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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-23402
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1545782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10480 Little Patuxent Parkway
Columbia, Maryland 21044
(Address of principal executive offices) (zip code)
410-465-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
[cover page 1 of 2 pages]
<PAGE>
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of this filing.
Common Stock, par value $0.01 per share:
Market value held by non-affiliates based on the
closing sales price at March 20, 1997 $33,948,622
==========
State the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share:
Shares outstanding at March 24, 1997 2,148,345
=========
Documents Incorporated by Reference:
Portions of Annual Report to Stockholders for Fiscal Year
Ended December 31, 1996, incorporated by reference
into Part II.
Portions of Definitive Proxy Statement dated March 25, 1997
incorporated by reference into Part III.
[cover page 2 ]
<PAGE>
TABLE OF CONTENTS
PART I PAGE
----
Item 1 - Description of Business.................................... 2
Item 2 - Description of Property.................................... 9
Item 3 - Legal Proceedings.......................................... 9
Item 4 - Submission of Matters to a Vote of Stockholders............ 9
PART II
Item 5 - Market for Common Stock and Related Stockholder Matters.... 10
Item 6 - Selected Financial Data.................................... 10
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 10
Item 8 - Financial Statements and Supplementary Data................ 10
Columbia Bancorp and Subsidiaries:
Independent Auditor's Report
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 10
PART III
Item 10 - Directors and Executive Officers of the Registrant......... 11
Item 11 - Executive Compensation..................................... 12
Item 12 - Security Ownership of Certain Beneficial Owners and
Management................................................. 12
Item 13 - Certain Relationships and Related Transactions............. 12
Item 14 - Exhibits and Reports on Form 8-K........................... 12
Signatures............................................................ 16
(1)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Columbia Bancorp (the "Company"), a bank holding company, was
incorporated in November, 1987, under the laws of Maryland and registered under
the Bank Holding Company Act of 1956, as amended. The Columbia Bank (the "Bank")
was organized by the Company as a Maryland trust company and commenced
operations in May, 1988. The Bank currently accounts for substantially all of
the Company's assets. The deposits of the Bank are insured by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank is headquartered in Columbia,
Maryland and has six branch locations in Howard County, Maryland; three branch
locations in Baltimore County, Maryland; and two branch locations in Baltimore
City, Maryland. Three additional branch locations in Howard County, Maryland are
scheduled to open in 1997. At December 31, 1996, the Company had total assets of
$317.2 million, total loans, net of unearned income of $237.9 million, total
deposits of $254.6 million and stockholders' equity of $31.0 million.
The Bank is an independent, community bank which seeks to provide
personal attention and professional financial services to its customers while
offering virtually all of the banking services of larger competitors. These
customers are primarily individuals and small- and medium-sized businesses. The
Bank's business philosophy includes offering direct access to its President and
other officers and providing friendly, informed and courteous service, local and
timely decision-making, flexible and reasonable operating procedures and
consistently-applied credit policies.
The executive offices of the Company and the principal office of the
Bank are located at 10480 Little Patuxent Parkway, Columbia, Maryland 21044,
telephone number (410) 465-4800.
Services of the Bank
The Bank provides comprehensive and service-intensive commercial and
retail banking services to individuals and small and medium-sized businesses.
The following types of services are offered by the Bank:
Commercial Services:
* Loans, including working capital loans and lines of credit, a
wide range of demand, term, and time loans, loans for real
estate land acquisition, development and construction and
equipment, inventory and accounts receivable financing.
* Cash management, including automatic overnight investment of funds.
* Certificates of deposit and other interest-bearing accounts.
* Direct deposit of payroll.
* Letters of credit.
(2)
<PAGE>
Retail Services:
* Transaction accounts, including checking and NOW accounts.
* Savings accounts.
* Certificates of deposit.
* Individual retirement accounts.
* 24-hour automated teller machines with access to most major
network systems.
* 24-hour telephone banking.
* Installment and home equity loans and lines of credit.
* Residential construction and first mortgage loans.
* VISA(R) credit and debit cards.
* Travelers checks, money orders and safe deposit boxes.
The Bank does not now exercise general trust powers.
Lending Activities
General. At December 31, 1996, the Company's loan portfolio, net of
unearned income, totaled $237.9 million, representing approximately 75.0% of its
total assets of $317.2 million. The categories of loans in the Company's
portfolio are commercial, real estate development and construction, residential
real estate mortgage, commercial real estate mortgage and consumer.
Loan Portfolio Composition. The following table sets forth the
Company's loans by major categories as of December 31, 1996:
December 31, 1996
----------------------
Amount Percent
----------------------
(dollars in thousands)
Commercial...................................... $ 30,517 12.8%
Real estate - development and construction(1)... 112,838 47.2
Real estate - mortgage:
Residential................................... 11,897 5.0
Commercial.................................... 14,470 6.1
Consumer:
Retail(2)..................................... 67,731 28.3
Credit Card................................... 1,543 .6
-------- -----
Total loans..................................... $238,996 100.0%
======== =====
- ---------------------
(1) At December 31, 1996, loans to individuals for constructing primary
personal residences represented $10.8 million.
(2) Approximately $62.4 million were retail loans secured by the borrowers'
principal residences in the form of home equity lines of credit and
second mortgages.
Commercial Loans. The Company originates secured and unsecured loans
for business purposes. Additionally, commercial business loans are made to
provide working capital to businesses in the form of lines of credit
(3)
<PAGE>
which may be secured by real estate, accounts receivable, inventory, equipment
or other assets. At December 31, 1996, $30.5 million or 12.8% of the Company's
total loan portfolio consisted of commercial business loans. The financial
condition and cash flow of commercial borrowers are closely monitored by the
submission of corporate financial statements, personal financial statements
and income tax returns. The frequency of submissions of required information
depends upon the size and complexity of the credit and the collateral which
secures the loan. Financial statements are analyzed using a financial
spreadsheet software program. It is also the Company's general policy to
obtain personal guarantees from the principals of the commercial loan borrowers.
Real Estate Development and Construction Loans. The real estate
development and construction loan portfolio consisted of the following at
December 31, 1996:
December 31, 1996
----------------------
Amount Percent
----------------------
(dollars in thousands)
Residential construction(1)..................... $ 50,902 45.1%
Commercial construction......................... 4,419 3.9
Residential land development.................... 50,262 44.6
Residential land acquisition(2)................. 7,255 6.4
-------- -----
$112,838 100.0%
======== =====
- -----------
(1) Includes $10.8 million of loans to individuals for construction of
primary personal residences.
(2) Includes $2.1 million of loans to individuals for the purchase of
residential building lots.
The Company provides interim residential real estate development and
construction loans to builders, developers and persons who will ultimately
occupy the single family dwellings. Residential real estate construction and
development loans constitute the largest portion of the Company's lending
activities. The real estate development and construction loan portfolio
primarily represents loans for the construction of single family dwellings. At
December 31, 1996, loans to individuals for the construction of primary personal
residences accounted for $10.8 million of the $50.9 million residential
construction portfolio. These loans are typically secured by the property under
construction, frequently include additional collateral (such as a second
mortgage on the borrower's present home), and commonly have maturities of six to
twelve months. The remaining $40.1 million of residential construction loans
represented loans to residential builders and developers. Approximately 43% of
these loans were for the construction of residential homes for which a binding
sales contract existed and the prospective buyers have been pre-qualified for
permanent mortgage financing by either third-party lenders (mortgage companies
or other financial institutions) or the Company. To date, permanent mortgage
loan financing has primarily been provided by third-party lenders. The Company
attempts to obtain the permanent mortgage loan under terms, conditions and
documentation standards which permit the sale of the mortgage loan in the
secondary mortgage loan market. The Company's practice is to immediately sell
substantially all residential mortgage loans in the secondary market with
servicing released.
Loans for the development of residential land represented the second
largest component of the real estate development and construction loan portfolio
at December 31, 1996. Generally, development loans are extended only when
evidence is provided that the lots under development will be sold to builders
satisfactory to the Company.
The Company makes residential real estate development and construction
loans generally to provide interim financing on property during the construction
period. These loans are typically made for 80% or less of the appraised value of
the property. Residential real estate development and construction loan funds
are disbursed periodically as pre-specified stages of completion are attained
based upon site inspections. Interest rates on these loans are usually
adjustable.
The Company has successfully limited losses in this area of lending
through careful monitoring of development and construction loans with on-site
inspections and control of disbursements on loans in process. Development and
construction loans are secured by the properties under development/construction
and personal guarantees are typically obtained. Further, to assure that reliance
is not placed solely upon the value of the underlying
(4)
<PAGE>
collateral, the Company considers the financial condition and reputation
of the borrower and any guarantors, the amount of the borrower's equity in
the project, independent appraisals, cost estimates and pre-construction sale
information.
Residential Real Estate Mortgage Loans. The Company originates
adjustable and fixed-rate residential mortgage loans in order to provide a full
range of products to its customers. Such mortgage loans are generally originated
under terms, conditions and documentation which permit their sale in the
secondary mortgage market. The Company's practice is to immediately sell
substantially all residential mortgage loans in the secondary market with
servicing released. At December 31, 1996, $11.9 million or 5.0% of the Company's
total loan portfolio consisted of residential mortgage loans.
For any loans retained by the Company, title insurance insuring the
priority of its mortgage lien, as well as fire and extended coverage casualty
insurance protecting the properties securing its mortgage loans are required.
Borrowers may be required to advance funds, with each monthly payment of
principal and interest, to a loan escrow account from which the Company makes
disbursements for items such as real estate taxes, hazard insurance premiums and
mortgage insurance premiums. The properties securing all of the Company's
residential mortgage loans are appraised by appraisers approved by the Company.
Commercial Real Estate Mortgage Loans. The Company also originates
mortgage loans secured by commercial real estate. At December 31, 1996, $14.5
million or 6.1% of the Company's total loan portfolio consisted of commercial
mortgage loans. Such loans are primarily secured by office condominiums, retail
buildings and warehouse and general purpose business space. Although terms vary,
the Company's commercial mortgages generally have maturities of five years or
less.
The Company seeks to reduce the risks associated with commercial
mortgage lending by generally lending in its market area, using conservative
loan-to-value ratios and obtaining periodic financial statements and tax returns
from borrowers to perform annual loan reviews. It is also the Company's general
policy to obtain personal guarantees from the principals of the borrowers.
Consumer Loans. The Company offers a variety of consumer loans in order
to provide a full range of financial services to its customers. The consumer
loans offered by the Company include home equity loans and lines of credit and
loans that are secured by personal property. At December 31, 1996, $69.3 million
or 29.0% of the Company's total loan portfolio consisted of consumer loans.
Home equity loans are originated by the Company for typically up to 85%
of the appraised value, less the amount of any existing prior liens on the
property. Home equity loans have a maximum term of 15 years and the interest
rate is generally adjustable. The Company secures these loans with mortgages on
the homes (typically a second mortgage).
Other Potential Problem Loans. At December 31, 1996, management had
identified four loans totaling approximately $972,000 which, while not adversely
classified, had exhibited potential weaknesses. These weaknesses may at some
future date result in a reduced likelihood of repayment. These loans are subject
to an increased level of monitoring by management in accordance with the
Company's established credit policies and procedures.
Competition
While promotional activities emphasize the many advantages of dealing
with a locally-run institution closely attuned to the needs of its community,
the Company faces strong competition in all areas of its operations. This
competition comes from entities operating in the Baltimore-Washington
metropolitan area, which include offices of most of the largest banks in
Maryland. Its most direct competition for deposits comes from other commercial
banks
(5)
<PAGE>
savings banks, savings and loan associations and credit unions operating
in the Baltimore/Washington marketplace. The Company also competes for deposits
with money market mutual funds and with larger banks for cash management
customers. The Company competes with banking entities, mortgage banking
companies, and other institutional lenders for loans. The competition for loans
varies from time to time depending on certain factors. These factors include,
among others, the general availability of lendable funds and credit, general and
local economic conditions, current interest rate levels, conditions in the
mortgage market and other factors which are not readily predictable.
Interstate Banking
Adequately capitalized bank holding companies, such as the Company, may
acquire control of banks in any state, although states may limit the eligibility
of banks to be acquired to those in existence for a period of time but no longer
than five years. No bank holding company may acquire more than 10% of the
nationwide insured deposits or more than 30% of deposits in any state; however,
states may waive the 30% limit. In addition, beginning June 1, 1997, banks may
branch across state lines either by merging with banks in other states or by
establishing new branches in other states. The date relating to interstate
branching through mergers may be accelerated by any state, and such mergers may
be prohibited by any state. The provision relating to establishing new branches
in another state requires a state's specific approval. Maryland law permits
interstate branching both by mergers and establishing new branches; however,
until June 1, 1997 this provision is subject to the reciprocity requirements
that banks from another state may branch into Maryland only if Maryland banks
may branch into that state. The Company is unable to predict the ultimate impact
of interstate banking legislation on it or its competitors.
Supervision and Regulation
Bank Holding Company Regulations. Bank holding companies and banks are
extensively regulated under both federal and state law. These laws and
regulations are intended primarily to protect depositors and not stockholders.
To the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in the applicable law or
regulation may have a material effect on the business and prospects of the
Company and the Bank.
The Company is a registered bank holding company subject to regulation
and examination by the Federal Reserve Board under the Bank Holding Company Act
of 1956, as amended (the "Act"). The Company is required to file with the
Federal Reserve Board quarterly and annual reports and any additional
information that may be required under the Act. The Act also requires every bank
holding company to obtain the prior approval of the Federal Reserve Board before
(i) acquiring all or substantially all of the assets of, or direct or indirect
ownership or control of, more than 5% of the outstanding voting stock of any
bank which is not already majority owned, or (ii) acquiring, or, merging or
consolidating with, any other bank holding company. The Federal Reserve Board
will not approve any acquisition, merger, or consolidation that would have a
substantially anti-competitive effect, unless the anti-competitive impact of the
proposed transaction is clearly outweighed by a greater public interest in
meeting the convenience and needs of the community to be served. The Federal
Reserve Board also considers capital adequacy and other financial and managerial
resources and future prospects of the companies and the banks concerned,
together with the convenience and needs of the community to be served, when
reviewing acquisitions, mergers or consolidations. The Act now further provides
that the Federal Reserve Board shall not approve any such acquisition of control
of any bank operating outside the bank holding company's principal state of
operations, unless such action is specifically authorized by the statutes of the
state in which the bank to be acquired is located. This prohibition on
interstate acquisitions has been amended, effective September 29, 1995.
Additionally, the Act prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries unless such non-banking business is
determined by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be properly incident thereto. In making such
determination, the Federal Reserve Board is required to weigh the expected
(6)
<PAGE>
benefits to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices.
In January, 1989, the Federal Reserve Board adopted risk-based capital
guidelines for bank holding companies. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profile among banks and bank holding companies, to account for
off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Under these guidelines, assets and off-balance sheet items are assigned
to broad risk categories. Failure to meet the capital guidelines could subject a
banking institution to a variety of enforcement remedies available to federal
regulatory authorities.
Bank holding companies currently are required to maintain a minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) of 8%. At least half of the
total capital is required to be "Tier 1 capital," consisting of common equity,
retained earnings, noncumulative perpetual preferred stock and a limited amount
of cumulative perpetual preferred stock, less goodwill items and certain other
intangible assets. The remainder ("Tier 2 capital") may consist of (a) the
allowance for loan losses of up to 1.25% of risk-weighted risk assets, (b)
excess of qualifying perpetual preferred stock (c) hybrid capital instruments,
(d) perpetual debt, (e) mandatory convertible debt securities, and (f) a limited
amount of subordinated debt and intermediate-term preferred stock up to 50% of
Tier 1 capital. The maximum amount of supplementary capital elements that
qualifies as Tier 2 capital is limited to 100% of Tier 1 capital net of goodwill
and certain other intangible assets. Total capital is the sum of Tier 1 and Tier
2 capital less reciprocal holdings of other banking organizations' capital
instruments, investments in unconsolidated subsidiaries and any other deductions
as determined by the Federal Reserve Board (determined on a case by case basis
or as a matter of policy after formal rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans will be assigned to the 100% risk category,
except for performing first mortgage loans fully secured by certain residential
property, which carry a 50% risk rating. Most investment securities (including,
primarily, general obligation claims on states or other political subdivisions
of the United States) will be assigned to the 20% category, except for municipal
or state revenue bonds, which have a 50% risk-weight, and direct obligations of
the U.S. Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance-sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations, are given a 100% conversion factor.
Transaction related contingencies such as bid bonds, standby letters of credit
backing non-financial obligations and commitments (including commercial credit
lines) with an initial maturity or more than one year have a 50% conversion
factor. Short-term commercial letters of credit are converted at 20% and certain
short-term or unconditionally cancelable commitments have a 0% factor.
The Company's management believes that the risk-weighting of assets
under these guidelines does not and will not have a material impact on the
Company's operations or on the operations of the Bank. As of December 31, 1996
and 1995, the Company's total risk-based capital ratios were 13.2% and 14.1%,
respectively, and its Tier 1 risk-based capital ratios were 11.9% and 13.0%,
respectively. In addition to the risk-based capital guidelines, the Federal
Reserve Board has adopted a minimum Tier 1 capital leverage ratio, under which a
bank holding company that has the highest regulatory examination rating and is
not contemplating significant growth or expansion must maintain a minimum level
of Tier 1 capital to average total consolidated assets of at least 3%. All other
bank holding companies are expected to maintain a Tier 1 leverage ratio of at
least 1.0% to 2.0% above the stated minimum. The Tier 1 leverage ratio assists
in the assessment of the capital adequacy of bank holding companies. Its
principal objective is to place a constraint on the maximum degree to which a
banking organization can leverage its equity capital base, even if it invests
primarily in assets with low risk-weights. As of December 31, 1996 and 1995, the
Company's Tier 1 capital leverage ratios were 10.1% and 10.7%, respectively.
(7)
<PAGE>
In September, 1995, the federal bank regulatory agencies revised the
capital adequacy guidelines to explicitly include a bank's exposure to declines
in the economic value of its capital due to changes in interest rates as a
factor that the banking agencies will consider in evaluating a bank's capital
adequacy. While the revised capital guidelines do not codify a measurement
framework for assessing the level of a bank's interest rate exposure, the
measurement of interest rate exposure using either a supervisory model,
developed by the federal bank agencies, or the bank's own internal model is a
quantitative factor, among other quantitative and qualitative factors, available
for use by examiners in determining the adequacy of an individual bank's capital
for interest rate risk. Other quantitative factors include the bank's historical
financial performance and its earnings exposure to interest rate movements.
Qualitative factors include the adequacy of the bank's internal interest rate
management. Establishment of an explicit supervisory threshold, defining a
"normal" level of interest rate risk exposure is expected at some future date.
The revision of the capital adequacy guidelines did not have a material adverse
effect on the Company.
Bank Regulations. The Bank is a state-chartered bank subject to
supervision, regulation and examination by the Maryland Commissioner of
Financial Regulation and by the FDIC under the Federal Deposit Insurance Act.
Deposits, reserves, investments, loans, consumer law compliance, issuance of
securities, payment of dividends, establishment and closing of branches, mergers
and consolidations, changes in control, electronic funds transfer, community
reinvestment, management practices and other aspects of operations are subject
to regulation by the appropriate federal and state regulatory agencies. The Bank
is also subject to various regulatory requirements of the Federal Reserve Board
applicable to FDIC-insured banks, including disclosure requirements in
connection with personal and mortgage loans, interest on deposits and reserve
requirements. In addition, the Bank is subject to numerous federal, state and
local laws and regulations which set forth specific restrictions and procedural
requirements with respect to the extension of credit, credit practices, the
disclosure of credit terms and discrimination in credit transactions. Federal
regulatory agencies have broad powers to take prompt corrective action to
resolve problems at banking institutions, including (in certain cases) the
appointment of a conservator or receiver. The extent of these powers is
generally influenced by the level of capital at the institution.
The Bank is assessed by the FDIC in respect of its deposit insurance.
As a result of the acquisition of Fairview Federal Savings and Loan Association
("Fairview") in June 1992, approximately $82.9 million or 35.3% of the Bank's
average assessable deposit base is insured by the Savings Association Insurance
Fund (the "SAIF"). The remainder of the Bank's average assessable deposit base
is insured by the Bank Insurance Fund (the "BIF"). In September 1996 and as a
result of congressional legislation to recapitalize the SAIF, the Company was
charged a one-time special assessment of approximately $486,000 pretax. Also,
effective October 1, 1996, the Company began paying a Financing Corporation
("FICO") assessment of 1.30 cents per $100 of BIF deposits and 6.48 cents per
$100 of SAIF deposits. The impact of the special assessment and the FICO
assessment was mitigated by a significant reduction (from 23 cents per $100 of
deposits to zero) in the FDIC insurance premium associated with BIF deposits
assessed the Company during 1996. The Company's FDIC insurance premium
associated with deposits insured by the SAIF was also reduced from 23 cents per
$100 to zero effective October 1, 1996.
In the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of the liquidation or other
resolution of a banking subsidiary of the Company, the general claims of the
Company as creditor of such banking subsidiary would be subordinate to the
claims of the depositors of such banking subsidiary, even if the claims of the
Company were not by their terms so subordinated.
As a consequence of the extensive regulation of the commercial banking
business in the United States, the business of the Company and the Bank are
particularly susceptible to changes in federal and state legislation and
regulations which may increase the cost of doing business.
(8)
<PAGE>
Governmental Monetary Policies and Economic Controls
The Company is affected by monetary policies of regulatory agencies,
including the Federal Reserve Board, which regulates the national money supply
in order to mitigate recessionary and inflationary pressures. Among the
techniques available to the Federal Reserve Board are engaging in open market
transactions in the United States Government securities, changing the discount
rate on bank borrowings, changing reserve requirements against bank deposits,
prohibiting the payment of interest on demand deposits, and imposing conditions
on time and savings deposits. These techniques are used in varying combinations
to influence the overall growth of bank loans, investments and deposits. Their
use may also affect interest rates charged on loans or paid on deposits. The
effect of governmental policies on the earnings of the Company cannot be
predicted; however, modest short-term changes should have little effect so long
as the Company maintains its current interest sensitivity gap position.
Employees
At December 31, 1996, the Company and the Bank had 185 employees of
which 43 were officers, 160 were full-time employees and 25 were part-time
employees. The Company believes its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY
The principal offices of the Company and the Bank are located at 10480
Little Patuxent Parkway, Columbia, Howard County, Maryland.
At December 31, 1996, the Company owned one banking office and an
adjacent office building. These properties had a book value of $3.4 million at
December 31, 1996, and the office building was producing annual rental income of
$170,400. The remaining ten banking offices open at December 31, 1996 were
leased. The lease for the principal office of the Bank expires in 2013 (after
giving effect to all renewal options), and annual rent is currently $232,999.
Leases for the remaining leased banking offices expire from 1997 through 2011
(after giving effect to all renewal options), and aggregate annual rent is
currently $323,000. The Company is also in the process of constructing a banking
office on leased property which is scheduled to open prior to the end of March
1997. The lease expires in 2037 (after giving effect to all renewal options),
and the annual rent will be $63,000. In addition, the Company is currently
negotiating leases for two additional banking offices. The Company believes that
its facilities are adequate for its current and near-term needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to legal actions which are routine and incidental
to its business. In management's opinion, the outcome of these matters,
individually or in the aggregate, will not have a material adverse impact on the
results of operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
(9)
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth by reference to the
information appearing under the captions "Dividends" on page 38 and "Recent
Common Stock Prices" on page 44 of the 1996 Annual Report to Stockholders
included in Exhibit 13.1 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item as to the Company is incorporated
by reference to the information appearing under the caption "Selected Financial
Highlights" on page 6 of the 1996 Annual Report to Stockholders included in
Exhibit 13.1 filed herewith.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item as to the Company is incorporated
by reference to the information appearing under the caption "Management's
Discussion and Analysis" on pages 7 through 20 of the 1996 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item as to the Company and the
Company's Independent Public Accountants' Report thereon is incorporated by
reference to the 1996 Annual Report to Stockholders included in Exhibit 13.1,
pages 21 through 43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in nor disagreements with accountants on
accounting and financial disclosure.
(10)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to Directors of the Company is
incorporated by reference to the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders included in Exhibit 99.1 filed herewith.
The following information is supplied with respect to Mr. Bond and to
other named executive officers of the Company and the Bank who do not serve on
the Board of Directors. Each such officer serves at the pleasure of the Board
and is appointed annually. Except as noted, each person's principal occupation
for at least the past five years has been to serve as an officer of the Company
and/or the Bank. "Age" is that as of March 15, 1997.
Position with the
Name Age Company and the Bank
---- --- --------------------
John M. Bond, Jr. 53 President, Chief Executive Officer and Treasurer
of the Company and the Bank.
Michael T. Galeone 48 Executive Vice President of the Bank.
Charles C. Holman 63 Executive Vice President of the Bank since June
1992. Prior to that, Mr. Holman served as a senior
officer of Fairview.
Robert W. Locke 51 Senior Vice President of the Bank.
John A. Scaldara, Jr. 33 Executive Vice President of the Bank, Chief
Financial Officer and Secretary of the Company and
the Bank.
Mr. Bond has over 20 years of experience in the banking industry,
holding senior positions with the Bank, Chase Bank of Maryland and The
First National Bank of Maryland. Prior to returning to Maryland in 1978, Mr.
Bond was a Vice President with Citibank, N.A. in New York and a consultant
with McKinsey & Company. Mr. Bond is an active volunteer in his community,
working with various organizations involved in education, health and
community development in both Howard County and Baltimore. Mr. Bond is a
graduate of Harvard College (A.B.) and Columbia University (M.B.A. and J.D.).
He has been admitted to the New York State Bar.
Mr. Galeone directs the retail branch operations and consumer lending
activities of the Bank. He has in excess of 20 years experience in the
consumer finance industry with the Bank and Household International
Corporation. Mr. Galeone is actively involved in civic and professional
affairs, currently serving as President of the Howard County Arts Council
and Vice Chair of the Howard County Board of Realtors and member of several
other civic organizations. Mr. Galeone attended Temple University, Institute of
Technology.
Mr. Holman directs the real estate construction and development
lending activities of the Bank relating to builders and developers. He has
over 30 years of experience in the banking and real estate industries with
the Bank, Fairview, Union Trust Company of Maryland, James W. Rouse & Co.,
Inc. and Weaver Brothers, Inc. of Maryland. He has been active in several
civic and professional organizations in the community. Mr. Holman is a
graduate of University of Baltimore (B.S. in Business Management).
Mr. Locke directs the commercial lending activities of the Bank.
He has 20 years experience in the commercial lending area with the Bank and
the former Maryland National Bank and The National Bank of
(11)
<PAGE>
Washington. Mr. Locke is actively involved in civic and professional affairs,
serving in the past as a director of the Howard County Chamber of Commerce
and the president of the James Rouse Entrepreneurial Fund. He is a graduate
of Colgate University (B.A.) and City College of New York (M.S.Ed).
Mr. Scaldara directs the accounting, finance, loan administration, cash
management and transaction processing activities of the Company. He has been a
Certified Public Accountant since 1985. Prior to joining the Company, Mr.
Scaldara held various staff accounting and consulting positions with KPMG Peat
Marwick LLP in Baltimore. He is a graduate of Loyola College (B.A.) and is
actively involved in civic organizations, serving as a director of The Family
Life Center and Howard Hospital Foundation. Mr. Scaldara has served as Secretary
of the Company and the Bank since January 14, 1991.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the information appearing under the caption "Executive Compensation" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders included
in Exhibit 99.1 filed herewith.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the information appearing under the caption "Beneficial Ownership of Officers,
Directors and Nominees" in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders included in Exhibit 99.1 filed herewith.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the information appearing under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders included in Exhibit 99.1 filed herewith.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(3.1) Form of Restated Articles of Incorporation of the
Company, restated as of December 31, 1995,
previously filed with the Commissioner as an Exhibit
to, and incorporated herein by reference from, the
Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 1995 (File No. 0-23402).
(3.2) Form of Restated By-Laws of the Company as in effect
on June 7, 1994, and amended December 19, 1994, and
at all times since then through March 24, 1997,
previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the
Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 1994, (File No. 0-23402).
(12)
<PAGE>
(10.1) Form of the Company's 1987 Stock Option Plan, as
amended April 17, 1990, December 18, 1995, and
February 24, 1997 (filed herein as Exhibit 10.1).
(10.2) Form of Incentive Stock Option Agreement for use
under the 1987 Stock Option Plan, as amended
(previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Registration Statement on
Form S-8 filed August 15, 1996)(Reg. No. 333-10231).
(10.3) Form of Non-Qualified Stock Option Agreement for
use under the 1987 Stock Option Plan, as amended
(previously filed with the Commission as an
Exhibit to, and incorporated herein by reference
from, the Company's Registration Statement on
Form S-8 filed August 15, 1996)(Reg. No. 333-10231).
(10.4) Form of the Company's 1990 Director Stock Option
Plan, as amended July 29, 1996 and February 24, 1997
(filed herein as Exhibit 10.4).
(10.5) Form of Employment Agreement dated February 26, 1996
with John M. Bond, Jr., previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.6) Form of Employment Agreement dated February 26, 1996
with Michael T. Galeone, previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.7) Form of Employment Agreement dated February 27, 1996
with Charles C. Holman, previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.8) Form of Employment Agreement dated February 26, 1996
with John A. Scaldara, Jr., previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.9) Form of Severance Agreement dated February 26, 1996
with Robert W. Locke, previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.10) Agreements by and between the Bank and an affiliate
of Directors G. Clark and Moxley, previously filed
with the Commissioner as an Exhibit to, and
incorporated herein by
(13)
<PAGE>
reference from, the Company's Annual Report on Form
10-KSB for fiscal year ended December 31, 1995 (File
No. 0-23402).
(10.11) Agreements by and between the Bank and an affiliate
of Director G. Clark, previously filed with the
Commissioner as an Exhibit to, and incorporated
herein by reference from, the Company's Annual Report
on Form 10-KSB for fiscal year ended December 31,
1995 (File No. 0-23402).
(10.12) Deferred Compensation Plan dated September 27, 1996,
as amended December 30, 1996, and February 24, 1997,
including addendums thereto (filed herein as Exhibit
10.12).
(10.13) Data Processing agreements by and between the Bank
and M&I Data Services, Inc., including addendums
thereto (filed herein as Exhibit 10.13)
(11.1) Information Used in the Computation of Net Income
Per Common Share (filed herein as Exhibit 11.1).
(13.1) 1996 Annual Report to Stockholders (filed herein as
Exhibit 13.1).
(21.1) List of Subsidiaries of the Company
State of Percentage
Name Incorporation Owned by Ownership
---- ------------- -------- ----------
The Columbia Maryland Columbia 100%
Bank Bancorp
McAlpine Maryland The Columbia 100%
Enterprises, Bank
Inc.
(23.1) Consent of Independent Certified Public Accountants
(filed herein as Exhibit 23.1).
(27.1) Financial Data Schedule (filed herein as Exhibit 27.1).
(99.1) Notice of the 1997 Annual Meeting of Stockholders,
Proxy Statement for the 1997 Annual Meeting of
Stockholders and the 1997 Form of Proxy (filed herein
as Exhibit 99.1).
(14)
<PAGE>
b. Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ended December 31, 1996.
(15)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Columbia Bancorp
(Registrant)
March 24, 1997 By: /S/
--------------------------------------
John M. Bond, Jr.
President, Chief Executive Officer and
Treasurer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/S/
- ---------------------------- Chairman of the 3/24/97
James R. Moxley, Jr. Board -----------
/S/
- ---------------------------- Vice Chairman of 3/24/97
Herschel L. Langenthal the Board -----------
/S/
- ---------------------------- President, Chief 3/24/97
John M. Bond, Jr. Executive Officer and -----------
Treasurer
/S/
- ---------------------------- Secretary 3/24/97
John A. Scaldara, Jr. and Chief Financial -----------
Officer
/S/
- ---------------------------- Director 3/24/97
Anand S. Bhasin -----------
(16)
<PAGE>
Signature Title Date
- --------- ----- ----
/S/
- ---------------------------- Director 3/24/97
John M. Bond, Sr. -----------
/S/
- ---------------------------- Director 3/24/97
Garnett Y. Clark -----------
/S/
- ---------------------------- Director 3/24/97
James Clark, Jr. -----------
/S/
- ---------------------------- Director 3/24/97
Hugh F.Z. Cole -----------
/S/
- ---------------------------- Director 3/24/97
G. William Floyd -----------
/S/
- ---------------------------- Director 3/24/97
Robert J. Gaw -----------
- ---------------------------- Director
Mary T. Gould -----------
/S/
- ---------------------------- Director 3/24/97
William L. Hermann -----------
/S/
- ---------------------------- Director 3/24/97
Harry L. Lundy, Jr. -----------
/S/
- ---------------------------- Director 3/24/97
Richard E. McCready -----------
/S/
- ---------------------------- Director 3/24/97
Osborne A. Payne -----------
/S/
- ---------------------------- Director 3/24/97
Patricia T. Rouse -----------
(17)
<PAGE>
Signature Title Date
- --------- ----- ----
- ---------------------------- Director
Mary S. Scrivener -----------
/S/
- ---------------------------- Director 3/24/97
Robert N. Smelkinson -----------
/S/
- ---------------------------- Director 3/24/97
Theodore G. Venetoulis -----------
(18)
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Title of Exhibit
- ----------- ----------------
10.1 Form of 1987 Stock Option Plan, as amended April 17,
1990, December 18, 1995 and February 24, 1997.
10.4 Form of 1990 Director Stock Option Plan, as amended July
29, 1996 and February 24, 1997.
10.12 Deferred Compensation Plan dated September 27, 1996,
as amended December 30, 1996 and February 24, 1997,
including addendums thereto.
10.13 Data Processing agreements by and between the Bank
and M&I Data Services, Inc., including addendums
thereto.
11.1 Information Used in the Computation of Net Income Per
Common Share.
13.1 Annual Report to Stockholders for the year ended December
31, 1996.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule
99.1 Notice of the 1997 Annual Meeting of Stockholders, Proxy
Statement for the 1997 Annual Meeting of Stockholders and
the 1997 Form of Proxy.
EXHIBIT 10.1
COLUMBIA BANCORP
1987 STOCK OPTION PLAN, AS AMENDED
(As amended April 17, 1990, December 18, 1995, July 29, 1996 and
February 24, 1997)
1. PURPOSES OF THE PLAN:
To advance the interests of the Corporation by assisting in attracting
and retaining qualified employees and providing them with increased motivation
to exert their best efforts on behalf of the Corporation ("Employee Options").
To recognize the contribution made by John M. Bond, Jr. and Christopher W. Kurz
(the "Founders") in promoting and organizing the development of the Corporation
("Founder Options"). [amended 1990]
2. ADMINISTRATION:
The Plan shall be administered by the Personnel, Compensation and Stock
Option Committee (the "Committee"), consisting of not less than two directors of
the Corporation to be appointed by and to serve at the pleasure of the Board of
Directors. The Committee shall consist solely of "non-employee directors" within
the meaning of Rule 16b-3 promulgated pursuant to the provisions of the
Securities Exchange Act of 1934 (the "Exchange Act"). The Committee shall report
to the Board of Directors the names of those that it recommends be granted
options, and the terms and conditions of each option as recommended. The
Committee shall have full power to construe and interpret the Plan and
promulgate such regulations with respect to the Plan as may be deemed desirable.
[amended 1990, 1996]
3. STOCK SUBJECT TO OPTION:
The Corporation will reserve 175,000 shares (less any shares granted
pursuant to the 1990 Director Stock Option Plan) of authorized but unissued
Common Stock (par value $.01 per share) (the "Common Stock") for issuance and
delivery under the Plan. If any unexercised option terminates for any reason,
the shares covered thereby shall become available for grant again. [amended
1990]
4. ELIGIBILITY:
The individuals who shall be eligible to participate in the Plan shall
be the Founders and such key employees of the Corporation, or of any corporation
(a "Subsidiary") in which the Corporation has a proprietary interest by reason
of stock ownership, including any corporation in which the Corporation acquires
a proprietary interest after the adoption of this Plan, but only if the
Corporation owns or controls, directly or indirectly, stock possessing not less
than 50% of the total combined voting power of all classes of stock in such
corporation, as the Board of Directors shall determine from time to time.
