total
assets declined to 6.81% at September 30, 1994, as compared with 7.27% at
December 31, 1993. This decrease reflects the decline in market value, since
year-end 1993, of the Company's available-for-sale securities which, effective
December 31, 1993, are being accounted for in accordance with Statement of
Financial Accounting Standards No. 115 ("FASB 115"). The Company's ratio of
stockholders' equity to total assets excluding the effect of FASB 115 was 8.04%
at September 30, 1994, as compared with 6.94% a year earlier. Capital ratios
have improved since the third quarter of 1993 as a result of profitable
operations, a reduction in the Company's assets and significant new equity
capital raised in 1993 through the sale of common stock under a dividend
reinvestment and stock purchase plan. The table below sets forth the relevant
data and capital ratios for the Company and the Bank at September 30, 1994 and
for the quarter then ended:
<PAGE>
Baltimore The Bank of
(Dollars in millions) Bancorp Baltimore
- -------------------------- --------- -----------
Total assets - quarter-end $ 2,169.5 $ 2,167.7
Total average assets - third quarter 2,138.5 2,137.1
Total risk-weighted assets 1,642.5 1,630.6
Stockholders' equity - quarter-end, excluding
unrealized loss on available-for-sale securities 174.4 177.0
As a percent of total assets 8.04% 8.17%
Tier 1 capital
As a percent of average assets (leverage ratio) 8.09% 8.19%
Tier 1 risk-based capital
As a percent of risk-weighted assets 10.62% 10.82%
Required 4.00% 4.00%
Total risk-based capital
As a percent of risk-weighted assets 12.24% 12.08%
Required 8.00% 8.00%
Liquidity. The FDIC reviews the liquidity of insured financial institutions in
the course of its examinations but has no specific liquidity requirement.
Insured financial institutions are required by the FDIC to maintain adequate
liquidity as measured by the percentage of net deposits and short-term
liabilities represented by net cash, short-term and marketable assets. The
Bank's liquidity ratio under this formula was 24% at September 30, 1994, 33% at
December 31, 1993 and 32% at September 30, 1993. Management believes that the
Bank's liquidity is adequate.
Asset Quality
Nonperforming assets were $57.3 million at September 30, 1994, as compared
with $81.8 million reported at December 31, 1993 and $132.6 million at September
30, 1993. The following table summarizes the year-to-date activity for 1994:
<PAGE>
Nonperforming
(Dollars in millions) Loans OREO Total
--------------------------------------------------------------
Balance, January 1, 1994 $ 33.9 $ 47.9 $ 81.8
Additions 13.9 13.9
Charge-offs/write-downs (10.9) (1.9) (12.8)
Resolutions/payments (5.6) (20.0) (25.6)
Transfers (9.3) 9.3
Balance, September 30, 1994 $ 22.0 $ 35.3 $ 57.3
The ratio of nonperforming assets to total assets decreased to 2.64% at
September 30, 1994 from 3.66% at December 31, 1993. At September 30, 1993, the
ratio of nonperforming assets to total assets was 5.71%. Loans delinquent by
more than 90 days increased by $9.0 million to $20.4 million at September 30,
1994 from $11.4 million at December 31, 1993. Management believes the allowance
for possible loan losses of $30.6 million, with a coverage ratio of
nonperforming loans at 139%, is adequate at September 30, 1994. In comparison,
coverage ratios were 114% at December 31, 1993 and 73% at September 30, 1993.
Approximately 96% of the nonperforming assets are secured by real estate, the
majority of which are income-producing properties, and approximately 85% are
located in the local marketplace. Deterioration in the regional real estate
market or the general economy could result in additions to nonperforming assets
and/or increased OREO expenses and loan loss provisions.
Changes in Financial Condition
Total assets at September 30, 1994 were $2.169 billion, as compared with
$2.232 billion at December 31, 1993.
<PAGE>
Loans held for sale at September 30, 1994 were $49.0 million as compared with
$167.3 million at December 31, 1993. The $118.3 million decrease is attributable
to sales of residential mortgage loans exceeding production in the first nine
months of 1994 as the refinancing trend slowed in response to a rise in interest
rates.
Available-for-sale securities at September 30, 1994 were $564.3 million as
compared with $542.2 million at December 31, 1993. The $22.1 million increase is
largely due to the investment of excess cash in U.S. Treasury and variable-rate
mortgage-backed securities.
Loans, net of unearned income, increased to $1.343 billion at September 30,
1994, as compared with $1.308 billion at December 31, 1993, due largely to
higher credit card receivables and residential mortgage balances offset by loan
amortization and pay-offs in the other portfolios. The reduction in consumer
loan portfolios reflects the significant refinancing of homeowners' first
mortgage loans and the concurrent consolidation of consumer debt. In addition,
the lack of significant new consumer loan demand, except in credit cards, has
impacted growth in loan originations. The commercial real estate loan portfolio
has decreased as a result of prepayments as well as scheduled loan amortization.
Deposits and short-term borrowings decreased to $1.970 billion at September
30, 1994, as compared with $2.022 billion at December 31, 1993, as depositors
continued to seek better returns through alternative investments. The Company
has responded to this market trend by further developing its investment services
business and investigating alternative sources of borrowings.
Interest rate risk management. Managing the Company's net interest income,
which is the primary source of earnings, requires information on asset and
liability repricings. The interest sensitivity position is a measure of the
relative exposure of earnings to fluctuations in interest rates. The Company's
Funds Management and Asset/Liability Management Committees monitor the projected
maturities of loans, investments, deposits and borrowings with a computer model
that simulates the dynamics of frequent changes in interest rates and maturity
patterns. Using the model as a guide, the committees manage interest rate risk
by adjusting the size and maturity characteristics of the loan, investment and
available-for-sale portfolios, altering the composition and maturity
characteristics of deposits and borrowings, and less frequently, by hedging
through the use of interest rate swaps and caps, options and futures contracts.
<PAGE>
The following table summarizes the Company's interest rate sensitivity
position at September 30, 1994 for five different time periods using a static
gap analysis:
<TABLE>
<CAPTION>
Period from September 30, 1994
in which assets/liabilities
are subject to repricing
-----------------------------------------------------------------------------
0-90 91-180 181-365 1-5 Over
(Dollars in millions) Days Days Days Years 5 Years
Assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term investments $ 27
Available-for-sale securities 270 $ 40 $ 27 $ 161 $ 67
Loans 706 29 106 314 188
Other assets 69 166
----------------------------------------------------------------------------
Total assets $ 1,072 $ 69 $ 133 $ 475 $ 421
============================================================================
Liabilities and Equity
Noninterest-bearing deposits (1) $ 152
Savings and money market
accounts (1) 734
Other interest-bearing deposits 628 $ 132 $ 83 $ 49 $ 11
Borrowed funds 181 1 16
Other liabilities 35
Stockholders' equity 148
----------------------------------------------------------------------------
Total liabilities and equity $ 1,695 $ 132 $ 84 $ 49 $ 210
============================================================================
Interest Sensitivity Gap
Amount for period $ (623) $ (63) $ 49 $ 426 $ 211
Cumulative amount (623) (686) (637) (211)
Cumulative percent of assets (28.7%) (31.6%) (29.4%) (9.7%)
<FN>
(1) Noninterest-bearing deposits and savings and money market accounts, taken
together, include $433 million in the 0-90 days category which the Company
considers to be long-term core deposits in the management of its interest
rate sensitivity.
</TABLE>
A static gap repricing report provides an indication of interest rate risk at
a point in time, and is but one tool used for the management of interest rate
risk. In assigning assets and liabilities to these periods, assumptions are made
with regard to prepayments of loans and mortgage backed securities based on
historical trends. While this table shows the opportunity to reprice assets and
liabilities, it does not reflect the fact that all interest rates do not move in
equal increments. For example, consumer deposit rates typically lag changes in
market interest rates.
<PAGE>
PART II- OTHER INFORMATION
Item 1. Legal Proceedings - See Note D to the Consolidated Financial Statements.
Item 2. Changes in Securities - None.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of March 21, 1994, among
the Registrant, First Fidelity Bancorporation and Annabel Lee
Corporation (incorporated by reference from the Registrant's
Current Report on Form 8-K filed on March 23, 1994).
2.2 Amendment, dated as of October 17, 1994, by and among the
Registrant, First Fidelity Bancorporation and Annabel Lee
Corporation, to the Agreement and Plan of Merger dated as of
March 21, 1994 (filed herewith).
11 Statement Re: Computation of Per Share Earnings (filed
herewith).
99 Stock Option Agreement, dated as of March 22, 1994, between the
Registrant and First Fidelity Bancorporation (incorporated by
reference from the Registrant's Current Report on Form 8-K
filed on March 23, 1994).
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALTIMORE BANCORP
October 31, 1994 /s/ Edwin F. Hale, Sr.
-----------------------------
Edwin F. Hale, Sr.
Chairman of the Board and
Chief Executive Officer
October 31, 1994 /s/ Joseph A. Cicero
------------------------------
Joseph A. Cicero
Executive Vice President and
Chief Financial Officer
<PAGE>
BALTIMORE BANCORP
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
(Thousand of dollars, except per share data) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 16,776 16,556 16,725 15,145
Net effect of the assumed exercise of stock options - based on
treasury stock method (1) 569 538 139
- ----------------------------------------------------------------------------------------------------------------------------
Total 17,345 16,556 17,263 15,284
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,224 $ 1,592 $ 14,111 $ 9,120
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per share $ .42 $ .10 $ .82 $ .60
- ----------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED:
Average shares outstanding 16,776 16,556 16,725 15,145
Net effect of the assumed exercise of stock option - based on
treasury stock method (2) 573 573 313
Assumed conversion of Debentures (3) 200 200 200 200
- ----------------------------------------------------------------------------------------------------------------------------
Total 17,549 16,756 17,498 15,658
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 7,224 $ 1,592 $ 14,111 $ 9,120
Interest on Debentures, net of income tax effect (3) 55 55 164 164
- ----------------------------------------------------------------------------------------------------------------------------
Net income, as adjusted $ 7,279 $ 1,647 $ 14,275 $ 9,284
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per share $ .42 $ .10 $ .82 $ .59
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Using average market price.
(2) Using the higher of the average market price or the ending price.