[amended 1990]
5. TERMS AND CONDITIONS OF OPTIONS:
Options under the Plan are intended to be either incentive stock
options qualifying under Section 422 of the Internal Revenue Code of 1986 (the
"Code"), or non-statutory stock options not qualifying under any section of the
Code as the Committee may recommend in its discretion from time to time. All
options granted under the Plan shall be issued upon such terms and conditions as
the Committee may recommend and the Board of Directors may approve from time to
time, subject to the following provisions (which shall apply to both incentive
and non-qualified stock options unless otherwise indicated) [amended 1997]:
<PAGE>
(a) Option Price. The exercise price per share with respect to
each option shall be not less than: (i) for incentive stock options,
100% of the Fair Market Value of the Common Stock on the date the
option is granted and (ii) for non-qualified stock options, 50% of the
Fair Market Value of the Common Stock on the date the option is
granted. "Fair Market Value" of a share of Common Stock for any purpose
on a particular date shall mean the last reported sale price per share
of Common Stock, regular way, on such date or, in case no such sale
takes place on such date, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, or if the Common
Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so
quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices,
regular way, as furnished by a professional market maker making a
market in the Common Stock as selected in good faith by the Committee
or by such other source or sources as shall be selected in good faith
by the Committee (provided that the Board of Directors of the
Corporation shall obtain an independent appraisal in the case of a
Founder Option if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the
Nasdaq-National Market). If, as the case may be, the relevant date is
not a trading day, the determination shall be made as of the next
preceding trading day. As used herein, the term "trading day" shall
mean a day on which public trading of securities occurs and is reported
in the principal consolidated reporting system referred to above, or if
the Common Stock is not listed or admitted to trading on a national
securities exchange or included for quotation on the Nasdaq-National
Market, any business day. [amended 1997]
(b) Number of Options. The aggregate Fair Market Value
(determined at the time of grant) of the stock with respect to which
incentive stock options are exerciseable for the first time by an
employee or Founder during any calendar year (under the Plan or any
other stock option plan of the Corporation, its parent or a Subsidiary
providing for incentive stock options) shall not exceed $100,000. No
incentive stock options may be granted to any person who directly or
indirectly owns at the time of such grant in excess of 10% of the total
combined voting power of all classes of stock of the employer
corporation or of its parent or subsidiary corporation. [amended 1997]
(c) Exercise of Options. (i) Except as provided in paragraph
(ii) below, full payment for shares acquired shall be made in cash or
by certified check at or prior to the time that an option, or any part
thereof, is exercised (or, except in the case of incentive stock
options outstanding at July 29, 1996, in the discretion of the
Committee at such later time as the certificates for such shares are
delivered). The participant will have no rights as a stockholder until
the certificate for those shares as to which the option has been
exercised is issued by the Corporation. Except as provided in paragraph
(iii) below, no Employee Option may be exercised during the first year
after the date of grant. Except as provided in paragraph (iii) below,
Employee Options for 200 shares or less shall be exercisable in full
beginning one year after the date of grant. Except as provided in
paragraph (iii) below, Employee Options for more than 200 shares shall
be exercisable to the extent of 25% after the expiration of one year
after the date of grant, to the extent of 50% after the expiration of
two years after the date of grant, to the extent of 75% after the
expiration of three years after the date of grant, and to the extent of
100% after the expiration of four years after the date of grant. All
such percentages shall be calculated on the basis of the number of
shares covered by the original Employee Option. Any Founder Option may
be exercised at any time after the date of grant unless a longer period
is prescribed by statute or in the regulations promulgated by the
Securities and Exchange Commission. [amended 1990, 1995, 1996]
<PAGE>
(ii) In the discretion of the Committee, shares of
Common Stock with a Fair Market Value on the date of exercise equal to
the sum of (i) the exercise price and (ii) the amount, if any, of
federal and state employment taxes that the Company is required to
withhold as a result of the exercise (or a combination of cash and
Common Stock with a Fair Market Value on the date of exercise equal to
the foregoing sum) may be surrendered or withheld as payment of the
exercise price for shares acquired or in satisfaction of the
tax-withholding obligations arising from the exercise. [amended 1996,
1997]
(iii) Unexercised Employee Options shall immediately
become exercisable if: (A) Any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act and the regulations promulgated
thereunder) is or becomes the beneficial owner, directly or indirectly,
of 25% or more of the voting equity stock of the Corporation, or any
person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act and the regulations promulgated thereunder) other than the
Corporation is or becomes the beneficial owner, directly or indirectly,
of 25% or more of the Common Stock of the Columbia Bank; or (B) Any
person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act and the regulations promulgated thereunder) gains control
of the election of a majority of the Board of Directors of the
Corporation, or any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act and the regulations promulgated thereunder)
other than the Corporation gains control of the election of a majority
of the Board of Directors of the Columbia Bank; or (C) Any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act and
the regulations promulgated thereunder) gains control of the management
or policies of either of the Corporation or the Columbia Bank; or (D)
Either the Corporation or the Columbia Bank consolidates with, or
merges with or into, another entity (including a corporation, bank,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein) or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets,
or another such entity consolidates with, or merges with or into, the
Corporation or the Columbia Bank in any such event pursuant to a
transaction in which the issued and outstanding shares of the voting
equity stock of the Corporation or the Columbia Bank are to be
converted into or exchanged for cash, securities or other property; or
(E) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of either
the Corporation or the Columbia Bank (together with any directors who
are members of such Board of Director on the effective date hereof and
any new directors whose election or whose nomination for election was
approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of either the
Corporation or the Columbia Bank then in office. [amended 1995, 1997]
(d) Term of Option. No stock option may be exercised after the
expiration of 10 years after the date such option was granted.
(e) Termination of Employment. Each Employee Option, to the
extent it is not then exercisable, shall terminate when the employment
of the participant with the Corporation and all Subsidiaries
terminates. Each Employee Option, to the extent that it is exercisable
but has not been exercised (the "Unexercised Employee Option"), shall
also terminate when the employment of the participant by the
Corporation and all Subsidiaries terminates, unless the participant's
employment terminates because of retirement under the retirement plan
of the Corporation or a Subsidiary, voluntary resignation with the
consent of the Board of Directors of the Corporation or a Subsidiary,
permanent and total disability or death. If the participant's
employment terminates because of retirement under the retirement plan
of the Corporation or a Subsidiary, the Unexercised Employee Option may
be exercised until the expiration of three months after the employment
terminates in the case of incentive stock options (which period may be
extended to up to six months in the discretion of the Committee) and
until the expiration of six months after
<PAGE>
the employment terminates in the case of non-qualified stock
options. If the participant's employment terminates because of
voluntary resignation with the consent of the Board of Directors of
the Corporation or a Subsidiary, the Unexercised Employee Option
may be exercised until the expiration of three months after the
employment terminates. If the participant's employment terminates
because of total disability, the Unexercised Employee Option may be
exercised until the expiration of one year (or three months in the
case of incentive stock options outstanding at July 29, 1996) after
the employment terminates. If the participant's employment
terminates because of death, the Unexercised Employee Option may be
exercised until the expiration of the original term of the option
(or one year after the date of death in the case of incentive stock
options outstanding at July 29, 1996). Notwithstanding the
foregoing, no Unexercised Employee Option may be exercised beyond the
original term of the option. No Founder Option shall terminate until
the expiration of the original term of the option. [amended 1990, 1996,
1997]
(f) Options Nonassignable and Nontransferable. Each incentive
stock option and all rights thereunder, including the right to
surrender the option, shall not be assignable or transferable other
than by will or the laws of descent and distribution, and shall be
exercisable during the optionee's lifetime only by the optionee or his
or her guardian or legal representative. Except to the extent provided
by the Committee, each non-statutory stock option and all rights
thereunder, including the right to surrender the option, shall not be
assignable or transferable other than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act
("DRO"), or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by the optionee or his or her guardian or
legal representative or transferee under a DRO. [amended 1996, 1997]
6. SURRENDER OF OPTIONS FOR CASH OR STOCK:
Any option granted under the Plan may include a right to surrender to
the Corporation up to 100% of the option to the extent then exercisable and
receive in exchange a cash payment or a payment in stock or a combination of
cash and stock, in each case equal to the excess of the Fair Market Value of the
shares covered by the option or portion thereof surrendered (determined as of
the date the option is surrendered) over the aggregate exercise price for such
shares. Such right may be granted by the Board of Directors of the Corporation
upon recommendation of the Committee concurrently with the option or thereafter
by amendment upon such terms and conditions as the Committee may recommend.
Shares subject to option or portions thereof that have been so surrendered shall
not thereafter be available for grant under the Plan. The Committee may from
time to time recommend to the Board of Directors the maximum amount of cash that
may be paid upon surrender of options in any year, may determine that, if the
amount to be received by any participant is reduced in any year because of such
limitation, all or a portion of the amount not paid may be paid in any
subsequent year or years, and may limit the right of surrender to certain
periods during the year. [amended 1997]
7. PAYROLL DEDUCTIONS:
In the discretion of the Committee, there may be made available to
employee optionees an election for the payroll deduction each pay period over
the term of the option of amounts equal to the aggregate exercise price of any
or all of such options (and estimated federal income taxes thereon). Interest
will be paid on payroll deductions at rates prescribed from time to time by the
Board of Directors upon recommendation of the Committee.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
If the shares of the Common Stock outstanding are increased, decreased,
or changed into or exchanged for a different number or kind of shares or
securities of the Corporation, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization, reclassification,
stock split-up, stock dividend, stock consolidation, or otherwise, an
appropriate and proportionate adjustment shall be made in the number or kind of
shares as to which options have been or may be granted. Any such adjustment in
an outstanding option shall be
<PAGE>
made without change in the aggregate purchase price to be paid upon the
exercise thereof. Adjustments under this paragraph shall be made by the
Board of Directors, whose determination as to what adjustments shall be
made, and the extent thereof, shall be final and conclusive. No
fractional shares of Common Stock shall be issued under the Plan on account of
any such adjustment.
In the event of a reorganization, merger, consolidation, sale of
substantially all of the assets, or any other form of corporate reorganization
in which the Corporation is not the surviving entity or a statutory share
exchange in which the Corporation is not the issuer, all options then
outstanding under the Plan will terminate as of the effective date of the
transaction. The surviving entity in its absolute and uncontrolled discretion
may tender an option or options to purchase shares on its terms and conditions,
both as to the number of shares or otherwise, as shall substantially preserve
the rights and benefits of any option then outstanding under the Plan.
9. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS:
Options may be granted under the Plan from time to time in substitution
for stock options held by employees of corporations who become or are about to
become key employees of the Corporation or a Subsidiary as the result of (i) a
merger or consolidation of the employing corporation with the Corporation or a
Subsidiary, (ii) the acquisition by the Corporation or a Subsidiary of the
assets of the employing corporation, or (iii) the acquisition by the Corporation
or a Subsidiary of stock of the employing corporation. The terms and conditions
of the substitute options so granted may vary from the terms and conditions set
forth in paragraph 5 of this Plan to such extent as the Board of Directors at
the time of the grant may deem appropriate to conform, in whole or in part, to
the provisions of the options in substitution for which they are granted.
10. EFFECTIVE DATE OF THE PLAN, AS AMENDED:
The Plan, as amended, shall become effective upon its adoption by the
Board of Directors and subsequent approval by a majority of the total votes
eligible to be cast at a meeting of the stockholders of the Corporation.
[amended 1990]
11. TERMINATION DATE:
No options may be granted under the Plan after November 16, 1997.
Subject to paragraph 5(d), options granted before the termination date for the
Plan may extend beyond that date.
12. AMENDMENT:
The Plan may be amended, suspended, terminated or reinstated, in whole
or in part, at any time by the Board of Directors; provided, however, that none
of the following changes may be made without the approval of the stockholders of
the Corporation:
(i) an increase in the number of shares of Common Stock
available under the Plan, other than adjustments pursuant to paragraph
8;
(ii) an increase in the maximum period of time during which
an option may be exercised;
(iii) an increase in the number of shares for which an
employee may be granted options in any one year; or
(iv) an extension of the term of the Plan. [amended 1990]
<PAGE>
13. COMPLIANCE WITH LAWS AND REGULATIONS:
The grant, holding and vesting of all options under the Plan shall be
subject to any and all requirements and restrictions that may, in the opinion of
the Committee, be necessary or advisable for the purposes of complying with any
statute, rule or regulation of any governmental authority, or any agreement,
policy or rule of any stock exchange or other regulatory organization governing
any market on which the Common Stock is traded.
14. EXPENSES:
The Corporation shall bear all expenses and costs in connection with
the administration of the Plan.
EXHIBIT 10.4
COLUMBIA BANCORP
1990 DIRECTOR STOCK OPTION PLAN, AS AMENDED
(As amended July 29, 1996 and February 24, 1997)
1. PURPOSES OF THE DIRECTOR PLAN:
To provide compensation for directors of the Corporation and its
subsidiaries ("Director Options").
2. ADMINISTRATION:
The Director Plan shall be administered by the Personnel, Compensation
and Stock Option Committee (the "Committee"), consisting of not less than two
directors of the Corporation to be appointed by and to serve at the pleasure of
the Board of Directors. The Committee shall consist solely of "non-employee
directors" within the meaning of Rule 16b-3 promulgated pursuant to the
provisions of the Securities Exchange Act of 1934. The Committee shall have full
power to construe and interpret the Director Plan and promulgate such
regulations with respect to the Director Plan as may be deemed desirable.
[amended 1996]
3. STOCK SUBJECT TO OPTION:
The Corporation will reserve 175,000 shares (less any shares granted
pursuant to the 1987 Stock Option Plan, As Amended) of authorized but unissued
Common Stock (par value $.01 per share) (the "Common Stock") for issuance and
delivery under the Director Plan. If any unexercised option terminates for any
reason, the shares covered thereby shall become available for grant again.
4. ELIGIBILITY:
The individuals who shall be eligible to participate in the Director
Plan shall be, all non-employee directors of the Corporation, or of any
corporation (a "Subsidiary") in which the Corporation has a proprietary interest
by reason of stock ownership, including any corporation in which the Corporation
acquires a proprietary interest after the adoption of this Director Plan, but
only if the Corporation owns or controls, directly or indirectly, stock
possessing not less than 50% of the total combined voting power of all classes
of stock in such corporation, as the Board of Directors shall determine from
time to time.
5. TERMS AND CONDITIONS OF OPTIONS:
Options under the Director Plan are intended to be non-statutory stock
options not qualifying under any section of the Internal Revenue Code of 1986
(the "Code"). All Director Options granted under the Director Plan shall be
subject to the following provisions:
(a) Option Price. The exercise price per share with respect to
each option shall be not less than 100% of the Fair Market Value of the
Common Stock on the date the option is granted. "Fair Market Value" of
a share of the Corporation's Common Stock for any purpose on a
particular date shall mean the last reported sale price per share of
Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on a national securities exchange or included for
quotation on the Nasdaq-National Market, or if the Common Stock is
<PAGE>
not so listed or admitted to trading or included for quotation, the
last quoted price, or if the Common Stock is not so quoted, the
average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system
is no longer in use, the principal other automated quotations system
that may then be in use or, if the Common Stock is not quoted by any
such organization, the average of the closing bid and asked prices,
regular way, as furnished by a professional market maker making a
market in the Common Stock as selected in good faith by the Committee
or by such other source or sources as shall be selected in good faith
by the Committee. If, as the case may be, the relevant date is not a
trading day, the determination shall be made as of the next preceding
trading day. As used herein, the term "trading day" shall mean a
day on which public trading of securities occurs and is
reported in the principal consolidated reporting system referred
to above, or if the Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation
on the Nasdaq-National Market, any business day. [amended 1997]
(b) Director Options. On December 31 of each year, or in the
event December 31 is a Saturday, Sunday or legal holiday observed by
the Corporation, on the next preceding day that is not a Saturday,
Sunday or legal holiday observed by the Corporation, the Corporation
shall grant to each director of the Corporation or a Subsidiary, who is
not also an employee of the Corporation or a Subsidiary, options to
purchase ten shares of Common Stock for each meeting of the Board of
Directors, or any committee thereof, of the Corporation or a Subsidiary
attended by such director during the year commencing on the preceding
January 1.
(c) Exercise of Options. (i) Except as provided in paragraph
(ii) below, full payment for shares acquired shall be made in cash or
by certified check at or prior to the time that an option, or any part
thereof, is exercised (or in the discretion of the Committee at such
later time as the certificates for such shares are delivered). The
participant will have no rights as a stockholder until the certificate
for those shares as to which the option has been exercised is issued by
the Corporation. Any Director Option may be exercised at any time after
the date of grant unless a longer period is prescribed by statute or in
the regulations promulgated by the Securities and Exchange Commission.
[amended 1996]
(ii) In the discretion of the Committee, shares of
Common Stock with a Fair Market Value on the date of exercise equal to
the sum of (i) the exercise price and (ii) the amount, if any, of
federal and state employment taxes that the Company is required to
withhold as a result of the exercise (or a combination of cash and
Common Stock with a Fair Market Value on the date of exercise equal to
the foregoing sum) may be surrendered or withheld as payment of the
exercise price for shares acquired or in satisfaction of the
tax-withholding obligations arising from the exercise. [amended 1996,
1997]
(d) Term of Option. No Director Option may be exercised after
the expiration of 10 years after the date such option was granted.
(e) Options Nonassignable and Nontransferable. Except to the
extent provided by the Committee, each option and all rights
thereunder, including the right to surrender the option, shall not be
assignable or transferable other than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act
("DRO"), or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by the optionee or his or her guardian or
legal representative or transferee under a DRO. [amended 1996, 1997]
<PAGE>
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
If the shares of the Common Stock outstanding are increased, decreased,
or changed into or exchanged for a different number or kind of shares or
securities of the Corporation, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization, reclassification,
stock split-up, stock dividend, stock consolidation, or otherwise, an
appropriate and proportionate adjustment shall be made in the number or kind of
shares as to which (i) options have been or may be granted, (ii) the Corporation
reserves for issuance and delivery under the Director Plan, and (iii) the
Corporation shall grant to each director under paragraph 5(b). Any such
adjustment in an outstanding option shall be made without change in the
aggregate purchase price to be paid upon the exercise thereof. Adjustments under
this paragraph shall be made by the Board of Directors, whose determination as
to what adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of Common Stock shall be issued under the
Director Plan on account of any such adjustment. [amended 1997]
In the event of a reorganization, merger, consolidation, sale of
substantially all of the assets, or any other form of corporate reorganization
in which the Corporation is not the surviving entity or a statutory share
exchange in which the Corporation is not the issuer, all options then
outstanding under the Director Plan will terminate as of the effective date of
the transaction. The surviving entity in its absolute and uncontrolled
discretion may tender an option or options to purchase shares on its terms and
conditions, both as to the number of shares or otherwise, as shall substantially
preserve the rights and benefits of any option then outstanding under the
Director Plan.
7. EFFECTIVE DATE OF THE DIRECTOR PLAN:
The Director Plan shall become effective upon its adoption by the Board
of Directors and subsequent approval by a majority of the total votes eligible
to be cast at a meeting of the stockholders of the Corporation.
8. TERMINATION DATE:
No options may be granted under the Director Plan after November 16,
1997. Subject to paragraph 5(d), options granted before the termination date for
the Director Plan may extend beyond that date.
9. AMENDMENT:
The Director Plan may be amended, suspended, terminated or reinstated,
in whole or in part, at any time by the Board of Directors. [amended 1996]
10. COMPLIANCE WITH LAWS AND REGULATIONS:
The grant, holding and vesting of all options under the Director Plan
shall be subject to any and all requirements and restrictions that may, in the
opinion of the Committee, be necessary or advisable for the purposes of
complying with any statute, rule or regulation of any governmental authority, or
any agreement, policy or rule of any stock exchange or other regulatory
organization governing any marketing on which the Common Stock is traded.
11. EXPENSES:
The Corporation shall bear all expenses and costs in connection with
the administration of the Director Plan.
EXHIBIT 10.12
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
EFFECTIVE SEPTEMBER 27, 1996
TABLE OF CONTENTS
ARTICLE I
---------
DEFINITIONS
Page
1.1 Accounts 1
1.2 Affiliate 1
1.3 Beneficiary 1
1.4 Board 1
1.5 Committee 1
1.6 Company 1
1.7 Company Contribution Account 1
1.8 Compensation 1
1.9 Deferral Agreement 2
1.10 Deferral Election 2
1.11 Deferral Period 2
1.12 Deferred Compensation Account 2
1.13 Disability 2
1.14 Participant 2
1.15 Plan 2
1.16 Plan Year 2
1.17 Retirement 2
1.18 Senior Officer 2
1.19 Termination 2
1.20 Termination Benefit 2
1.21 Year of Service 2
ARTICLE II
----------
PARTICIPATION AND CONTRIBUTIONS
2.1 Participation 3
(a) Eligibility 3
(b) Election to Participate 3
2.2 Deferral Agreements 3
2.3 Matching Contributions 3
2.4 Voluntary Contributions 3
2.5 Suspension or Modification of Deferral Agreement in
Event of Hardship 4
<PAGE>
ARTICLE III
-----------
ACCOUNTS
3.1 Deferred Compensation Account 4
3.2 Company Contribution Account 5
3.3 Determination of Earnings 5
3.4 Statement of Accounts 6
ARTICLE IV
----------
BENEFITS
4.1 Termination Benefit 6
4.2 Commencement of Payments 6
4.3 Form of Benefit 7
4.4 Payments After Death 7
ARTICLE V
---------
VESTING
5.1 Vesting 7
5.2 Forfeitures 8
ARTICLE VI
----------
BENEFICIARY DESIGNATION
6.1 Beneficiary(ies) Designation 8
6.2 Amendments 8
6.3 No Beneficiary Designation 8
ARTICLE VII
-----------
COMMITTEE
7.1 Committee Duties 8
7.2 Agents 9
7.3 Binding Effect of Decisions 9
7.4 Indemnity 9
ARTICLE VIII
------------
CLAIMS PROCEDURE
8.1 Notice of Claim 9
8.2 Action on Claim 9
8.3 Review of Denial 10
8.4 Decision on Review 10
<PAGE>
ARTICLE IX
----------
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment 10
9.2 Board's Right to Terminate 10
ARTICLE X
---------
MISCELLANEOUS
10.1 Unfunded Plan 10
10.2 Unsecured General Creditor 11
10.3 Nonassignability 11
10.4 Not a Contract of Employment 11
10.5 Terms 11
10.6 Captions 11
10.7 Governing Law 11
10.8 Validity 11
10.9 Notice 12
10.10 Successors 12
10.11 Incompetent 12
10.12 Withholding Taxes 12
10.13 Change in Control 12
<PAGE>
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
EFFECTIVE SEPTEMBER 27, 1996
ARTICLE I
---------
DEFINITIONS
This Plan has been established by action of the Board of Directors
of The Columbia Bank on July 29, 1996. It is intended to benefit The Columbia
Bank and certain key Senior Officers of The Columbia Bank and its Affiliates (as
defined herein) to secure their good will, loyalty and achievement, and to help
attract and retain high quality employees.
The following definitions apply to this Plan:
1.1 Accounts. "Accounts" means the Deferred Compensation and
Company Contribution Accounts maintained by the Company pursuant to Article III
with respect to each Participant.
1.2 Affiliate. "Affiliate" means Columbia Bancorp or a subsidiary
thereof.
1.3 Beneficiary. "Beneficiary" means the person, persons, or
entity entitled under Article VI to receive any Plan benefits payable after a
Participant's death.
1.4 Board. "Board" or "Board of Directors" means the Board of
Directors of the Company.
1.5 Committee. "Committee" means the Personnel, Compensation and
Stock Option Committee, consisting of not less than two directors of the Company
to be appointed by and to serve at the pleasure of the Board of Directors.
1.6 Company. "Company" means The Columbia Bank.
1.7 Company Contribution Account. "Company Contribution Account"
means the account maintained by the Company pursuant to Section 3.2.
1.8 Compensation. A Participant's "Compensation" means the
total compensation paid by the Company or an Affiliate during each Plan
Year (or portion thereof) during which such person is a Participant, plus
"elective contributions" which are not includible in gross income under
sections 125, 401(k), 402(a)(8), 402(h) or 403(b) of the Internal Revenue
Code of 1986, as amended (the "Code").
1.9 Deferral Agreement. "Deferral Agreement" means a
Participant's agreement to defer Compensation under this Plan, as more fully
described in Article II.
1.10 Deferral Election. "Deferral Election" means a Participant's
election to defer Compensation pursuant to a Deferral Agreement.
1.11 Deferral Period. "Deferral Period" means the Plan Year with
respect to which Compensation is deferred pursuant to a Deferral Agreement.
1.12 Deferred Compensation Account. "Deferred Compensation
Account" means the Deferred Compensation Account maintained by the Company
pursuant to Section 3.1.
1.13 Disability. "Disability" means a Participant's permanent
mental or physical disability due to accident or illness that renders the
Participant unable to perform every duty of his or her regular occupation with
the Company or an Affiliate for a period of at least one hundred eighty (180)
days, provided the Participant establishes such disability to the
satisfaction of the Committee. Evidence of disability shall include the
certificate of a
<PAGE>
competent licensed physician selected by the Participant and approved by the
Committee which confirms that the Participant is disabled as defined herein.
1.14 Participant. "Participant" means a Senior Officer who elects
to participate by filing a Deferral Agreement as provided in Article II.
1.15 Plan. "Plan" means this The Columbia Bank Deferred
Compensation Plan.
1.16 Plan Year. "Plan Year" means the calendar year; provided,
however, that the first Plan Year shall be the period beginning September 27,
1996, and ending December 31, 1996.
1.17 Retirement. "Retirement" means a Participant's termination
of employment with the Company or an Affiliate either on or after the first day
of the month coinciding with or next following a Participant's sixty-fifth
(65th) birthday, or by reason of Disability.
1.18 Senior Officer. "Senior Officer" means an officer of the
Company or an Affiliate who is designated to be a Senior Officer under this Plan
by the Committee.
1.19 Termination. "Termination" means termination of employment
with the Company or an Affiliate for any reason.
1.20 Termination Benefit. "Termination Benefit" means the benefit
payable to a Participant pursuant to Section 4.1.
1.21 Year of Service. "Year of Service" means a Year of Service
for vesting purposes as defined under the Columbia Bancorp 401(k) Plan and
Trust.
ARTICLE II
----------
PARTICIPATION AND CONTRIBUTIONS
2.1 Participation.
(a) Eligibility. Senior Officers who are eligible to
participate in the Columbia Bancorp 401(k) Plan and Trust may participate in
this Plan. The Committee may, in its discretion, and from time to time, change
the category of Participants who are eligible to participate in this Plan as
long as the eligible group remains limited to a "select group of management or
highly compensated employees" within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(b) Election to Participate. A Senior Officer must file a
Deferral Agreement with the Committee in order to participate. Participation
shall be effective when the Committee or its designee accepts the Deferral
Agreement. A Deferral Agreement, and the Deferral Election contained therein,
must become effective before the beginning of the Deferral Period. Compensation
which has already been earned cannot be deferred.
2.2 Deferral Agreements. Each Deferral Agreement shall state the
amount of Compensation to be deferred in the Deferral Period which it covers.
The amount of Compensation that a Participant elects to defer shall be withheld
as indicated in the Participant's Deferral Agreement and credited to the
Participant's Deferred Compensation Account bi-weekly or when it otherwise would
have become payable. Deferral Elections shall be made in writing on such forms,
and shall be subject to such uniform administrative rules, as the Committee
shall establish. A Participant's obligation to defer Compensation pursuant to a
Deferral Agreement will terminate upon the Participant's Termination.
2.3 Matching Contributions. The Company may make a Matching
Contribution for each Participant. The Matching Contribution will be credited to
the Participant's Company Contribution Account bi-weekly for each period in
which a contribution to the Participant's Deferred Compensation Account is
credited, provided that the Participant is employed by the Company or the
Affiliate on the last day of the bi-weekly period. The Matching Contribution, if
any, will equal a percentage of the Participant's Deferred Compensation
Contribution. The
<PAGE>
Matching Contribution percentage for each Plan Year will be equal to the
Employer Matching Contribution percentage for that Plan Year as determined
under the Columbia Bancorp 401(k) Plan and Trust.
2.4 Voluntary Contributions. The Company may make a Voluntary
Contribution for a Participant. Voluntary Contributions, if made, may be made in
addition to or in lieu of Matching Contributions. Voluntary Contributions shall
equal a percentage of the Compensation of each Participant entitled to share
therein. The amount of the Voluntary Contribution for any Plan Year, if any,
will be equal to the Employer Voluntary Contribution for that Plan Year as
determined under The Columbia Bancorp 401(k) Plan and Trust. The Voluntary
Contribution for each Participant will be credited to the Participant's Company
Contribution Account annually or more frequently as the Company may determine.
The Company will make Voluntary Contributions for a Plan Year only to the
Accounts of those Participants who are entitled to an allocation of any Employer
Voluntary Contribution under the Columbia Bancorp 401(k) Plan and Trust.
2.5 Suspension or Modification of Deferral Agreement in Event of
Hardship.
(a) In the event of a Participant's severe financial hardship
or unforeseen financial emergency, for the relief of which there exists no other
reasonably available source of funds, the Committee, in its sole discretion, may
allow the Participant to suspend the Participant's Deferral Agreement in effect
or to reduce the amount of Compensation deferred thereunder, but only to the
extent reasonably required in light of the severe financial hardship or
unforeseen financial emergency.
(b) Severe financial hardship shall be deemed to have occurred
in the event of the Participant's impending bankruptcy, a Participant's or
dependent's long and serious illness or other events of similar magnitude. An
unforeseen financial emergency shall include an unexpected need for cash arising
from illness, casualty loss, sudden financial reversal or other such
unforseeable circumstances.
(c) In reviewing a Participant's request to modify or suspend
a Deferral Agreement on account of hardship, the Committee may in its discretion
request such information substantiating the existence of the hardship as it
considers appropriate.
(d) The Committee's decisions in determining the existence of
a severe financial hardship or unforeseen financial emergency and whether or to
what extent a Deferral Agreement can be modified shall be final and conclusive.
(e) When a Participant suspends a Deferral Agreement under
this Section 2.5, deferrals under the Participant's Deferral Agreement shall
terminate, and the Participant shall not be eligible to enter into another
Deferral Agreement until the beginning of the Plan Year next following the
expiration of twelve (12) months from the date of such suspension.
(f) When a Participant reduces the amount of Compensation
deferred under a Deferral Agreement under this Section 2.5, the Participant
shall not be eligible to enter into another Deferral Agreement providing for the
deferral of any amount in excess of the reduced amount until the beginning of
the Plan Year next following the expiration of twelve (12) months from the date
of such reduction.
ARTICLE III
-----------
ACCOUNTS
3.1 Deferred Compensation Account. The Company will establish and
maintain on its books, for record keeping purposes only, a separate Deferred
Compensation Account for each Participant with respect to amounts deferred under
a Deferral Agreement. Each Participant's Deferred Compensation Account will
consist of the amount of deferred Compensation credited to the Account,
increased by any earnings, and decreased by any distributions and losses.
3.2 Company Contribution Account. The Company will maintain on its
books, for record keeping purposes only, a separate Company Contribution Account
for each Participant with respect to Matching Contributions and Voluntary
Contributions made by the Company with respect to that Participant. Each
<PAGE>
Participant's Company Contribution Account will consist of the amount of
Matching and Voluntary Contributions credited to the Account, increased by any
earnings, and decreased by any distributions and losses.
3.3 Determination of Earnings.
(a) Investment gains and losses on a Participant's Accounts
will be determined in accordance with the Participant's election (i) by
reference to a rate equal to The Columbia Bank's prime rate, in which case the
provisions of Section 3.3(b) will apply, or (ii) as if the participant's
Accounts were used to purchase shares of common stock of Columbia Bancorp, in
which case the provisions of Section 3.3(c) will apply. The Participant's
selection of the method of determining investment gains and losses will be made
initially when a Participant enrolls in the Plan and annually thereafter. A
Participant's election will be effective upon the Participant's enrollment in
the Plan, or as of the first day of the Plan Year to which the election applies,
as applicable. The Participant may elect to have the investment gains and losses
on the Participant's Accounts credited by reference to one of the methods
described in (i) or (ii) above, or any combination thereof in whole percentages.
Notwithstanding the provisions of this Section 3.3, the investment gains and
losses after a Participant's Termination will be determined as set forth in
Article IV.
(b) If a Participant elects to have investment gains and
losses determined by reference to The Columbia Bank's prime rate, or if the
Participant fails to make an election with respect to the determination of
investment gains and losses, at the end of each month the Company will credit to
the designated percentage of the Participant's Accounts interest for the month
at the rate equal to The Columbia Bank's prime rate in effect as of December 15
of the preceding year. Notwithstanding the foregoing, a Participant's election
to have investment gains and losses in the first Plan Year determined by
reference to the prime rate will be determined by reference to The Columbia
Bank's prime rate in effect on the first day of the first Plan Year. Interest
will be credited to deferrals, Matching Contributions and/or Voluntary
Contributions made during the month from the date such amounts were credited to
the Participant's Accounts.
(c) If a Participant elects to have the investment gains and
losses determined by reference to Columbia Bancorp common stock, the Committee
will determine and credit to the Participant's Accounts as a bookkeeping entry
only the number of whole shares of Columbia Bancorp common stock that could be
purchased with the designated percentage of the Participant's Accounts based on
the closing price of such common stock on the applicable date. Any remaining
balance in the designated percentage of the Participant's Accounts will be
carried over and included in the balance used to determine the number of whole
shares that could be purchased on the next date that amounts are to be credited
to the Participant's Accounts in the form of hypothetical shares. The value of
any dividends paid with respect to Columbia Bancorp common stock will be
credited to a Participant's Accounts as if such amounts credited were invested
in whole shares of Columbia Bancorp common stock. In addition, the number of
hypothetical shares credited to a Participant's Accounts will be adjusted to
account for any stock splits or stock dividends. For purposes of determining the
closing price of Columbia Bancorp common stock, the applicable date shall be:
(i) for deferrals, Matching Contributions and/or Voluntary Contributions, the
date such amounts are credited to the Participant's Accounts as described in
Sections 2.2, 2.3 and 2.4; (ii) for changes in the method of determining
investment gains and losses, the date the Participant's election is effective as
described in Section 3.3(a); and (iii) for dividends, the date on which the
dividend would be payable to the Participant in cash if the Participant were a
shareholder.
(d) The performance of investments designated by a Participant
shall be used only as earnings indices to measure the crediting of gains and
losses to the Participant's Accounts, and shall not bind the Company with
respect to the investment of any particular funds. The Company shall not be
obligated to invest any funds in connection with the Plan. If the Company
chooses to invest funds to provide for its liability under this Plan, the
Company shall have complete discretion as to such investments.
3.4 Statement of Accounts. Within a reasonable time after the end
of each Plan Year, the Committee shall distribute to each Participant a
statement of the balance of the Participant's Accounts.
<PAGE>
ARTICLE IV
----------
BENEFITS
4.1 Termination Benefit. Participants will be entitled to receive
a benefit under this Plan equal to the balance of the Participant's Deferred
Compensation Account and the vested portion of the Participant's Company
Contribution Account, determined as of the Participant's date of Termination.
4.2 Commencement of Payments. Payment of the Termination Benefit
will begin within ninety (90) days of the date of Termination or at such later
date as the Participant may elect. Such an election must be in writing, on a
form provided by the Committee, and may be made, modified or revoked at any
time provided that such election, modification or revocation shall only become
effective if executed and delivered to the Committee at least 12 months prior to
the Participant's Termination. Notwithstanding the foregoing, if any portion of
the benefit payable under the Plan to any Participant who is a "covered
employee" within the meaning of section 162(m)(3) of the Code would be
nondeductible under section 162(m)(1) of the Code (or cause other amounts
payable by the Company to be nondeductible under section 162(m)(1) of the Code),
then the payment of such portion of the benefit to such Participant shall not
commence until the first day of the Company's first fiscal year commencing after
such Participant terminates employment unless the Committee consents to earlier
commencement. If the commencement of payment of any portion of the Participant's
Accounts is delayed for any reason beyond the ninetieth (90th) day after the
Participant's date of Termination, the portion so delayed will be credited with
earnings from such date until paid at The Columbia Bank's prime rate in effect
as of December 15 of the year preceding the year in which the Participant's
Termination occurs.
4.3 Form of Benefit. A Participant's Termination Benefit will be
paid in cash in either a lump sum or, if the Participant elects, in a fixed
number of annual installments over 5, 10 or 15 years. If the Participant elects
an installment form of distribution, each installment payment will be equal to
(i) the balance of the Participant's Deferred Compensation Account and the
vested portion of the Participant's Company Contribution Account, determined as
of the Participant's date of Termination, divided by the number of annual
installments elected, plus (ii) the interest accruing on the unpaid balance from
the date of the previous installment payment (no interest payment on the first
installment payment), calculated at The Columbia Bank's prime rate in effect as
of December 15 of the year preceding the year in which the Participant's
Termination occurs. When a Participant first nrolls in the Plan, he will elect
the distribution form (i.e., either a cash lump sum or a specified number of
installments) in which his Termination Benefit will be paid. That election
must be in writing on a form provided by the Committee, and may be revoked
or modified at any time provided that such election, revocation or
modification shall only become effective if it is executed and delivered to
the Committee at least 12 months prior to the Participant's Termination. If
no election is made by the Participant, or if the Termination Benefit of
the Participant is less than $25,000, the Participant will be deemed to have
elected a lump sum.
4.4 Payments After Death. If a Participant dies while in the
active service of the Company or an Affiliate, the Participant's beneficiary
shall be entitled to a benefit equal to the balance credited to the
Participant's Accounts. The Company shall pay the benefit to the Beneficiary in
the same form as it would have been paid to the Participant had the
Participant's Termination occurred on the date of death, commencing on the
first day of the month following the Participant's death. If the Participant
dies after benefit payments have commenced under this Plan but before receiving
all such payments, the Company shall pay the remaining benefits to the
Participant's Beneficiary at the same time and in the same amounts they would
have been paid to the Participant had the Participant survived.
ARTICLE V
---------
VESTING
5.1 Vesting. Deferred Compensation contributions and earnings
thereon will be one hundred percent (100%) vested and nonforfeitable at all
times. Matching Contributions and Voluntary Contributions, if any, will become
vested according to the following schedule:
Years of Service Vested Percentage
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
The unvested portion of a Participant's Company Contribution Account shall be
forfeited upon a Participant's Termination for any reason other than Retirement
or death. A Participant will be deemed to be one hundred percent (100%) vested
in the full amount of his or her Company Contribution Accounts upon Termination
by reason of Retirement or death or upon a Change in Control, as defined in
Section 10.13.
5.2 Forfeitures. The unvested portion of a terminated Participant's
Company Contribution Account may be credited to the Company Contribution
Accounts of eligible Participants as a Matching Contribution pro rata on the
basis of the Compensation deferred by each Participant under the Plan during the
Plan Year; provided, however, that such forfeitures will be credited to the
Company Contribution Accounts for a Plan Year of only those Participants who
would be entitled to receive an allocation of any Employer Voluntary
Contribution for that Plan Year under the Columbia Bancorp 401(k) Plan and
Trust.
ARTICLE VI
----------
BENEFICIARY DESIGNATION
6.1 Beneficiary(ies) Designation. Each Participant may designate a
Beneficiary or Beneficiaries (both principal as well as contingent) to whom
payment under this Plan shall be made if the Participant dies before all of the
benefits have been distributed. Any Beneficiary(ies) designation shall be made
in writing filed with the Committee and shall become effective only when
received and accepted by the Committee.
6.2 Amendments. A Participant may change a Beneficiary designation
by filing a new designation on a form prescribed by the Committee. The filing of
a new Beneficiary designation will cancel all Beneficiary designations
previously filed.
6.3 No Beneficiary Designation. If a Participant fails to
designate a Beneficiary, or if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant's benefits,
then the payment of the Participant's benefits shall be made to the
Participant's estate.
ARTICLE VII
-----------
COMMITTEE
7.1 Committee Duties. The Committee shall administer this Plan.
The Committee shall have the authority to make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of this Plan, to
establish different terms for different Participants as it deems appropriate,
and to decide or resolve any and all questions, including interpretations of
this Plan, as may arise in connection with the Plan. All powers and functions of
the Committee in respect of the Plan may at any time and from time to time be
exercised by the Board.
7.2 Agents. In the administration of this Plan, the Committee may,
from time to time, employ agents and delegate to them or to others (including
employees of the Company) such administrative duties as it sees fit. The
Committee may from time to time consult with counsel, who may be counsel to the
Company.
7.3 Binding Effect of Decisions. In carrying out its duties herein,
the Committee (or its designee) shall have full discretion to exercise all
powers and to make all determinations, consistent with the terms of the Plan
<PAGE>
and other relevant documents, in all matters entrusted to it, and its
determinations shall be final and binding on all parties.
7.4 Indemnity. The Company shall indemnify and hold harmless the
Committee and any employees to whom administrative duties under this Plan are
delegated, against any and all claims, loss, damage, expense, or liability
arising from any action or failure to act with respect to this Plan, except in
the case of willful misconduct.