(3) The Company's 6.75% Convertible Subordinated Debentures are included in the
calculation of fully diluted earnings per share. The 10.875% Subordinated
Capital Notes are not common stock equivalents for purposes of computing
earnings per share.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number Identity of Exhibits
2.2 Amendment, dated as of October 17, 1994, by
and among the Registrant, First Fidelity
Bancorporation and Annabel Lee Corporation,
to the Agreement and Plan of Merger date as
of March 21, 1994.
11 Statement Re: Computation of Per share
Earnings.
<PAGE>
AMENDMENT
Amendment, dated as of October 17, 1994 ("Amendment"), by and among First
Fidelity Bancorporation (the "Acquiror"), Annabel Lee Corporation (the "Merger
Sub") and Baltimore Bancorp (the "Company"), to the Agreement and Plan of
Merger, dated as of 21st day of March, 1994 (the "Plan"), by and among the
Acquiror, Merger Sub and the Company.
RECITALS:
A. Primary Purpose. The Acquiror, the Merger Sub and the Company desire to
amend the Plan pursuant to Section 8.3 thereof (which specifically permits an
amendment to the structure of the transaction) primarily to provide as an
alternative to the Thrift Merger and related transactions as a condition
precedent to the Merger, that, under the circumstances set forth herein, the
Company Bank be merged with and into First Fidelity Bank, National Association,
an indirect wholly-owned subsidiary of the Acquiror ("FFB-NA"), with FFB-NA as
the surviving bank.
B. Additional Purposes. The parties also desire to make certain additional
amendments to the Plan pursuant to Section 8.3 thereof relating to the Effective
Time and consummation of the transactions contemplated by the Plan.
C. Intention of the Parties. It is the intention of the parties to this
Amendment that, if the alternative referred to in Recital A is utilized,
immediately prior to the Effective Time and as a result of the merger referred
to above the Company will cease to be a bank holding company under the BHC Act
and immediately after such merger the Merger will be effected.
D. Board Approvals. The respective Boards of Directors of the Acquiror,
Merger Sub and the Company have duly approved this Amendment and have duly
authorized its execution and delivery.
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Amendment as follows:
Section 1. Bank Merger. The Acquiror shall have the right, subject to the
conditions set forth herein, to elect between the Thrift Merger (and related
transactions described in Section 1.5 of the Plan) and the Bank Merger (and
related transactions described below) to precede the Merger upon written notice
to the Company prior to the Effective Date; provided that such an election would
not cause the Effective Date to occur after the later of January 6, 1995 or the
date on which the Thrift Merger could otherwise be consummated. Following the
delivery of such notice and prior to the Effective Time, the Acquiror and the
Company shall use their respective best efforts to take all action necessary and
appropriate to cause, at the Effective Time and prior to the Merger, the Company
Bank to be merged with and into FFB-NA under the charter and title of the latter
and pursuant to the terms and conditions of the Agreement to Merge set forth in
Annex 1 to this Amendment (the "Bank Merger"), including causing their
respective subsidiaries, FFB-NA and the Company Bank, to enter into the
Agreement to Merge. The obligations of the Acquiror and the Company to cause
FFB-NA and the Company Bank, respectively, to effect the Bank Merger are subject
to FFB-NA's ability to relocate its main office from Salem, New Jersey to
Elkton, Maryland (the "Main Office Relocation") prior to the Effective Time. The
parties agree that, in addition to the regulatory approvals set forth in Section
5.1(b) of the Plan, the Bank Merger and related transactions will require the
prior approval of the Office of the Comptroller of the Currency ("OCC"). In
order to elect the Bank Merger, the Acquiror shall cause the Company to be
provided with reasonable assurances as to the legality of the Bank Merger. If
the Acquiror elects the Bank Merger and for any reason the Bank Merger is not
consummated, the parties shall be obligated to proceed to consummate the Thrift
Merger, the Merger and related transactions as if such election had not been
made by the Acquiror. If requested by the Acquiror in writing prior to the
Effective Date in connection with the Bank Merger, the Company agrees to use its
best efforts to divest, on the basis specified in such request by the Acquiror,
any Subsidiary of the Company, other than the Company Bank, or the assets of any
such Subsidiary. Upon consummation of such divestiture, any references in the
Plan to any such Subsidiary or assets shall be deemed to be amended to no longer
refer to any such Subsidiary or assets. In the event that the Merger is not
consummated for any reason, the Acquiror
<PAGE>
agrees to indemnify the Company fully for all Costs (as defined in Section 4.7
of the Plan) incurred in connection with such divestiture. The Acquiror
represents and warrants to the Company that the value of the shares of capital
stock of FFB-NA (as set forth in Annex 1 to this Amendment) to be received by
the Company in the Bank Merger is not less than the Merger Consideration, which
representation and warranty shall survive the Bank Merger but not the Effective
Time of the Merger. The Acquiror agrees promptly to indemnify the Company fully
for all Costs (as defined in Section 4.7 of the Plan) incurred in the event that
the Merger is not consummated immediately following the Bank Merger so that the
Company would be in the same position financially as if the Merger had then
occurred. If the Acquiror elects the Bank Merger, the Company agrees to provide
a signed agreement as to limitations on disposition of such shares of capital
stock of FFB-NA that will comply with 12 C.F.R. 16.5(e), which agreement shall
not reduce the Acquiror's obligation to indemnify as referenced in the previous
sentence.