ARTICLE VIII
------------
CLAIMS PROCEDURE
8.1 Notice of Claim. Any Participant or Beneficiary, or the duly
authorized representative of a Participant or Beneficiary, may file with the
Committee a claim for a Plan benefit. Such a claim must be in writing on a form
provided by the Committee and must be delivered to the Committee, in person or
by mail, postage prepaid. Within ninety (90) days after the receipt of such a
claim, the Committee shall send to the claimant, by mail, postage prepaid, a
notice granting or denying, such claim, in whole or in part, unless special
circumstances require an extension of time for processing the claim. In no event
may the extension exceed ninety (90) days from the end of the initial period. If
an extension is necessary, the claimant will be given a written notice to this
effect prior to the expiration of the initial ninety (90) day period. The
Committee shall have full discretion to deny or grant a claim in whole or in
part in accordance with the terms of the Plan. If notice of the denial of a
claim is not furnished in accordance with this Section, the claim shall be
deemed denied and the claimant shall be permitted to exercise the right to
review pursuant to Sections 8.3 and 8.4 of the Plan.
8.2 Action on Claim. The Committee shall provide to every claimant
who is denied a claim for benefits a written notice setting forth, in a manner
calculated to be understood by the claimant:
(a) The specific reason or reasons for the denial;
(b) A specific reference to the pertinent Plan
provisions on which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and
(d) An explanation of the Plan's claim review
procedure.
8.3 Review of Denial. Within sixty (60) days after the receipt by a
claimant of written notification of the denial (in whole or in part) of a claim,
the claimant or the claimant's duly authorized representative, upon written
application to the Committee, delivered in person or by certified mail, postage
prepaid, may request a review of such denial. Such a person also may review
pertinent documents and may submit to the Committee, in writing, issues and
comments concerning the claim.
8.4 Decision on Review. Upon the Committee's receipt of a notice of
a request for review, the Committee shall make a prompt decision on the review
and shall communicate the decision on review in writing to the claimant.
The decision on review shall be written in a manner calculated to be understood
by the claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based. The
decision on review shall be made not later than sixty (60) days after the
Committee's receipt of a request for a review, unless special circumstances
require an extension of time for processing, in which case a decision shall be
rendered not later than one hundred twenty (120) days after receipt of the
request for review. If an extension is necessary, the claimant shall be given
written notice of the extension by the Committee prior to the expiration of the
initial sixty (60) day period. If notice of the decision on review is not
furnished in accordance with this Section, the claim shall be deemed denied on
review.
<PAGE>
ARTICLE IX
----------
AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment. The Board may at any time amend the Plan in whole or
in part. However, no amendment will decrease the amount of any then existing
Account or otherwise adversely affect a Participant's rights to existing Account
balances without the Participant's consent.
9.2 Board's Right to Terminate. The Board may at any time terminate
the Plan, in which event no new Deferral Agreements shall be made, but the
obligations of the Company under existing Deferral Agreements shall continue
unless the Board requires immediate distribution of Participants' Accounts
following such termination.
ARTICLE X
---------
MISCELLANEOUS
10.1 Unfunded Plan. This Plan is intended to be an "unfunded" plan
maintained primarily to provide deferred compensation for a "select group of
management or highly compensated employees" within the meaning of ERISA, and
shall be so administered and construed.
10.2 Unsecured General Creditor. This Plan is unfunded. Benefits
shall be paid from the Company's general assets. Participants and their
beneficiaries, heirs, successors, and assigns shall have no legal or equitable
rights, interest or claims in any property or assets owned or which may be
acquired by the Company. Such assets of the Company shall not be held under
any trust for the benefit of Participants, their Beneficiaries, heirs,
successors or assigns, or held in any way as collateral security against the
obligations of the Company under this Plan. The Company's obligation under the
Plan shall be that of an unfunded and unsecured promise of the Company to pay
money in the future. The Company in its sole discretion, may, however, elect
to provide Termination Benefits through a trust or funding vehicle, provided,
however, that the terms of any such trust or funding vehicle shall not alter
the status of Participants and Beneficiaries as mere general unsecured creditors
of the Company or otherwise cause the Plan to be funded or benefits taxable to
Participants except upon actual receipt.
10.3 Nonassignability. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance
of actual receipt the amounts, if any, payable hereunder, or any part thereof.
The rights to all such amounts are expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure or sequestration for the payment of any debts, judgments,
alimony, or separate maintenance owned by Participants or any other person, nor
be transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency, except as required by law.
10.4 Not a Contract of Employment. The terms and conditions of this
Plan shall not be deemed to constitute a contract of employment between the
Company, or an Affiliate, and a Participant, and a Participant shall have no
rights against the Company or any Affiliate except as may otherwise be
specifically provided herein. Moreover, nothing in the Plan shall be deemed to
give a Participant the right to be retained in the service of the Company or an
Affiliate or to interfere with the right of the Company or an Affiliate to
discipline or discharge an employee at any time.
10.5 Terms. Use of the masculine pronoun in this Plan will include
the feminine and use of the singular will include the plural, unless the context
clearly indicates otherwise.
10.6 Captions. The captions of the articles, sections and paragraphs
of this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
<PAGE>
10.7 Governing Law. This Plan shall be governed by the laws of the
United States and, to the extent not preempted thereby, the laws of Maryland.
10.8 Validity. The illegality or invalidity of any provision of
this Plan shall not affect its remaining parts, but this Plan shall be
construed and enforced without such illegal or invalid provisions.
10.9 Notice. Any notice or filing required or permitted to be given
to the Committee under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to:
Personnel, Compensation and Stock Option Committee
The Columbia Bank
9171 Baltimore National Pike
Ellicott City, Maryland 21042
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification.
10.10 Successors. The provisions of this Plan shall bind and inure
to the benefit of the Company and its successors and assigns. The term
successors as used herein shall include any corporation or other business entity
which shall, whether by merger, consolidation, purchase of assets, or otherwise,
acquire all or substantially all of the business or assets of the Company, and
successors of any such corporation or other business entity.
10.11 Incompetent. If the Committee finds that any Participant or
Beneficiary to whom a benefit is payable under this Plan is unable to care for
his affairs, any payment due (unless prior claim therefore shall have been made
by a duly authorized guardian or other legal representative) may be paid, upon
appropriate indemnification of the Committee, to any person who is charged with
the support of the Participant or Beneficiary. Any such payment shall be payment
for the account of the Participant and shall be complete discharge of any
liability of the Plan therefore.
10.12 Withholding Taxes. The Company shall have the right to make
such provision as it deems necessary or appropriate to satisfy any obligations
it may have to collect or withhold Federal, state or local income, employment or
other taxes incurred by reason of the payment or deferral of compensation
pursuant to the Plan.
10.13 Change in Control. Upon a Change in Control, as defined herein,
the Company shall, as soon as possible, but in no event longer than 30 days
following the Change in Control, make an irrevocable contribution to a trust or
funding vehicle established pursuant to and consistent with Section 10.2, in an
amount equal to the sum of the balances of all Accounts as of the date on which
the Change of Control occurred. Within 5 days after the end of each calendar
quarter thereafter, the Company shall contribute to such trust or funding
vehicle the amount, if any, by which the sum of the balances of all Accounts
exceeds the value of the assets of such trust or funding vehicle.
A Change in Control shall be deemed to have occurred when:
(a) Any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the voting equity stock of the Company; or
(b) Any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) gains control of the election of a majority of the Board
of Directors of the Company; or
(c) Any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) gains control of the management or policies of the
Company; or
<PAGE>
(d) The Company consolidates with, or merges with or into,
another entity (including a corporation, bank, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship, unincorporated organization
or any other form of entity not specifically listed herein) or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets, or another such entity consolidates with, or merges with or into,
the Company, in any such event pursuant to a transaction in which the issued and
outstanding shares of the voting equity stock of the Company are converted into
or exchanged for cash, securities or other property; or
(e) During any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any directors who are members of the Board of Directors on the
date hereof and any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of 66-2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
IN WITNESS WHEREOF, the Company has duly executed this Plan
to evidence its assumption of the obligations of this Plan.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- ----------------------------- -------------------------------------
Print Name: John A. Scaldara, Jr.
------------------------------
Title: Secretary/Chief Financial Officer
----------------------------------
Date: 9/27/96
-----------------------------------
<PAGE>
AMENDMENT NO. 1 TO THE
COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Amendment No. 1 to The Columbia Bank Deferred Compensation Plan
(the "Plan") is made by The Columbia Bank (the "Company").
W I T N E S S E T H:
WHEREAS, in accordance with the intention to coordinate the provisions
of the Plan with The Columbia Bancorp 401(k) Plan and Trust (the "401(k) Plan"),
the Corporation desires to amend the Plan to clarify that (i) a Participant's
deferrals will not begin until the Participant has made the maximum elective
deferrals under the 401(k) Plan and (ii) that the Participant's deferrals under
the Plan, when added to the Participant's elective deferrals under the 401(k)
Plan, cannot exceed such percentage of the Participant's Compensation as
determined by the Company's Board of Directors.
WHEREAS, Section 9.1 of the Plan permits the Company to amend the Plan
from time to time; and
NOW, THEREFORE, the Plan is amended as set forth in this Amendment.
1. Section 2.2 of the Plan is amended to read as follows:
2.2 Deferral Agreements. Each Deferral Agreement shall state the
amount of Compensation to be deferred in the Deferral Period which it
covers. A Participant's deferrals under this Plan will begin only after
the Participant's salary reduction contributions to the Columbia
Bancorp 401(k) Plan and Trust equal the maximum elective deferrals
permitted under Section 402(g) of the Code. The maximum amount that a
Participant may elect to defer under this Plan, when added to the
Participant's salary reduction contribution under the Columbia Bancorp
401(k) Plan and Trust, shall not exceed such percentage of the
Participant's Compensation as determined by the Board of Directors, in
its discretion. The amount of Compensation that a Participant elects to
defer shall be withheld as indicated in the Participant's Deferral
Agreement and credited to the Participant's Deferred Compensation
Account bi-weekly or when it otherwise would have become payable.
Deferral Elections shall be made in writing on such forms, and shall be
subject to such uniform administrative rules, as the Committee shall
establish. A Participant's obligation to defer Compensation pursuant to
a Deferral Agreement will terminate upon the Participant's Termination.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be
executed, effective as of September 27, 1996.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- -------------------------------- --------------------------------------
Print Name: John A. Scaldara, Jr.
------------------------------
[SEAL] Title: Secretary/Chief Financial Officer
-----------------------------------
Date: 12/30/96
------------------------------------
<PAGE>
AMENDMENT NO. 2 TO THE
COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Amendment No. 2 to The Columbia Bank Deferred Compensation Plan
(the "Plan") is made by The Columbia Bank (the "Company").
W I T N E S S E T H:
WHEREAS, the Company desires to clarify the terms of the Plan to
specify a period before each year when a participant may make an election to
change the method for determining investment gains and losses for the
participant's Plan account under the Plan; and
WHEREAS, the Company desires to modify the terms of the Plan regarding
the time for commencement of payment to a participant of any portion of Plan
benefit not deductible under section 162(m)(1) of the Internal Revenue Code (the
"Code"); and
WHEREAS, the Company desires to amend the Plan's definition of a
"Change in Control" to make it consistent with such definition in other employee
benefit plans and arrangements of the Company; and
WHEREAS, the Company desires to add certain provisions to the Plan to
coordinate the a participant's benefits under the Plan with the benefits under
The Columbia Bancorp 401(k) Plan and Trust (the "401(k) Plan") by allowing a
participant to use benefits under the Plan to maximize his or her salary
deferral under the 401(k) Plan as permissible under the "actual deferral
percentage" test of Code Section 401(k); and
WHEREAS, Section 9.1 of the Plan permits the Board of Directors of the
Company to amend the Plan from time to time; and
WHEREAS, the Board of Directors of the Company has, by duly adopted
resolutions, approved this Amendment No. 2 to the Plan;
NOW, THEREFORE, the Plan is amended as follows:
1. Section 1.22 shall be added to the Plan to state in its
entirety as follows:
"1.22 1934 Act. "1934 Act" means the Securities Exchange
Act of 1934, as amended."
2. Section 3.3(a) of the Plan is amended to read in its entirety
as follows:
"(a)Investment gains and losses on a Participant's Accounts will
be determined in accordance with the Participant's election (i) by
reference to a rate equal to The Columbia Bank's prime rate, in which
case the provisions of Section 3.3(b) will apply, or (ii) as if the
participant's Accounts were used to purchase shares of common stock of
Columbia Bancorp, in which case the provisions of Section 3.3(c) will
apply. The Participant's selection of the method of determining
investment gains and losses will be made initially when a Participant
enrolls in the Plan and annually thereafter. A Participant's initial
election, which must be made on or before the Participant's enrollment
date, will be effective upon the Participant's enrollment. Thereafter,
a Participant may make a new election in December of each Deferral
Period, which will become effective on following January 1. The
Participant may elect to have the investment gains and losses on the
Participant's Accounts credited by reference to one of the methods
described in (i) or (ii) above, or any combination thereof in whole
percentages. Notwithstanding the provisions of
<PAGE>
this Section 3.3, the investment gains and losses after a
Participant's Termination will be determined as set forth in Article
IV. Notwithstanding anything herein to the contrary, any election
under this Section 3.3 by a Participant who is subject to Section 16 of
the 1934 Act, shall be ineffective and void as if never made if
that election would (i) constitute a Discretionary Transaction, as
defined in Rule 16b-3 under the 1934 Act, that is not exempt from
Section 16(b) of the 1934 Act or (ii) cause another Discretionary
Transaction by that Participant to fail to qualify as a
Discretionary Transaction exempt from Section 16(b) of the 1934 Act."
3. Section 4.2 of the Plan is amended to read in its entirety as
follows:
"4.2 Commencement of Payments. Payment of the Termination
Benefit will begin within ninety (90) days of the date of Termination
or at such later date as the Participant may elect. Such an election
must be in writing, on a form provided by the Committee, and may be
made, modified or revoked at any time provided that such election,
modification or revocation shall only become effective if executed and
delivered to the Committee at least 12 months prior to the
Participant's Termination. Notwithstanding the foregoing, if any
portion of the benefit payable under the Plan to any Participant who is
a "covered employee" within the meaning of section 162(m)(3) of the
Code would be nondeductible under section 162(m)(1) of the Code (or
cause other amounts payable by the Company to be nondeductible under
section 162(m)(1) of the Code), then the payment of such portion of the
benefit to such Participant shall not commence until the ninetieth
(90th) day of the Company's first fiscal year commencing after such
Participant terminates employment unless the Committee consents to
earlier commencement. If the commencement of payment of any portion of
the Participant's Accounts is delayed for any reason beyond the
ninetieth (90th) day after the Participant's date of Termination, the
portion so delayed will be credited with earnings from such date until
paid at The Columbia Bank's prime rate in effect as of December 15 of
the year preceding the year in which the Participant's Termination
occurs."
4. Section 7.5 shall be added to the plan to state in its
entirety as follows:
"7.5 Excess Benefit Plan. The Plan shall be administered
and interpreted so as to constitute an "Excess Benefit Plan" as defined
in Rule 16b-3 under the 1934 Act."
5. Section 10.13 of the Plan is amended to state in its entirety
as follows:
"10.13 Change in Control. Upon a Change in Control, as defined
herein, the Company shall, as soon as possible, but in no event longer
than 30 days following the Change in Control, make an irrevocable
contribution to a trust or funding vehicle established pursuant to and
consistent with Section 10.2, in an amount equal to the sum of the
balances of all Accounts as of the date on which the Change of Control
occurred. Within 5 days after the end of each calendar quarter
thereafter, the Company shall contribute to such trust or funding
vehicle the amount, if any, by which the sum of the balances of all
Accounts exceeds the value of the assets of such trust or funding
vehicle.
A Change in Control shall be deemed to have occurred when:
(a) Any person (as such term is used in Sections 13(d) and
14(d) of the 1934 Act, as amended, and the regulations promulgated
thereunder) is or becomes the beneficial owner, directly or indirectly,
of 25% or more of the voting equity stock of Columbia Bancorp, or any
person (as such term is used in Sections 13(d) and 14(d) of the 1934
Act, as amended, and the regulations promulgated thereunder) other than
Columbia Bancorp is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the Common Stock of the Company; or
<PAGE>
(b) Any person (as such term is used in Sections 13(d) and
14(d) of the 1934 Act, as amended, and the regulations promulgated
thereunder) gains control of the election of a majority of the board of
directors of Columbia Bancorp, or any person (as such term is used in
Sections 13(d) and 14(d) of the 1934 Act, as amended, and the
regulations promulgated thereunder) other than Columbia Bancorp gains
control of the election of a majority of the Board of Directors of the
Company; or
(c) Any person (as such term is used in Sections 13(d) and
14(d) of the 1934 Act, as amended, and the regulations promulgated
thereunder) gains control of the management or policies of either the
Company or Columbia Bancorp; or
(d) Either the Company or Columbia Bancorp consolidates with,
or merges with or into, another entity (including a corporation, bank,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity
not specifically listed herein) or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets,
or another such entity consolidates with, or merges with or into, the
Company or Columbia Bancorp in any such event pursuant to a transaction
in which the issued and outstanding shares of the voting equity stock
of the Company or Columbia Bancorp are converted into or exchanged for
cash, securities or other property; or
(e) During any consecutive two-year period, individuals who at
the beginning of such period constituted the board of directors of
either the Company or Columbia Bancorp (together with any directors who
are members of such board of directors on the date hereof and any new
directors whose election or whose nomination for election was approved
by a vote of 66-2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the board of directors of either the
Company or Columbia Bancorp then in office.
6. Section 2.2 of the Plan is amended to state in its entirety as
follows:
"2.2 Deferral Agreements. Each Deferral Agreement shall state
the amount of Compensation to be deferred in the Deferral Period which
it covers. Subject to such rules as the Committee may prescribe, a
Participant may make a deferral under this Plan only to the extent the
Participant's salary reduction contributions to the Columbia Bancorp
401(k) Plan and Trust exceed the maximum elective deferrals permitted
under Section 402(g) or Section 401(k)(3) of the Code. The maximum
amount that a Participant may elect to defer under this Plan, when
added to the Participant's salary reduction contribution under the
Columbia Bancorp 401(k) Plan and Trust, shall not exceed such
percentage of the Participant's Compensation as determined by the Board
of Directors, in its discretion. The amount of Compensation that a
Participant elects to defer shall be withheld as indicated in the
Participant's Deferral Agreement and credited to the Participant's
Deferred Compensation Account bi-weekly or when it otherwise would have
become payable. Deferral Elections shall be made in writing on such
forms, and shall be subject to such uniform administrative rules, as
the Committee shall establish. A Participant's obligation to defer
Compensation pursuant to a Deferral Agreement will terminate upon the
Participant's Termination."
IN WITNESS WHEREOF, the Company has caused this Amendment No.
2 to be executed, effective as of January 1, 1997.
<PAGE>
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- -------------------------------- --------------------------------------
Print Name: John A. Scaldara, Jr.
------------------------------
[SEAL] Title: Secretary/Chief Financial Officer
-----------------------------------
Date: 2/24/97
------------------------------------
<PAGE>
ADDENDUM TO
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Addendum authorized by the Board of Directors of The Columbia Bank pursuant
to Section 9.1 of The Columbia Bank Deferred Compensation Plan (the "Plan"), is
effective September 27, 1996.
Section 4.4 of the Plan is hereby amended as follows with respect to
the calculation of John M. Bond, Jr.'s benefit under the Plan:
Section 4.4 Payments After Death. If the Participant dies
while in the active service of the Company or an Affiliate, the Company
shall pay to the Participant's beneficiary a benefit equal to the
greater of (A) the Participant's Deferred Compensation Account balance
at the date of death and (B) the lesser of (i) $1,335,000, (ii) a sum
equal to five (5) times the sum of the Participant's annual base salary
at the date of death plus the average of the bonuses paid to the
Participant over the past three years (including years in which no
bonus was awarded), or (iii) the projected benefit that would have been
payable under this Plan upon the Participant's attainment of age
sixty-five (65) based on the Participant's Deferred Compensation
Account balance at the date of death and the assumption (a) that
deferrals, and Company Matching Contributions thereon, would continue
until the Participant's attainment of age sixty-five (65) at the rate
in effect at the Participant's death and (b) that earnings would be
credited on the Participant's Accounts until the Participant's
attainment of age sixty-five (65) at The Columbia Bank's prime rate as
of December 15 of the year preceding the Participant's death. The
Company shall pay the benefit to the Beneficiary in the same form as it
would have been paid to the Participant had the Participant's
Termination occurred on the date of death, commencing on the first day
of the month following the Participant's death. If the Participant dies
after benefit payments have commenced under this Plan but before
receiving all such payments, the Company shall pay the remaining
benefits to the Participant's Beneficiary at the same time and in the
same amounts they would have been paid to the Participant had the
Participant survived.
IN WITNESS WHEREOF, the Company has duly executed this Addendum to
evidence its assumption to the obligations thereunder.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- -------------------------------- --------------------------------------
Print Name: Robert N. Smelkinson
------------------------------
Title: Chairman - Personnel, Compensation
and Stock Option Committee
----------------------------------
Date: 1/27/97
------------------------------------
<PAGE>
ADDENDUM TO
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Addendum authorized by the Board of Directors of The Columbia Bank pursuant
to Section 9.1 of The Columbia Bank Deferred Compensation Plan (the "Plan"), is
effective September 27, 1996.
Section 4.4 of the Plan is hereby amended as follows with respect to
the calculation of John A. Scaldara, Jr.'s benefit under the Plan:
Section 4.4 Payments After Death. If the Participant dies
while in the active service of the Company or an Affiliate, the Company
shall pay to the Participant's beneficiary a benefit equal to the
greater of (A) the Participant's Deferred Compensation Account balance
at the date of death and (B) the lesser of (i) $3,685,000, (ii) a sum
equal to five (5) times the sum of the Participant's annual base salary
at the date of death plus the average of the bonuses paid to the
Participant over the past three years (including years in which no
bonus was awarded), or (iii) the projected benefit that would have been
payable under this Plan upon the Participant's attainment of age
sixty-five (65) based on the Participant's Deferred Compensation
Account balance at the date of death and the assumption (a) that
deferrals, and Company Matching Contributions thereon, would continue
until the Participant's attainment of age sixty-five (65) at the rate
in effect at the Participant's death and (b) that earnings would be
credited on the Participant's Accounts until the Participant's
attainment of age sixty-five (65) at The Columbia Bank's prime rate as
of December 15 of the year preceding the Participant's death. The
Company shall pay the benefit to the Beneficiary in the same form as it
would have been paid to the Participant had the Participant's
Termination occurred on the date of death, commencing on the first day
of the month following the Participant's death. If the Participant dies
after benefit payments have commenced under this Plan but before
receiving all such payments, the Company shall pay the remaining
benefits to the Participant's Beneficiary at the same time and in the
same amounts they would have been paid to the Participant had the
Participant survived.
IN WITNESS WHEREOF, the Company has duly executed this Addendum to
evidence its assumption to the obligations thereunder.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- ------------------------------- --------------------------------------
Print Name: Robert N. Smelkinson
------------------------------
Title: Chairman - Personnel, Compensation
and Stock Option Committee
----------------------------------
Date: 1/27/97
------------------------------------
<PAGE>
ADDENDUM TO
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Addendum authorized by the Board of Directors of The Columbia Bank pursuant
to Section 9.1 of The Columbia Bank Deferred Compensation Plan (the "Plan"), is
effective September 27, 1996.
Section 4.4 of the Plan is hereby amended as follows with respect to
the calculation of Charles C. Holman's benefit under the Plan:
Section 4.4 Payments After Death. If the Participant dies
while in the active service of the Company or an Affiliate, the Company
shall pay to the Participant's beneficiary a benefit equal to the
greater of (A) the Participant's Deferred Compensation Account balance
at the date of death and (B) the lesser of (i) $110,000, (ii) a sum
equal to five (5) times the sum of the Participant's annual base salary
at the date of death plus the average of the bonuses paid to the
Participant over the past three years (including years in which no
bonus was awarded), or (iii) the projected benefit that would have been
payable under this Plan upon the Participant's attainment of age
sixty-five (65) based on the Participant's Deferred Compensation
Account balance at the date of death and the assumption (a) that
deferrals, and Company Matching Contributions thereon, would continue
until the Participant's attainment of age sixty-five (65) at the rate
in effect at the Participant's death and (b) that earnings would be
credited on the Participant's Accounts until the Participant's
attainment of age sixty-five (65) at The Columbia Bank's prime rate as
of December 15 of the year preceding the Participant's death. The
Company shall pay the benefit to the Beneficiary in the same form as it
would have been paid to the Participant had the Participant's
Termination occurred on the date of death, commencing on the first day
of the month following the Participant's death. If the Participant dies
after benefit payments have commenced under this Plan but before
receiving all such payments, the Company shall pay the remaining
benefits to the Participant's Beneficiary at the same time and in the
same amounts they would have been paid to the Participant had the
Participant survived.
IN WITNESS WHEREOF, the Company has duly executed this Addendum to
evidence its assumption to the obligations thereunder.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- ------------------------------- --------------------------------------
Print Name: Robert N. Smelkinson
------------------------------
Title: Chairman - Personnel, Compensation
and Stock Option Committee
----------------------------------
Date: 1/27/97
------------------------------------
<PAGE>
ADDENDUM TO
THE COLUMBIA BANK
DEFERRED COMPENSATION PLAN
This Addendum authorized by the Board of Directors of The Columbia Bank pursuant
to Section 9.1 of The Columbia Bank Deferred Compensation Plan (the "Plan"), is
effective September 27, 1996.
Section 4.4 of the Plan is hereby amended as follows with respect to
the calculation of Robert W. Locke, III's benefit under the Plan:
Section 4.4 Payments After Death. If the Participant dies
while in the active service of the Company or an Affiliate, the Company
shall pay to the Participant's beneficiary a benefit equal to the
greater of (A) the Participant's Deferred Compensation Account balance
at the date of death and (B) the lesser of (i) $450,000, (ii) a sum
equal to five (5) times the sum of the Participant's annual base salary
at the date of death plus the average of the bonuses paid to the
Participant over the past three years (including years in which no
bonus was awarded), or (iii) the projected benefit that would have been
payable under this Plan upon the Participant's attainment of age
sixty-five (65) based on the Participant's Deferred Compensation
Account balance at the date of death and the assumption (a) that
deferrals, and Company Matching Contributions thereon, would continue
until the Participant's attainment of age sixty-five (65) at the rate
in effect at the Participant's death and (b) that earnings would be
credited on the Participant's Accounts until the Participant's
attainment of age sixty-five (65) at The Columbia Bank's prime rate as
of December 15 of the year preceding the Participant's death. The
Company shall pay the benefit to the Beneficiary in the same form as it
would have been paid to the Participant had the Participant's
Termination occurred on the date of death, commencing on the first day
of the month following the Participant's death. If the Participant dies
after benefit payments have commenced under this Plan but before
receiving all such payments, the Company shall pay the remaining
benefits to the Participant's Beneficiary at the same time and in the
same amounts they would have been paid to the Participant had the
Participant survived.
IN WITNESS WHEREOF, the Company has duly executed this Addendum to
evidence its assumption to the obligations thereunder.
ATTEST: THE COLUMBIA BANK
/S/ By: /S/
- ------------------------------- --------------------------------------
Print Name: Robert N. Smelkinson
------------------------------
Title: Chairman - Personnel, Compensation
and Stock Option Committee
----------------------------------
Date: 1/27/97
------------------------------------
EXHIBIT 10.13
DATA PROCESSING SERVICES AGREEMENT
THIS DATA PROCESSING SERVICES AGREEMENT is made as of this 22nd day of
March 1996 (the "Agreement") by and between M&I Data Services, a division of the
Marshall & Ilsley Corporation, a Wisconsin corporation ("M&l") and The Columbia
Bank, a Maryland corporation, together with any subsidiaries and affiliates for
which M&I performs data processing services (collectively referred to as the
"Customer").
RECITALS
WHEREAS, M&I provides data processing services to customers located
across the country; and
WHEREAS, M&I desires to provide data processing services to Customer,
and Customer desires to have M&I provide it with such services.
NOW, THEREFORE, in consideration of the recitals and for the good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Services. M&I shall provide Customer with the data processing
services requested by Customer utilizing the version of the banking system
software made available from time to time by M&I through the M&I Service Bureau
(the "Services"). The functionality of the software and a further description of
the Services is set forth in the User Manuals, copies of which have been
provided to Customer. Customer shall purchase the data processing services
indicated on Exhibit A, from M&I. Unless otherwise agreed in writing between M&I
and Customer, and subject to the other provisions of the Agreement, M&I shall
make the On-line Services available to Customer, subject to commercially
reasonable downtime and maintenance, at times indicated on the M&I On-line
Availability Schedule, as modified from time to time.
2. Fees and Taxes. Customer agrees to pay for the Services
received hereunder as follows:
a. Amount of Fees. Commencing on the Conversion Date (as
defined in Section 3) and on the first day of each month thereafter through the
end of the term of this Agreement, Customer shall pay M&I a fixed monthly fee of
fifteen thousand two hundred ($15,200) per month (the "Fixed Monthly Fee") for
the Services described on Exhibit A. For Services requested by Customer in
addition to those on Exhibit A, Customer shall pay in accordance with M&I's
then-current standard published prices. The Fixed Monthly Fee will be adjusted
in accordance with the provisions of Exhibit B. Customer also agrees to pay all
communication costs, telecommunication charges, printline charges and other
output costs and other reasonable and necessary costs, including but not limited
to start-up fees, passthrough charges, out-of-pocket expenses, conversion
expenses and fees, workshop fees, training fees, as well as late fees or charges
billed as miscellaneous on Customer's invoice (the "Miscellaneous Fees"). The
M&I standard published prices as of the date of this Agreement are set forth on
the fee schedule attached as Exhibit C.
b. Additional Charges. In addition to the charges described
above or set forth in Exhibits B and C, Customer agrees to pay for any
manufacturers, sales, use, excise, personal property, or any other tax or
charge, or duty or assessment levied or assessed by any governmental authority
upon or as a result of the execution or performance of any service pursuant to
this Agreement or materials furnished with respect to the Agreement, except
those taxes based on M&l's net income.
c. Terms of Payment. Customer shall pay the Fixed Monthly Fee
on the first day of the month in which the Services are to be performed. Any
other amounts due hereunder shall be paid within thirty (30) days of invoice,
unless otherwise provided herein. To effect the payment for the Fixed Monthly
Fee only, Customer hereby
<PAGE>
authorizes M&I to initiate debit entries from and, if necessary, initiate
credit entries and adjustments to Customer's account at the depository
designated in the ACH Authorization Agreement. Debit entries for the Fixed
Monthly Fee will be made on the first day of each month for which Services will
be rendered under the Agreement. In the event that a payment day is a
nonbusiness day, entries will be made on the first preceding business day.
Customer shall authorize, on the attached ACH Authorization Agreement, debits
from and credits to its account for payment for Services received under the
Agreement. The Customer shall also pay any collection fees and reasonable
attorneys' fees incurred by M&I in collecting payment of the charges and any
other amounts for which Customer is liable under the terms and conditions of
this Agreement.
d. Modification of Terms and Pricing. If Customer is in
default as defined in Section 11 and M&I elects to continue to perform the
Services, Customer agrees to pay M&I all unamortized conversion expenses in
advance of M&I performing any additional Services (using a sixty (60) month
straight-line amortization schedule). As of the date of the Agreement, estimated
unamortized conversion expenses are detailed on Exhibit B. In addition, Customer
agrees that all charges for Services shall be computed using M&I's then-current
standard published prices, paid in advance as determined by M&I. M&I may
terminate the provision of the Services to Customer in the event of Customer's
uncured default after providing Customer at least one hundred twenty (120) days'
prior notice.
3. Term.
a. Initial Term. This Agreement shall be effective upon
execution by both parties, and both parties will promptly undertake the
conversion activities necessary to process Customer's data. M&I currently
anticipates, subject to Customer's timely and satisfactory completion of its
responsibilities described in the M&I Conversion Manual and in the Conversion
Schedule to be established by M&I, and agreed to by Customer, that all
conversion activities will be completed on September 16,1996 (the "Conversion
Date"). The term of this Agreement shall continue for a period of ninety-six
(96) months from the Conversion Date.
b. Renewal Obligations. During any renewal term, or for any
Services provided after the end of the initial term, whether or not the
Agreement is renewed, Customer agrees that the terms of this Agreement shall
continue to apply, except that all charges for Services shall be computed using
M&I's then-current standard published prices paid in advance as determined by
M&I. At M&I's option, such Services shall be provided by M&I on a month-to-month
basis.
4. Affiliates. All processing for Customer and Customer's
subsidiaries and affiliates which M&I does shall be included as part of the
Services provided under this Agreement and shall be done in accordance with
the terms and conditions of this Agreement. Customer agrees that it is
responsible for assuring compliance with the Agreement by its affiliates and
subsidiaries. Customer agrees to be responsible for the submission of its
affiliates' data to M&I for processing and for the transmission to Customer's
affiliates of such data processed by and received from M&I. Customer agrees to
pay any and all fees owed under this Agreement for Services hereunder.
5. Confidentiality and Ownership. Except as permitted under
Section 25(k) herein, both parties will, to the extent and in accordance with
their policies used to protect their own information of similar importance, use
their best efforts to refrain from and prevent the use of or disclosure of
any confidential information (including, but not limited to, financial
information, product lists and descriptions, pricing schedules, customer lists
and methods of doing business) of the other party, disclosed or obtained by
such party while performing its obligations under this Agreement, except when
such use or disclosure is for the purpose of providing the Services. Neither
party will have an obligation of confidentiality with regard to any information
insofar as the same: (1) was known to such party prior to disclosure; (2)
is or becomes publicly available other than as a result of a breach of this
Agreement; or (3) is disclosed to such party by a third party not subject to
an obligation of confidentiality. Nor shall the obligation of confidentiality
occur where disclosure is made pursuant to: (1) any law of the United States
or any state thereof; (2) the order of any court or governmental agency; or (3)
the rules and regulations of any governmental agency.
Customer may reproduce and distribute any or all M&I's
documentation, including User Manuals, solely for its own internal use. Customer
recognizes, however, that such documentation may be copyrighted, trademarked,
patented, or otherwise protected by M&I. Customer will not undertake to
reproduce for distribution or distribute such documentation to any other third
party. Any modifications made to such documentation by Customer for the purpose
of customization are acknowledged to be solely at the risk of Customer, and M&I
shall not be liable to Customer for any inaccuracies arising therefrom. The
distribution of modified documentation is subject to the same
<PAGE>
restrictions and shall further contain an acknowledgment of M&I's copyright
and other protected proprietary interests in such documentation.
The obligation of the parties under this Section 5 shall
survive the termination of the Agreement.
6. Programming. M&I reserves the right to determine the
programming (whether hardware or software) utilized with the equipment used
in fulfilling its duties under this Agreement. All programs (including
ideas and know-how and concepts) developed by M&I are and remain its sole
property.
7. Equipment. Customer shall obtain and maintain at its own
expense such data processing and communications equipment as may be necessary or
appropriate to facilitate the proper use and receipt of the Services. M&I and
Customer will mutually determine the equipment and network configuration
required for Customer to utilize the Services. Customer shall pay all
installation, monthly, and other charges relating to the installation and use of
communications lines in connection with the Services. M&I shall not be
responsible for the continued availability of the communications lines used by
Customer in accessing the Services. M&I maintains a network control center with
diagnostic capability to monitor communication line reliability. M&I agrees to
communicate any service deficiencies to vendors of which M&I is, or becomes,
aware. A copy of the proposed network configuration is attached hereto as
Exhibit D.
8. Supplies. Customer shall pay for all supplies used in
connection with the Services. All forms, supplies, or materials used in
processing Customer's items and input data shall meet M&I's specifications
as set forth in the User Manuals and any updates thereto.
9. Systems Modification: Amendment of Services. M&I may modify,
amend, enhance, update, or provide the appropriate replacement for any of the
Services, the software used to provide the Services, or any element of its
systems at any time to: (a) improve the Services or (b) facilitate the continued
economic provisions of the Service. M&I may, at any time, withdraw any of the
Services upon providing one hundred twenty (120) days' prior written notice to
Customer; provided, however, there shall be no material reduction in the
functionality of the core elements of M&I's Integrated Banking System Software
(Deposit System, Loan System, Customer Information System). M&I may also
terminate any of the Services immediately upon any regulatory, legislative, or
judicial determination that providing such Services is inconsistent with
applicable law or regulation or upon imposition by any such authority of
restrictions or conditions which would materially alter the economic or other
benefits to M&I or Customer to any element of the Services.
10. Disaster Recovery. M&I maintains, and shall continue to
maintain throughout the term of this Agreement, off-site disaster recovery
capabilities which permit M&I to recover from a disaster and continue providing
Services to Customers within a commercially reasonable period. An executive
summary of the current disaster recovery plan, which may change from time to
time, is available upon request from M&I at no charge. M&I shall test
the operation and effectiveness of its disaster recovery plan at least
annually. M&I maintains, and shall continue to maintain throughout the term of
this Agreement, a backup power supply system to guard against electrical
outages.
11. Events of Default. It shall be an Event of Default on the
part of the Customer if: (a) Customer is insolvent, or a receiver or conservator
shall be appointed with respect to the Customer; or (b) Customer shall fail to
pay any sum due M&I within the prescribed time; or (c) if the Customer shall
fail to perform any of its other covenants or obligations under this
Agreement where the failure of Customer to perform has a material adverse impact
on M&I. It shall be an Event of Default on the part of M&I if: (a) M&I is
insolvent, or a receiver or conservator shall be appointed with respect to
M&I; or (b) M&I shall fail to perform any of its obligations under this
Agreement where the failure of M&I to perform has a material adverse impact on
Customer and is material to the provision of the Services. The defaulting party
shall have ten (10) days from the date of receipt of notice from the
nondefaulting party of nonpayment or nonperformance to cure such an Event of
Default, before the nondefaulting party may exercise any remedies it may have
as a result of the Event of Default.