Section 2. The first sentence of Section 1.6 of the Plan is hereby amended in
its entirety to read as follows:
Acquiror intends to invite the directors of the Company Bank serving on
the Effective Date and prior to the Thrift Merger or the Bank Merger, as
applicable, to become either (i) directors of the FSB (or any successor
thereto) subsequent to the Thrift Merger, or (ii) regional advisory directors
of FFB-NA subsequent to the Bank Merger, in either case, for a period of not
less than two years, with such directors or advisory directors to be
compensated at not less than the annual retainer and meeting attendance fees
paid to non-employee directors of the Company Bank on the date of the Plan.
Section 3. Section 5.2(d) of the Plan is hereby amended in its entirety to
read as follows:
(d) Either (i) the Thrift Merger shall have occurred, the Company shall no
longer be a bank holding company for purposes of the BHC Act and the Company
shall have become a savings and loan holding company under the Home Owners'
Loan Act of 1933, as amended ("HOLA"); or (ii) the Main Office Relocation and
Bank Merger shall have occurred and the Company shall no longer be a bank
holding company for the purposes of the BHC Act.
Section 4. The definition of "Material Adverse Effect" contained in Section
8.1 of the Plan is hereby amended in its entirety to read as follows:
"Material Adverse Effect", with respect to a person, means any condition,
event, change or occurrence that is reasonably likely to have a material
adverse effect upon (A) the financial condition, properties, business or
results of operations of such person and its subsidiaries, taken as a whole,
(other than as a result of (i) changes in laws or regulations or accounting
rules of general applicability or interpretations thereof, (ii) decreases in
capital under Financial Accounting Standards No. 115 attributable to general
increases in interest rates, (iii) any reclassification of loans, write downs
of real estate owned, loan loss reserves, or divestiture of assets taken
pursuant to a specific written request of Acquiror, which Company agrees to
comply with, or (iv) the Bank Merger, if the Acquiror makes the election to
effect the Bank Merger), or (B) the ability of such person to perform its
obligations under, and to consummate the transactions contemplated by, this
Plan and, in the case of the Company, the Option Agreement.
Section 5. Section 5.2 (a) of the Plan is amended to read as follows:
(a) The Company's independent certified public accountants shall have
issued a review report within 15 business days after the date of the mailing
of the Proxy Statement to the Company's shareholders on the interim financial
statements of the Company.
Section 6. Notwithstanding Section 2.2(b) of the Plan, if the Effective Time
occurs subsequent to November 16, 1994 (the Company's regular dividend
declaration date for its 1994 fourth quarter dividend), the Company may declare
its regular quarterly cash dividend for such quarter at the rate of $0.05 per
share and select record and payment dates prior to the Effective Time even
though such record and payment dates would be earlier than the record and
payment dates the Company would otherwise use for its 1994 fourth quarter
dividend.
<PAGE>
Section 7. If the Effective Time occurs prior to January 3, 1995, Acquiror
agrees not to terminate the employment or reduce the compensation of any of the
senior management employees of the Company referred to in Section 4.3(d) of the
Plan prior to January 3, 1995 and to retain the chief executive officer of the
Company as a consultant for three months after January 3, 1995 at his current
base compensation.
Section 8. Except as amended as provided for herein, the Plan shall remain
unchanged and in full force and effect and this Amendment shall be considered a
part thereof.
Section 9. Terms used in this Amendment that are not defined herein shall
have the meanings assigned to them in the Plan.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
FIRST FIDELITY BANCORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
Executive Vice President, General
Counsel and Secretary
ANNABEL LEE CORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
President
BALTIMORE BANCORP
By: /s/ Edwin F. Hale, Sr.
----------------------------
Edwin F. Hale, Sr.
Chairman and Chief Executive
Officer
<PAGE>
ANNEX 1
AGREEMENT TO MERGE
between
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
and
THE BANK OF BALTIMORE
under the charter of
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
under the title of
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
This AGREEMENT made between First Fidelity Bank, National Association
(hereinafter referred to as "FFB-NA"), a banking association organized under the
laws of the United States, being located at 175 West Broadway, Salem Township,
County of Salem, in the State of New Jersey, but with an application pending to
relocate its main office to 202A South Bridge Street, Elkton, County of Cecil,
in the State of Maryland, with a capital, of $430,000,000, divided into
21,500,000 shares of common stock, each of $20.00 par value, surplus of
$985,034,000 and undivided profits, including capital reserves and net
unrealized losses on available-for-sale securities of $1,110,207,000 as of June
30, 1994, and The Bank of Baltimore, a bank organized under the laws of the
State of Maryland, being located at 120 East Baltimore Street, City of
Baltimore, County of Baltimore, in the State of Maryland, with a capital of
$23,604,480, divided into 2,360,448 shares of common stock, each of $10.00 par
value, surplus of $102,971,000 and undivided profits, including capital reserves
and net unrealized losses on available-for-sale securities of $26,080,000 as of
June 30, 1994, each acting pursuant to a resolution of its board of directors,
adopted by the vote of a majority of its directors, pursuant to the authority
given by and in accordance with the provisions of the Act of November 7, 1918,
as amended (12 USC 215a), witnesseth as follows:
Section 1.