12. Remedies Upon Default Limitation of Liabilities. If an
Event of Default occurs on the part of the Customer, and is not cured within
the ten (10) day period prescribed in Section 11, M&I may (a) terminate
this Agreement; (b) terminate access to its central processing unit by
the Customer; and (c) declare all amounts payable under this Agreement to
be immediately due payable and file suit for or otherwise obtain payment from
the Customer of any fees or other sums due it pursuant to this Agreement, plus
any actual damages to its equipment or systems
<PAGE>
caused by the Customer's actions, failures to act, equipment, systems, or
communication facilities. If an Event of Default occurs on the part of M&I, and
is not cured within the ten (10) day period prescribed in Section 11, the
Customer may only: (a) terminate this Agreement and (b) file suit or
otherwise obtain payment of an aggregate amount of fees paid by the Customer to
M&I hereunder during the four (4) months immediately preceding the Event
of Default. Either party may also seek equitable remedies, including,
without limitation, specific performance and injunctive relief, for a breach
of Section 5 of this Agreement. M&I and the Customer agree that these damage
provisions are reasonable in light of all present predictable circumstances
(including expectable actual damages in that the fees to be charged by M&I
hereunder do not include amounts sufficient to insure against greater
claims). M&I and Customer expressly waive all claims for additional,
incidental, consequential, compensatory, or punitive damages and agree that
the remedies set forth in this Agreement shall be the sole and exclusive
remedies of the parties. No lawsuit or other action may be brought by either
party hereto or on any claim or controversy based upon or arising in any way
out of this Agreement after one (1) year from the date of the occurrence
allegedly giving rise to the action, except for nonpayment of sums due to M&I
by Customer. M&I agrees that except in the case of an Event of Default
relating to a breach by the Customer of its confidentiality
obligations under Section 5 of this Agreement, M&I will not exercise its
remedy to terminate Customer's access to the M&I central processing unit so
long as: (a) Customer is current in the payment of all amounts due M&I as
reflected on M&I's last invoice to Customer; and (b) only exercise such remedy
after providing Customer with one hundred twenty (120) days' prior written
notice.
13. Termination.
a. End of Initial Term. This Agreement shall automatically be
extended at the end of the initial ninety-six (96) month term for an additional
eighteen (18) month renewal term, unless the Customer gives M&I at least one
hundred eighty (180) days' prior written notice of its intent to terminate,
which notice may be given during the initial term of the Agreement.
b. Renewal Term. During the renewal term, this Agreement shall
be automatically extended for an additional one (1) month on each monthly
anniversary date so that the term shall always be not less than one (1) month
less than eighteen (18) months, unless either party gives written notice to the
other party of intent to terminate, in which event the automatic monthly
renewals will end and the Agreement will terminate at the end of the unexpired
portion of the term in existence on the date notice to terminate is given.
c. Termination Upon Default. This Agreement may
also terminate upon an Event of Default and failure to cure beyond applicable
cure periods at the option of the nondefaulting party as set forth in Section
12 hereof.
d. Termination by Customer. Customer may terminate this
Agreement at any time, and without cause, by giving M&I at least one hundred
eighty (180) days' prior written notice and paying M&I the then-applicable
buyout amount set forth in Section 21.
e. Termination for Change in Control of M&I. In the
event M&I is acquired by any entity not now in control of M&I (by definition
any entity not now in control of M&I who subsequently acquires more than
fifty percent (50%) of the voting power or outstanding capital of M&I) such
acquiring entity may not convert Customer to another processing platform
without Customer's consent. Such conversion without Customer's consent shall
entitle Customer to terminate this Agreement with six (6) months prior notice
and without payment of any buyout amount or deconversion cost. A public offering
of M&I stock shall not be construed as a change in control of M&I.
14. Regulatory Assurances. M&I and Customer acknowledge and agree
that the performance of these Services will be subject to regulation and
examination by Customer's regulatory agencies to the same extent as if such
Services were being performed by Customer. Upon request, M&I agrees to provide
any appropriate assurances to such agency and agrees to subject itself
to any required examination or regulation. Customer agrees to reimburse M&I for
reasonable costs actually incurred due to any such examination or regulation
that is performed solely for the purpose of examining data processing services
used by Customer.
a. Notice Requirements. The Customer shall be
responsible for complying with all regulatory notice provisions to any
applicable governmental agency, which shall include providing timely and
adequate notice to the Chief Examiner of the Federal Home Loan Bank Board, the
Office of Thrift Supervision. the Office of the Comptroller of the Currency,
The Federal Deposit Insurance Corporation, the Federal Reserve Board, or
their
<PAGE>
successors, as applicable (collectively, the "Federal Agency"), as of the
effective date of Services under this Agreement, as required, identifying
those records to which this Agreement shall apply and the location at which such
Services are to be performed.
b. Examination of Records. The parties agree that the
records maintained and produced under this Agreement shall, at all times, be
available for examination and audit by governmental agencies having
jurisdiction over the Customer's business, including (without limitation)
the Federal Agency. The Director of Examinations of the Federal Agency or his
designated representative shall have the right to ask for and to receive
directly from M&I any reports, summaries, or information contained in or
derived from data in the possession of M&I related to the Customer. M&I shall
notify Customer as soon as possible of any formal request by an authorized
governmental agency to examine Customer's records maintained by M&I, if M&I
is permitted to make such a disclosure to Customer under applicable law or
regulations. Customer agrees that M&I is authorized to provide all such
described records when formally required to do so by this authorized
governmental agency.
c. Fidelity Bonds. Throughout the term of the
Agreement, M&I shall maintain fidelity bond coverage of not less than one
million dollars ($1,000,000) for M&I and its employees, if required.
d. Notice of Changes. Customer shall give to the
Director of Examinations of the Federal Agency at least thirty (30) days'
notice of the termination of this Agreement or of any material changes in
the Services to be provided hereunder, if required.
e. Insurance. Throughout the term of this Agreement, M&I
shall maintain insurance coverage (or shall be self-insured) for losses from
fire, disaster, and other causes contributing to interruption of the
Services. M&I shall maintain in force at all times during the term of this
Agreement such insurance as will protect it from claims under Worker's
Compensation acts for damages due to bodily injury or death and liability
insurance sufficient to protect it from claims for liability to others for
damages due to bodily injury, death or damage to property or others. Such
insurance shall be written for not less than the following limits:
(1) Worker's Compensation--statutory limits.
(2) Liability Insurance:
(a) Bodily Injury--not less than
$5,000,000 for each occurrence.
(b) Property Damage Liability not less
than $250,000 for any occurrence.
(c) Financial Institution Bond coverage
for not less than $5,000,000 for
each occurrence.
(3) Motor Vehicle Insurance--shall be provided
for not less than $5,000,000 for any
occurrence involving bodily injury and/or
property damage.
(4) In addition, M&I will maintain Umbrella
Coverage of $5,000,000 for any occurrence.
The proceeds of all such insurance shall be payable to M&I. Nothing in
this Agreement shall be construed to permit Customer to receive any of such
proceeds, or to be named as an additional loss payee under any insurance polity.
f. Financial Information. Customer agrees to
provide M&I with a copy of the call report filed with the Federal Agency
simultaneously with its filing with the Federal Agency, and to provide such
additional financial information as to its creditors or others as M&I may
reasonably request.
15. Transportation and/or Transmission of Data. The responsibility
and expense for transportation and/or transmission of and risk of loss of data
and media to and from M&I's datacenters shall be borne by Customer. M&I will
notify Customer of the time by which Customer's data and media must be delivered
to M&I for processing for M&I to provide Customer's processed data within
the time period indicated by M&I.
<PAGE>
16. Responsibility.
a. General. M&I agrees to perform the Services
in a commercially reasonable manner, which is similar to the services
provided to other M&I customers, and no other or higher degree of care. Except
as otherwise described herein, M&I assumes no other obligation as to
performance or quality of the Services provided, all other risks of error
being expressly assumed by Customer. M&I shall not be responsible for loss
or damage due to delays in processing or in the delivery of processed data as
a result of any of the causes excused by Section 19 hereof. M&I WILL IN NO
EVENT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
INCURRED BY CUSTOMER INCLUDING, BUT NOT LIMITED TO, LOST PROFITS OR BUSINESS
OPERATION LOSS, REGARDLESS OF WHETHER M&I WAS ADVISED OF THE POSSIBLE
OCCURRENCE OF SUCH DAMAGES.
b. Reliance on Data Supplied. M&I will process items
and data and perform those Services described in this Agreement on the
basis of information furnished by Customer. M&I shall be entitled to rely
upon any such data, information, or instructions as provided by Customer. If any
error results from incorrect input supplied by Customer, Customer shall be
responsible for discovering and reporting such error and supplying the data
necessary to correct such error to M&I for processing at the earliest possible
time. Customer will indemnify and hold M&I harmless from any cost, claim,
damage, or liability (including attorneys' fees) whatsoever arising out of such
data, information or instructions, or any inaccuracy or inadequacy therein.
Customer assumes all risk of loss, delay, and miscommunication in the
transportation or transmission by electronic means of data and information from
any terminal or remote unit unless the same is caused by or attributable to
any act or omission on M&I's part, which act or omission does not meet the
standard of care in Section 16(a), or was caused by or attributable to any
gross negligence or willful failure on M&I's part to comply with its
obligations under this Agreement.
c. Data Backup. Customer shall maintain adequate
records including microfilm images of items being transported to M&I for at
least ten (10) business days' backup on magnetic tape or other electronic
media where transactions are being transmitted to M&I, from which
reconstruction of lost or damaged items or data can be made. Customer assumes
all responsibility and liability for any loss or damage resulting from
failure to maintain such records.
d. Audit. M&l shall cause a third-party review of its
data processing systems and Services to be conducted annually by its
independent auditors. M&I shall provide Customer one copy of the report
resulting from such review.
e. Regulatory Compliance. Customer is responsible
for determining that the Services performed in its behalf, any forms which are
used with its customers, and all records it retains comply with all applicable
laws. When used properly by the Customer, M&I software used to provide the
Services will provide the Customer with information required by and in
compliance with Federal law and regulations applicable to the transactions or
accounts processed by M&I, and, to the best of M&I's knowledge,
applicable state laws and regulations. Should Customer determine that other
information from the Services M&I provides is needed in order to comply with
applicable federal or state laws and regulations, Customer's sole remedy, and
M&I's sole obligation shall be for M&I to provide the ability to process
the information requested from the Customer as promptly as is
commercially practicable. M&I agrees that with respect to changes required
as a result of changes in state and Federal law, such changes shall be
undertaken as a priority project based on the regulatory deadline imposed for
compliance.
f. Balancing and Controls. On a daily basis, Customer
shall review all input and output, controls, reports, and documentation, to
ensure the integrity of data processed by M&I. In addition, Customer shall,
on a daily basis, check exception reports to verify that all file maintenance
entries and nondollar transactions were correctly entered. Customer is
responsible for initiating timely remedial action to correct any improperly
processed data which these reviews would disclose.
g. Service Deficiencies. If Customer is aware that a
defect exists in a Service, Customer shall be responsible for making
whatever appropriate adjustments may thereafter be necessary until M&I
corrects the defect and, if requested by Customer, M&I will, at M&I's
expense, assist Customer in making such corrections through the most
cost-effective means, whether manual, by system reruns, or program
modifications. M&I will, where
<PAGE>
reasonable, make every effort to correct any known material defect as soon as
commercially reasonable at M&I's expense.
17. Ownership of Data. Customer is the owner of all of its
data supplied by Customer to M&I for processing hereunder, as well as the
resulting processed data. Customer acknowledges that it has no rights in
any of the software, systems documentation, guidelines, procedures, and
similar related materials or any modifications thereof except with respect to
M&I's use of the same during the term of this Agreement to process data. Upon
termination of this Agreement, M&I shall provide Customer with all copies of
Customer's data in a format that is being used by M&I at that time for
processing such data. Prior to the release of the Customer's data: (a) all
amounts owed under this Agreement by Customer to M&I shall be current and paid
in full, and (b) Customer shall pay M&I its "Estimated Deconversion Expenses"
as described below. Customer agrees to pay M&I for M&I's work in providing such
data at M&I's rates then in effect for computer and personnel time, supplies,
and other items as required, and Customer further agrees to pay M&I for any
and all charges associated with the deconversion of Customer's data based
on M&I's then-current charges for such Services. M&I shall make a good faith
estimate of all of such costs, expenses, and charges which shall be paid
by Customer in advance (the "Estimated Deconversion Expenses"). The
difference, if any, between the actual expenses and the prepaid Estimated
Deconversion Expenses shall be promptly paid after determination.
18. Warranties. M&I represents and warrants that:
a. Capability of Computer Systems and Software. M&I's
computer systems (hardware and software) are capable of performing the
Services in accordance with the provisions of this Agreement. The software
used to provide the Services will operate substantially in accordance with the
specifications and documentation for the software as modified from time to time
to incorporate enhancements or modifications of the software to provide the
Services.
b. Quality of Service. The reports and Services
made available to Customer shall be in substantial conformity with the
User Manuals, as amended from time to time, copies of which have been, or
will be, provided to Customer.
c. Property Rights. M&I has the right to provide the
Services hereunder, using all computer software required for that purpose.
d. Organization and Approvals. M&I is a validly
organized corporate entity with valid authority to enter into this
Agreement. This Agreement has been duly authorized by all necessary corporate
action.
e. Disclaimer of Warranties. EXCEPT AS DESCRIBED IN
THIS AGREEMENT, M&I DISCLAIMS ALL OTHER WARRANTIES, WHETHER WRITTEN, ORAL,
EXPRESSED OR IMPLIED INCLUDING, WITHOUT LIMITING THE GENERALlTY OF THE
FOREGOING, ANY WARRANTY OF MERCHANTABILlTY OR FITNESS FOR A PARTICULAR PURPOSE.
19. Force Majeure. M&I shall not be liable to Customer if
M&I's fulfillment or performance of any terms or provisions of this
Agreement is delayed or prevented by revolution or other civil disorders,
wars, acts of enemies, strikes, electrical equipment or availability failure,
labor disputes, fires, floods, acts of God, federal, state, or municipal
action, statute, ordinance or regulation, or, without limiting the foregoing,
any other causes not within its reasonable control, and which by the
exercise of reasonable diligence it is unable to prevent, whether of the
class of causes hereinbefore enumerated or not.
20. IRS Filing. Customer has complied with all laws,
regulations, procedures, and requirements in attempting to secure correct tax
identification numbers (TINs) for Customer's payees and agrees to attest to
this compliance by an affidavit provided annually. Customer authorizes M&I
to act as Customer's agent and sign on Customer's behalf the Affidavit
required by the Internal Revenue Service on Form 4804, or any successor form.
Customer acknowledges that M&I's execution of the Form 4804
Affidavit on Customer's behalf does not relieve Customer of responsibility to
provide accurate TINs or liability for any penalties which may be assessed for
failure to comply with TIN requirements. Customer agrees to hold M&I harmless
from any liabilities, claims, expenses,
<PAGE>
penalties, or damages (including attorneys' fees) which may be assessed or
incurred as a result of the failure to comply with TIN requirements.
21. Contract Buyout.
a. Customer may terminate this Agreement at any time by
giving M&I at least one hundred eighty (180) days' prior written notice and
paying M&I a percentage of the total estimated remaining unpaid monthly
processing fees according to the schedule which follows this Section. For the
purpose of this computation, total estimated remaining unpaid monthly
processing fees shall be equal to the mean average of the total monthly fees
paid in the three (3) months preceding the termination notice, multiplied by
the number of months remaining in the Agreement.
If Termination Occurs Buyout
During Months Percentage
1 - 36 60%
37 - 72 40%
73 - and thereafter 30%
b. The contract buyout amount set forth above shall
be paid prior to the deconversion of any affected accounts. Except as
specifically set forth in Section 13(e), the contract buyout amount shall be
paid by Customer regardless of the form by which the termination occurs,
including but not limited to, sale of assets or stock, assumption of
liabilities, merger, consolidation, absorption, liquidation, or termination
as a result of an Event of Default on the part of Customer (as described
in Section 11 of this Agreement).
22. Expense Reimbursements. Customer agrees to reimburse M&I
for all conversion-related and out-of-pocket expenses (travel, lodging,
meals, long distance telephone calls, and printing and copying charges)
reasonably incurred in connection with the conversion of Customer's accounts
to the M&I system as further described on Exhibit B. The reimbursement of
such expenses is in addition to conversion charges which may arise after the
conversion, or with respect to accounts which are not currently customer
accounts which are to be converted to the M&I system. M&I shall estimate such
expenses in advance, and Customer shall pay such expenses in three (3) equal
payments as follows: first, upon execution of this Agreement; second, upon
delivery by M&I of conversion test reports; and final, on the Conversion Date.
M&I shall provide Customer with a summary invoice of actual expenses, and any
adjustments shall be paid upon delivery of the invoice.
23. Conversion Obligations. Both parties agree to make a good
faith effort to convert Customer's data in a timely fashion and to
perform the conversion in accordance with the responsibilities set forth
in the M&I Conversion Manual, the Conversion Schedule, and this Agreement.
Customer agrees to maintain an adequate staff of persons who are knowledgeable
with the systems currently used by Customer to process data. Both parties
further agree to provide such Services and perform such obligations as are
contemplated by the M&I Conversion Manual and the Conversion Schedule, and
as necessary for each party to timely and adequately perform their respective
obligations herein and therein. Customer shall pay or reimburse M&I for all
necessary and reasonable out-of-pocket expenses and on a necessary and
reasonable time-and-material basis for any of its personnel, or any independent
contractors, who perform conversion or related services (including items
identified as Customer Responsibilities in the Conversion Manual) for Customer.
Customer further agrees to cooperate fully with all reasonable requests of M&I
necessary to effect the conversion in a timely and efficient manner. Customer
agrees to reimburse M&I for all conversion charges whether for the initial
conversion, or for the subsequent conversion of additional accounts as they
are incurred or for the conversion of products not identified in the Proposal.
24. Use of the Services. (a) Customer assumes exclusive
responsibility for the consequences of any instructions Customer may give M&I,
for Customer's failure to properly access the Services in the manner prescribed
by M&I, and for Customer's failure to supply accurate input information; (b)
Customer agrees that it will use the Services in accordance with such reasonable
policies as may be established by M&I from time to time as set forth in any
materials furnished by M&I to Customer; (c) Customer agrees that, except as
otherwise permitted by M&I, Customer will use the Services only for its own
internal business purposes and will not sell or otherwise provide, directly
or indirectly, any of the Services or any portion thereof to any third party;
and (d) Customer agrees and represents that (1) this Agreement has been
approved by its board of directors, or that the officer executing this
Agreement has been authorized by Customer's board of directors to execute
agreements of this nature (2) the performance of this Agreement
<PAGE>
by the Customer will not affect the safety or soundness of the Customer or any
of its affiliates, and (3) this Agreement, and the obligations evidenced
hereby, will be properly reflected on the books and records of the Customer,
and the Customer will provide evidence of the same to M&I upon request.
25. Miscellaneous.
a. Governing Law. This Agreement shall be construed
and governed by the laws of the state of Wisconsin.
b. Amendment. This Agreement, including the
Schedules hereto, may be amended only by an instrument in writing executed by
the parties or their permitted assignees.
c. Assignment. This Agreement may not be assigned by
either party without the prior written consent of the other party, which such
consent shall not be unreasonably withheld, provided that M&I may freely
assign this Agreement to any company that is directly or indirectly (1) in
control of M&I, (2) under the control of M&I, or (3) under common control with
M&I.
d. Section Headings. Section headings are for
reference purposes only and shall not affect the interpretation or meaning of
this Agreement.
e. Notices. All communications or notices required
or permitted by this Agreement shall be in writing and shall be deemed to have
been given at the earlier of the date when actually delivered to an officer of
a party or when deposited in the United States mail, certified or registered
mail, postage prepaid, return receipt requested, and addressed as set forth
on the signature page, unless and until any of such parties notifies the others.
f. No Waiver of Performance. Failure by either party
at any time to require performance by the other party to claim a breach
of any provision of this Agreement will not be construed as a waiver of
any right accruing under this Agreement, nor affect any subsequent breach, nor
affect the effectiveness of this Agreement or any part hereof, nor prejudice
either party as regards any subsequent action.
g. Entire Agreement: Conflicting Provisions. This
Agreement, together with the Schedules hereto, constitutes the entire agreement
between the Customer and M&I with respect to the subject matter hereof.
There are no restrictions, promises, warranties, covenants, or undertakings
other than those expressly set forth herein and therein. This Agreement
supersedes all prior negotiations, agreements, and undertakings between the
parties with respect to such subject matter. In the event of any conflict
between the terms of the main body of this Agreement and any of the Schedules
hereto, the terms of the main body of this Agreement shall govern.
h. Execution in Counterparts. This Agreement may be
executed simultaneously in any number of counterparts, each of which shall
be deemed an original but all of which shall together constitute one and the
same Agreement.
i. Enforceability. The invalidity or enforceability
of any provision hereof shall not affect or impair any other provisions.
j. Scope of Agreement. If the scope of any of the
provisions of the Agreement is too broad in any respect whatsoever to permit
enforcement to its full extent, then such provisions shall be enforced to the
maximum extent permitted by law and the parties hereto consent and agree that
such scope may be judicially modified accordingly and that the whole of such
provisions of this Agreement shall not thereby fail, but that the scope of such
provisions shall be curtailed only to the extent necessary to conform to law.
k. Confidentiality of Terms. Customer agrees that
neither it, its directors, officers, employees, or agents will disclose
this Agreement, or any of the terms or provisions of this Agreement, to
any competitor of M&I, or any publication or any consultant not retained by
Customer.
l. Combined Deposit Statement. Customer will select
one M&I standard combined customer deposit statement format. M&I will
provide an "enlarged font" alternative on this same selected combined
statement, option at the account level.
<PAGE>
m. Loan Billing Statements. M&I has agreed to work
with Customer in designing and will provide a customized customer/account
loan billing statement of ordinary size (i.e. 8 1/2 x 11). Customer will print
this notice at their location.
n. Financial Desktop. M&I will provide the customer the
Financial Desktop license software Version I upgrade to the existing
Salespartner license copies at five hundred dollars ($500) per user station, not
to exceed three thousand dollars ($3,000) per site where multiple copies are
installed. In total, the upgrade cost for existing sites initially installed
shall not exceed one third (1/3) of the original Salespartner Agreement of
$95,600. Any training, maintenance, conversion costs, customizations and
third-party software interfaced or integrated with Financial Desktop will be at
additional cost.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in their names as of the date first above written.
M&l DATA SERVICES, A DIVISION OF THE
MARSHALL & ILSLEY CORPORATION
("M&I")
4900 W. Brown Deer Road
Brown Deer, WI 53223
By: /S/
-------------------------------------
Name: Patrick C. Foy
Title: President, Outsourcing Business
Group
By: /S/
-------------------------------------
Name: Thomas R. Mezera
Title: Vice President
THE COLUMBIA BANK ("Customer")
10480 Little Patuxent Parkway
Columbia, MD 21044
By: /S/
-------------------------------------
Name: John M. Bond, Jr.
Title: President and Chief Executive
Officer
<PAGE>
AUTHORIZATION AGREEMENT
The undersigned ("Customer") hereby authorizes M&l Data Services, a
division of the Marshall & Ilsley Corporation ("M&l") to initiate debit entries
and to initiate, if necessary, credit entries and adjustments for any excess
debit entries or debit entries made in error, to Customer's account indicated
below and the depository named below, to debit and/or credit the same such
account.
This authority is to remain in full force and effect for the period coinciding
with the term (and any renewals thereof) of the Data Processing Services
Agreement made the 22nd day of March 1996, and any addenda thereto (the
"Agreement"), pursuant to the terms and conditions specified in the Agreement.
DEPOSITORY NAME: The Columbia Bank
ADDRESS: 10480 Little Patuxent Parkway
ClTY/STATE/ZIP: Columbia, MD 21044
TELEPHONE NUMBER: (410) 465-4800
ROUTING TRANSIT NUMBER: 055002338
ACCOUNT NUMBER: 06-225217-01
M&I DATA SERVICES, A DIVISION OF THE
MARSHALL & ILSLEY CORPORATION
("M&I")
4900 W. Brown Deer Road
Brown Deer, WI 53223
By: /S/
------------------------------------------
Name: Patrick C. Foy
Title: President, Outsourcing Business
Group
By: /S/
------------------------------------------
Name: Thomas R. Mezera
Title: Vice President
THE COLUMBIA BANK ("Customer")
10480 Little Patuxent Parkway
Columbia, MD 21044
By: /S/
------------------------------------------
Name: John M. Bond, Jr.
Title: President and Chief Executive
Officer
<PAGE>
ATTORNEY-IN-FACT APPOINTMENT
Customer hereby appoints M&I Data Services, a division of the Marshall
& Ilsley Corporation ("M&I") as: (1) customer's attorney-in-fact and empowers
M&I to authorize the Internal Revenue Service (IRS) to release information
return documents supplied to the IRS by M&I to states which participate in the
"Combined Federal/State Program"; and (2) Customer's agent to sign on Customer's
behalf the Affidavit required by the Internal Revenue Service on Form 4804, or
any successor form. Customer agrees to hold M&I harmless from any liabilities,
claims, expenses, penalties, or damages (including attorneys' fees) which may be
assessed or incurred as a result of the release of information.
THE COLUMBIA BANK ("Customer")
By: /S/ John A. Scaldara, Jr.
--------------------------------------
<PAGE>
AFFIDAVIT
STATE OF MARYLAND )
----------
) SS.
--
COUNTY OF BALTIMORE )
---------
I, John A. Scaldara, Jr., being first duly sworn, on oath, depose and say:
----------------------
1. I am an employee of The Columbia Bank. I have personal knowledge of
my employer's practices with regard to procuring and reporting tax
identification numbers (TINS) and authority to execute this Affidavit on my
employer's behalf.
2. The Columbia Bank has complied with all laws, regulations,
procedures, and requirements in attempting to secure correct TlNS for its
payees. This compliance has been pursued with due diligence, and any failure to
secure correct TlNs is due to reasonable cause.
/S/ John A. Scaldara, Jr.
-----------------------------
Customer's Representative
Subscribed and sworn to before me
this 22nd day of March, 1996
/S/
- ---------------------------------
Notary Public
My Commission expires: 3/1/98
<PAGE>
SCHEDULE
M&I ON-LINE AVAILABILITY
The following is a list of standard hours of availability by each on-line
service. All times are EST/EDT.
Cardholder
(CRT Maintenance)
Monday - Thursday 7:00 a.m. - 8:00 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
CIS & Deposit System
(Maintenance and Dollar Transactions)
Monday - Thursday 7:00 a.m. - 8:00 p.m. *
Friday 7:00 a.m. - 9:30 p.m. *
Saturday 7:00 a.m. - 4:30 p.m.
Data Entry
(Account Reconciliation System)
Monday - Friday 7:00 a.m.-11:00 p.m.
Data Entry
(Financial Control)
Monday - Thursday 7:00 a.m. -12:00 Midnight
Friday 7:00 a.m. -12:00 Midnight
Saturday 7:00 a.m. - 4:30 p.m.
Decision Management System
Monday-Thursday 7:00 a.m. - 8:00 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
Data Entry
Monday-Friday 7:00 a.m. - 5:00 p.m.
Financial Control On-line
Monday-Friday 7:00 a.m. -10:00 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
Loan System
(CRT Maintenance)
Monday-Thursday 7:00 a.m. - 8:15 p.m.
Friday 7 00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
Management Information Service
Monday-Thursday 7:00 a.m. - 8:45 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
(Except Money Market Info.)
Teller Terminals
Monday-Thursday 7:00 a.m. - 9:00 p.m.
Friday 7:00 a.m. - 9:30 p.m.
Saturday 7:00 a.m. - 4:30 p.m.
<PAGE>
*CIS access to loan data is based on Loan System hours of availability.
Note: Customer may request extension of the above hours in the event of
unusual circumstances. M&I will make reasonable efforts to accommodate such
requests.
<PAGE>
EXHIBIT A
The Columbia Bank
Summary of Services
(Included in the Fixed Monthly Fee)
M&I Deposit System (29.700 accounts) Customized Reporting
- ------------------------------------ --------------------
- - All Standard Services - Operational Data Warehouse
o Demand Accounts - ALM & Call Report Download
o Money Market Accounts - InFormatter
o Overdraft Checking Accounts
o NOW Accounts Employee Security Processing
o Savings (Passbook, Statement) ----------------------------
o IRA Accounts
o Certificates of Deposit Custom Deposit Statement Formatter
- - Exception Processing ----------------------------------
- - Retirement Account Processing - Choice of 1 of 4 Statement Formats
- - Transaction Retention (to include enlarged font described
- - On-line Dollar in 25(l).
- - Kiting Suspect System
- - User-defined Notices Custom Loan Billing Statement
- - Relationship Service Charging -----------------------------
- As described in 25 (m)
Integrated Funds Management
- --------------------------- Teller Services
- - Deposit to M&I Applications ---------------
- On-line PCTeller
Loan System (2500 Loans) - Auto Signature Interface
- ------------------------ - Teller Link
- - All Standard Services - Large Currency Transaction Reporting
o Installment Loans
o Commercial Loans Financial Control System (2.500)
o Mortgage Loans --------------------------------
o Investor Processing - Core Services - General Ledger
o Escrow Processing - On-line Account/Report Inquiry
o Escrow Tapes - On-line Transaction History
o Home Equity Loans - Generalized Interface
o Participations
o Dealer Loans IRS Government Reporting
o Revolving Credit ------------------------
o Student Loans
- - Credit Bureau Tapes (2 tapes) Safe Deposit (700)
- - Fee Processing ------------------
- - Coupons
- - Charge-off Processing Customer Information System (38,300)
- - Non-accrual Processing ------------------------------------
- - Note Pad - Combined Statements
- - Collateral Processing
On-line Collections
Voice Response -------------------
- -------------- - Letter Writer
Interface to Existing InterVoice
Tickler System
--------------
ACH Receiving
-------------
Accounts Payable IPS Upload to GL
---------------------------------
Star On-line Report Viewing
---------------------------
- Optical Archival Storage
(7 years-7 days)
<PAGE>
EXHIBIT A-1
THE COLUMBIA BANK
Items not included in the Fixed Monthly Fee, but Customer is required to obtain
them through M&I.
- EFT/ATM Processing
- ACH Origination
- Electronic Data Interface (EDI)
- Cash Management - Treasury Connection
- Microfiche
- Information Desktop - MDW Data Only
- Audit Services
- VISA Debit Card
- Expanded Account Analysis
<PAGE>
EXHIBIT B
I. The Fixed Monthly Fee may be adjusted as follows:
A. Commencing March 1, 1997, and on each successive March 1 throughout
the term of the Agreement, the Fixed Monthly Fee shall be increased by the
lesser of (a) the increase over the prior year in the Consumer Price Index (CPI,
all items-U) as published by the United States Department of Labor, or any
successor index; or (b) five percent (5%).
B. Commencing March 1, 1997, for each ten percent (10%) increase in
Account Volume, the Fixed Monthly Fee shall be increased eight percent (8%) as
illustrated by the Schedule which follows this Section. "Account Volume" is
defined as the total aggregate of open Deposit Accounts, Loan Notes, General
Ledger Accounts and CIS Customers (as described in separate documentation).
Starting Account Volume is acknowledged to be 73,000.
Account Volume Fixed Monthly Fee *
---------------- -------------------
0 - 80,000 $15,200
80,001 - 88,000 $16,416
88,801 - 96,800 $17,729
96,801 - 106,480 $19,148
* Subject to the increase in "A" above.
II. Customer will pay M&I the following estimated one-time
conversion-related expenses:
<TABLE>
<S><C>
1. Conversion Programming Fees Value $94,338 (Amortized)
2. Conversion Product Support Fees Value $184,679 (Amortized)
a. Enlarged Font on Combined Statement 250 hours @ $105/hr (Amortized)
b. Custom Statement on Loan Account Billing 750 hours @ $105/hr (Amortized)
3. Estimated Conversion Travel $62,111
4. ClS/Match Merge/ISI @ .26/acct. and tape-to-tape (Amortized)
5. EFT/ATM Startup Fee Value $10,700 (Amortized)
6. Other Conversion Startup Fees: (Fixed, not estimated)
o On-line Exception $200
o Large Currency Transaction $550
o EDI-Bank $1,250
o EDI-Three Customer @ $75 $225
o Four Treasury Connection @ $150 $600
o Treasury Connection-Bank $500
o IPS A/P Upload $1,200
o STAR View $500
o IRS Taxpayer Information Service $525
o ACH Receiving Setup $315
Total $5,865
7. Salespartner/PCTeller License Fees (Fixed)(Retail Value $153,535) $95,600
8. Salespartner Customization (estimated 550 hours @ $105 per hour) $57,750
</TABLE>
<PAGE>
EXHIBIT B (Cont'd)
<TABLE>
<S> <C>
9. Estimated LAN/WAN Technical--M&I and Customer will
examine and discuss each task to jointly determine which
tasks Customer should perform. $69,500
10. Estimated Communication Installation $28,854
11. Estimated Communication Equipment $88,007
12. IPS Software: A/P, Fixed Assets (Fixed) (price quoted by IPS) $4,000
13. Auto-SIG Interface to PCTeller (Fixed) $4,000
14. Micro-soft Access Reports (estimated 40 hours ~ $105 per hour)(Fixed) $4,200
15. Census Traks Plus (price quote by Bankers System) (Fixed) $2,295
16. Motavator (price quote by Motavator) (Fixed) $8,500
17. Debit card set-up $1,500
18. Deposit and Loan Forms (per direct quote from Bankers System) $2.500
--------
Total $430,893
</TABLE>
<PAGE>
EXHIBIT C
M&I DATA SERVICES ANNUAL PRODUCT LIST
The M&I Data Services Annual Product Price List is updated annually
and has been omitted.
<PAGE>
EXHIBIT D
M&I DATA SERVICES PROPOSED NETWORK CONFIGURATION
The M&I Data Services Proposed Network Configuration has been omitted.
<PAGE>
M&I DATA SERVICES
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT is entered into this 22nd day of March , 1996, by and
between M&I Data Services, a division of the Marshall & llsley Corporation, a
Wisconsin corporation, ("M&I"), located at 770 North Water Street, Milwaukee,
Wisconsin 53202 and Columbia Bank located at 9151 Baltimore National Pike,
Ellicott City, Maryland 21042 (the "Customer").
RECITALS
WHEREAS, M&I has developed branch automation and teller software for
use with personal computers; and
WHEREAS, Customer wishes to obtain a license to use such software for
its own internal purposes.
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, M&I hereby grants Customer the right and license to use the
Salespartner and PCTeller Software (as described herein) subject to the ongoing
satisfaction by Customer of the following terms and conditions:
1. Salespartner and PCTeller Software. For purposes of this Agreement,
the term Salespartner and PCTeller Software (together referred to as the
"Software") shall mean branch automation and teller software systems delivered
to the Customer in machine-readable code (object code) only, together with
related user documentation provided by M&I and identified in Exhibit A.
2. Scope of License. Subject to the terms and conditions of this
Agreement, M&I hereby grants to Customer a nonexclusive, nontransferable, and
perpetual license to use the Software for its own internal business purposes and
solely accessible by the locations listed in Exhibit A. Customer acknowledges
and agrees that the Software is licensed for use with the version of the bank
system software made available from time to time by M&I through the M&I Service
Bureau (the "Service Bureau Software"). Customer further acknowledges and agrees
that the interfacing of the Software to other mainframe banking applications and
providing ongoing maintenance for such interface, if any, is outside the scope
of this Agreement. M&I acknowledges and agrees that the license granted herein
shall continue in full force and effect in the event that the Customer no longer
utilizes the Service Bureau Software, provided that Customer complies at all
times with the terms and conditions of this Agreement. Customer understands that
this License does not include the operating system which is necessary to utilize
the Software.
3. License Fee. Customer shall pay to M&I a one-time License Fee as set
forth in Exhibit A. Such fee shall be based upon the number of locations that
are authorized to access the Software, as listed in Exhibit A. The License Fee
shall include Training and Conversion Support as described in Section 5. M&I
agrees that Customer may install and use the Software, under the license granted
hereby, in additional locations or equipment other than those listed in Exhibit
A ("Additional Computers") and authorizes such Additional Computers to access
the Software provided that Customer notifies M&I prior to usage and Customer
pays an additional License Fee(s), based upon increased access computed in
accordance with M&I's then-current price schedule, within thirty (30) days after
Customer's receipt of an invoice from M&I for such fees. Customer agrees that if
it installs or uses the Software at additional locations or equipment, other
than those listed in Exhibit A, without notifying M&I prior to usage and paying
such additional License Fee(s), M&I shall, in addition to any other remedies it
may have, have the right to terminate the license granted herein, or for
increased PCTeller Software access, charge an additional PCTeller License Fee,
or for increased Salespartner Software access, charge an additional Salespartner
License Fee and maintenance fees commencing from Salespartner Delivery Date, as
described in Section 4; such fees to be based upon the increased access computed
in accordance with M&I's then-current price schedule. Customer shall also pay
all applicable taxes, duties, and charges (including, but not limited to, sales,
use, excise, and personal property taxes imposed on Customer) now or hereafter
levied, assessed, or charged against the Software while
<PAGE>
licensed to Customer as a consequence of this Agreement, except where such
taxes, duties, or charges are based upon the income of M&I.
4. Delivery.
(a) PCTeller Delivery. M&I shall deliver on magnetic diskette to
Customer, at the time of conversion to PCTeller, one machine-readable copy of
the PCTeller Software. Delivery shall be deemed to have occurred upon Customer's
receipt of the PCTeller Software at the time of conversion ("PCTeller Delivery
Date").
(b) Salespartner Delivery. M&I shall deliver on magnetic diskette to
Customer, at the beginning of Salespartner training session as described in
Section 5, one machine-readable copy of the Salespartner Software. Delivery
shall be deemed to have occurred upon Customer's receipt of the Salespartner
Software at the beginning of the Salespartner training session ("Salespartner
Delivery Date").
5. Training and Conversion Support.
(a) PCTeller Support. M&I shall provide a two-day teller analysis
session to determine teller transaction requirements and a three-day teller
training class for a maximum of two employees of Customer to familiarize the
Customer's trainers with the features and functions of the PCTeller Software.
The sessions shall be held at the M&I Datacenter located in Brown Deer,
Wisconsin, at dates and times established by M&I. M&I shall also be on-site at
the time of conversion as defined in the Data Processing Services Agreement by
and between Customer and M&I (the "Data Processing Services Agreement"), to
assist with the conversion to the PCTeller Software. M&I will also provide to
Customer, in conjunction with its conversion to PCTeller, an upgrade to the
Tellerlink host software. M&l reserves the right to change the content and
duration of the analysis and training sessions and the duration of on-site
support, provided that any changes which materially diminish the duration of the
analysis sessions, training sessions, or on-site support shall require
Customer's consent. Customer shall be responsible for all travel, lodging, and
related costs and expenses incurred by attendees. Customer agrees to reimburse
M&I for reasonable travel and lodging expenses for Training and Conversion
Support rendered to Customer outside of M&I offices, according to the terms of
the Data Processing Services Agreement.