The Bank of Baltimore shall be merged with and into FFB-NA under the title
and charter of the latter. The foregoing merger shall be subject to all the
terms and conditions set forth in the Agreement and Plan of Merger, dated as of
the 21st day of March, 1994, as amended (the "Merger Agreement"), by and among
First Fidelity Bancorporation, Annabel Lee Corporation and Baltimore Bancorp,
which is incorporated herein by reference and made a part hereof.
Section 2.
The name of the receiving association (hereinafter referred to as the
"association") shall be First Fidelity Bank, National Association.
Section 3.
The business of the association shall be that of a national banking
association. This business shall be conducted by the association at its main
office as then located and at its legally established branches in operation,
including all the branches and the main office of The Bank of Baltimore
immediately prior to the merger, on the date of the consummation of the merger.
<PAGE>
Section 4.
The amount of outstanding capital stock of the association shall be
$452,156,000, divided into 22,607,781 shares of common stock, each of $20.00 par
value, and 160,540 shares of Non-Cumulative Preferred Stock, each of $1.00 par
value, and at the time the merger shall become effective, the association shall
have a surplus of $1,150,436,000, and undivided profits, including capital
reserves and net unrealized losses on available-for-sale securities of
$1,110,207,000, which when combined with the capital surplus will be equal to
the combined capital structures of the merging banks as stated in the preamble
of this agreement, adjusted, however, for normal earnings, expenses, dividends
and pending acquisitions (including a related capital reduction of FFB-NA),
between June 30, 1994 and the effective time of the merger.
Section 5.
All assets as they exist at the effective time of the merger shall pass to
and vest in the association without any conveyance or other transfer. The
association shall be responsible for all of the liabilities of every kind and
description, including liabilities arising from the operation of a trust
department, of each of the merging banks existing as of the effective time of
the merger. The Chief Executive Officer of FFB-NA shall have satisfied himself
that the statement of condition of each bank as of June 30, 1994 fairly presents
its financial condition and since such date there has been no material change in
the financial condition or business of either bank.
Section 6.
The Bank of Baltimore shall contribute to the association acceptable assets
having a book value, over and above its liabilities to its creditors, of at
least $____________ adjusted, however, for normal earnings and expenses between
June 30, 1994, and the effective time of the merger, and for allowances of cash
payments, if any, permitted under this agreement.
At the effective time of the merger, FFB-NA shall have on hand acceptable
assets having a book value of at least $_____________ over and above its
liabilities to its creditors, adjusted, however, for normal earnings and
expenses between June 30, 1994, and the effective time of the merger, and for
allowances of cash payments, if any, permitted under this agreement.
Section 7.
Of the capital stock of the association, the presently outstanding 21,500,000
shares of common stock of FFB-NA, each of $20.00 par value, shall remain
outstanding as 21,500,000 shares of common stock of the association, and the
holder(s) of them shall retain their present rights, and the shareholder of The
Bank of Baltimore, in exchange for the excess acceptable assets contributed by
The Bank of Baltimore to the association, shall be entitled to receive a total
of 1,107,781 shares of the common stock of the association, each of $20.00 par
value, and a total of 160,540 shares of the Non-Cumulative Preferred Stock of
the association, each of $1.00 par value, the terms of which are set forth in
Exhibit "A" hereto. All outstanding shares of common stock of The Bank of
Baltimore, each of $10.00 par value, will be canceled.
Section 8.
The present board of directors of FFB-NA shall continue to serve as the board
of directors of the association until the next annual meeting or until such time
as their successors have been elected and have qualified.
Section 9.
Effective as of the time this merger shall become effective as specified in
the merger approval to be issued by the Comptroller of the Currency, the
articles of association of the merged bank shall read in their entirety as
provided in Exhibit "A" hereto.
<PAGE>
Section 10.
This agreement shall terminate automatically at the earlier of such time as
(i) the Merger Agreement is terminated or (ii) the Thrift Merger referred to in
the Merger Agreement is consummated.
Section 11.
This agreement shall be ratified and confirmed by the affirmative vote of
shareholders of each of the merging banks owning at least two-thirds of its
capital stock outstanding, at a meeting to be held on the call of the directors
or, to the extent permitted by law, by a written consent; and the merger shall
become effective at the time specified in a merger approval to be issued by the
Comptroller of the Currency of the United States. This agreement may be executed
in counterparts, but shall constitute only one agreement.
WITNESS, the signatures and seals of the said merging banks as of this
_________ day of ___________________, 1994, each set by its chief executive
officer, president or vice president and attested to by its secretary, pursuant
to a resolution of its board of directors, acting by a majority.
Attest: First Fidelity Bank,
National Association
By:____________________________
Wolfgang Schoellkopf
Vice Chairman and
Chief Financial Officer
_____________________________
Secretary
(Seal of Bank)
Attest: The Bank of Baltimore
By: ________________________
Name:
Title:
_____________________________
Secretary
(Seal of Bank)
<PAGE>
STATE OF __________________________)
COUNTY OF__________________________) ss:
On this ___________________________ day of_________________, 1994, before me,
a notary public for this state and county, personally came
______________________________, as president, and _______________________ as
secretary, of _______________________, and each in his/her capacity acknowledged
this instrument to be the act and deed of the association and the seal affixed
to it to be its seal.
WITNESS my official seal and signature this day and year.