(b) Salespartner Support. M&I shall provide initial services to
Customer to customize Salespartner up to 500 hours to support associated deposit
forms, and loan forms, and associated products defined by Customer and agreed to
by M&I. Such services to include the customization, through Salespartner
maintenance functions, of the screens, form alignment, product information, and
upload parameters; a three-day analysis session to determine product and form
completion requirements; a three-day Customer acceptance test session; and a
three-day training class to familiarize the Customer's trainers with the
run-time feature and functions of the Salespartner Software ("Customization
Services"). The sessions and class shall be held at the Customer's primary
location listed in Exhibit A at dates and times mutually agreed to by Customer
and M&I. M&I shall also provide a five-day class for a maximum of two employees
of Customer to familiarize Customer's employees with the Salespartner
maintenance functions. The class shall be held at the M&I Datacenter, located in
Brown Deer, Wisconsin, at dates and times established by M&I. M&I reserves the
right to change the content and duration of the sessions and classes, provided
that any change which materially diminishes the duration of a session or class
shall require Customer's consent. Customer shall be responsible for all travel,
lodging, and related costs and expenses incurred by attendees. Customer agrees
to reimburse M&I for reasonable travel and lodging expenses for Customization
Services rendered to Customer outside of M&I offices, according to the terms of
the Data Processing Services Agreement.
6. Installation. M&I shall have no obligation to install the Software
on Customer's Personal Computer(s), and Customer agrees to install and maintain
all Software on their Personal Computer(s) unless Customer purchases Bundled
Hardware and Support Services, in which case installation services shall be
defined and attached to this Agreement.
7. Acceptance. This Agreement shall be deemed to have been accepted
by the Customer as of the date when M&I and Customer have both executed
this Agreement. The Software shall be deemed to have been accepted by
Customer upon delivery by M&I.
<PAGE>
8. Documentation. Customer shall receive, at no additional charge,
user documentation as defined in Exhibit A, as part of the Software.
Additional sets of documentation requested by the Customer will be billed
to Customer at M&I's then-current price for such documentation.
9. Maintenance and Enhancements for PCTeller.
(a) Maintenance Services and Enhancements. For so long as the Customer
is receiving services under the Data Processing Services Agreement, M&I agrees
to provide to Customer maintenance services and enhancements for the PCTeller
Software as described below ("PCTeller Maintenance Services"). PCTeller
Maintenance Services shall be provided to Customer's primary location only, as
designated in Exhibit A. The PCTeller Maintenance Services are the following:
(i) M&I shall correct all PCTeller Software errors which
cause the PCTeller Software not to be in substantial
compliance with its user documentation and shall use
commercially reasonable efforts to correct all other PCTeller
Software errors upon discovery and proper notification by
the Customer of the existence of any error; proper
notification being deemed given only if the Customer
substantially complies with M&I's error notification
procedures in effect at that time. If, after investigation
of the reported error, it is determined that the
error is beyond M&I's responsibility, including, but not
limited to, errors resulting from modifications made by
the Customer, the Customer agrees to pay for M&I's efforts in
investigating and/or resolving the error at M&I's
then-current rates for such services, plus reasonable expenses
incurred by M&I.
(ii) M&I shall provide phone support with regard to the use and
operation of the PCTeller Software during M&I's regular
business hours and, at all other times, an emergency phone
number to be used at the Customer's discretion to secure
necessary phone support with regard to emergency situations.
(iii) M&I shall use commercially reasonable efforts in
developing future releases and upgrades of the PCTeller
Software and accompanying documentation. M&I shall
deliver to Customer one copy of any future releases and
upgrades (with Customer having the right to make and use
additional copies pursuant to Section 14 of this Agreement)
and shall deliver accompanying documentation, if any, in a
quantity specified in Exhibit A. If M&I does develop future
releases and upgrades which replace or supersede any other
version of the PCTeller Software then in use by Customer,
M&I agrees to provide maintenance services as set forth
above for the new updated version, as well as the next most
previous version.
(b) Maintenance Fee. The fee for PCTeller Maintenance Services shall be
incorporated in the On-Line Teller rates published in the M&I Customer price
list and shall be paid by Customer pursuant to the Data Processing Services
Agreement. Such fees will be included in the Customer's monthly data processing
invoice. On-Line Teller rates may be adjusted by M&I in accordance with the Data
Processing Services Agreement. Customer agrees to reimburse M&I for necessary
and reasonable time-and-material expenses, including reasonable travel and
lodging expenses, for PCTeller Maintenance Services rendered to Customer outside
of M&I's offices at Customer's request when such PCTeller Maintenance Services
could have been performed at M&I's offices, as determined solely by M&I.
(c) Termination of Maintenance. If Customer discontinues receiving
services under the Data Processing Services Agreement, then the PCTeller
Maintenance Services shall also terminate on the date of such discontinuance;
provided, however, Customer shall have the right to continue to use the PCTeller
Software pursuant to the terms and conditions of this Agreement.
<PAGE>
10. Maintenance and Enhancements for Salespartner.
(a) Maintenance Services and Enhancements. While maintenance services
are available for Salespartner Software to M&I licensees, M&I agrees to provide
to Customer maintenance services and enhancements for the Salespartner Software
as described below ("Salespartner Maintenance Services"). Salespartner
Maintenance Services shall be provided to Customer's primary location only, as
designated in Exhibit A. Salespartner Maintenance Services are the following:
(i) M&I shall correct all Salespartner Software errors which
cause the Salespartner Software not to be in substantial
compliance with its user documentation and shall use
commercially reasonable efforts to correct all other
Salespartner Software errors upon discovery and proper
notification by the Customer of the existence of any error;
proper notification being deemed given only if the Customer
substantially complies with M&I's error notification
procedures in effect at that time. If, after investigation
of the reported error, it is determined that the
error is beyond M&I's responsibility, including but not
limited to, errors resulting from modifications made by
the Customer, the Customer agrees to pay for M&I's efforts in
investigating and/or resolving the error at M&I's
then-current rates for such services, plus reasonable expenses
incurred by M&I.
(ii) M&I shall provide phone support with regard to the use and
operation of the Salespartner Software during M&I's regular
business hours and, at all other times, an emergency phone
number to be used at the Customer's discretion to secure
necessary phone support with regard to emergency situations.
(iii) M&I shall use its best efforts in developing future
releases and upgrades of the Salespartner Software and
accompanying documentation. M&I shall deliver to Customer
one copy of any future releases and upgrades (with Customer
having the right to make and use additional copies pursuant
to Section 14 of this Agreement) and shall deliver
accompanying documentation, if any, in the quantity
specified in Exhibit A; provided that the Customer has
continuously paid the monthly maintenance fee included on
the Customer's monthly data processing invoice. If M&I does
develop future releases and upgrades which replace or
supersede any other version of the Salespartner Software
then in use by the Customer, M&I agrees to provide
maintenance services as set forth above for the new updated
version, as well as the next most previous version.
(b) Maintenance Fee. Customer shall pay to M&I, beginning ninety (90)
days following the Salespartner Delivery Date, a monthly maintenance fee listed
in Exhibit A for the Salespartner Maintenance Services, such fee to be based
upon the number of locations authorized to access the Salespartner Software (as
listed in Exhibit A) and M&I's then-current price schedule. The Salespartner
monthly maintenance fee will be included on the Customer's monthly data
processing invoice, and Customer agrees to pay the invoice according to the
payment terms of the current Data Processing Services Agreement with M&I. The
Salespartner monthly maintenance fee may be adjusted by M&I in accordance with
the terms of the Data Processing Services Agreement. Customer agrees to
reimburse M&I for time-and-material expenses, including reasonable travel and
lodging expenses, for Salespartner Maintenance Services rendered to Customer
outside of M&I offices at Customer's request when such Salespartner Maintenance
Services could have been performed at M&I's offices, as determined solely by
M&I.
(c) Termination of Maintenance. Salespartner Maintenance Services
shall remain in full force and effect unless terminated in accordance with the
following provisions:
(i) The Customer may terminate Salespartner Maintenance Services
by providing M&I with written notice of Customer's intent to
terminate such services not less than sixty (60) days prior to
the desired date of termination. Salespartner Maintenance
Services shall then terminate at the end of the month in which
the requested date of termination falls.
<PAGE>
(ii) The Customer may request reinstatement of Salespartner
Maintenance Services by notifying M&l of the Customer's desire
to reinstate. M&I may consent to reinstatement, which consent
shall not be unreasonably withheld, provided that Customer has
paid to M&I the Salespartner monthly maintenance fee for all
months in the intervening time between the month ending date
of termination and the first of the month of reinstatement, in
which case Salespartner Maintenance Services shall again be
and remain in full force and effect.
(iii) If the Customer fails to pay M&I the Salespartner monthly
maintenance fee for two consecutive months or if Customer no
longer utilizes the Service Bureau Software, M&I may terminate
the Salespartner Maintenance Services. Termination of the
Salespartner Maintenance Services by M&I shall not preclude
any other legal remedy M&I may have against the Customer.
11. Use Rights. Customer represents and warrants that it will use the
Software solely on those computer(s) described in Exhibit A, except as provided
for in Section 14, and that it will only process information and data for
itself, its subsidiaries, parent corporation, and subsidiaries of its parent
corporation, and that it will not directly or indirectly permit any other person
or entity to have access to or use of the Software, and that it will not use the
Software to provide data processing services on a shared resource or service
bureau basis to any other person, company, or financial institutional.
12. Notification of Unauthorized Use. Customer agrees to notify M&I
promptly of any circumstances known to Customer surrounding any unauthorized
possession or use of any part of the Software, or any other information or
documentation made available pursuant to this Agreement to anyone other than
persons properly authorized by Customer to have such possession or use.
13. Ownership and Confidentiality. Customer acknowledges and agrees
that the Software, including all authorized and unauthorized copies, are
proprietary to and valuable trade secrets of M&I, and Customer shall maintain
their confidential nature. Customer agrees that the Software shall be used only
in accordance with this Agreement, and Customer shall not assign (except as
provided for in Section 20), sell, lease, market, transfer, or reproduce (except
as provided in Section 14) the Software or any modification thereto to or for
others. Customer shall limit access to the Software to Customer's employees or
third parties, when such persons (1) are performing services for the Customer,
related to the Customer's authorized use of the Software; and (2) have a valid
need to know or use the Software; provided that Customer shall advise such
persons of the Customer's confidentiality obligations and establish procedures
designed to prevent unauthorized use and access. Customer shall exercise all
reasonable precautions to prevent access to the Software by persons not
authorized by terms of this Agreement. Customer shall store the Software in a
secure place at all times it is not being used. In addition, Customer shall take
reasonable and appropriate measures to prevent copying, distribution, reverse
engineering, and reverse compiling of the Software. Customer recognizes that the
Software may be patented, copyrighted, trademarked, or otherwise protected by
M&I and Customer will not undertake to patent, copyright, trademark, or
otherwise apply for a proprietary grant or right with respect to the Software.
14. Reproduction. Customer shall have the right to install and use the
Software on each personal computer that is included in the License Fee and
appears on Exhibit A, and in case of a disaster rendering the personal computer
workstations or equipment unusable, on an equal number of personal computer
workstations or equipment. Customer shall also have the right from time to time
to install and use additional copies of the Software as required to perform
disaster recovery testing. All additional copies, whether for recovering from a
disaster or performing disaster recovery testing, are subject to the terms and
conditions of this Agreement. Customer may also reproduce the Software for
backup or archival purposes only; provided, however, such reproduction shall (1)
be solely for the use of the Customer, (2) conspicuously display the information
shown in Exhibit B, and (3) be subject to the restrictions set forth in this
Agreement.
<PAGE>
15. Modifications. Customer acknowledges and agrees that it shall not
make any modifications to the Software object code. M&I shall not be liable to
the Customer in warranty or otherwise for modifications made to the Software
object code by someone other than M&I. Under no circumstances shall Customer
sell, distribute, or license modifications of the Software. Nothing herein will
prevent M&I from developing and distributing its own modifications to the
Software. Customer shall have the right to modify the Software as described in
the user documentation provided with the Software.
16. Warranty. THE FOLLOWING LIMITED WARRANTIES ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT NOT
LIMITED TO, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
(a) M&I warrants that it is the exclusive owner of the copyrights and
all other rights in the Software and that it has all the rights necessary in
order to grant the licenses specified under this Agreement. In the event of any
claim by any third party with respect to any of the Software or documentation
that such Software or documentation violates or infringes any United States
copyright or patent, M&I shall defend Customer against such claim and shall pay
all court awarded damages, losses, liabilities, claims, and expenses (including
reasonable attorneys' fees) incurred by Customer in such actions which are
attributable to such claim; provided however, that notice of a claim by the
Customer under this Section is received by M&I within two (2) years of the
termination of PCTeller Maintenance Services or Salespartner Maintenance
Services, as applicable to such claim, that M&I is notified within ten ( 10)
calendar days in writing of any suit or claim against the Customer, that the
Customer permits M&I to defend said claim of infringement and gives M&I all
reasonable and available information, assistance, and authority to enable M&I to
do so, and provided further that Customer fully observes all the terms and
conditions of this Agreement. M&I shall not be responsible for any compromise
made without its consent. Following notice of a claim or of a threatened claim,
M&I may, without obligation to do so, procure for the Customer the right to
continue to use the Software within the terms of this Agreement, or, without
obligation to do so, may modify the Software in a manner that does not
materially and adversely impact on their functionality so that further use
becomes noninfringing, or, without obligation to do so, pay Customer an amount
equal to the License Fee minus 1/60 of such License Fee times the number of
months the Customer has used the Software under the Agreement. In the event that
the Customer's use of the Software within the terms of this Agreement is held by
a court of last resort to constitute an infringement of a United States patent
or copyright and such further use or distribution is enjoined, M&I shall, at its
option and expense, (i) procure for the Customer the right to continue using the
Software within the terms of this Agreement, or (ii) modify the Software in a
manner that does not materially impact on their functionality so that further
use becomes noninfringing; provided that M&I shall have no obligation to incur
direct costs in connection with exercising either or both of the foregoing
options in excess of the limitation of liability under Section 17 of this
Agreement. Additionally, M&I shall have no obligation with respect to any such
infringement where the infringement would have been avoided but for
modifications made to the Software by the Customer. The foregoing states M&I's
entire obligation, and the Customer's exclusive remedy, with respect to
infringement.
(b) M&I warrants that the Software, when run in the operating
environment specified in the user documentation provided with the Software,
shall operate in substantial compliance with such user documentation. Customer
acknowledges and agrees that its sole remedy under this warranty is for M&I
to correct all PCTeller Software errors which cause the PCTeller
Software not to be in substantial compliance with its related user
documentation and to use its best efforts to correct all other PCTeller
Software errors that are brought to its attention by the Customer during the
term of this Agreement and the Data Processing Agreement and to correct all
SalespartnerSoftware errors which cause the Salespartner Software not to be in
substantial compliance with its related user documentation and to use its best
efforts to correct all other Salespartner Software errors that are brought to
its attention by the Customer during the ninety (90) days following the
Salespartner Delivery Date, and thereafter while Customer subscribes for
Salespartner Maintenance Services as described in Section 10. Customer
hereby acknowledges that, except for those limited warranties specified
in this Section, the Software is provided in an "AS IS" condition and is
without warranty of any kind, either express or implied, written or oral.
<PAGE>
17. Limitation of Liability. M&I's liability for damages to Customer
for any cause whatsoever, whether in contract or in tort, including negligence
(but other than pursuant to Section 16 (a) of this Agreement with respect to
court-awarded damages and defense costs and expenses as a result of an
infringement action which shall not be subject to any limit), shall be limited
to the License Fee paid for the Software. In no event shall either party be
liable for damages caused by the other party's failure to perform its
obligations under this Agreement or for any lost profits, lost savings or
incidental or consequential damages, even if the nonperforming party has been
advised of the possibility of such damages.
18. Authorization. Customer agrees and represents that it has obtained
all necessary corporate approvals to enter into this Agreement, that the
performance of this Agreement by the Customer will not affect the safety or
soundness of the Customer or any of its affiliates, and that this Agreement and
the obligations evidenced hereby will be properly reflected on the books and
records of the Customer.
19. Termination. In the event that either party fails in any material
respect, to perform its material obligations under this Agreement and receives
written notice from the other party informing it of the breach and requiring it
to cure such breach; then, should the defaulting party fail to cure its breach
within a 30-day period following the written notice (or such reasonable period
if this breach, by its nature, cannot be cured within 30 days), the other party
shall have the right to terminate this Agreement. Upon termination of this
Agreement, Customer shall (1) immediately cease using the Software; (2) erase
the same from the storage in each computer in which it has been installed; (3)
certify to M&I in writing that Customer has taken the action described in
clauses (1) and (2) above; and (4) at the option of M&I, either return to M&I or
destroy all physical embodiments of the Software and backup copies made thereof.
20. Assignment. Except for the use rights granted in Section 11,
neither party may assign, sublicense, or otherwise transfer any or all of its
rights and obligations under this Agreement without the other party's prior
written consent, which shall not be unreasonably withheld, and any assignment
without such prior written consent shall be void and of no effect.
Notwithstanding the foregoing, either party may assign this Agreement to any
company that is: (1) directly or indirectly in control of such party, (2) under
the control of such party, or (3) under common control with such party.
21. Notices. Notices to be given or submitted by either party to the
other under the terms of this Agreement shall be sufficiently given if made in
writing and hand-delivered or sent by certified or registered mail, postage
prepaid and addressed to the president of the notified party, to the address
shown above or to such other address as the notified party shall so designate in
writing to the other party at least twenty (20) days prior to notification.
22. Entire Agreement. This Agreement, the Exhibits, and the Addendum
(if any) attached hereto supersede all previous agreements and understandings of
any nature whatsoever, verbal or written, and constitute the entire
understanding between the parties with respect to the subject matter hereof. All
oral or written representations, warranties, agreements, and other inducements
relating to this Agreement and its subject matter made prior to the execution
and delivery hereof have been included herein or, to the extent not included
herein, shall be deemed to have been fully performed and discharged or
deliberately omitted. No provision of this Agreement may be waived, modified, or
superseded as against M&I or Customer, except by written instrument signed by an
authorized officer of each party, expressly stating that it is intended to
operate as such.
23. Governing Law. This Agreement shall be governed, interpreted,
construed, and enforced in accordance with the internal laws of the State of
Wisconsin, United States of America.
24. Severability. If any provision, clause, part, or the application
of this Agreement is held invalid, the remainder of this Agreement or the
application of such provision, clause, or part under other circumstances
shall not be affected.
<PAGE>
25. Miscellaneous. Time is of the essence. No claim, regardless of
form, arising out of this Agreement may be brought by Customer more than two (2)
years after the events giving rise to the claim for relief occurred. The
obligations of confidentiality and non-use after termination shall survive
termination.
THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS AGREEMENT,
UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS, AS STATED
HEREIN.
IN WITNESS WHEREOF, the parties hereto through their duly authorized
officers and agents have hereby executed this Agreement on the date before
written.
COLUMBIA BANK M&I DATA SERVICES
(CUSTOMER) (M&I)
By: /S/ By: /S/
Name: John M. Bond, Jr. Name: Alfred S. Dominick, Jr.
Title: President & CEO Title: Executive Vice President
By: ________________________ By: /S/
Name: ________________________ Name: Stephen D. Saewert
Title: ________________________ Title: Vice President
<PAGE>
EXHIBIT A
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
M&I DATA SERVICES
Milwaukee, Wisconsin 53202
Customer Name: Columbia Bank
Address: 9151 Baltimore National Pike
Ellicott City, Maryland 21042
Description and Number of Licensed Computer(s)/Workstation(s)/Equipment
- -----------------------------------------------------------------------
PCTeller/Salespartner - Unlimited use of license for up to 12 locations.
Customer's Primary Location Designation:
- ----------------------------------------
Columbia Bank
9151 Baltimore National Pike
Ellicott City, Maryland 21042
User Documentation:
- -------------------
PCTeller User Guide - 12 copies
PCTeller Training Guide - 5 copies
Salespartner Coordinator Maintenance Manual - 2 copies
Salespartner Branch Administration Manual - 2 copies
Salespartner User Guide - 12 copies
License Fee--First Twelve (12) Locations:
- -----------------------------------------
Per mini location license fee ($5,000) $20,000
Unlimited locations license fee ($10,800) 75,600
Sales Tax (5%) 4,780
Customization (Estimated 550 hours at $105 per hour) 57,750
--------
TOTAL $158,130
Total License Fee, including sales tax, due upon execution of this Agreement.
License Fee--Additional Locations:
- ----------------------------------
Mini location fee, then-current pricing schedule, not to exceed $5,000 Unlimited
location fee, then-current pricing schedule, not to exceed $10,800
Salespartner Maintenance Fee:
- -----------------------------
$50 per mini location.
$100 per unlimited location authorized to access Salespartner Software.
<PAGE>
EXHIBIT B
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
M&I DATA SERVICES
Milwaukee, Wisconsin 53202
Customer shall prepare labels containing the following information and affix a
label to each diskette copy of the Salespartner Software and PCTeller Software
reproduced by the Customer:
1. Salespartner or PCTeller Software as applicable.
2. Diskette _____ of _____.
3. Licensed material - property of and copyrighted by M&I Data Services
4. This copy was made under M&I Salespartner and PCTeller Software License
Agreement dated March 22, 1996 and may be used only on the computer(s)
listed in that Agreement. It may not be transferred to a third party.
<PAGE>
ADDENDUM NO. 1
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
THIS ADDENDUM NO. I to the Salespartner and PCTeller Software License
Agreement is entered into this 17th day of May, 1996, by and between M&I Data
Services ("M&I"), and Columbia Bank, located at 10480 Little Patuxent Parkway,
Columbia MD 21044 (the "Customer").
RECITALS
WHEREAS, Customer and M&I have entered into a Salespartner and PCTeller
Software License Agreement on an even day herewith, pursuant to which Customer
obtained a right and license to use the Salespartner and PCTeller Software for
its own internal business purposes; and
WHEREAS, Customer wishes to acquire certain computer hardware,
operating software, and installation services to be used in conjunction with
such software systems
NOW, THEREFORE, in consideration of the Recitals, the mutual convenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, M&I and Customer
agree as follows:
1. Hardware. Customer agrees to purchase through M&I the
hardware and software listed in Exhibit A (the "Hardware").
2. Preinstallation Services. All Hardware will be set up and
initial system tested at M&I. This includes, but is not limited to,
configuration of the file servers, gateways and local area network (LAN)
hardware, installation and configuration of memory/adapters, and setup and
configuration of Novell Netware LAN software, LAN menuing software and
utilities, LAN remote support software, LAN tape backup software, and software
packages purchased through M&I.
3. Installation Services. M&I will ship the Hardware
listed in Exhibit A to the Customer's locations, and at the locations
install the Hardware. Installation Services will include training
installs, pre-conversion installations of file servers and at least one
workstation at each location, and final conversion weekend installation.
Customer is responsible for all LAN and electrical wiring.
4. Acceptance. The Hardware and installation services will
be deemed accepted by Customer upon completion of the Installation Services
defined in Section 3 of this Addendum No. 1.
5. Warranty. THE FOLLOWING LIMITED WARRANTIES ARE IN LIEU OF
ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, WRITTEN OR ORAL, INCLUDING BUT
NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
(a) The hardware warranties are provided by the equipment
manufacturer and are as follows:
<TABLE>
<S><C>
Compaq Prolinea 575e CPU Three (3) years on-site
Compaq Deskpro 5100 CPU Three (3) years on-site
Compaq 14" Super VGA Color CRT One (1) year exchange
NCR Model 5021 Printer Ninety (90)days on-site
NCR Model 5223 Printer Ninety (90)days on-site
HP Laserjet 4Plus Printer One (1) year exchange
Practical Peripheral 14400 Modem Five (5) years
APC 1000VA Uninterruptable Power Supply Two (2) years
</TABLE>
<PAGE>
M&I will secure the warranties for the Customer from the
manufacturer and, depending upon the Customer's current
agreements with the manufacturer, the Customer may be required
to sign a warranty/service agreement from the manufacturer.
Upon Customer's written request, M&I will secure detailed
disclosures of manufacturer's warranties. Customer
acknowledges and agrees that M&I does not itself warrant any
of the hardware or software provided under this Addendum.
(b) M&I warrants that the installed operating environment
(including all Hardware) will allow stable access to the
software installed by M&I and to the M&I Host System, provided
telephone access is available to Customer. Customer
acknowledges and agrees that, during the twelve (12) months
following installation, its sole remedy under this warranty
for the operating environment is for M&I to use its best
efforts to correct deficiencies brought to its attention by
the Customer. Customer hereby acknowledges that M&I is not
liable for Hardware malfunctions.
6. Limitation of Liability. M&I's liability for damages to
Customer for any cause whatsoever, whether in contract or in tort, including
negligence, shall be limited to the fees paid for the installation services
provided by M&l hereunder. In no event shall M&I be liable for damages
caused by Customer's failure to perform its obligations under this Agreement or
for any lost profits, lost savings, and incidental or consequential damages,
even if M&I has been advised of the possibility of such damage.
7. Technical Support. M&I will provide telephone support to
Customer for the twelve (12) months following installation, assistance in
problem determination, problem resolution, and dispatching field engineers
relative to manufacturer's warranties. M&I will remain current on new
releases of the Hardware and assist the Customer in determining the value of
upgrading and, when requested by Customer, negotiate the price of the
upgrade from the vendor. Pricing for assistance with installing any
upgrades will be based upon M&I's then current rates for such services. The
support is provided on the condition that Customer sends at minimum one (1)
person to Novell LAN training and that Customer designates two (2) contact
persons for M&I to interact with on supporting the operating environment.
If on-site support is required or requested the Customer agrees to pay for
M&I's effort at M&I's thencurrent rates for such services, plus reasonable
expenses incurred by M&I. M&I shall provide telephone support with regard to the
operating environment during M&I's regular business hours and, at all other
times, an emergency telephone number to be used at the Customer's discretion to
secure necessary telephone support with regard to emergency situations.
8. Purchase Price. Customer agrees to pay the Hardware and
Installation Services purchased from M&I. The total purchase price, excluding
all applicable taxes, duties, shipping charges, and travel and lodging expenses
will not exceed $270,115.00 for the Hardware in Exhibit A and $15,225.00 for
the Installation Services. The Customer shall pay all applicable taxes,
duties, shipping expenses, and other charges (including, but not limited to,
sales, use, excise, and personal property taxes) now or hereafter levied,
assessed, or charged against the Hardware and services as a consequence of
this Addendum No. 1, except where such taxes, duties, or charges are based
upon the net income of M&I.
9. Payment Terms. Customer agrees to pay for the Hardware
listed in Exhibit A and the Installation Services within ten (10) days of
receipt of invoice. Amounts past due thirty (30) days or more are subject to a
late fee of one and one half percent (1.50%) per month of the past due
amounts. M&I will invoice Customer upon execution of this contract
addendum for fifty percent (50%) of the Installation Services. Hardware
listed in Exhibit A will be invoiced upon shipment to Customer. M&I will
invoice Customer upon completion of the Installation Services for the
remaining fifty percent (50%) of the Installation Services, and all
out-of-pocket charges.
10. Change Orders. Customer agrees to notify M&I of any request
to change the Hardware in Exhibit A of this Addendum No. 1 in writing. M&I
will prepare a change order that will define the scope of the changes to include
the new prices for the Hardware and Installation Services. M&I will send
the change order to Customer for an authorized signature.
<PAGE>
11. Restocking Fee. Customer agrees to a restocking fee of two
(2.0%) percent of each item's purchase price plus the shipping costs for
returned items or cancelled items in Exhibit A of this Addendum No. 1. The
restocking fee will apply to all items in Exhibit A of this Addendum No. 1 and
to all or any subsequent change orders to this Addendum No.1.
12. Incorporation of License Agreement. Terms and conditions of
the Salespartner and PCTeller Software License Agreement not in conflict with
those contained herein shall govern this Addendum No. 1 as if specifically
contained in this Addendum No. 1.
THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS ADDENDUM
NO. 1, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS, AS
STATED HEREIN.
IN WITNESS WHEREOF, the parties hereto through their duly authorized
officers and agents have hereby executed this Addendum No. 1 on the date before
written.
COLUMBIA BANK M&I DATA SERVICES
(CUSTOMER) (M&I)
By: /S/ By: /S/
Name: John A. Scaldara, Jr. Name: Debra Janssen
Title: CFO Title: VP
Attest: Attest:
By: /S/ By: /S/
Name: Melissa Quirk Name: Bobbi J. Winnes
Title: Vice President Title: Assistant Vice President
<PAGE>
EXHIBIT A
ADDENDUM NO. 1
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
M&I DATA SERVICES
Milwaukee, Wisconsin 53202
BRANCH BRANCH TOTAL
- ------ ------------
Columbia Town Center $32,059.00
Columbia Town Center - Satellite 6,905.97
Ellicott City 64,344.18
Harper's Choice 26,306.50
Oakland Mills 34,896.12
Glenmore 11,233.94
Vantage House 7,018.38
Roland Park Place 7,018.38
Blakehurst 3,509.19
Cross Keys 30,991.87
Heaver Plaza 42,153.47
Long Gate 18,902.98
<PAGE>
AMENDMENT NO. 1 TO SALESPARTNER AND PCTELLER
SOFTWARE LICENSE AGREEMENT
This Amendment No. 1 to Salespartner and PCTeller Software License
Agreement is entered into as of this __________ day of ____________________,
1997, by and between M&I Data Services ("M&I") and The Columbia Bank (the
"Customer").
RECITALS
WHEREAS, M&I and Customer are parties to a Salespartner and PCTeller
Software License Agreement dated March 22, 1996 (the "Agreement"), pursuant to
which the Customer obtained a right and license to use the Salespartner and
PCTeller Software (the "Software") for its own internal business purposes; and,
WHEREAS, the Customer wishes to license additional copies of the
Software.
NOW, THEREFORE, in consideration of the Recitals and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and of the mutual covenants and agreements set forth herein, M&I
and Customer agree as follows:
1. AMENDMENT TO AGREEMENT. Exhibit A to the Agreement is amended
by, and should be read in conjunction with, Exhibit A attached hereto.
2. CONTINUANCE OF AGREEMENT. Except as amended herein, the
conditions and terms of the Agreement shall remain in full force and effect.
3. BINDING AGREEMENT. Each party executing this Amendment
No. 1 agrees to be bound by all the terms and conditions contained in the
Agreement as modified by this Amendment No. 1.
THE PARTIES HERETO ACKNOWLEDGE THAT EACH HAS READ THIS AMENDMENT
NO. 1, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS AS
STATED HEREIN.
IN WITNESS HEREOF, the parties hereto, through their duly authorized
officers and agents, have hereby executed this Amendment No.1 on the date before
written.
THE COLUMBIA BANK M&I DATA SERVICES
(CUSTOMER) (M&I)
By: /S/ By: /S/
Name: John A. Scaldara, Jr. Name: Peter J. Van Sistine
Title: Executive Vice President Title: Vice President
<PAGE>
EXHIBIT A TO AMENDMENT NO. 1
SALESPARTNER AND PCTELLER SOFTWARE LICENSE AGREEMENT
M&I DATA SERVICES
Milwaukee, Wisconsin 53202
Customer Name: The Columbia Bank
Address: 9151 Baltimore National Pike
Ellicott City, MD 21042
Description and Number of Licensed Computer(s)/Workstation(s)/Equipment:
- ------------------------------------------------------------------------
Total of Thirteen (13) locations to be defined by the Customer.
Software - Twelve (12) locations licensed under original License
Agreement. One (1) location licensed pursuant to this
Amendment No. 1.
Customer's Primary Location Description:
- ----------------------------------------
The Columbia Bank
9151 Baltimore National Pike
Ellicott City, MD 21042
User Documentation:
- -------------------
PCTeller User Guide - 5 copies
Salespartner Branch Administration Manual - 1 copy
Salespartner User Guide - 3 copies
License Fee:
- ------------
<TABLE>
<S><C>
PREVIOUSLY LICENSED: $ 153,350.00
Due upon execution of this Amendment:
Long Gate Branch Salespartner stations - 3 $ 10,800.00
4450 Long Gate Parkway PCTeller stations - 5
Ellicott City, MD 21042
Wilde Lake Branch Salespartner stations - 3 $ 10,800.00
10451 Twin Rivers Road Suite 122 PCTeller stations - 6
Columbia, MD 21044
Harmony Hall Branch PCTeller stations - 2 @ $795 $ 1,590.00
6336 Cedar Lane ------------
Columbia, MD 21044
Subtotal 23,190.00
SalesTax-(5%) 1,159.50
------------
TOTAL $ 24,349.50
------------
Total License Fee to Date Excluding Tax: $ 164,150.00
============
Software Maintenance Fee:
$50 per mini location.
$100 per month per location authorized to access the Software.
</TABLE>
EXHIBIT 11.1
COLUMBIA BANCORP AND SUBSIDIARIES
INFORMATION USED IN THE COMPUTATION OF NET
INCOME PER COMMON SHARE
Net income per share is based on the average shares outstanding
adjusted by any outstanding stock options and warrants, and other instruments
determined to be common stock equivalents.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------------------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
---------------------------------------------------------------------------------------------------
<S><C>
Net Income $3,751,882 $3,751,882 $3,428,750 $3,428,750 $2,415,664 $2,415,664
Less annual
dividends on
Series A
preferred stock ---- ---- 184,072 ---- 540,000 ----
- ------------------------------------------------------------------------------------------------------------------------------
Net income
applicable to
common shares $3,751,882 $3,751,882 $3,244,678 $3,428,750 $1,875,664 $2,415,664
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average
common shares 2,259,902 2,259,902 1,660,910 1,904,570 1,122,481 1,545,201
Net income per
common share $ 1.66 $ 1.66 $ 1.95 $ 1.80 $ 1.67 $ 1.56
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 13.1
[Columbia Bancorp Logo]
C O L U M B I A B A N C O R P
1996 ANNUAL REPORT
<PAGE>
[Columbia Bancorp Logo] Corporate Profile
Columbia Bancorp is a bank holding
company whose subsidiary, The Columbia
Bank, commenced operations in 1988.
Headquartered in Columbia, Maryland, Columbia Bancorp Market Areas
The Columbia Bank is the largest commu-
nity bank in Howard County, one [Map of Maryland with
of the wealthiest counties in the expanded inset map of
United States. Howard County appears here]
In less than nine years, the Bank has risen to
third in market share in its home market,
Howard County, and is working hard to
close the gap with the two market leaders,
NationsBank and Allied Irish (First
National Bank of Maryland).
The Bank's continued commitment
is to expand by introducing its unique and
successful banking style to other communi-
ties of the Baltimore-Washington Corridor.
Contents
Financial Highlights - 1
Report to Shareholders - 2
Financial Information - 5
<PAGE>
[Columbia Bancorp Logo] Financial Highlights COLUMBIA BANCORP AND SUBSIDIARY
(dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------
Assets $317,234 $263,025 $224,208 $206,592 $196,020
Loans, net of unearned income 237,875 190,691 162,253 131,365 117,149
Deposits 254,640 218,162 189,463 176,285 176,056
Stockholders' equity 30,975 28,064 16,873 15,459 14,242
Net income 3,752 3,429 2,416 1,743 1,007
- --------------------------------------------------------------------------------
Per Share Data (a):
Net income per
common share:
Primary $ 1.66 $ 1.95 $ 1.67 $ 1.13 $ .70
Fully diluted 1.66 1.80 1.56 (b) .68
Tangible book value per
common share 14.29 12.92 11.61 10.28 9.11
Dividends declared:
Common .42 .25 .14 -- --
Preferred -- 1.30 1.20 1.20 --
- --------------------------------------------------------------------------------
Return on average assets 1.34% 1.42% 1.13% .88% .67%
Return on average
stockholders equity 12.71 15.60 15.01 11.85 8.80
Nonperforming assets and
past-due loans to total assets 1.37 .49 1.29 2.29 2.90
- --------------------------------------------------------------------------------
(a) Per share data for 1992 have been adjusted to reflect the 10% stock dividend
issued in May, 1993.
(b) Anti-dilutive.
Page One
<PAGE>
[Columbia Bancorp Logo] Report to Shareholders
Since the founding of Columbia Bancorp in 1987, our primary objective has
been to maximize shareholder value. To achieve this objective, we strive to
create an optimal balance between growth and profitability. Our success in
striking this balance is apparent from our financial performance described in
this Annual Report. We have clearly demonstrated that we can sustain above
average rates of overall growth while producing rates of return which exceed
those of our peers.
Our most important competitive advantage continues to be our intense local
community focus. We are a bank whose ownership, management, and employees are
concentrated in a single, dynamic geographic market consisting of Howard County
and contiguous areas. This local focus clearly differentiates us in the way in
which we conduct our banking business from our major competitors, nearly all
of which are headquartered outside of Maryland or controlled from overseas.
1996 Performance Highlights
Growth
(bullet) At December 31, 1996, total assets exceeded $317.2 million,
representing a 20.6% annual increase. This growth was driven by a
24.6% annual increase in loans outstanding and a 16.7% annual
increase in deposits.
Profitability
(bullet) Net income hit a record $3.8 million, representing a 9.4% annual
increase. This increase in net income was achieved despite a one-time
after-tax charge of $299,000 as a result of the Federal Deposit
Insurance Corporation special assessment for the recapitalization of
the Savings Association Insurance Fund ("SAIF"). Without this special
assessment, the Company would have reported an 18.1% increase in net
income for 1996.
(bullet) Return on assets and return on equity were 1.34% and 12.71%,
respectively, (1.44% and 13.73% if adjusted for the one-time SAIF
assessment).
(bullet) Increased profitability was fueled by an increase in our net interest
yield from 6.46% in 1995 to 6.60% in 1996.
(bullet) Our efficiency ratio (noninterest expense as a percentage of operating
income) for 1996 was 64.6%, comparing favorably with our peer group
average, even as we invested heavily in improvements to our data
processing system and absorbed the start-up costs of three major
branch expansion projects.
Columbia Bancorp vs. Peer Bank Comparative Ratios
Columbia* Peer Banks**
- --------------------------------------------------------------------------------
Performance Ratios:
Return on average assets 1.34% 1.14%
Return on average equity 12.71 11.99
Net yield on earning assets 6.60 5.14
Efficiency ratio 64.63 64.60
- --------------------------------------------------------------------------------
Capital Adequacy:
Year-end capital to year-end risk-weighted assets:
Tier 1 11.91 13.83
Total 13.16 15.13
- --------------------------------------------------------------------------------
Asset Quality:
Nonaccrual loans to total assets 1.21 .59
Nonperforming assets and past-due loans to total assets 1.37 1.12
Net charge-offs to average loans .12 .25
- --------------------------------------------------------------------------------
*Represents information as of and for the year ended December 31, 1996.
**Source: The SNL Quarterly Bank Digest, December 31, 1996. Data represents the
average of trailing four quarters for banks with less than $500 million in
total assets.
Page Two
<PAGE>
Asset Quality
(bullet) Net charge-offs to average loans remained unchanged from 1995 at .12%
as compared to .25% for our peer group.
(bullet) Nonperforming assets and past-due loans to total assets increased to
1.37% as compared to 1.12% for our peer group. This increase reflected
isolated problems encountered primarily with real estate development
and construction loans which are collateralized with residential
properties. Such increases in nonperforming assets occur from
time-to-time in the normal course of our residential lending business.
The overall quality of our loan portfolio remains strong.
Shareholder Value
(bullet) Stockholders equity reached $31.0 million with tangible book value per
share of $14.29.
(bullet) Fully diluted earnings per share adjusted to exclude the impact of the
one-time SAIF special assessment were $1.79 as compared to $1.80 for
1995. The year-to-year earnings per share comparisons reflect the
dilutive impact of the Companys successful 862,500 share common stock
offering in 1995.
(bullet) Market capitalization increased substantially to $45.6 million at
December 31, 1996.
(bullet) In December 1996, we increased the quarterly common stock dividend from
$.10 to $.12 per share.
Strategic Growth Initiatives During 1996
Branch Expansion
(bullet) The Cross Keys Branch opened in December 1995 and the Heaver Plaza
Branch opened in March 1996. Each averaged approximately $800,000 in
net new deposits per month and helped solidify the Banks presence in
the North Baltimore Corridor market.
(bullet) The Oakland Mills Branch in Columbia was relocated to new quarters in
the same village center, approximately tripling its customer service
area and adding a new ATM and a drive-thru banking facility.
Backoffice Systems Upgrades
(bullet) During the fourth quarter and after a year of intensive preparation,
we implemented a data processing and information systems upgrade which
will offer both enhanced customer service and future operational cost
efficiencies.
North Baltimore Commercial Lending Team
(bullet) Consistent with our continued efforts to capitalize on our strong ties
to this market, a commercial lending team has been established in our
Heaver Plaza Branch.
Page Three
<PAGE>
Planned Expansion for 1997
New Branches
In 1997, we will open three new, full-service drive-thru branches in Howard
County:
(bullet) Long Gate--a major new shopping complex including national retailers
such as Target and Safeway.
(bullet) Wilde Lake--Columbia's first village center, which is anchored by a
Giant supermarket.
(bullet) River Hill--Columbia's final village center, being built in affluent
Clarksville, which will also be anchored by a Giant supermarket.
North Baltimore Mortgage Banking Team
(bullet) Consistent with our continued expansion in this market, a six member
mortgage banking team was placed in Heaver Plaza during February 1997.
Outlook for the Future
Over the near term, it is our goal to improve profitability levels while
maintaining asset quality and our significantly above average growth. We intend
to leverage our capital position as we continue to seek new growth
opportunities, including possible acquisitions of other financial institutions,
their branches, or their deposits.
Over the longer term, we will continue to fortify our position as the
largest community bank in Howard County at the heart of the Baltimore/Washington
Corridor and increase our penetration of surrounding market areas. The economic
prospects for our home market area are bright. We have an excellent pipeline
of prospective business, and we are well positioned to take advantage of
customer turnover resulting from continuing major banking consolidations in
our market.
As we look into the future, we remain committed to striking an optimal
balance between enhanced profitability and healthy business growth which will
result in superior shareholder value.
/s/ James R. Moxley, Jr.
__________________________
James R. Moxley, Jr.
Chairman
/s/ Herschel L. Langenthal
__________________________
Herschel L. Langenthal
Vice Chairman
/s/ John M. Bond, Jr.
__________________________
John M. Bond, Jr.
President and
Chief Executive Officer
[Photo appears to left of page]
Left to right
Herschel L. Langenthal
James R. Moxley, Jr.
John M. Bond, Jr.
Page Four
<PAGE>
[Columbia Bancorp Logo] Financial Information COLUMBIA BANCORP AND SUBSIDIARY
Table of Contents:
Selected Financial Highlights 6
Management's Discussion and Analysis 7
Independent Auditors' Report 21
Consolidated Statements of Condition 22
Consolidated Statements of Income 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 27
Recent Common Stock Prices and Stock Performance Graph 44
Corporate Information 45
Page Five
<PAGE>
[Columbia Bancorp Logo] Selected Financial Highlights
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
(in thousands, except per share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C>
Consolidated Income Statement Data:
Interest income $ 25,822 $ 22,210 $ 17,031 $ 14,188 $ 10,494
Interest expense 8,769 7,892 5,705 5,466 4,725
----------------------------------------------------------
Net interest income 17,053 14,318 11,326 8,722 5,769
Provision for credit losses 621 559 242 505 549
----------------------------------------------------------
Net interest income after
provision for credit losses 16,432 13,759 11,084 8,217 5,220
Noninterest income 2,058 1,575 1,821 2,580 1,822
Noninterest expense 12,351 9,747 8,966 7,961 5,505
----------------------------------------------------------
Income before income taxes 6,139 5,587 3,939 2,836 1,537
Income taxes 2,387 2,158 1,523 1,093 530
----------------------------------------------------------
Net income $ 3,752 $ 3,429 $ 2,416 $ 1,743 $ 1,007
=====================================================================================================
Consolidated Balance Sheet Data,
at year-end:
Assets $317,234 $263,025 $224,208 $206,592 $196,020
Loans, net of unearned income 237,875 190,691 162,253 131,365 117,149
Deposits 254,640 218,162 189,463 176,285 176,056
Stockholders' equity 30,975 28,064 16,873 15,459 14,242
Per Share Data (a):
Number of shares of Common Stock
outstanding, at year-end (in thousands) 2,148 2,146 1,040 1,040 1,040
Net income:
Primary $ 1.66 $ 1.95 $ 1.67 $ 1.13 $ .70
Fully diluted 1.66 1.80 1.56 (b) .68
Cash dividends declared:
Common .42 .25 .14 -- --
Preferred -- 1.30 1.20 1.20 --
Tangible book value, at year-end 14.29 12.92 11.61 10.28 9.11
Performance and Capital Ratios:
Return on average assets 1.34% 1.42% 1.13% .88% .67%
Return on average stockholders' equity 12.71 15.60 15.01 11.85 8.80
Net yield on earning assets (c) 6.60 6.46 5.90 4.88 4.22
Average stockholders' equity to
average total assets 10.53 9.07 7.53 7.39 7.60
Year-end capital to year-end
risk-weighted assets (d):
Tier 1 11.91 12.97 9.28 9.34 7.99
Total 13.16 14.12 10.56 10.87 9.76
Year-end Tier 1 leverage ratio (d) 10.11 10.67 7.39 6.73 6.22
Cash dividends declared to net income 24.05 25.66 28.38 30.99 --
Asset Quality Ratios:
Allowance for credit losses,
at year-end, to:
Total loans, net of unearned income 1.38% 1.54% 1.59% 1.80% 1.76%
Nonperforming and past-due loans 84.23 245.72 222.62 126.19 80.93
Net charge-offs to average total
loans, net of unearned income .12 .12 .02 .17 .23
Nonperforming assets and past-due
loans to total assets, at year-end 1.37 .49 1.29 2.29 2.90
Nonperforming and past-due loans
to total loans, net of unearned
income, at year-end 1.64 .63 .71 1.43 2.18
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Per share data for 1992 have been adjusted to reflect the 10% stock
dividend issued in May, 1993.
(b) Anti-dilutive.
(c) Net yield on earning assets is the ratio of net interest income to total
average interest-earning assets.
(d) The Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") capital guidelines for bank holding companies require minimum
risk-based ratios of Tier 1 and total capital to risk-weighted assets of
4.00% and 8.00%, respectively, and a minimum leverage-based ratio of Tier
1 capital to total average quarterly assets generally of at least 4.00%. The
ratios above were calculated using the guidelines in effect at each reported
date.
Page Six
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
COLUMBIA BANCORP AND SUBSIDIARY
Overview
Net income increased from $3.4 million in 1995 to $3.8 million in 1996,
representing a 9.4% increase and marking the fifth consecutive year during which
the Company posted improved earnings. Net income for 1996 was reduced $299,000
as a result of a one-time special assessment imposed by the Federal Deposit
Insurance Corporation ("FDIC") to recapitalize the Savings Association Insurance
Fund ("SAIF"). Without this assessment, the Company's net income would have been
$4.1 million, representing an 18.1% increase over 1995.
Fully diluted net income per share for 1996 was $1.66 ($1.79 if adjusted to
exclude the SAIF assessment) as compared to $1.80 for 1995. Year-to-year net
income per share comparisons reflect the dilutive impact of the Company's
successful 862,500 share common stock offering completed in June 1995. Return
on average assets and return on average equity for 1996 were 1.34% and 12.71%,
respectively. If adjusted to exclude the SAIF assessment, return on average
assets and return on average equity would have been 1.44% and 13.73%,
respectively. Tangible book value per share was $14.29 at December 31, 1996.
The year 1996 reflected continuation of the Company's aggressive growth
strategy. Key factors which influenced the Company's financial performance
during 1996, in addition to the SAIF assessment, and factors which will
influence future performance include:
(bullet) Growth in loans, net of unearned income, of 24.7%.
(bullet) Growth in deposits of 16.7%. Core deposits, representing deposits
exclusive of certificates of deposits in excess of $100,000, grew $32.3
million or 15.4%.
(bullet) Maintenance of the net yield on earning assets well above peer group
averages. The net yield on earning assets was 6.60% during 1996.
(bullet) Completion of substantial upgrading to backoffice data processing
systems to provide enhanced customer service capabilities and future
cost efficiencies.
(bullet) Sale of the Company's investment in limited partnership interests
acquired in the acquisition of Fairview Federal Savings and Loan
Association. See Note 7 of the Notes to Consolidated Financial
Statements.
(bullet) Expansion of the Company's branch network with the addition of the
Heaver Plaza, Towson, Maryland location in 1996 and the scheduled
opening in 1997 of three full service branch facilities in Howard
County, Maryland.
The discussion which follows provides further detailed analysis regarding
the Company's financial condition and results of operations. It is intended
to assist readers in their analysis of the accompanying consolidated financial
statements and notes thereto.
Distributions of Assets, Liabilities and Stockholders' Equity; Yields and Rates
The Company's growth during 1996 and 1995 is depicted by the following
table, which indicates average balances of asset and liability categories,
interest income and expense, and average rates for the years ended December 31,
1996, 1995 and 1994.
Page Seven
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------------------------
Average Average Average
(dollars in thousands) Balances (1) Interest Rate Balances (1) Interest Rate Balances (1) Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Assets
Interest-earning assets:
Loans, net of unearned
income (2) $215,348 $23,447 10.89% $175,363 $19,832 11.31% $146,494 $14,896 10.17%
Investment securities
and securities
available-for-sale 35,714 2,000 5.60 36,752 1,887 5.13 40,959 1,944 4.75
Federal funds sold 7,194 375 5.21 9,628 491 5.10 4,480 183 4.08
Interest-bearing deposits
in other banks -- -- -- -- -- -- 84 8 9.52
--------------------- --------------------- ---------------------
Total interest-
earning assets 258,256 25,822 10.00 221,743 22,210 10.02 192,017 17,031 8.87
------- ------- -------
Noninterest-earning assets:
Cash and due from banks 12,856 11,296 11,205
Property and
equipment, net 7,085 6,359 6,288
Other assets 5,366 5,524 6,659
Less allowance for
credit losses (3,211) (2,721) (2,507)
-------- -------- --------
Total assets $280,352 $242,201 $213,662
======== ======== ========
Liabilities and
Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 25,479 521 2.04 $ 23,688 484 2.04 $ 22,307 485 2.17
Savings accounts 44,022 1,420 3.22 43,864 1,527 3.48 48,534 1,562 3.22
Money market accounts 34,860 1,098 3.15 31,059 1,036 3.33 28,380 873 3.08
Certificates of deposit 92,125 5,010 5.44 74,289 4,038 5.44 57,644 2,336 4.05
Short-term borrowings 15,974 720 4.51 16,045 807 5.03 11,066 449 4.06
--------------------- --------------------- ---------------------
Total interest-
bearing liabilities 212,460 8,769 4.13 188,945 7,892 4.18 167,931 5,705 3.40
------- ------- -------
Noninterest-bearing
liabilities:
Noninterest-bearing
deposits 36,785 29,885 28,268
Other liabilities 1,595 1,398 1,366
Stockholders' equity 29,512 21,973 16,097
-------- -------- --------
Total liabilities and
stockholders'
equity $280,352 $242,201 $213,662
======== ======== ========
Net interest income $17,053 $14,318 $11,326
======= ======= =======
Net interest spread 5.87% 5.84% 5.47%
====== ====== ======
Net yield on earning assets 6.60% 6.46% 5.90%
====== ====== ======
</TABLE>
(1) Average balances are calculated as the average of month-end balances.
(2) Average loan balances include first mortgage loans originated for sale and
nonaccrual loans. Interest income on loans includes loan fees, net of costs,
of $2.4 million, $1.8 million, and $1.8 million for the years ended December
31, 1996, 1995 and 1994, respectively.
Page Eight
<PAGE>
Net Interest Income
Net interest income, the amount by which interest income on
interest-earning assets exceeds interest expense on interest-bearing
liabilities, is the most significant component of the Company's earnings. Net
interest income is a function of several factors, including changes in the
volume and mix of interest-earning assets and funding sources, and market
interest rates. While management policies influence these factors, external
forces, including customer needs and demands, competition, the economic policies
of the federal government and the monetary policies of the Federal Reserve
Board, do so also.
The following table and the related discussions of interest income and
interest expense provide further analysis of the increases in net interest
income during 1996 and 1995. In each year, the increase in net interest income
was primarily attributable to increased volumes of loans outstanding.
<TABLE>
<CAPTION>
1996 over 1995 1995 over 1994
-------------------------------------------------------------
Due to change in Due to change in
Increase ---------------- Increase -----------------
(dollars in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
- --------------------------------------------------------------------------------------------
<S><C>
Interest income:
Loans $3,615 $3,742 $(127) $4,936 $3,146 $1,790
Investment securities
and securities
available-for-sale 113 (14) 127 (57) (209) 152
Federal funds sold (116) (117) 1 308 254 54
Other -- -- -- (8) (4) (4)
-----------------------------------------------------------
Total 3,612 3,611 1 5,179 3,187 1,992
-----------------------------------------------------------
Interest expense:
Deposits 964 964 -- 1,829 575 1,254
Short-term borrowings (87) (3) (84) 358 233 125
-----------------------------------------------------------
Total 877 961 (84) 2,187 808 1,379
-----------------------------------------------------------
Net interest income $2,735 $2,650 $ 85 $2,992 $2,379 $ 613
===========================================================
</TABLE>
(1) The change in interest income and expense due to both rate and volume has
been allocated to rate and volume changes in proportion to the absolute
dollar amounts of the change in each.
Interest Income
Interest income increased $3.6 million or 16.3% in 1996 as compared to 1995,
primarily as a result of an increase in the average balance of loans outstanding
during 1996 as compared to 1995. Average loans outstanding, net of unearned
income, increased $40.0 million or 22.8% during 1996 and reflected continued
growth in the Company's consumer and residential development and construction
loan portfolios. Loans, the Company's highest yielding asset, on average also
became a larger percentage of average interest-earning assets, increasing from
79.1% in 1995 to 83.4% in 1996.
Interest income increased $5.2 million or 30.4% in 1995 as compared to 1994,
also primarily as a result of an increase in the average balance of loans
outstanding. Average loans outstanding, net of unearned income, increased 19.7%
during 1995. In addition, the average yield on loans increased from 10.2%
during 1994 to 11.3% during 1995, and corresponded with increases in the prime
lending rate during 1995. The Bank's prime lending rate averaged approximately
8.8% in 1995 versus 6.9% in 1994.
Interest Expense
Interest expense increased $877,000 in 1996 as compared to 1995. The
increase generally reflected growth in deposits. During 1996, average
interest-bearing deposits increased $23.6 million or 13.6%. The increase in
deposits was used to fund loan growth.
Page Nine
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
Interest expense increased $2.2 million in 1995 as compared to 1994. The
increase generally reflected an increase in the cost of funds combined with
growth in deposits and short-term borrowings. Specifically, the cost of
interest-bearing funds increased from 3.4% during 1994 to 4.2% during 1995 and
reflected the higher interest rate environment. Also, average interest-bearing
deposits and short-term borrowings increased $16.0 million and $5.0 million,
respectively, during 1995.
Noninterest Income
The Company's primary sources of noninterest income are fees charged for
services and gains and fees recognized on the sale of residential mortgage
loans. Noninterest income increased $483,000 during 1996 as compared to 1995.
The growth in noninterest income during 1996 was primarily the result of an
increase of $233,000 in fees charged for services, reflecting growth in deposit
accounts. The total number of deposit accounts subject to service charges
increased 14.6%, from 20,241 at December 31, 1995 to 23,193 at December 31,
1996. In addition, growth in fees charged for services reflected the Company's
continued success in providing fee-based cash management services to numerous
larger, and more sophisticated, corporate customers.
Gains and fees on sales of residential mortgage loans increased $103,000
during 1996 as compared to 1995. The increase corresponded with an increase
in residential mortgage loans sold from $38.9 million in 1995 to $47.9 million
in 1996.
Noninterest income declined $246,000 during 1995 as compared to 1994. The
decline was largely attributed to a higher interest rate environment as compared
to 1994 which resulted in a decrease in the volume of residential mortgage loans
sold from $53.0 million during 1994 to $38.9 million during 1995.
Correspondingly, gains and fees recognized on sales of loans decreased from
$869,000 in 1994 to $651,000 in 1995.
Noninterest Expenses
Noninterest expenses consist primarily of costs associated with personnel,
bank premises and equipment, regulatory insurance assessments and data
processing. The Company's noninterest expense for 1996 totalled $12.4 million,
representing an increase of $2.6 million over 1995 or 26.7%. This increase was
primarily driven by continued expansion of the retail branch network and
significant upgrading of back office data processing, all in an effort to
strengthen the core operating base necessary to provide enhanced customer
service and to recognize future cost efficiencies.
Salaries and employee benefits, the largest component of noninterest
expense, increased from $5.1 million during 1995 to $6.0 million in 1996. The
increase was attributable primarily to higher staffing levels as a result of
the expansion efforts of the Company during 1996 and, to a lesser degree,
merit increases. At December 31, 1996, the Company employed 160 full-time and
25 part-time employees as compared to 133 full-time and 31 part-time employees
at December 31, 1995.
Occupancy and equipment expense, recorded net of rental income, grew 44.3%
or $587,000 during 1996. During 1996, the Company essentially added two
full-service branch locations (one of which officially opened in late December
1995) and relocated a third branch to a larger facility with drive-thru access.
Additional equipment costs were recognized with the upgrading of backoffice
data processing, which included deployment of approximately 80 computer
workstations and installation of additional telecommunication equipment
throughout the Company.
Deposit insurance and assessments increased from $344,000 in 1995 to
$687,000 in 1996. The increase reflected the one-time special FDIC assessment
levied in an effort to recapitalize the SAIF which totalled $486,000. As a
result of the acquisition of Fairview Federal Savings and Loan Association
("Fairview") in June 1992, approximately $82.9 million or 35.3% of the Bank's
assessable deposit base is insured by SAIF. The remainder is insured by the Bank
Insurance Fund ("BIF"). Effective October 1, 1996, the Company began paying a
Financing Corporation ("FICO") assessment of 1.30 cents per $100 of BIF deposits
and 6.48 cents per $100 of SAIF deposits. The impactof the special assessment
was mitigated by a significant reduction (from 23 cents per $100 of deposits to
zero) in the FDIC insurance premium associated with BIF deposits assessed the
Company during
Page Ten
<PAGE>
1996. The Company's FDIC insurance premium associated with deposits insured by
the SAIF was also reduced from 23 cents per $100 to zero effective October 1,
1996.
Data processing expense grew $247,000 in 1996 as compared to 1995,
reflecting growth in account volume and one-time charges totalling approximately
$143,000 associated with the conversion of data processing systems.
Noninterest expenses for 1995 totalled $9.7 million and represented an
increase over 1994 of 8.7% or $781,000. The primary component was an increase of
$767,000 in salaries and employee benefits caused by an increasing employee
population as well as merit salary increases. The Company employed 133
full-time and 31 part-time employees at December 31, 1995, as compared to 123
full-time and 26 part-time employees at December 31, 1994. In addition, the
Company incurred a charge of approximately $80,000 resulting from a change in
health care providers. Other noninterest expenses, including occupancy (net
of rental income), cash management services, equipment costs and data
processing, increased $92,000, $83,000, $38,000 and $32,000, respectively,
in 1995 as compared to 1994 and reflected increased business activity. In
addition, in March, 1995, the Company donated a closed branch facility,
comprised of a building and an adjacent parking lot, to a charitable
organization resulting in a charge to income of $128,000.
Liquidity
Liquidity describes the ability of the Company to meet financial
obligations, including lending commitments and contingencies, that arise during
the normal course of business. Liquidity is primarily needed to meet the
borrowing and deposit withdrawal requirements of the customers of the Company,
as well as to meet current and planned expenditures.
The Company's major source of liquidity ("financing activities" as used in
the Consolidated Statements of Cash Flows) is its deposit base. At December 31,
1996, total deposits were $254.6 million. Core deposits, defined as all
deposits except certificates of deposit of $100,000 or more, totalled $242.5
million or 95.2% of total deposits. Also, the Bank, as a member of the Federal
Home Loan Bank of Atlanta ("FHLB"), has the ability to utilize established
credit as an additional source of liquidity. Collateral must be pledged to the
FHLB before advances can be obtained. At December 31, 1996, outstanding
advances from the FHLB totalled $18.0 million. The Bank's approved credit line
was $32.0 million. However, the Bank had sufficient collateral to borrow up
to $53.3 million. Borrowings above the approved credit limit require special
approval of the FHLB. In addition, liquidity is provided by the Company's
overnight investment in federal funds sold. At December 31, 1996, federal funds
sold totalled $3.5 million.
Interest Rate Sensitivity
Interest rate sensitivity is an important factor in the management of the
composition and maturity configurations of the Company's interest-earning
assets and funding sources. The Asset/Liability Management Committee of the
Board of Directors oversees the Company's interest rate sensitivity position
in order to maintain an appropriate balance between the maturity and repricing
characteristics of assets and liabilities that is consistent with the Company's
liquidity, growth and capital adequacy goals. It is the objective of the
Asset/Liability Management Committee to maximize the net yield on earning assets
during periods of volatile as well as stable interest rates, to attain earnings
growth and to maintain sufficient liquidity to satisfy depositors' requirements
and meet the credit needs of customers.
The following table summarizes the anticipated maturities or repricing of
the Company's interest-earning assets and interest-bearing liabilities as
of December 31, 1996 and the Company's interest sensitivity gap (i.e.,
interest-earning assets less interest-bearing liabilities). A positive
sensitivity gap for any time period indicates that more interest-earning assets
will mature or reprice during that time period than interest-bearing
liabilities. The Company's goal is generally to maintain a balanced cumulative
gap position for the period of one year or less in order to mitigate the impact
of changes in interest rates on liquidity, interest margins and corresponding
operating results. During periods of
Page Eleven
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
rising interest rates, a short-term positive interest sensitivity gap position
would generally increase net interest income, and during periods of falling
interest rates, a short-term positive interest sensitivity gap position would
generally decrease net interest income.
It is important to note that the table represents the static gap position
for interest sensitive assets and liabilities at December 31, 1996. The table
does not give effect to prepayment or extension of loans as a result of changes
in general market rates. And, while the table does indicate the opportunities
to reprice assets and liabilities within certain time frames, it does not
account for timing differences which occur during periods of repricing. For
example, deposit rates tend to lag in a rising rate environment and lead in a
falling rate environment. Also, the table does not account for the core deposit
relationship with customers which might suggest that the balances of NOW,
savings, and money market accounts totalling $106.1 million are less sensitive
than interest-bearing liabilities maturing in three months or less.
<TABLE>
<CAPTION>
Interest Sensitivity Period
------------------------------------------------------
After 3 After 1
Less Than Through Through After 5
(dollars in thousands) 3 Months 12 Months 5 Years Years Total
- --------------------------------------------------------------------------------------
<S><C>
Interest-earning assets:
Federal funds sold $ 3,477 $ -- $ -- $ -- $ 3,477
Investment securities 2,500 8,913 28,382 -- 39,795
Securities available-for-sale 2,982 1,160 212 -- 4,354
Residential mortgages
originated for sale 1,551 -- -- -- 1,551
Loans receivable (1) 190,291 10,443 27,828 6,583 235,145
------------------------------------------------------
Total interest-
earning assets 200,801 20,516 56,422 6,583 284,322
------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 25,886 -- -- -- 25,886
Savings accounts 42,732 -- -- -- 42,732
Money market accounts 37,514 -- -- -- 37,514
Certificates of deposit 23,068 39,646 41,802 11 104,527
Short-term borrowings 30,127 -- -- -- 30,127
------------------------------------------------------
Total interest-
bearing liabilities 159,327 39,646 41,802 11 240,786
------------------------------------------------------
Interest sensitivity gap $ 41,474 $(19,130) $14,620 $ 6,572 $ 43,536
======================================================
Cumulative interest
sensitivity gap $ 41,474 $ 22,344 $36,964 $43,536
======================================================
Cumulative interest
sensitivity gap ratio 13.1% 7.0% 11.7% 13.7%
======================================================
</TABLE>
(1) Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totalling
$3,851.
The analysis provided in the table above includes the following significant
assumptions: Fixed-rate loans and investments other than collateralized mortgage
obligations and mortgage-backed securities are scheduled by contractual
maturity, and variable-rate loans and investments other than collateralized
mortgage obligations and mortgage-backed securities are scheduled by repricing
date. Collateralized mortgage obligations and mortgage-backed securities are
scheduled according to estimated maturity based upon the most recent monthly
prepayment factors. Residential mortgage loans originated for sale are scheduled
based on their expected sale dates, generally 10 to 14 days after settlement.
Due to their liquid nature, the entire balance of NOW, savings and money market
accounts is assumed to be immediately sensitive.
Page Twelve
<PAGE>
Cash and Due From Banks
Cash and due from banks represents cash on hand, cash on deposit with other
banks and cash items in process of collection. As a result of the Company's
cash management services provided to large, sophisticated corporate customers
(which includes processing coin and currency transactions for, and checks
received by, retail customers), cash balances may be higher than industry
averages for banks of a similar asset size.
Analysis of Investments
The investment portfolio consists of investment securities and securities
available-for-sale. Investment securities are those securities that the Company
has the positive intent and ability to hold to maturity and are carried at
amortized cost. Securities available-for-sale are those securities which the
Company intends to hold for an indefinite period of time but not necessarily
until maturity. These securities are carried at fair value and may be sold as
part of an asset/liability management strategy, liquidity management, interest
rate risk management, regulatory capital management or other similar factors.
The components of the investment portfolio at December 31, 1996, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------------------------
Securities Securities Securities
Investment Available- Investment Available- Investment Available-
(dollars in thousands) Securities for-Sale Securities for-Sale Securities for-Sale
- ----------------------------------------------------------------------------------------------------------------
<S><C>
U. S. Treasury securities $36,968 $ -- $18,987 $ 3,489 $17,008 $ 3,373
Collateralized mortgage
obligations and
mortgage-backed
securities (1) 1,312 173 3,780 406 7,916 608
Securities of U.S.
Government sponsored
agencies 1,515 2,531 2,000 5,029 2,000 5,748
Municipal securities -- 700 700 -- 676
Investment in Federal
Home Loan Bank Stock -- 950 -- 950 -- 950
--------------------------------------------------------------------------------
$39,795 $4,354 $24,767 $10,574 $26,924 $11,355
================================================================================
</TABLE>
(1) The entire balance is issued and guaranteed by U.S. Government sponsored
agencies.
The investment portfolio increased $8.8 million from December 31, 1995 to
December 31, 1996. The increase represented purchases of U.S. Treasury
securities totalling $28.5 million with maturities of two years, net of
maturities and repayments. There were no securities sold during 1996, 1995 or
1994.
The amortized cost and estimated fair values and tax equivalent yield of
debt securities at December 31, 1996, by maturities, are shown below.
Collateralized mortgage obligations and mortgage-backed securities are
categorized by their estimated maturities based upon the most recent monthly
prepayment factors, which may change. All other debt securities are categorized
based on contractual maturities.
Page Thirteen
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
Investment Securities Securities Available For Sale Current
-------------------------------------------------------------------------------------------- Weighted
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated Average
(dollars in thousands) Cost Gains Losses Fair Value Cost Gains Losses Fair Value Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
U. S. Treasury
securities:
Due one year
or less $ 9,994 $ 20 $ 5 $10,009 $ -- $ -- $-- $ -- 5.86%
Due after one
through
five years 26,974 110 26 27,058 -- -- -- -- 5.90
Collateralized
mortgage
obligations and
mortgage-backed
securities:
Due one year
or less 418 -- 5 413 161 -- -- 161 4.76
Due after one
through
five years 894 -- 9 885 10 2 -- 12 4.99
Securities of U. S.
Government
sponsored agencies:
Due one year
or less -- -- -- -- 2,045 -- 7 2,038 5.11
Due after one
through
five years 1,515 -- 41 1,474 500 -- 7 493 4.35
Municipal securities:
Due one year
or less -- -- -- -- 500 -- -- 500 4.88
Due after one
through
five years -- -- -- -- 201 -- 1 200 5.15
------------------------------------------------------------------------------------------------------
$39,795 $130 $86 $39,839 $3,417 $ 2 $15 $3,404 5.73%
======================================================================================================
</TABLE>
Page Fourteen
<PAGE>
Analysis of Loans
The table below represents a breakdown of loan balances of the Company at
December 31.
(dollars in thousands) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Commercial $ 30,517 $ 29,275 $ 24,819 $ 15,947 $ 17,933
Real estate--development and
construction (1) 112,838 89,877 72,857 57,453 39,131
Real estate--mortgage:
Residential 11,897 12,726 13,383 13,491 19,413
Commercial 14,470 9,108 10,251 12,872 8,556
Consumer:
Retail (2) 67,731 49,225 40,354 31,149 31,635
Credit card 1,543 1,527 1,432 1,238 1,011
-------------------------------------------------
Total loans $238,996 $191,738 $163,096 $132,150 $117,679
=================================================
(1) At December 31, 1996, 1995, 1994, 1993, and 1992 loans to individuals for
constructing primary personal residences represented $10,780, $16,071,
$18,631, $16,456, and $9,593, respectively.
(2) Primarily loans secured by the borrowers' principal residences in the form
of home equity lines of credit and second mortgages.
Total loans increased $47.3 million during the year ended December 31, 1996
representing a 24.6% increase. All loan types, except residential mortgage
loans, exhibited growth during the period. However, the increase in loan
activity was largely attributable to continued growth in the Company's
residential development and construction loan portfolio and in the consumer loan
port-folio, primarily home equity lines of credit and second mortgages.
The following table summarizes the Company's exposure resulting from loan
concentrations in its loan portfolio. Loan concentrations result when loans are
made to a number of borrowers engaged in similar activities which may be
similarly impacted by economic or other conditions. This table presents the
Company's credit concentration to borrowers involved in residential real estate
development and/or construction as of December 31, 1996. There were no other
loan concentrations exceeding 10% of gross loans as of December 31, 1996.
Total
(dollars in thousands) Principal
-----------------------------------------------------
Loans receivable $115,449
Unused credit lines 50,735
Letters of credit (1) 13,600
--------
$179,784
========
(1) Includes letters of credit totalling $3,655 which are secured by cash.
The following table shows the contractual maturities and interest rate
sensitivities of loans of the Company at December 31, 1996, exclusive of
nonaccrual loans totalling $3.9 million. Some loans may include contractual
installment payments which are not reflected in the table until final maturity.
In addition, the Company's experience indicates that a significant number of
loans will be extended or repaid prior to contractual maturity. Consequently,
the table cannot necessarily be viewed as an accurate forecast of future cash
repayments.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------------
After 1
In one year or less through 5 years After 5 years
-----------------------------------------------------------------------
(dollars in thousands) Fixed Variable Fixed Variable Fixed Variable Total
- -----------------------------------------------------------------------------------------------------
<S><C>
Commercial $ 893 $ 17,511 $ 1,704 $ 8,469 $ 820 $ 593 $ 29,990
Real estate--construction 11,401 97,323 686 144 -- 61 109,615
Real estate--mortgage 1,551 1,535 3,626 11,827 5,165 2,600 26,304
Consumer 1,775 6,071 8,746 3,618 10,797 38,229 69,236
-----------------------------------------------------------------------
$15,620 $122,440 $14,762 $24,058 $16,782 $41,483 $235,145
=======================================================================
</TABLE>
Page Fifteen
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
The following table provides information concerning nonperforming assets and
past-due loans.
December 31,
-----------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
Nonperforming loans:
Nonaccrual loans (1) $3,851 $1,051 $ 679 $ 563 $1,811
Restructured loans (2) -- -- -- -- --
-----------------------------------------
Total nonperforming loans 3,851 1,051 679 563 1,811
Other real estate owned 448 89 1,731 2,865 3,138
-----------------------------------------
Total nonperforming assets $4,299 $1,140 $2,410 $3,428 $4,949
=========================================
Loans past-due 90 days or more $ 59 $ 141 $ 479 $1,312 $ 743
=========================================
(1) Loans are placed in nonaccrual status when they are past due 90 days as to
either principal or interest or when, in the opinion of management, the
collection of all principal and interest is in doubt. Management may grant
a waiver from nonaccrual status for a 90-day past-due loan which is both
well secured and in the process of collection. A loan remains in nonaccrual
status until the loan is current as to payment of both principal and
interest and the borrower demonstrates the ability to pay and remain
current.
(2) Restructured loans are "troubled debt restructurings" as defined in
Statement of Financial Accounting Standards No. 15. Nonaccrual loans are not
included in these totals.
The largest component of nonperforming assets at December 31, 1996 was the
Company's portfolio of nonaccrual loans totalling $3.9 million. At December 31,
1996, nonaccrual loans consisted primarily of seven residential development and
construction loans totalling $3.2 million and one commercial mortgage loan
totalling $517,000. The collateral for five of these loans and a portion of the
collateral for one additional loan with aggregate balances totalling $2.8
million are currently under contract of sale and one loan totalling $50,000 was
paid in full subsequent to December 31, 1996. An additional $266,000 was
transferred to other real estate owned subsequent to December 31, 1996.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114") and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition Disclosures" ("SFAS No. 118"), the Company measures impaired loans
(i) at the present value of expected future cash flows discounted at the loan's
effective interest rate; (ii) at the observable market price; or (iii) at the
fair value of the collateral if the loan is collateral dependent. If the measure
of the impaired loan is less than the recorded investment in the loan, an
impairment is recognized through a valuation allowance and corresponding
provision for credit losses.
A loan is determined to be impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest past-due. The Company generally
considers a period of delay in payment to include delinquency up to 90 days.
SFAS No. 114 does not apply to larger groups of smaller-balance
homogeneous loans such as consumer installment, residential first and second
mortgage loans and credit card loans. These loans are collectively evaluated for
impairment. The Company's impaired loans are therefore comprised primarily of
commercial loans, including commercial mortgage loans, and real estate
development and construction loans. In addition, impaired loans are generally
loans which management has placed in nonaccrual status since loans are generally
placed in nonaccrual status on the earlier of the date that management
determines that the collection of principal and/or interest is in doubt or the
date that principal or interest is 90 days or more past-due.
Impaired loans at December 31, 1996 totalled $3.8 million and all were
collateral dependent loans. Collateral dependent loans are measured based on
the fair value of the collateral. There were no impaired loans at December
31, 1996 with an allocated valuation allowance. An impaired loan is charged-off
when the loan, or a portion thereof, is considered uncollectible.
Page Sixteen
<PAGE>
The Company provides for credit losses through the establishment of an
allowance for credit losses (the "Allowance") by provisions charged against
earnings. Based upon management's monthly evaluation, provisions are made to
maintain the Allowance at a level adequate to absorb potential losses within
the loan portfolio. The provision for credit losses was $621,000 the year
ended 1996 as compared with $559,000 and $242,000 for the years ended 1995
and 1994, respectively.
The factors used by management in determining the adequacy of the Allowance
include historical relationships among loans outstanding; credit loss experience
and the current level of the Allowance; a continuing evaluation of nonperforming
loans and loans classified by management as having potential for future
deterioration taking into consideration collateral value and the financial
strength of the borrower and guarantors; and a continuing evaluation of the
present and future economic environment. Regular review of the loan portfolio's
quality is conducted by the Company's staff. In addition, bank supervisory
authorities and independent consultants and accountants periodically review the
loan portfolio. At December 31, 1996 the Allowance was 1.38% of total loans, net
of unearned income. The Allowance at December 31, 1996 is considered by
management to be sufficient to address the credit risk in the current loan
portfolio.
The following table presents certain information regarding the Allowance:
Years Ended December 31,
-------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Allowance at beginning of year $2,929 $2,578 $2,366 $2,067 $ 840
Less losses charged-off:
Commercial -- 72 -- 52 84
Real estate 240 23 37 101 5
Retail 39 140 57 44 130
Credit cards 29 23 32 25 10
--------------------------------------
Total losses charged-off 308 258 126 222 229
--------------------------------------
Recoveries of losses previously
charged-off:
Commercial 4 -- 5 2 3
Real estate 38 25 55 6 --
Retail 9 22 33 6 4
Credit cards -- 3 3 2 --
--------------------------------------
Total recoveries 51 50 96 16 7
--------------------------------------
Net losses charged-off 257 208 30 206 222
Provision for credit losses 621 559 242 505 549
Acquired allowance of Fairview -- -- -- -- 900
--------------------------------------
Allowance at end of year $3,293 $2,929 $2,578 $2,366 $2,067
======================================
Ratio of allowance to nonperforming
and past-due loans (1) 84.23% 245.72% 222.62% 126.19% 80.93%
======================================
Ratio of allowance to loans, net of
unearned income 1.38% 1.54% 1.59% 1.80% 1.76%
======================================
(1) There is no direct relationship between the size of the Allowance (and the
related provision for credit losses) and the nonperforming and past-due
loans. Accordingly, the ratio of Allowance to nonperforming and past-due
loans may tend to fluctuate significantly.
Page Seventeen
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
A breakdown of the Allowance is provided in the table below; however,
management does not believe that the Allowance can be segregated by category
with any precision that would be useful. The breakdown of the Allowance
is based primarily on those factors discussed previously in evaluating the
adequacy of the Allowance as a whole. Since all of those factors are subject to
change, the breakdown is not necessarily indicative of the category of potential
future credit losses.
The following table presents the allocation of the Allowance among the
various loan categories.
December 31,
---------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Commercial $ 566 $ 350 $ 362 $ 315 $ 499
Real estate 1,946 1,201 816 750 599
Consumer 275 207 185 173 239
Unallocated 506 1,171 1,215 1,128 730
--------------------------------------
$3,293 $2,929 $2,578 $2,366 $2,067
======================================
The table below provides a percentage breakdown of the loan portfolio by
category to total loans, net of unearned income.