____________________________________________
(Seal of Notary) Notary Public, ______________________ County.
My commission expires_______________________
STATE OF __________________________)
COUNTY OF__________________________) ss:
On this ___________________________ day of_________________, 1994, before me,
a notary public for this state and county, personally came
______________________________, as president, and _______________________ as
secretary, of _______________________, and each in his/her capacity acknowledged
this instrument to be the act and deed of the association and the seal affixed
to it to be its seal.
WITNESS my official seal and signature this day and year.
____________________________________________
(Seal of Notary) Notary Public, ______________________ County.
My commission expires_______________________
<PAGE>
EXHIBIT A
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
(proposed)
For purposes of organizing an Association to carry on the business of banking
under the laws of the United States, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this Association shall be First Fidelity Bank, National
Association.
SECOND. The Main Office of the Association shall be in Elkton, County of
Cecil, State of Maryland. The general business of the Association shall be
conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof. Each Director, during the full term of his directorship, shall own a
minimum of (a) $1,000 par value of stock of this Association or (b) preferred or
common stock of First Fidelity Bancorporation having (i) aggregate par value
equal to or greater than $1,000, (ii) aggregate shareholders' equity equal to or
greater than $1,000 or (iii) aggregate fair market value equal to or greater
than $1,000. Any vacancy in the Board of Directors may be filled by action of
the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders the purpose of
which shall be the election of Directors and the transaction of whatever other
business may be brought before said meeting. It shall be held at the main office
or other convenient place as the Board of Directors may designate, on the day of
each year specified therefor in the By-laws, but if no election is held on that
day, it may be held on any subsequent day according to such lawful rules as may
be presented by the Board of Directors.
FIFTH. (A) General. The amount of capital stock of this Association shall be
(i) 25,000,000 shares of common stock of the par value of twenty dollars
($20.00) each (the "Common Stock") and (ii) 160,540 shares of preferred stock of
the par value of one dollar ($1.00) each (the "Non-Cumulative Preferred Stock"),
having the rights, privileges and preferences set forth below, but said capital
stock may be increased or decreased from time to time in accordance with the
provisions of the laws of the United States.
(B) Terms of the Non-Cumulative Preferred Stock.
1. General. Each share of Non-Cumulative Preferred Stock shall be identical
in all respects with the other shares of Non-Cumulative Preferred Stock. The
authorized number of shares of Non-Cumulative Preferred Stock may from time to
time be increased or decreased (but not below the number then outstanding) by
the Board of Directors. Shares of Non-Cumulative Preferred Stock redeemed by the
Association shall be canceled and shall revert to authorized but unissued shares
of Non-Cumulative Preferred Stock.
2. Dividends.
(a) General. The holders of Non-Cumulative Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, but only out of
funds legally available therefor, non-cumulative cash dividends at the annual
rate of $83.75 per share, and no more, payable quarterly on the first days of
December, March, June and September, respectively, in each year with respect to
the quarterly dividend period (or portion thereof) ending on the day preceding
such respective dividend payment date, to shareholders of record on the
respective date, not exceeding fifty days preceding such dividend payment date,
fixed for that purpose by the Board of Directors in advance of payment of each
particular dividend. Notwithstanding the foregoing, the cash dividend to be paid
on the first dividend
<PAGE>
payment date after the initial issuance of Non-Cumulative Preferred Stock and on
any dividend payment date with respect to a partial dividend period shall be
$83.75 per share multiplied by the fraction produced by dividing the number of
days since such initial issuance or in such partial dividend period, as the case
may be, by 360.
(b) Non-cumulative Dividends. Dividends on the shares of Non-Cumulative Stock
shall not be cumulative and no rights shall accrue to the holders of shares of
Non-Cumulative Preferred Stock by reason of the fact that the Association may
fail to declare or pay dividends on the shares of Non-Cumulative Preferred Stock
in any amount in any quarterly dividend period, whether or not the earnings of
the Association in any quarterly dividend period were sufficient to pay such
dividends in whole or in part, and the Association shall have no obligation at
any time to pay any such dividend.
(c) Payment of Dividends. So long as any share of Non-Cumulative Preferred
Stock remains outstanding, no dividend whatsoever shall be paid or declared and
no distribution made on any junior stock other than a dividend payable in junior
stock, and no shares of junior stock shall be purchased, redeemed or otherwise
acquired for consideration by the Association, directly or indirectly (other
than as a result of a reclassification of junior stock, or the exchange or
conversion of one junior stock for or into another junior stock, or other than
through the use of the proceeds of a substantially contemporaneous sale of other
junior stock), unless all dividends on all shares of Non-Cumulative Preferred
Stock and non-cumulative Preferred Stock ranking on a parity as to dividends
with the shares of Non-Cumulative Preferred Stock for the most recent dividend
period ended prior to the date of such payment or declaration shall have been
paid in full and all dividends on all shares of cumulative Preferred Stock
ranking on a parity as to dividends with the shares of Non-Cumulative Stock
(notwithstanding that dividends on such stock are cumulative) for all past
dividend periods shall have been paid in full. Subject to the foregoing, and not
otherwise, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on any junior
stock from time to time out of any funds legally available therefor, and the
Non-Cumulative Preferred Stock shall not be entitled to participate in any such
dividends, whether payable in cash, stock or otherwise. No dividends shall be
paid or declared upon any shares of any class or series of stock of the
Association ranking on a parity (whether dividends on such stock are cumulative
or non-cumulative) with the Non-Cumulative Preferred Stock in the payment of
dividends for any period unless at or prior to the time of such payment or
declaration all dividends payable on the Non-Cumulative Preferred Stock for the
most recent dividend period ended prior to the date of such payment or
declaration shall have been paid in full. When dividends are not paid in full,
as aforesaid, upon the Non-Cumulative Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends (whether dividends on such
stock are cumulative or non-cumulative) with the Non-Cumulative Preferred Stock,
all dividends declared upon the Non-Cumulative Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the
Non-Cumulative Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share on the Non-Cumulative Preferred Stock and such
other Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Non-Cumulative Preferred Stock (but without
any accumulation in respect of any unpaid dividends for prior dividend periods
on the shares of Non-Cumulative Stock) and such other Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Non-Cumulative Preferred
Stock which may be in arrears.
3. Voting. The holders of Non-Cumulative Preferred Stock shall not have
any right to vote for the election of directors or for any other purpose.
4. Redemption.
(a) Optional Redemption. The Association, at the option of the Board of
Directors, may redeem the whole or any part of the shares of Non-Cumulative
Preferred Stock at the time outstanding, at any time or from time to time after
the fifth anniversary of the date of original issuance of the Non-Cumulative
Preferred Stock, upon notice given as hereinafter specified, at the redemption
price per share equal to $1,000 plus an amount equal to the amount of accrued
and unpaid dividends from the immediately preceding dividend payment date (but
without any accumulation for unpaid dividends for prior dividend periods on the
shares of Non-Cumulative Preferred Stock) to the redemption date.
<PAGE>
(b) Procedures. Notice of every redemption of shares of Non-Cumulative
Preferred Stock shall be mailed by first class mail, postage prepaid, addressed
to the holders of record of the shares to be redeemed at their respective last
addresses as they shall appear on the books of the Association. Such mailing
shall be at least 10 days and not more than 60 days prior to the date fixed for
redemption. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the shareholder
receives such notice, and failure duly to give such notice by mail, or any
defect in such notice, to any holder of shares of Non-Cumulative Preferred Stock
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Non-Cumulative Preferred Stock.
In case of redemption of a part only of the shares of Non-Cumulative
Preferred Stock at the time outstanding the redemption may be either pro rata or
by lot or by such other means as the Board of Directors of the Association in
its discretion shall determine. The Board of Directors shall have full power and
authority, subject to the provisions herein contained, to prescribe the terms
and conditions upon which shares of the Non-Cumulative Preferred Stock shall be
redeemed from time to time.
If notice of redemption shall have been duly given, and, if on or before the
redemption date specified therein, all funds necessary for such redemption shall
have been set aside by the Association, separate and apart from its other funds,
in trust for the pro rata benefit of the holders of the shares called for
redemption, so as to be and continue to be available therefor, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, all shares so called for redemption
shall no longer be deemed outstanding on and after such redemption date, and all
rights with respect to such shares shall forthwith on such redemption date cease
and terminate, except only the right of the holders thereof to receive the
amount payable on redemption thereof, without interest.
If such notice of redemption shall have been duly given or if the Association
shall have given to the bank or trust company hereinafter referred to
irrevocable authorization promptly to give such notice, and, if on or before the
redemption date specified therein, the funds necessary for such redemption shall
have been deposited by the Association with such bank or trust company in trust
for the pro rata benefit of the holders of the shares called for redemption,
then, notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, from and after the time of
such deposit, all shares so called for redemption shall no longer be deemed to
be outstanding and all rights with respect to such shares shall forthwith cease
and terminate, except only the right of the holders thereof to receive from such
bank or trust company at any time after the time of such deposit the funds so
deposited, without interest. The aforesaid bank or trust company shall be
organized and in good standing under the laws of the United States of America or
any state thereof, shall have capital, surplus and undivided profits aggregating
at least $50,000,000 according to its last published statement of condition, and
shall be identified in the notice of redemption. Any interest accrued on such
funds shall be paid to the Association from time to time. In case fewer than all
the shares of Non-Cumulative Preferred Stock represented by a stock certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
Any funds so set aside or deposited, as the case may be, and unclaimed at the
end of the relevant escheat period under applicable state law from such
redemption date shall, to the extent permitted by law, be released or repaid to
the Association, after which repayment the holders of the shares so called for
redemption shall look only to the Association for payment thereof.
5. Liquidation.
(a) Liquidation Preference. In the event of any voluntary liquidation,
dissolution or winding up of the affairs of the Association, the holders of
Non-Cumulative Preferred Stock shall be entitled, before any distribution or
payment is made to the holders of any junior stock, to be paid in full an amount
per share equal to an amount equal to $1,000 plus an amount equal to the amount
of accrued and unpaid dividends per share from the immediately preceding
dividend payment date (but without any accumulation for unpaid dividends for
prior dividend periods on the shares of Non-Cumulative Preferred Stock) per
share to such distribution or payment date (the "liquidation amount").
<PAGE>
In the event of any involuntary liquidation, dissolution or winding up of the
affairs of the Association, then, before any distribution or payment shall be
made to the holders of any junior stock, the holders of Non-Cumulative Preferred
Stock shall be entitled to be paid in full an amount per share equal to the
liquidation amount.