December 31,
---------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Commercial 12.8% 15.3% 15.2% 12.1% 15.3%
Real estate 58.2 58.1 59.2 63.4 56.9
Consumer 29.0 26.6 25.6 24.5 27.8
-------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
=====================================
Deposits Analysis
The following table sets forth the average deposit balances and average
rates paid on deposits during the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1996 1995 1994
---------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------
<S><C>
Total noninterest-
bearing deposits $ 36,785 --% $ 29,885 --% $ 28,268 --%
Interest-bearing deposits:
NOW accounts 25,479 2.04 23,688 2.04 22,307 2.17
Savings accounts 44,022 3.22 43,864 3.48 48,534 3.22
Money market accounts 34,860 3.15 31,059 3.33 28,380 3.08
Certificates of deposit 92,125 5.44 74,289 5.44 57,644 4.05
----------------------------------------------------------
Total interest-bearing
deposits 196,486 4.10 172,900 4.10 156,865 3.35
----------------------------------------------------------
Total deposits $233,271 $202,785 $185,133
==========================================================
</TABLE>
Total deposits increased $36.5 million during the year ended December 31,
1996. The aggregate growth in deposits during 1996 was primarily attributable
to growth in certificates of deposit totalling $19.6 million and growth in
noninterest-bearing deposits totalling $11.4 million.
Page Eighteen
<PAGE>
The following table provides the maturities of certificates of deposit of
the Company in amounts of $100,000 or more. The Company had no brokered deposits
as of December 31, 1996.
December 31,
-------------------------
(dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------
Maturing in:
3 months or less $ 4,336 $ 3,194 $ 2,463
Over 3 months through 6 months 2,659 1,902 1,241
Over 6 months through 12 months 2,728 739 834
Over 12 months 2,427 2,146 1,325
-------------------------
$12,150 $ 7,981 $ 5,863
=========================
Short-term Borrowings
Short-term borrowings consist of short-term promissory notes issued to
certain qualified investors and borrowings from the FHLB. The short-term
promissory notes were in the form of commercial paper, which repriced daily and
had maturities of 270 days or less. Borrowings from the FHLB outstanding during
1996, 1995 and 1994 repriced daily, had maturities of one year or less and could
have been prepaid without penalty.
The table below presents certain information with respect to short-term
borrowings:
December 31,
---------------------------
(dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Amount outstanding at year-end:
Short-term promissory notes $12,127 $15,299 $ 3,396
Borrowings from FHLB 18,000 -- 13,500
Weighted average interest rate at year-end:
Short-term promissory notes 4.8% 5.3% 5.8%
Borrowings from FHLB 6.7 -- 6.7
Maximum outstanding at any month-end:
Short-term promissory notes $15,369 $15,299 $ 8,805
Borrowings from FHLB 18,000 20,500 14,500
Average outstanding:
Short-term promissory notes 12,090 7,503 4,754
Borrowings from FHLB 3,884 8,542 6,312
Weighted average interest rate during the year:
Short-term promissory notes 4.4% 4.6% 3.7%
Borrowings from FHLB 4.8 5.4 4.3
Capital Adequacy
The Federal Reserve Board has adopted risk-based guidelines for bank holding
companies. As of December 31, 1996, the minimum ratio of capital to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) was 8.0%. At least half of the total capital must be
comprised of common equity, retained earnings and a limited amount of perpetual
preferred stock, after subtracting goodwill and making certain other adjustments
("Tier 1 capital"). The remainder may consist of perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and limited amounts of credit loss reserves ("Tier 2 capital").
The maximum amount of supplementary capital elements that qualifies as Tier 2
capital is limited to 100% of Tier 1 capital, net of goodwill and certain other
intangible assets. The Federal Reserve Board also has adopted a minimum leverage
ratio (Tier 1 capital to assets) of 3% for bank holding
Page Nineteen
<PAGE>
[Columbia Bancorp Logo] Management's Discussion and Analysis
(continued)
COLUMBIA BANCORP AND SUBSIDIARY
companies that meet certain specified criteria, including having the highest
regulatory rating. The rule indicates that the minimum leverage ratio should
be at least 1.0% to 2.0% higher for holding companies that do not have the
highest rating or that are undertaking major expansion programs. Failure to
meet the capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal bank regulatory agencies.
The tables below present the Company's capital position relative to its
various minimum statutory and regulatory capital requirements.
Leverage Capital Ratio
December 31, 1996
--------------------------
Percent of
(dollars in thousands) Amount Average Assets
- -----------------------------------------------------------------
Tier 1 capital (1) $ 30,716 10.1%
Leverage capital ratio requirement 9,115 3.0
--------------------
Excess $ 21,601 7.1%
====================
Quarterly average total assets $303,828
========
Risk-based
Capital Ratio
December 31, 1996
----------------------
Percent of
Risk-based
(dollars in thousands) Amount Assets
- --------------------------------------------------------------------------
Tier 1 capital (1) $ 30,716 11.9%
Risk-based Tier 1 capital requirement 10,314 4.0
--------------------
Excess $ 20,402 7.9%
====================
Tier 1 capital (1) $ 30,716 11.9%
Tier 2 capital (2) 3,224 1.3
--------------------
Total risk-based capital 33,940 13.2
Fully phased-in risk-based capital requirements 20,628 8.0
--------------------
Excess $ 13,312 5.2%
====================
Risk-based assets $257,847
========
(1) Tier 1 capital is comprised of the following
at December 31, 1996
GAAP capital $30,975
Less intangible assets (268)
Add unrealized losses on securities
available-for-sale, net of taxes 9
-------
$30,716
=======
(2) Tier 2 capital is comprised of the allowance for credit losses limited to
1.25% of risk-based assets, or $3,224
Recent Accounting Developments
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. This Statement will
require, among other things, that the Company record at fair value, assets and
liabilities resulting from a transfer of financial assets. The Company will
adopt the provisions of SFAS No. 125 as of January 1, 1997, and management
believes that the adoption of SFAS No. 125 will not have a material effect on
the Company's reported financial condition or results of operations.
Page Twenty
<PAGE>
[Columbia Bancorp Logo] Independent Auditors' Report
COLUMBIA BANCORP AND SUBSIDIARY
The Board of Directors
Columbia Bancorp:
We have audited the consolidated statements of condition of Columbia
Bancorp and subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended 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 audits.
We conducted our audits 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Columbia
Bancorp and subsidiary as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
_________________________
February 7, 1997
Baltimore, MD
Page Twenty-One
<PAGE>
[Columbia Bancorp Logo] Consolidated Statements of Condition
As of December 31, 1996 and 1995
COLUMBIA BANCORP AND SUBSIDIARY
1996 1995
- --------------------------------------------------------------------------------
Assets
Cash and due from banks (note 2) $ 17,753,174 $ 10,182,474
Federal funds sold 3,477,436 17,909,575
Investment securities--fair value $39,839,135 in
1996 and $24,740,814 in 1995 (note 3) 39,795,128 24,766,654
Securities available-for-sale (note 3) 4,353,884 10,574,349
Residential mortgage loans originated for sale 1,551,408 1,045,170
Loans (notes 4 and 5):
Commercial 30,517,140 29,274,548
Real estate--development and construction 112,837,758 89,877,012
Real estate--mortgage:
Residential 11,897,386 12,726,384
Commercial 14,470,139 9,107,672
Retail, principally residential equity lines of
credit 67,730,804 49,225,092
Credit card 1,543,175 1,527,825
---------------------------
Total loans 238,996,402 191,738,533
Less:
Unearned income, net of deferred
origination costs 1,121,326 1,047,163
Allowance for credit losses 3,292,754 2,929,177
---------------------------
Loans, net 234,582,322 187,762,193
Other real estate owned (note 6) 447,550 89,145
Investment in and advances to limited
partnerships (note 7) -- 450,391
Property and equipment, net (note 8) 7,683,598 6,580,100
Prepaid expenses and other assets (notes 9 and 14) 7,589,425 3,664,577
---------------------------
Total assets $317,233,925 $263,024,628
===========================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand deposits $ 43,980,900 $ 32,553,238
Interest-bearing deposits:
Savings and checking 106,131,634 100,724,265
Certificates of deposit:
Under $100,000 92,376,853 76,902,742
$100,000 and over 12,150,499 7,981,277
---------------------------
Total deposits 254,639,886 218,161,522
Short-term borrowings (note 15) 30,127,073 15,299,267
Accrued expenses and other liabilities 1,492,127 1,500,285
---------------------------
Total liabilities 286,259,086 234,961,074
---------------------------
Stockholders' equity (notes 12, 13, 18 and 19):
Common stock, $.01 par value per share; authorized
9,550,000 shares; outstanding 2,148,004 and
2,145,753 shares at December 31,1996 and 1995,
respectively 21,480 21,457
Additional paid-in capital 22,598,578 22,576,938
Retained earnings 8,363,390 5,513,921
Net unrealized loss on securities available-for-sale (8,609) (48,762)
---------------------------
Total stockholders' equity 30,974,839 28,063,554
Commitments and contingent liabilities
(notes 10 and 11)
---------------------------
Total liabilities and stockholders' equity $317,233,925 $263,024,628
===========================
See accompanying notes to consolidated financial statements.
Page Twenty-Two
<PAGE>
[Columbia Bancorp Logo] Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------
<S><C>
Interest income:
Loans $23,447,203 $19,831,605 $14,896,420
Federal funds sold 375,222 490,999 182,975
Investment securities 2,000,003 1,887,216 1,944,130
Deposits in other banks -- -- 7,899
--------------------------------------
Total interest income 25,822,428 22,209,820 17,031,424
--------------------------------------
Interest expense:
Deposits 8,048,878 7,085,219 5,256,016
Short-term borrowings 720,148 806,572 449,099
--------------------------------------
Total interest expense 8,769,026 7,891,791 5,705,115
--------------------------------------
Net interest income 17,053,402 14,318,029 11,326,309
Provision for credit losses 621,000 559,000 242,000
--------------------------------------
Net interest income after provision
for credit losses 16,432,402 13,759,029 11,084,309
--------------------------------------
Noninterest income:
Fees charged for services 964,463 731,531 717,094
Gains and fees on sales of loans 753,309 650,722 869,155
Premium on sale of deposits -- -- 19,750
Gain on sale of other assets 4,178 -- 8,361
Other 336,353 192,572 206,700
--------------------------------------
Total noninterest income 2,058,303 1,574,825 1,821,060
--------------------------------------
Noninterest expenses:
Salaries and employee benefits 6,040,464 5,085,616 4,318,726
Occupancy, net (notes 10 and 16) 1,104,441 657,358 564,884
Equipment 808,462 668,368 630,210
Deposit insurance 686,754 344,450 357,263
Data processing 572,617 325,141 293,042
Marketing 479,239 324,856 294,394
Cash management services 472,901 409,121 326,399
Professional fees 274,094 358,585 421,589
Equity in net loss of limited partnerships 87,390 96,000 296,000
Net expense on other real estate
owned (note 6) 11,040 78,798 211,275
Loss on disposition of property -- 128,466 --
Other (note 17) 1,814,500 1,270,345 1,252,573
--------------------------------------
Total noninterest expenses 12,351,902 9,747,104 8,966,355
--------------------------------------
Income before income taxes 6,138,803 5,586,750 3,939,014
Income tax provision (note 14) 2,386,921 2,158,000 1,523,350
--------------------------------------
Net income $ 3,751,882 $ 3,428,750 $ 2,415,664
======================================
Net income per common share:
Primary $ 1.66 $ 1.95 $ 1.67
Fully diluted 1.66 1.80 1.56
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
Page Twenty-Three
<PAGE>
[Columbia Bancorp Logo] Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
Net
unrealized
loss on
Additional securities Total
Common Preferred paid-in Retained available- stockholders'
stock stock capital earnings for-sale equity
- ------------------------------------------------------------------------------------------------------
<S><C>
Balance
December 31, 1993 $10,400 $ 4,500 $14,209,093 $1,235,104 $ -- $15,459,097
Cash dividends declared
on Series A
preferred stock -- -- -- (540,000) -- (540,000)
Cash dividends declared
on common stock -- -- -- (145,636) -- (145,636)
Stock options exercised 2 -- 2,498 -- -- 2,500
Net income -- -- -- 2,415,664 -- 2,415,664
Net unrealized loss on
securities available-
for-sale -- -- -- -- (318,548) (318,548)
------------------------------------------------------------------------------
Balance
December 31, 1994 10,402 4,500 14,211,591 2,965,132 (318,548) 16,873,077
Cash dividends declared
on Series A
preferred stock -- -- -- (454,072) -- (454,072)
Cash dividends declared
on common stock -- -- -- (425,889) -- (425,889)
Conversion of 444,000
shares of Series A
preferred stock,
net of cash in lieu of
fractional shares 4,144 (4,440) 170 -- -- (126)
Issuance of 685,903 shares
of common stock, net
of costs of issuance 6,859 -- 8,380,840 -- -- 8,387,699
Redemption for cash of
6,000 shares of Series A
preferred stock -- (60) (62,940) -- -- (63,000)
Stock options exercised 52 -- 47,277 -- -- 47,329
Net income -- -- -- 3,428,750 -- 3,428,750
Change in net unrealized
loss on securities
available-for-sale -- -- -- -- 269,786 269,786
------------------------------------------------------------------------------
Balance
December 31, 1995 21,457 -- 22,576,938 5,513,921 (48,762) 28,063,554
Cash dividends declared
on common stock -- -- -- (902,413) -- (902,413)
Stock options exercised 23 -- 21,640 -- -- 21,663
Net income -- -- -- 3,751,882 -- 3,751,882
Change in net unrealized
loss on securities
available-for-sale -- -- -- -- 40,153 40,153
------------------------------------------------------------------------------
Balance
December 31, 1996 $21,480 $ -- $22,598,578 $8,363,390 $ (8,609) $30,974,839
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Page Twenty-Four
<PAGE>
[Columbia Bancorp Logo] Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S><C>
Cash flows from operating activities:
Net income $ 3,751,882 $ 3,428,750 $ 2,415,664
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 780,494 623,804 453,736
Proceeds from sales of residential
mortgage loans originated for sale 47,871,455 38,857,990 53,012,350
Disbursements for residential
mortgage loans originated for sale (48,377,693) (39,443,200) (48,034,507)
Provision for credit losses 621,000 559,000 242,000
Provision for losses on other
real estate owned 9,000 25,538 112,751
Increase in unearned income,
net of origination costs 74,163 203,746 58,378
Loss on disposition of property -- 128,466 --
Equity in net loss of limited partnerships 87,390 96,000 296,000
Increase in prepaid expenses and
other assets (1,097,306) (319,168) (942,419)
Increase (decrease) in accrued expenses
and other liabilities (51,343) 361,023 140,555
Other -- -- (6,379)
--------------------------------------------
Net cash provided by
operating activities 3,669,042 4,521,949 7,748,129
--------------------------------------------
Cash flows provided by (used in)
investing activities:
Loan disbursements in excess of
principal repayments (52,747,681) (39,213,089) (39,689,543)
Loan purchases (5,328,644) (2,106,148) (19,550)
Loan sales 10,096,479 12,446,446 8,691,309
Purchases of investment securities (28,468,034) (8,985,710) (9,510,635)
Purchases of securities available-for-sale -- -- (1,989,375)
Proceeds from maturities and principal
repayments of investment securities 13,457,913 11,138,478 16,420,358
Proceeds from maturities and principal
repayments of securities available-for-sale 6,284,853 1,222,221 196,943
Additions to other real estate owned -- (142,004) (591,392)
Sales of other real estate owned 80,145 1,758,303 1,683,827
Proceeds from investments in
limited partnerships 363,001 28,000 27,500
Purchases of property and equipment (1,907,237) (905,520) (745,127)
Disposal of property and equipment 30,365 -- --
Purchase of life insurance (2,835,000) -- --
Increase in cash surrender value
of life insurance (25,246) -- --
--------------------------------------------
Net cash used in investing activities (60,999,086) (24,759,023) (25,525,685)
--------------------------------------------
(continued)
</TABLE>
Page Twenty-Five
<PAGE>
[Columbia Bancorp Logo] Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S><C>
Cash flows provided by (used in)
financing activities:
Net increase in deposits $ 36,478,364 $ 23,250,858 $ 3,153,527
Increase (decrease) in short-term
borrowings 14,827,806 (1,596,443) 2,831,843
Cash dividend distributed on Series A
preferred stock -- (454,072) (540,000)
Cash dividend distributed on
common stock (859,228) (263,327) (93,624)
Proceeds from stock options exercised 21,663 47,329 2,500
Redemption of Series A preferred stock -- (63,000) --
Cash distribution in lieu of
fractional shares upon conversion
of Series A preferred stock -- (126) --
Purchase of deposits -- 5,492,853 10,176,163
Issuance of common stock, net of
costs of issuance -- 8,387,699 --
--------------------------------------------
Net cash provided by
financing activities 50,468,605 34,801,771 15,530,409
--------------------------------------------
Net increase (decrease) in cash and
cash equivalents (6,861,439) 14,564,697 (2,247,147)
Cash and cash equivalents at beginning
of year 28,092,049 13,527,352 15,774,499
--------------------------------------------
Cash and cash equivalents at end
of year $ 21,230,610 $ 28,092,049 $ 13,527,352
============================================
Supplemental information:
Interest paid on deposits and
short-term borrowings $ 8,747,962 $ 7,802,276 $ 5,574,388
Income taxes paid 2,910,445 1,985,000 1,810,000
Transfers of loans to other
real estate owned 447,550 -- 76,107
============================================
</TABLE>
See accompanying notes to consolidated financial statements.
Page Twenty-Six
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995
COLUMBIA BANCORP AND SUBSIDIARY
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Columbia Bancorp and subsidiary
(the "Company") conform to generally accepted accounting principles. The
following is a description of the more significant of these policies:
Organization
The Company was formed November 16, 1987 and is a Maryland corporation
chartered as a bank holding company. The Company holds all the issued and
outstanding shares of common stock of The Columbia Bank (the "Bank"). The Bank
is a Maryland trust company which engages in general commercial banking
operations. Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation.
The Bank provides comprehensive and service-intensive commercial and
retail banking services to individuals and small and medium-sized businesses.
Services offered by the Bank include a variety of loans and a broad spectrum of
commercial and consumer financial services.
Basis of presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for credit losses
and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowance for credit losses and other real estate owned, management
prepares fair value analysis and obtains independent appraisals as necessary.
Management believes that the allowance for credit losses is sufficient to
address the risks in the current loan portfolio. While management uses available
information to recognize losses on loans and other real estate owned, future
additions to the allowances may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowances for credit losses and other real estate owned. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examinations.
All significant intercompany accounts and transactions have been eliminated
in the consolidated financial statements.
Certain amounts for 1995 and 1994 have been reclassified to conform to the
presentation for 1996.
Investment securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company classifies its debt securities as trading securities, investment
securities or securities available-for-sale. The Company has no trading
securities held for the purpose of sale in the near term. Investment securities
are securities which the Company intends to hold and has the ability to hold
until maturity. All other securities are classified as securities
available-for-sale. Investment securities are recorded at cost, adjusted
for amortization of premium and accretion of discount. Securities
available-for-sale are recorded at their fair value and unrealized holding
gains or losses, net of the related tax effect, are excluded from earnings
and reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value on the
date of the transfer. The unrealized holding gains or losses included as
a separate component of stockholders' equity at the time of a transfer of
securities from securities available-for-sale to investment securities
are amortized into earnings over the remaining life of the security as an
adjustment to yield consistent with the method of amortization or
accretion of the premium or discount on the associated security.
Page Twenty-Seven
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
A decline in the market value of any security which is deemed other
than temporary is charged to earnings, resulting in a new cost basis
for the security.
Federal funds sold
Federal funds sold are carried at cost which approximates market and are
generally sold for one-day periods.
Residential mortgage loans originated for sale
Residential mortgage loans originated for
sale are carried at the lower of cost or the committed sale price, determined on
an individual basis.
Loans receivable
Loans are stated at the amount of unpaid principal reduced by unearned
income and the allowance for credit losses. Unearned income consists of
commitment and origination fees, net of origination costs. Loans are placed
in nonaccrual status when they are past-due 90 days as to either principal
or interest or when, in the opinion of management, the collection of principal
and interest is in doubt. Management may grant a waiver from nonaccrual
status for a 90-day past-due loan which is both well secured and in the
process of collection. A loan remains in nonaccrual status until the loan
is current as to payment of both principal and interest and the borrower
demonstrates the ability to pay and remain current. Loans are charged-off
when a loan or a portion thereof is considered uncollectible.
In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114") and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan Income Recognition Disclosures"
("SFAS No. 118"), the Company identifies impaired loans and measures
impairment (i) at the present value of expected cash flows discounted at the
loan's effective interest rate; (ii) at the observable market price; or (iii)
at the fair value of the collateral if the loan is collateral dependent. If
the measure of the impaired loan is less than the recorded investment in the
loan, an impairment is recognized through a valuation allowance and
corresponding provision for credit losses.
A loan is determined to be impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest past-due. The Company
generally considers a period of delay in payment to include delinquency up
to 90 days.
SFAS No. 114 does not apply to larger groups of smaller-balance homogeneous
loans such as consumer installment, residential first and second mortgage
loans and credit card loans. These loans are collectively evaluated for
impairment. The Company's impaired loans are therefore comprised primarily
of commercial loans, including commercial mortgage loans, and real estate
development and construction loans. In addition, impaired loans are generally
loans which management has placed in nonaccrual status since loans are generally
placed in nonaccrual status on the earlier of the date that management
determines that the collection of principal and/or interest is in doubt or
the date that principal or interest is 90 days or more past-due.
The allocated valuation allowance, if any, is included in the Company's
allowance for credit losses. An impaired loan is charged-off when the loan, or
a portion thereof, is considered uncollectible.
The Company recognizes interest income for impaired loans consistent with its
method for nonaccrual loans. Specifically, interest payments received are
recognized as interest income or, if the ultimate collectibility of principal
is in doubt, are applied to principal.
Page Twenty-Eight
<PAGE>
Real estate properties acquired in satisfaction of loans
Real estate properties acquired in satisfaction of loans are reported in
other real estate owned and are recorded at the lower of cost or estimated fair
value on their acquisition dates and at the lower of such initial amount or
estimated fair value less selling costs thereafter. Subsequent write-downs
are included in noninterest expense, along with operating income net of
related expenses of such properties and gains or losses realized upon
disposition.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are charged to operating expenses.
Depreciation generally is computed on the straight-line basis over the
estimated useful lives of the assets. Leasehold improvements are generally
amortized over the lesser of the terms of the related leases or the lives of the
assets. Maintenance and repairs are expensed as incurred.
Depreciation and amortization amounts are adjusted, if appropriate, at the
time an asset is retired. Any gain or loss on the sale of an asset is treated as
an adjustment to the basis of its replacement, if traded in, or as an income or
expense item if sold. Leases are accounted for as operating leases since none
meet the criteria for capitalization.
Income taxes
The Company and its subsidiary file a consolidated federal income tax
return. Deferred income taxes are recognized for the tax consequences of
temporary differences between financial statement carrying amounts and the
tax bases of assets and liabilities. Deferred income taxes are provided on
income and expense items when they are reported for financial statement purposes
in periods different from the periods in which these items are recognized in the
income tax returns. Deferred tax assets are recognized only to the extent
that it is more likely than not that such amounts will be realized based
upon consideration of available evidence, including tax planning strategies
and other factors.
Net income per common share
Net income per share is based on the average shares outstanding adjusted
for any outstanding stock options and warrants, discussed in notes 12 and 13,
and other instruments determined to be common stock equivalents.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
------------------------------------------------------------------------------------------
<S><C>
Net income $3,751,882 $3,751,882 $3,428,750 $3,428,750 $2,415,664 $2,415,664
Less annual
dividends on
Series A
preferred stock -- -- 184,072 -- 540,000 --
------------------------------------------------------------------------------------------
Net income
applicable to
common shares $3,751,882 $3,751,882 $3,244,678 $3,428,750 $1,875,664 $2,415,664
==========================================================================================
Weighted average
common shares 2,259,902 2,259,902 1,660,910 1,904,570 1,122,481 1,545,201
Net income per
common share $ 1.66 $ 1.66 $ 1.95 $ 1.80 $ 1.67 $ 1.56
==========================================================================================
</TABLE>
Page Twenty-Nine
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
Stock-based compensation
The Company uses the intrinsic value method to account for stock-based
employee compensation plans. Under this method, compensation cost is
recognized for awards of shares of common stock to employees only if the quoted
market price of the stock at the grant date (or other measurement date, if
later) is greater than the amount the employee must pay to acquire the stock.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS
No. 123 permits companies to adopt a new fair value-based method to account
for stock-based employee compensation plans or to continue using the intrinsic
value method. Information required by SFAS No. 123 concerning the Company's
stock-based compensation plan is provided in note 12.
Statements of cash flows
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
(2) Restrictions on Cash and Due From Banks
The Bank is required by the Federal Reserve System to maintain certain
cash reserve balances based principally on deposit liabilities. At December 31,
1996 and 1995, the required reserve balances were $3,669,000 and $2,722,000,
respectively.
The Bank is also required to maintain a compensating balance with the
servicer of its credit card operation. The balance is calculated
periodically based upon activity. At December 31, 1996 and 1995, the required
compensating balances were $85,680 and $75,600, respectively.
(3) Investment Securities and Securities Available-for-Sale
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-----------------------------------------------------------
<S><C>
Investment securities:
U. S. Treasury securities $36,967,588 $ 130,330 $ 30,923 $37,066,995
Federal agency securities 1,515,154 -- 41,451 1,473,703
Collateralized mortgage obligations 1,312,386 -- 13,949 1,298,437
-----------------------------------------------------------
Total $39,795,128 $ 130,330 $ 86,323 $39,839,135
===========================================================
Securities available-for-sale:
Federal agency securities $ 2,545,002 $ -- $ 14,233 $ 2,530,769
Collateralized mortgage obligations
and mortgage-backed securities 171,288 1,952 553 172,687
Municipal securities 700,628 110 310 700,428
Investment in Federal Home Loan
Bank stock 950,000 -- -- 950,000
-----------------------------------------------------------
Total $ 4,366,918 $ 2,062 $ 15,096 $ 4,353,884
===========================================================
</TABLE>
Page Thirty
<PAGE>
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
-----------------------------------------------------------
<S><C>
Investment securities:
U. S. Treasury securities $18,986,822 $ 110,280 $ 8,007 $19,089,095
Federal agency securities 2,000,000 -- 87,084 1,912,916
Collateralized mortgage obligations 3,779,832 -- 41,029 3,738,803
-----------------------------------------------------------
Total $24,766,654 $ 110,280 $ 136,120 $24,740,814
-----------------------------------------------------------
Securities available-for-sale:
U. S. Treasury securities $ 3,498,216 $ -- $ 8,563 $ 3,489,653
Federal agency securities 5,095,338 262 65,993 5,029,607
Collateralized mortgage obligations
and mortgage-backed securities 409,250 213 3,509 405,954
Municipal securities 700,992 -- 1,857 699,135
Investment in Federal Home Loan
Bank stock 950,000 -- -- 950,000
-----------------------------------------------------------
Total $10,653,796 $ 475 $ 79,922 $10,574,349
===========================================================
</TABLE>
The amortized cost and estimated fair values of nonequity investment
securities and securities available-for-sale at December 31, 1996 and 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities as borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
------------------------------------------------------------
<S><C>
Investment securities:
Due in one year or less $ 9,994,199 $10,008,655 $10,498,832 $10,528,462
Due after one year through five years 28,488,543 28,532,043 10,487,990 10,473,549
Collateralized mortgage obligations 1,312,386 1,298,437 3,779,832 3,738,803
------------------------------------------------------------
Total $39,795,128 $39,839,135 $24,766,654 $24,740,814
============================================================
Securities available-for-sale:
Due in one year or less $ 2,545,002 $ 2,538,119 $ 4,498,216 $ 4,470,853
Due after one year through five years 700,628 693,078 4,796,330 4,747,542
Collateralized mortgage obligations
and mortgage-backed securities 171,288 172,687 409,250 405,954
------------------------------------------------------------
Total $ 3,416,918 $ 3,403,884 $ 9,703,796 $ 9,624,349
============================================================
</TABLE>
There were no sales of investment securities or securities
available-for-sale during 1996 or 1995. At December 31, 1996, investment
securities and securities available-for-sale with an aggregate book value and
fair value of $14,049,014 and $14,091,194, respectively, were pledged as
collateral, primarily for short-term borrowings.
Page Thirty-One
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
(4) Nonperforming Assets, Impaired Loans and Allowance for Credit Losses
Nonperforming assets and loans past-due 90 days or more but not in nonaccrual
status at December 31, 1996 and 1995 were as follows:
1996 1995
--------------------------
Nonaccrual loans $3,850,762 $1,051,156
Other real estate owned 447,550 89,145
--------------------------
Total nonperforming assets $4,298,312 $1,140,301
==========================
Loans past-due 90 days or more $ 58,641 $ 140,893
==========================
The largest component of nonperforming assets at December 31, 1996 was
the Company's portfolio of nonaccrual loans totalling $3,850,762. At December
31, 1996, nonaccrual loans consisted primarily of seven residential development
and construction loans totalling $3,222,735 and one commercial mortgage
totalling $517,208. The collateral for five of these loans and a portion of the
collateral for one additional loan with aggregate balances totalling
$2,779,759 are currently under contract of sale and one loan totalling $50,257
was paid in full subsequent to December 31, 1996. An additional $265,508 was
transferred to other real estate owned subsequent to December 31, 1996.
Impaired loans at December 31, 1996 and 1995 were as follows:
1996 1995
--------------------------
Collateral dependent $3,798,281 $1,100,670
Other -- 68,361
--------------------------
$3,798,281 $1,169,031
==========================
Collateral dependent loans were measured based on the fair value of
the collateral. Other impaired loans were measured based on the present
value of expected cash flows. There were no impaired loans at December 31,
1996 or 1995 with an allocated valuation allowance.
The average recorded investment of impaired loans, the amounts of income
recognized, and the amounts of income recognized on a cash basis during the
years ended December 31, 1996 and 1995 were:
1996 1995
----------------------
Average recorded investment in impaired loans $1,344,800 $1,092,795
Interest income recognized during impairment 54,347 61,770
Interest income recognized on a cash basis during
impairment 52,416 56,200
======================
An analysis of the allowance for credit losses is summarized as follows:
Years ended December 31,
------------------------------------------
1996 1995 1994
------------------------------------------
Balance at beginning of year $2,929,177 $2,578,499 $2,366,210
Provision charged to expense 621,000 559,000 242,000
Charge-offs (308,638) (258,783) (125,807)
Recoveries 51,215 50,461 96,096
------------------------------------------
Balance at end of year $3,292,754 $2,929,177 $2,578,499
==========================================
Ratio of allowance to loans,
net of unearned income 1.38% 1.54% 1.59%
==========================================
Page Thirty-Two
<PAGE>
(5) Related Party Transactions
The Bank has made loans to certain of its executive officers and
directors. These loans were made on substantially the same terms, including
interest rate and collateral requirements, as those prevailing at the time
for comparable transactions with unrelated customers. The following schedule
summarizes changes in amounts of loans outstanding to current executive
officers and directors during 1996:
Balance at January 1, 1996 $2,597,113
Additions 2,984,486
Repayments 3,322,951
----------
Balance at December 31, 1996 $2,258,648
==========
The Bank has issued letters of credit totalling $5,845 and $27,440 at
December 31, 1996 and 1995, respectively, on behalf of parties related to
directors of the Company. At December 31, 1996 and 1995, all of the letters of
credit were collateralized by deposits with the Bank.
During 1996, 1995 and 1994, the Bank paid $9,000, $149,870 and $106,751,
respectively, to companies controlled by two directors for assistance with the
disposition of $1,810,417 of other real estate owned, primarily residential
building lots. The payments represented sales commissions, reimbursement
of marketing expenses, and management fees, exclusive of costs to build.
(6) Other Real Estate Owned
Other real estate owned was $447,550 and $89,145 at December 31, 1996
and 1995, respectively. Net expense on other real estate owned for the
years ended December 31, 1996, 1995 and 1994 was:
1996 1995 1994
---------------------------------------
Net gain on sales $(1,442) $(46,142) $ (8,684)
Operating expenses 3,482 99,402 107,208
Provision for losses 9,000 25,538 112,751
---------------------------------------
Net expense $11,040 $ 78,798 $211,275
=======================================
(7) Investment in and Advances to Limited Partnerships
McAlpine Enterprises, Inc. ("McAlpine"), formally a subsidiary of
Fairview Federal Savings and Loan Association which was acquired by the Company
in June, 1992, held limited partnership interests in partnerships formed for
the purpose of acquiring, developing and operating a strip shopping center
and adjacent parcels of real estate located near Fort Myers, Florida. The
partnership interests were sold during 1996 for $363,001.
(8) Property and Equipment
Property and equipment consisted of the following at December 31, 1996 and
1995:
1996 1995
---------------------------
Land $ 2,070,000 $2,070,000
Buildings and leasehold improvements 4,372,747 3,743,553
Furniture and equipment 3,965,715 2,927,566
Software 203,960 89,385
Automobiles 95,221 79,196
---------------------------
10,707,643 8,909,700
Less accumulated depreciation and amortization 3,024,045 2,329,600
---------------------------
$ 7,683,598 $6,580,100
===========================
Page Thirty-Three
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
(9) Prepaid Expense and Other Assets
Prepaid expenses and other assets consisted of the following at December 31,
1996 and 1995:
1996 1995
--------------------------
Accrued interest receivable $ 2,532,870 $2,030,093
Net deferred tax asset 1,211,930 862,406
Cash surrender value of life insurance 2,860,246 --
Other 984,379 772,078
--------------------------
$ 7,589,425 $3,664,577
==========================
(10) Commitments and Contingent Liabilities
The Company occupies office space under lease agreements which are recorded
as operating leases. A summary of the noncancellable long-term commitment is
as follows:
1997 $516,403
1998 515,651
1999 512,651
2000 513,561
2001 408,638
========
The lease amounts represent minimum rentals, excluding property taxes,
operating expenses or percentage rent which the Company may be obligated to
pay. Rental expense was $621,782, $350,798 and $295,819 in 1996,
1995, and 1994, respectively.
The Company utilizes a third party servicer to provide data processing
services under terms of an agreement which expires in October 2004. Data
processing costs are based upon account and transaction volume and
currently approximate $40,000 monthly.
The Company is also party to legal actions which are routine and
incidental to its business. In management's opinion, the outcome of these
matters will not have a material effect on the financial statements of the
Company.
(11) Financial Instruments with Off-Balance-Sheet Risk and
Concentrations of Credit Risk
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business in order to meet the financing needs of
customers. These financial instruments include commitments to extend credit,
available credit lines and standby letters of credit.
Credit risk is the possibility of sustaining a loss in the event of
nonperformance by the other party to commitments to extend credit and
standby letters of credit. The Company's exposure to credit risk is
represented by the contractual amounts of those financial instruments. The
Company applies the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. A summary of the
financial instruments whose contract amounts represented potential credit risk
at December 31, 1996 and 1995 is as follows:
1996 1995
--------------------------
Commitments to extend credit and available credit lines:
Commercial $ 19,289,869 $ 25,901,748
Real estate--construction 90,181,159 75,606,165
Real estate--residential mortgage 1,999,000 1,790,500
Retail, principally home equity lines of credit 27,875,093 23,600,160
Credit card 5,180,140 4,392,077
--------------------------
144,525,261 131,290,650
Standby letters of credit 14,328,062 13,820,027
Limited recourse on mortgage loans sold 4,817,850 3,177,490
--------------------------
$163,671,173 $148,288,167
==========================
Page Thirty-Four
<PAGE>
The Company evaluates the credit-worthiness of each customer on an
individual basis. The amount of collateral obtained, if deemed
necessary, upon the extension of credit is based on management's evaluation
of the counterparty. Collateral obtained varies but may include: accounts
receivable; inventory; property, plant and equipment; deposits held in
financial institutions; other marketable securities; residential real estate;
and, income producing commercial properties.
Commitments to extend credit are agreements to extend credit to a customer
so long as there is no violation of any contractual condition.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Historically, many of the commercial and
retail commitments expire without being fully drawn, and the total commitment
amounts therefore do not necessarily represent future cash requirements. Real
estate development and construction commitments represent scheduled advances
based on established draw schedules. Due to the short-term nature and rapid
turnover of the real estate development and construction portfolio, cash
requirements are generally satisfied by principal repayments on sales of
properties being financed.
Available credit lines represent the unused portion of lines of credit
previously extended and available to the customer so long as there is no
violation of any contractual condition. Credit lines generally have fixed
expiration dates or other termination clauses. Since many of the credit lines
are expected to expire without being fully drawn, the available amounts do not
necessarily represent future cash requirements. Available commercial and
residential construction credit lines generally do not extend for more than 18
months. Second mortgages and home equity credit lines generally extend for a
period of 15 years and are reviewed annually.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. It is not likely that
the letters of credit will be called because they principally guarantee the
completion of development and construction work to be funded, subsequent to
inspection, by scheduled loan advances issued by the Company on related loans.
Limited recourse on mortgage loans sold relates to contractual provisions
under which the Company may be required to repurchase such loans sold in the
normal course of business which fail to perform in accordance with the
provisions of the related mortgages during the initial period (generally
the first six months or less). Management believes these arrangements
represent insignificant exposure to the Company.
A concentration of credit risk exists with borrowers whose principal
occupation is residential real estate development and/or construction. Loans,
unused credit lines, and letters of credit to such borrowers totalled
approximately $115.4 million, $50.7 million, and $13.6 million, respectively
at December 31, 1996. Generally, these extensions of credit are secured by the
real estate under development and/or construction. Management believes that
its underwriting practices, specifically collateral requirements, mitigate
exposure to the Company.
(12) Employee Benefits
Profit Sharing Plan
Retirement benefits are provided to employees meeting certain age and
service eligibility requirements through a profit sharing plan with a cash
or deferral arrangement qualifying under Section 401(k). Matching
contributions made by the Company totalled $130,192 in 1996, $101,020 in 1995
and $87,422 in 1994.
Deferred Compensation Plan
Effective September 27, 1996, the Company established a nonqualified deferred
compensation arrangement for selected senior officers. Amounts paid under this
plan will be partially or fully recovered through single premium life
insurance policies purchased on the lives of the participants. The Company's
matching contribution and interest credited to participant accounts totalled
$31,796 during 1996.
Page Thirty-Five
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
Stock Option Plans
The Company has stock option award arrangements which provide for the granting
of options to acquire common stock to founders, directors and key employees.