If such payment shall have been made in full to all holders of shares of
Non-Cumulative Preferred Stock, the remaining assets of the Association shall be
distributed among the holders of junior stock, according to their respective
rights and preferences and in each case according to their respective numbers of
shares.
(b) Insufficient Assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Association are insufficient to pay such liquidation amount on all outstanding
shares of Non-Cumulative Preferred Stock, then the holders of Non-Cumulative
Preferred Stock shall share ratably in any distribution of assets in proportion
to the full amounts to which they would otherwise be respectively entitled.
(c) Interpretation. For the purposes of this paragraph 5, the consolidation
or merger of the Association with any other corporation or association shall not
be deemed to constitute a liquidation, dissolution or winding up of the
Association.
6. Preemptive Rights. The Non-Cumulative Preferred Stock is not entitled
to any preemptive, subscription, conversion or exchange rights in respect of
any securities of the Association.
7. Definitions. As used herein with respect to the Non-Cumulative
Preferred Stock, the following terms shall have the following meanings:
(a) The term "junior stock" shall mean the Common Stock and any other
class or series of shares of the Association hereafter authorized over which
the Non-Cumulative Preferred Stock has preference or priority in the payment
of dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Association.
(b) The term "accrued dividends", with respect to any share of any class
or series, shall mean an amount computed at the annual dividend rate for the
class or series of which the particular share is a part, from, if such share
is cumulative, the date on which dividends on such share became cumulative to
and including the date to which such dividends are to be accrued, less the
aggregate amount of all dividends theretofore paid thereon and, if such share
is non-cumulative, the relevant date designated to and including the date to
which such dividends are accrued, less the aggregate amount of all dividends
theretofore paid with respect to such period.
(c) The term "Preferred Stock" shall mean all outstanding shares of all
series of preferred stock of the Association as defined in this Article Fifth
of the Articles of Association, as amended, of the Association.
8. Restriction on Transfer. No shares of Non-Cumulative Preferred Stock, or
any interest therein, may be sold, pledged, transferred or otherwise disposed of
without the prior written consent of the Association. The foregoing restriction
shall be stated on any certificate for any shares of Non-Cumulative Preferred
Stock.
9. Additional Rights. The shares of Non-Cumulative Preferred Stock shall
not have any relative, participating, optional or other special rights and
powers other than as set forth herein.
SIXTH. The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Chairmen and Vice Presidents and such
other officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association
<PAGE>
shall be made; to manage and administer the business and affairs of the
Association; to make all By-laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place permitted by law, but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders, but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any one or more
shareholders owning, in the aggregate, not less than 25 percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting, to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. (A) Indemnification of Directors
The Association shall, to the fullest extent permitted by applicable banking,
corporate and other law and regulation, indemnify any person who is or was a
director of the Association from and against any and all expenses, liabilities
or other losses arising in connection with any action, suit, appeal or other
proceeding, by reason of the fact that such person is or was serving as a
director of the Association and may, to the fullest extent permitted by
applicable banking, corporate and other law and regulation, advance monies to
such persons for expenses incurred in defending any such action, suit, appeal or
other proceeding on such terms as the Association's Board of Directors shall
determine and as are required by applicable banking, corporate and other law or
regulation or interpretation by the applicable banking regulators. The
Association may purchase insurance for the purpose of indemnifying such persons
and/or reimbursing the Association upon payment of indemnification to such
persons to the extent that indemnification is authorized by the preceding
sentences, except that insurance coverage and corporate indemnification shall
not be available in connection with a formal order by a court or judicial or
governmental body assessing civil money penalties against such person or in the
event that such coverage or indemnification would be prohibited by applicable
banking, corporate and other law or regulation.
(B) Indemnification of Officers, Employees and Agents.
The Association shall indemnify any person who is or was an officer, employee
or agent of the Association or who is or was a director, general partner,
trustee or principal of another entity serving as such at the request of the
Association from and against any and all expenses, liabilities or other losses
arising in connection with any action, suit, appeal or other proceeding, by
reason of the fact that such person is or was serving as an officer, employee or
agent of the Association or as a director of another entity at the request of
the Association, to the extent authorized by the corporate policy of the
Association, as adopted and modified from time to time by the shareholders of
the Association, except to the extent that such indemnification would be
prohibited by applicable banking, corporate and other law or regulation. The
Association may advance monies to such persons for expenses incurred in
defending any such action, suit, appeal or other proceeding in accordance with
the corporate policy of the Association, as adopted and modified from time to
time by the shareholders of the Association, under such terms and procedures as
are required by applicable banking, corporate and other law or regulation or
interpretation by the applicable banking regulators, except to the extent that
such advancement would be prohibited by applicable banking, corporate and other
law or regulation. The Association may purchase insurance for the purpose of
indemnifying such persons and/or reimbursing the Association upon pay ment of
indemnification to such person to the extent that indemnification is authorized
by the preceding sentence, except that insurance coverage and corporate
indemnification shall not be available in connection with a formal order by a
court or judicial or governmental body assessing civil money penalties against
such person or in the event that such coverage or indemnification would be
prohibited by applicable banking, corporate and other law or regulation.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
<PAGE>
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