Option prices are equal to or greater than the estimated fair market value of
the common stock at the date of the grant. Employee options are not exercisable
prior to one year from the date of grant. Thereafter, employee options for 200
shares or less are exercisable in full. Employee options for more than 200
shares are exercisable to the extent of 25%, 50%, 75% and 100% after one,
two, three and four years, respectively, from the date of grant. Founder
and director options may be exercised at any time after the date of grant.
Options expire ten years after the date of grant.
Information with respect to stock options is as follows for the years ended
December 31, 1996, 1995 and 1994:
1996 1995 1994
-------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------
Outstanding at
beginning of year 152,080 $9.49 153,933 $9.49 154,703 $ 9.49
Exercised (2,251) 9.62 (1,853) 9.35 (275) 9.09
Forfeited -- -- -- (495) 11.11
-------------------------------------------------------
Outstanding at
end of year 149,829 $9.48 152,080 $9.49 153,933 $ 9.49
=======================================================
A summary of information about stock options outstanding at December 31, 1996
is as follows:
Options Options
Outstanding Exercisable
--------------------------------
Weighted
Average
Remaining
Shares Life (years) Shares
--------------------------------
Exercise price per share:
$ 9.09 114,813 2.2 114,813
9.65 20,080 6.8 15,060
10.00 5,300 7.0 5,300
12.50 649 3.3 649
13.64 8,987 2.6 8,987
--------------------------------
149,829 3.0 144,809
================================
(13) Warrants
Warrants to acquire 75,900 shares of common stock at $9.09 per share
were outstanding and exercisable at December 31, 1996 and 1995.
Page Thirty-Six
<PAGE>
(14) Income Taxes
The provision for income taxes was composed of the following for the years
ended December 31:
1996 1995 1994
------------------------------------------
Current:
Federal $2,264,916 $1,814,399 $1,383,130
State 497,177 429,177 306,184
------------------------------------------
2,762,093 2,243,576 1,689,314
Deferred:
Federal (307,641) (70,065) (135,882)
State (67,531) (15,511) (30,082)
------------------------------------------
(375,172) (85,576) (165,964)
------------------------------------------
Provision for income taxes $2,386,921 $2,158,000 $1,523,350
==========================================
The types of temporary differences that give rise to significant portions of
the net deferred tax asset were as follows at December 31:
1996 1995
---------------------
Deferred tax assets:
Allowance for credit losses $1,150,837 $1,007,777
Deferred compensation 96,571 66,281
Deposits 32,658 2,394
Securities available-for-sale 5,034 30,682
Other 16,877 36,879
---------------------
Total deferred tax assets 1,301,977 1,144,013
---------------------
Deferred tax liabilities:
Loans receivable 51,890 58,362
Federal Home Loan Bank stock dividends 38,157 38,157
Prepaid expenses -- 92,272
Investment in subsidiary -- 61,993
Property and equipment -- 30,823
---------------------
Total deferred tax liabilities 90,047 281,607
---------------------
Net deferred tax asset $1,211,930 $ 862,406
=====================
A reconciliation between the provision for income taxes and the amount
computed by multiplying income before income taxes by the federal income tax
rate of 34% is as follows for the years ended December 31:
1996 1995 1994
------------------------------------------
Tax at federal statutory rate $2,087,193 $1,899,495 $1,339,265
State income taxes, net of federal
income tax benefit 283,566 273,020 182,227
Other 16,162 (14,515) 1,858
------------------------------------------
$2,386,921 $2,158,000 $1,523,350
==========================================
Page Thirty-Seven
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
(15) Short-Term Borrowings
Short-term borrowings consist of short-term promissory notes issued to
certain qualified investors and borrowings from the FHLB. The short-term
promissory notes are in the form of commercial paper, which reprice daily
and have maturities of 270 days or less. Borrowings from the FHLB reprice
daily, have maturities of one year or less and may be prepaid without penalty.
Information with respect to short-term borrowings is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S><C>
Amount outstanding at year-end:
Short-term promissory notes $12,127,073 $15,299,267 $ 3,396,710
Borrowings from FHLB 18,000,000 -- 13,500,000
Weighted average interest rate at year-end:
Short-term promissory notes 4.8% 5.3% 5.8%
Borrowings from FHLB 6.7 -- 6.7
Maximum outstanding at any month-end:
Short-term promissory notes $15,368,866 $15,299,267 $ 8,804,731
Borrowings from FHLB 18,000,000 20,500,000 14,500,000
Average outstanding:
Short-term promissory notes $12,089,582 $ 7,503,140 $ 4,754,350
Borrowings from FHLB 3,884,615 8,541,949 6,311,538
Weighted average interest rate during the year:
Short-term promissory notes 4.4% 4.6% 3.7%
Borrowings from FHLB 4.8 5.4 4.3
</TABLE>
(16) Net Occupancy Expense
Net occupancy expense is comprised of the following for the years ended
December 31:
1996 1995 1994
-------------------------------------------
Occupancy expense $ 1,272,551 $ 850,501 $ 803,911
Rental income 168,110 193,143 239,027
-------------------------------------------
Net occupancy expense $ 1,104,441 $ 657,358 $ 564,884
===========================================
(17) Other Expenses
Other expenses is comprised of the following for the years ended December 31:
1996 1995 1994
----------------------------------------
Stationery and supplies $ 260,631 $ 167,849 $ 111,826
Postage 189,392 147,568 122,863
Insurance 108,165 97,783 97,611
Other (a) 1,256,312 857,145 920,273
----------------------------------------
$ 1,814,500 $ 1,270,345 $ 1,252,573
========================================
(a) No single item included in this category exceeded one percent of total
income.
Page Thirty-Eight
<PAGE>
(18) Dividends
As a depository institution whose deposits are insured by the FDIC, the Bank
may not pay dividends or distribute any of its capital assets while it remains
in default on any assessment due the FDIC. The Bank currently is not in
default under any of its obligations to the FDIC. As a commercial bank
under the Maryland Financial Institution Law, the Bank may declare cash
dividends from undivided profits or, with the prior approval of the
Commissioner of Financial Regulation, out of surplus in excess of 100% of its
required capital stock, and after providing for due or accrued expenses,
losses, interest and taxes.
The Company and the Bank, in declaring and paying dividends, are also
limited insofar as minimum capital requirements of regulatory authorities
must be maintained. The Company and the Bank comply with such capital
requirements.
Dividends declared per share on the Company's common stock were $.42, $.25
and $.14 for the years ended December 31, 1996, 1995 and 1994,
respectively. Dividends declared per share on the Company's Series A
preferred stock were $1.30 and $1.20 for the years ended December 31, 1995 and
1994, respectively.
On December 16, 1996, the Board of Directors of the Bank authorized a cash
dividend of $257,760 to be paid to the Company on January 10, 1997. In
addition, on December 16, 1996, the Board of Directors of the Company
declared a $.12 per share cash dividend to shareholders of common stock of
record on January 2, 1997, payable January 10, 1997.
(19) Regulatory Matters
The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject. As of December 31, 1996, the most
recent notification from the FDIC categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes would
change the Bank's category.
Page Thirty-Nine
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
Regulatory capital amounts and ratios for the Company and the Bank as of
December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
Minimum To be well
requirements capitalized under
for capital prompt corrective
Actual adequacy purposes action provision
---------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------------------------------------------------------
<S><C>
As of December 31, 1996
Total capital (to risk weighted assets):
Consolidated $33,940,561 13.2% $20,627,793 8.0% $25,784,742 10.0%
The Columbia Bank 32,384,778 12.4 20,861,893 8.0 26,077,369 10.0
Tier 1 capital (to risk weighted assets):
Consolidated 30,716,608 11.9 10,313,897 4.0 15,470,845 6.0
The Columbia Bank 29,124,698 11.2 10,430,948 4.0 15,646,421 6.0
Tier 1 capital (to average assets):
Consolidated 30,716,608 10.1 12,153,105 4.0 15,191,381 5.0
The Columbia Bank 29,124,698 9.7 12,053,089 4.0 15,066,362 5.0
As of December 31, 1995
Total capital (to risk weighted assets):
Consolidated 29,972,961 14.1 16,981,180 8.0 21,226,476 10.0
The Columbia Bank 28,776,292 13.5 17,009,122 8.0 21,261,403 10.0
Tier 1 capital (to risk weighted assets):
Consolidated 27,537,121 13.0 8,490,590 4.0 12,735,885 6.0
The Columbia Bank 26,118,617 12.3 8,504,561 4.0 12,756,842 6.0
Tier 1 capital (to average assets):
Consolidated 27,537,121 10.7 10,326,000 4.0 12,907,500 5.0
The Columbia Bank 26,118,617 10.2 10,214,586 4.0 12,768,232 5.0
=====================================================================
</TABLE>
(20) Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument.
Cash and due from banks
The carrying amount of cash and due from banks is a reasonable estimate of
fair value.
Federal funds sold
The carrying amount of federal funds sold is a reasonable estimate of fair
value.
Investment securities and securities available-for-sale
The fair value of securities held as investment and securities
available-for-sale is based upon quoted market prices or dealer quotes.
Residential mortgage loans originated for sale
The carrying amounts of residential mortgage loans originated for sale are
reasonable estimates of fair value.
Page Forty
<PAGE>
Loans receivable
The fair value of loans receivable is estimated by discounting future cash
flows using current rates for which similar loans would be made to borrowers
with similar credit history and remaining maturities.
Deposit liabilities
The fair value of demand deposits and savings accounts is the amount payable
on demand at December 31, 1996. The fair value of fixed maturity certificates
of deposit is estimated using the rates currently offered for deposits of
similar remaining maturities.
Short-term borrowings
The carrying amount of short-term borrowings is a reasonable estimate of
fair value.
Commitments to extend credit, standby letters of credit, and financial
guarantees written
The Company charges fees for commitments to extend credit. Interest rates
on commitments to extend credit are normally committed for periods of less than
one month. Fees charged on standby letters of credit and other financial
guarantees are deemed to be immaterial and these guarantees are expected to be
settled at face amount or expire unused. It is impractical to assign any
fair value to these commitments.
The estimated fair values of the Company's financial instruments at December
31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
------------------------------------------------------------
<S><C>
Financial assets:
Cash and due from banks $ 17,753,174 $ 17,753,174 $ 10,182,474 $ 10,182,474
Federal funds 3,477,436 3,477,436 17,909,575 17,909,575
Investment securities and
securities available-for-sale 44,149,012 44,193,019 35,341,003 35,315,163
Residential mortgage loans
originated for sale 1,551,408 1,551,408 1,045,170 1,045,170
Loans receivable, net of
unearned income 237,875,076 190,691,370
Less allowance for credit losses (3,292,754) (2,929,177)
------------ ------------
Loans, net 234,582,322 238,073,405 187,762,193 192,420,010
Financial liabilities:
Deposits 254,639,886 255,324,798 218,161,522 218,705,568
Short-term borrowings 30,127,073 30,127,073 15,299,267 15,299,267
============================================================
</TABLE>
Page Forty-One
<PAGE>
[Columbia Bancorp Logo] Notes to Consolidated Financial Statements
December 31, 1996 and 1995 (continued)
COLUMBIA BANCORP AND SUBSIDIARY
(21) Financial Information of Parent Company
The following is financial information of Columbia Bancorp (parent company
only):
Balance Sheets December 31,
- ------------------------------------------------------------------
1996 1995
---------------------------
Assets:
Cash and temporary investments $13,808,287 $16,900,106
Investment in The Columbia Bank 29,461,929 26,476,543
Other assets 148,579 372,743
---------------------------
$43,418,795 $43,749,392
===========================
Liabilities and Stockholders' Equity:
Short-term borrowings $12,127,073 $15,299,267
Other liabilities 316,883 386,571
Stockholders' equity 30,974,839 28,063,554
---------------------------
$43,418,795 $43,749,392
===========================
Statements of Income For the years ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1994
--------------------------------
Income:
Interest income $ 613,892 $ 405,641 $ 177,039
Dividend income from subsidiary 901,860 795,889 685,636
Management fees from subsidiary 120,000 160,000 185,000
--------------------------------
1,635,752 1,361,530 1,047,675
--------------------------------
Expenses:
Interest expense on short-term borrowings 532,042 342,635 177,039
Compensation expense 83,150 86,238 68,888
Other expenses 273,108 292,468 371,370
--------------------------------
888,300 721,341 617,297
--------------------------------
Income before taxes and equity in undistributed
net income of The Columbia Bank 747,452 640,189 430,378
Income tax benefit 59,200 59,900 96,450
--------------------------------
Income before equity in undistributed
net income of The Columbia Bank 806,652 700,089 526,828
Equity in undistributed net income
of The Columbia Bank 2,945,230 2,728,661 1,888,836
--------------------------------
Net income $3,751,882 $3,428,750 $2,415,664
================================
Page Forty-Two
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows For the years ended December 31,
- ----------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------
<S><C>
Cash flows from operating activities:
Income before undistributed net
income of The Columbia Bank $ 806,652 $ 700,089 $ 526,828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization 13,700 7,200 4,520
Increase (decrease) in other liabilities (112,876) (149,553) 37,739
Decrease (increase) in other assets 210,464 (144,675) (239,788)
-------------------------------------------
Net cash provided by operating activities 917,940 413,061 329,299
-------------------------------------------
Cash flows used in investing activity--equity
investment in The Columbia Bank -- (6,500,000) --
-------------------------------------------
Cash flows provided by (used in) financing activities:
Increase (decrease) in short-term borrowings (3,172,194) 11,903,557 (3,168,157)
Cash dividends distributed on Series A
preferred stock -- (454,072) (540,000)
Cash dividends distributed on common stock (859,228) (263,327) (93,624)
Redemption of Series A preferred stock -- (63,000) --
Cash distributed in lieu of fractional shares
upon conversion of Series A preferred stock -- (126) --
Issuance of common stock, net of costs
of issuance -- 8,387,699 --
Proceeds from stock options exercised 21,663 47,329 2,500
-------------------------------------------
Net cash provided by (used in)
financing activities (4,009,759) 19,558,060 (3,799,281)
-------------------------------------------
Net increase (decrease) in cash
and temporary investments (3,091,819) 13,471,121 (3,469,982)
Cash and temporary investments
at beginning of year 16,900,106 3,428,985 6,898,967
-------------------------------------------
Cash and temporary investments at end of year $13,808,287 $16,900,106 $ 3,428,985
===========================================
</TABLE>
Page Forty-Three
<PAGE>
[Columbia Bancorp Logo] Recent Common Stock Prices and
Stock Performance Graph
COLUMBIA BANCORP AND SUBSIDIARY
Recent Common Stock Prices
The Company's Common Stock is traded on the National Association of
Securities Dealers' Automated Quotation System ("Nasdaq") National Market
tier of The Nasdaq Stock Market(SM) under the symbol "CBMD".
The following table illustrates high and low sale prices of the
Company's Common Stock for the periods indicated.
Low High
- --------------------------------------
1996 QUARTER ENDED:
Fourth quarter $18.50 $22.00
Third quarter 17.25 19.00
Second quarter 18.50 20.00
First quarter 16.00 20.00
1995 QUARTER ENDED:
Fourth quarter $16.25 $17.25
Third quarter 13.75 17.25
Second quarter 13.75 15.50
First quarter 13.50 15.75
As of December 31, 1996 there were 310 common stockholders of record holding
an aggregate of 2,148,004 shares. The Company believes there to be in excess
of 1,200 beneficial owners of the Company's Common Stock.
Stock Performance Graph
The following graph compares the cumulative total return on the Company's
Common Stock during the five years ended December 31, 1996 with that of a broad
market index (Nasdaq, U.S. Companies) and an industry peer group index (all
publicly traded banks in Maryland, Pennsylvania, Virginia and the District of
Columbia with total assets less than $1 billion). The graph assumes $100 was
invested on December 31, 1991 in the Company's Common Stock and in each of the
indices and assumes reinvestment of dividends.
Five Year Cumulative Total Returns
[Graph appears here--see plot points below]
Index Data:
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Columbia Bancorp 100 157.87 214.12 315.92 409.91 516.16
Nasdaq, US Companies 100 116.38 133.59 130.59 184.67 227.16
Peer Group 100 140.95 187.51 206.09 260.03 310.92
Page Forty-Four
<PAGE>
[Columbia Bancorp Logo] Corporate Information COLUMBIA BANCORP AND SUBSIDIARY
Columbia Bancorp
Directors
James R. Moxley, Jr.
Chairman
Columbia Bancorp
President
Security Development Corp.
Herschel L. Langenthal
Vice Chairman
Columbia Bancorp
Managing Partner
Langenmyer Co.
Anand S. Bhasin
President
Gemini Ventures Corp.
John M. Bond, Sr.
Retired
Vice President/Division
General Manager
Household International, Inc.
John M. Bond, Jr.
President and
Chief Executive Officer
Columbia Bancorp
Garnett Y. Clark, Jr.
President
GYC Group Ltd.
James Clark, Jr.
Retired President
Maryland State Senate
Hugh F.Z. Cole, Jr.
Partner
Brantly Development Group, Inc.
G. William Floyd
General Partner
Venture Associates
Robert J. Gaw
Retired President
Ryland Mortgage Co.
Mary T. Gould
William L. Hermann
General Manager
Glenmore Office
The Columbia Bank
Harry L. Lundy, Jr.
President
Williamsburg Builders, Inc.
Richard E. McCready
Chairman and
Chief Executive Officer
REM Enterprises, Inc.
Osborne A. Payne
President
Broadway-Payne, Inc.
Patricia T. Rouse
Vice President and Secretary
The Enterprise Foundation
Mary S. Scrivener
Robert N. Smelkinson
Chairman
Smelkinson Sysco
Theodore G. Venetoulis
Publisher/Political Consultant
The Columbia Bank
Senior Officers
John M. Bond, Jr.
President and
Chief Executive Officer
Michael T. Galeone
Executive Vice President
Charles C. Holman
Executive Vice President
John A. Scaldara, Jr.
Executive Vice President,
Chief Financial Officer
and Secretary
Robert E. Dael
Senior Vice President
William L. Hermann
General Manager
Glenmore Office
Robert W. Locke, III
Senior Vice President
Scott C. Nicholson
Senior Vice President
The Columbia Bank
Columbia
Advisory Board
Andrew N. Adams, III
President/Treasurer
Ten Oaks Nursery
Randolph W. Brinton
Senior Vice President
Ferris Baker Watts, Inc.
Edward J. Brody
President
Brody Truck Rental, Inc.
Edward J. Brush
President
Fountainhead Title Group
Dwight A. Burrill, Ph.D.
President
Howard Community College
Ryland O. Chapman, III
Headmaster
Glenelg Country School
C. Joan Cochran
Realtor
Long & Foster Realtors
Robert E. Cook
Owner
Laurel Hardware Co., Inc.
Steve Dubin
Chief Financial Officer
Martek Biosciences Corp.
Joel D. Fedder
President
The Fedder Company
John W. Garrison
Senior Partner
Garrison, Mathieson,
Cosgray & Falk
William M. Ginder
Retired
Vice Chairman
Crown Central Petroleum Corp.
Dr. Lenneal J. Henderson
Professor
University of Baltimore
Richard V. Hoenes
Vice President
Cromwell Farms
Stanley M. Levy
Retired
Administrative Law Judge
D. Terrence MacHamer
President
The MacHamer Co.
Donald C. Miller
Retired
Miller Chevrolet
William H. Munn
President
BGE Home Products & Services
S. Zeke Orlinsky
Publisher
Patuxent Publishing Co.
Page Forty-Five
H. Canfield Pitts, II
Resident Manager
Merrill Lynch Pierce
Fenner & Smith, Inc.
Samuel A. Rittenhouse
Retired Manager
Electric Engineering
Baltimore Gas & Electric Co.
Maurice M. Simpkins
Vice President
The Ryland Group
Doris Stromberg Thompson
Retired
Newspaper Editor
John L. Troutman
President
Troutman Company
E. David Walter, Jr.
Vice President
Ferris Baker Watts, Inc.
Johannes Willenpart
Past President
Austronic Security
Systems, Inc.
The Columbia Bank
Baltimore County
Advisory Board
Albert H. Dudley, III, M.D.
Orthopedic Surgeon
Four East Madison
Orthopedics Associates, Inc.
Carol J. Glusman
Administrator
Pathology Associates
Laboratories, Inc.
Edmund F. Haile, P.E.
Chairman
Daft McCune Walker, Inc.
Lawrence E. Holder, M.D.
F.A.C.R.
Chief
Division of Nuclear Medicine
University of Maryland Hospital
John J. Kent, Jr.
Chief Operating Officer
Sheppard & Enoch Pratt Hospital
Douglas L. Miller, Sr.
President
C&D Corporation, Inc.
Branch Locations
Blakehurst
1055 W. Joppa Road
Towson, MD 21204
Phone: (410) 494-6148
Columbia Town Center
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 730-5000
Cross Keys
5100 Falls Road, Suite 96
Baltimore, MD 21210
Phone: (410) 433-1990
Ellicott City
9151 Baltimore National Pike
Ellicott City, MD 21042
Phone: (410) 465-4800
Glenmore
7301 York Road
Towson, MD 21204
Phone: (410) 828-8460
Harmony Hall
6336 Cedar Lane
Columbia, MD 21044
Phone: (410) 531-6000
Harper's Choice
5485 Harper's Farm Road
Columbia, MD 21044
Phone: (410) 730-5085
Heaver Plaza
1301 York Road
Lutherville, MD 21093
Phone: (410) 296-0490
Oakland Mills
5865 Robert Oliver Place
Columbia, MD 21045
Phone: (410) 992-9411
Roland Park Place
830 West 40th Street
Baltimore, MD 21211
Phone: (410) 366-1314
Vantage House
5400 Vantage Point Road
Columbia, MD 21044
Phone: (410) 740-4066
Annual Meeting
The Annual Meeting of
Stockholders will be held on
Monday, April 28, 1997 at
5:30 p.m. at:
The Columbia Inn
Wincopin Circle
Columbia, MD 21044
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Attn: Investor Relations
Phone: 1-800-368-5948
Independent Auditors
KPMG Peat Marwick LLP
111 S. Calvert Street
Baltimore, MD 21202
General Counsel
Piper & Marbury L.L.P.
36 S. Charles Street
Baltimore, MD 21201
Corporate Headquarters
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 465-4800
Fax: (410) 750-0105
Internet:
http://www.columbank.com
Stock Exchange Listing
The Common Stock of
Columbia Bancorp is traded
on the Nasdaq National Market
tier of the Nasdaq Stock
Market(SM) under the
symbol "CBMD."
Additional Information
A copy of Columbia Bancorp's
annual report to the SEC on
Form 10-K may be obtained
without charge upon written
request to:
Columbia Bancorp
9151 Baltimore National Pike
Ellicott City, MD 21042
Attention: John A. Scaldara, Jr.
Design: Curran & Connors, Inc.
Page Forty-Six
<PAGE>
[Columbia Bancorp Logo]
Columbia Bancorp
10480 Little Patuxent Parkway
Columbia, MD 21044
(410) 465-4800
Internet: http://www.columbank.com
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Columbia Bancorp:
We consent to the incorporation by reference in the registration statement (no.
333-10231) on Form S-8 of Columbia Bancorp of our report dated February 7, 1997,
relating to consolidated statements of condition of Columbia Bancorp and
subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1996, which report appears in the
December 31, 1996, annual report on Form 10-K of Columbia Bancorp.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 29, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 17,753,174
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,477,436
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,353,884
<INVESTMENTS-CARRYING> 39,795,128
<INVESTMENTS-MARKET> 39,839,135
<LOANS> 238,996,402
<ALLOWANCE> (3,292,754)
<TOTAL-ASSETS> 317,233,925
<DEPOSITS> 254,639,886
<SHORT-TERM> 30,127,073
<LIABILITIES-OTHER> 1,492,127
<LONG-TERM> 0
0
0
<COMMON> 21,480
<OTHER-SE> 30,953,359
<TOTAL-LIABILITIES-AND-EQUITY> 317,233,925
<INTEREST-LOAN> 23,447,203
<INTEREST-INVEST> 2,000,003
<INTEREST-OTHER> 375,222
<INTEREST-TOTAL> 25,822,428
<INTEREST-DEPOSIT> 8,048,878
<INTEREST-EXPENSE> 8,769,026
<INTEREST-INCOME-NET> 17,053,402
<LOAN-LOSSES> 621,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,351,902
<INCOME-PRETAX> 6,138,803
<INCOME-PRE-EXTRAORDINARY> 3,751,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,751,882
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 6.60
<LOANS-NON> 3,850,762
<LOANS-PAST> 58,641
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 971,906
<ALLOWANCE-OPEN> (2,929,177)
<CHARGE-OFFS> 308,638
<RECOVERIES> 51,215
<ALLOWANCE-CLOSE> (3,292,754)
<ALLOWANCE-DOMESTIC> (3,292,754)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99.1
[Columbia Bancorp Logo]
10480 Little Patuxent Parkway
Columbia, Maryland 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 28, 1997
Notice is hereby given that the Annual Meeting of Stockholders
of Columbia Bancorp will be held at The Columbia Inn, Wincopin Circle, Columbia,
Maryland 21044 on Monday, April 28, 1997, at 5:30 p.m. for the following
purposes:
1. To elect five directors to serve until their terms of office
expire and until their successors are duly elected and
qualified.
2. To adopt the 1997 Stock Option Plan, attached hereto as
Exhibit A.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
March 14, 1997 as the record date for the determination of stockholders entitled
to notice of and to vote at the meeting or any adjournments or postponements
thereof.
Your Proxy is enclosed. You are encouraged to complete, date,
sign and return promptly the Proxy in the envelope provided even though you may
plan to attend the meeting. No postage is necessary for mailing in the United
States. Returning the Proxy will not limit your right to vote in person or to
attend the Annual Meeting, but will insure your representation if you cannot
attend. If you attend the meeting, you may revoke your Proxy and vote in person.
By Order of the Board of Directors
JOHN A. SCALDARA, JR.
Corporate Secretary
Columbia, Maryland
March 25, 1997
<PAGE>
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished on or about March 25, 1997 to
stockholders of Columbia Bancorp (the "Company") in connection with the
solicitation of proxies by the Company's Board of Directors to be used at the
annual meeting of stockholders described in the accompanying notice and at any
adjournments or postponements thereof. The purposes of the meeting are set forth
in the accompanying notice of annual meeting of stockholders.
Proxies and Voting
The accompanying proxy is solicited by the Board of Directors of the
Company. The Board of Directors has selected James R. Moxley, Jr. and Herschel
L. Langenthal, or either of them, to act as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted. This right of revocation is not limited or
subject to compliance with any formal procedure. Any stockholder may attend the
meeting and vote in person whether or not he or she has previously given a
proxy.
The record of stockholders entitled to notice of and to vote at the
annual meeting was taken as of the close of business on March 14, 1997. At that
date there were outstanding and entitled to vote 2,148,312 shares of Common
Stock, par value $.01 per share. In the election of directors each share is
entitled to one vote for each director to be elected; however, cumulative voting
is not permitted. For all matters except the election of directors, each share
is entitled to one vote.
The cost of solicitation of proxies and preparation of proxy materials
will be borne by the Company. The solicitation of proxies will generally be by
mail and by directors, officers and employees of the Company and its subsidiary,
The Columbia Bank (the "Bank"), without additional compensation to them. In some
instances solicitation may be made by telephone or telegraph, the costs of which
will be borne by the Company. The Company may also reimburse brokers,
custodians, nominees and other fiduciaries for reasonable out-of-pocket and
clerical expenses for forwarding proxy materials to principals.
The Annual Report of the Company, including financial statements for
the fiscal year ended December 31, 1996, has been mailed to all stockholders
with this Proxy Statement.
PROPOSAL 1 - ELECTION OF DIRECTORS
The charter and by-laws of the Company provide that the directors shall
be classified into three classes as equal in number as possible, with each
director serving a three year term.
Directors are elected by a plurality of the votes cast by the holders
of shares of Common Stock present in person or represented by proxy at the
meeting with a quorum present. Abstentions and broker non-votes are not
considered to be votes cast.
2
<PAGE>
Nominees
Unless otherwise indicated in the enclosed proxy, the persons named in
such proxy intend to nominate and vote for the election of the following five
nominees for the office of director of the Company, to serve as directors for
three years or until their respective successors have been duly elected and
qualified. All such nominees, with the exception of Mr. Simpkins, are currently
serving as directors. The Board of Directors is not aware that any nominee named
herein will be unable or unwilling to accept nomination or election. Should any
nominee for the office of director become unable to accept nomination or
election, the persons named in the proxy will vote for the election of such
other persons, if any, as the Board of Directors may recommend.
The names and ages (as of March 15, 1997) of persons nominated by the
Board of Directors, their principal occupations and business experience for the
past five years, and certain other information are set forth below. Unless
otherwise noted, and with the exception of Mr. Simpkins, each has served as
director of the Company and the Bank since inception of the Company in 1987 and
the Bank in 1988.
<TABLE>
<CAPTION>
Name of Nominee Information Regarding Nominee
- --------------- -----------------------------
Nominees for Directors to be elected at the 1997 Annual Meeting
to serve until the 2000 Annual Meeting (Class I)
<S><C>
Anand S. Bhasin Mr. Bhasin is 59 years old. He is President of Gemini Ventures Corporation, an
international trading company. Mr. Bhasin has served as a director of the Company
since November, 1990 and the Bank since April, 1992.
Garnett Y. Clark, Jr. Mr. Clark is 54 years old. He is President of GYC Group Ltd., a building and
development company. He is also President of Clark & Associates Realtors, Inc.
Robert J. Gaw Mr. Gaw is 63 years old. He is the retired President of Ryland Mortgage Company
and is a founding director of The Ryland Group, Inc., a residential home builder
and mortgage finance company.
Maurice M. Simpkins Mr. Simpkins is 51 years old. He is Vice President for Public Affairs at The
Ryland Group, Inc., a residential home builder and mortgage finance company, and
has been with Ryland since 1971. Mr. Simpkins is involved in various community
activities in Howard County, including the Columbia Foundation, the Howard County
Economic Development Authority, Columbia Housing Corporation and the United Way
Community Partnership Board. Mr. Simpkins has also served as a member of the
Bank's Columbia Advisory Board. He is a graduate of Morgan State University and
is a resident of Columbia, Maryland.
Robert N. Smelkinson Mr. Smelkinson is 67 years old. He is Chairman of Smelkinson Sysco, a
distribution company.
</TABLE>
3
<PAGE>
Continuing Directors
The following information is provided with respect to directors who
will continue to serve as directors of the Company until the expiration of their
terms at the times indicated. Unless otherwise noted, each has served as a
director of the Company and the Bank since inception of the Company in 1987 and
the Bank in 1988.
<TABLE>
<CAPTION>
Name of Director Information Regarding Director
- ---------------- ------------------------------
Directors to serve until the 1998 Annual Meeting (Class II)
<S><C>
Senator James Clark, Jr. Sen. Clark is 78 years old. He is a retired President of the Maryland State
Senate and is currently a farmer.
Hugh F.Z. Cole, Jr. Mr. Cole is 55 years old. He is Chairman and CFO of Brantly Development Group,
Inc., a real estate development company. Mr. Cole has served as a director of the
Company and Bank since July, 1988.
G. William Floyd Mr. Floyd is 65 years old. He is a general partner of Venture Associates, a
commercial real estate investment firm,
Mary T. Gould Mrs. Gould is 71 years old. She is a community volunteer and homemaker.
Herschel L. Langenthal Mr. Langenthal is 68 years old. He is the managing partner of Langenmyer Company,
an investment company. Mr. Langenthal is also Vice-Chairman of the Company.
Richard E. McCready Mr. McCready is 63 years old. He is Chairman and CEO of REM Enterprises, Inc., a
food brokerage company.
James R. Moxley, Jr. Mr. Moxley is 66 years old. He is President of Security Development Corporation,
a real estate development company. Mr. Moxley is also Chairman of the Company.
Patricia T. Rouse Mrs. Rouse is 70 years old. She is Vice President and Secretary of The Enterprise
Foundation, and director of The Enterprise Development Company.
Directors to serve until the 1999 Annual Meeting (Class III)
John M. Bond, Jr. Mr. Bond, Jr. is 53 years old and has served as director, President, Chief
Executive Officer, and Treasurer of the Company and the Bank since their
inception. He is the son of John M. Bond, Sr.
William L. Hermann Mr. Hermann is 55 years old and is General Manager of the Glenmore office of the
Bank. He is also President of William L. Hermann, Inc., a financial management
company. He has served as a director of the Company and the Bank since June 1989.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name of Director Information Regarding Director
- ---------------- ------------------------------
Directors to serve until the 1999 Annual Meeting (Class III) continued
<S><C>
Harry L. Lundy, Jr. Mr. Lundy is 56 years old. He is President and owner of Williamsburg Group, LLC,
Williamsburg Builders, Inc. and Hallmark Builders, Inc. He is Executive Vice
President and owner of Patriot Homes, Inc. Each of the aforementioned companies
is a residential construction company.
Mary S. Scrivener Mrs. Scrivener is 59 years old. She is Secretary of Calvert General Contractors,
a commercial construction company.
Theodore G. Venetoulis Mr. Venetoulis is 62 years old. He is a former Baltimore County Executive, the
County's senior elected official, and has been publisher of the Orioles Gazette
and political analyst for WBAL-TV in Baltimore, Maryland.
</TABLE>
Director Emeritus
Directors Bond, Sr. and Payne have been appointed by the Boards of
Directors of the Company and the Bank, in recognition of their distinguished
service to each organization, to serve in the position of Director Emeritus for
a period of two years upon their retirement effective April 28, 1997. Each has
served as director of the Company and the Bank since inception of the Company in
1987 and the Bank in 1988. As a director emeritus, each is eligible to receive
compensation and perquisites offered to directors generally and may participate
in discussion at Board meetings, but may not vote and may not be counted for
purposes of determining a quorum. Membership on committees of the Boards of
Directors will cease effective with retirement.
Board and Committee Meetings
The Board of Directors held eleven meetings during 1996. Directors
Floyd and McCready attended fewer than 75% of the sum of the total number of
Company meetings of the Board of Directors and of committees of the Board of
Directors on which each served during 1996.
The Board of Directors has five standing committees. The committees are
the Executive, Audit, Asset/Liability Management, Community Reinvestment Act
("CRA") Advisory and Personnel, Compensation and Stock Option committees. In
addition, the Board of Directors, from time to time, establishes special
committees which have a limited duration. Directors are appointed to each
committee for a one-year term. The Chairman and Vice-Chairman of the Board of
Directors are ex-officio members of all committees, with the exception of the
Audit Committee. The President is an ex-officio member of all committees except
the Audit and Personnel, Compensation and Stock Option committees.
The Executive Committee held 47 meetings during 1996. The Executive
Committee consists of Directors Bond, Jr., G. Clark, Gaw, Langenthal (Chairman),
Moxley, Payne, Smelkinson and Venetoulis. The Committee is responsible for
evaluating and approving credits exceeding the lending authority of officers of
the Bank; reviewing on a regular basis financial information, operational
statistics, loan delinquencies and potential problem loans; and taking other
actions as may be required in the absence of the full Board of Directors.
5
<PAGE>
The Audit Committee held two meetings during 1996. The Audit Committee
consists of Directors Bhasin, J. Clark, Cole (Chairman), Floyd, and Rouse. The
Committee is responsible for the oversight of the Company's internal accounting
controls; recommending to the Board of Directors the selection of the Company's
independent auditors; reviewing the annual audit plan, annual report and results
of the independent audit; reviewing supervisory examination reports; and
initiating other special reviews when deemed necessary.
The Asset/Liability Management Committee held four meetings during
1996. The Asset/Liability Management Committee consists of Directors Bhasin,
Bond, Jr., Floyd, Gaw (Chairman), Hermann, Langenthal, Moxley, Payne and
Scrivener. The Committee monitors quarterly operating results, liquidity, asset
mix, loan pricing and deposit rate policies of the Company. In addition, the
Committee directs the investment strategies of the Company and makes
recommendations of such to the Board of Directors when strategies are outside
its approval authority.
The CRA Advisory Committee held five meetings during 1996. The CRA
Advisory Committee consists of Directors Bond, Jr., Langenthal, Moxley, Payne
and Rouse and certain officers of the Bank. The Committee provides oversight and
guidance to the development of CRA programs and affordable housing initiatives
of the Company. This includes providing mortgage financing conduits for
low-to-moderate income housing, fair lending policies for minorities,
encouragement for first-time homebuyers, and education to the community to
foster affordable housing opportunities.
The Personnel, Compensation and Stock Option Committee held four
meetings during 1996. The Personnel, Compensation and Stock Option Committee
consists of Directors Bond, Sr., Gaw, Gould, Langenthal, Lundy, McCready,
Moxley, Smelkinson (Chairman), and Venetoulis. The Committee oversees the
compensation of all employees, except the compensation of the President and
directors; reviews the compensation of the President and directors, and makes
recommendations of changes to such compensation to the Board of Directors for
approval; monitors the personnel related matters of the Company; reviews and
authorizes employee related benefit plans; and administers the Company's Stock
Option Programs.
Compensation of Directors
Non-employee directors of the Company and the Bank will receive $150
for each Board and committee meeting attended during 1997. Chairpersons of
committees, other than Mr. Langenthal, will receive an additional $100 for each
committee meeting attended during 1997. Directors Moxley and Langenthal, serving
in the capacities of Chairman and Vice-Chairman of the Company, respectively,
will receive annual fees of $29,000 and $27,000, respectively, in addition to
fees paid for meeting attendance. During 1996, the annual fees were $27,000 and
$25,000, respectively. The Chairman and Vice-Chairman are also eligible for a
bonus to be awarded at the discretion of the Board of Directors, although no
bonus was awarded for 1996. Total director fees paid by the Company and the Bank
for 1996 service were $115,760, inclusive of annual fees paid the Chairman and
Vice-Chairman.
Section 16(a) Beneficial Ownership Regarding Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Act") requires that the Company's directors and executive officers, and persons
who own more than 10% of a registered class of the Company's equity securities,
file with the Securities and Exchange Commission (the `SEC") initial reports of
ownership and reports of change in ownership of Common Stock of the Company. The
same persons are also required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms that they file.
6
<PAGE>
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, and written representations that no other
reports were required during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to the Company's executive
officers, directors and greater than 10% beneficial owners were complied with,
except that Director Lundy inadvertently failed to file a report (representing
a transaction) required by Section 16(a) of the Act on a timely basis.
Certain Relationships and Related Transactions
The Bank has made loans to certain of its executive officers, directors
and related parties. These loans were made on substantially the same terms,
including interest rate and collateral requirements, as those prevailing at the
time for comparable transactions with unrelated customers and did not involve
more than the normal risk of collectibility or present other unfavorable
features. At December 31, 1996, these loans totaled $2.3 million, or
approximately 7.7% of the total equity capital of the Bank.
During 1996, 1995 and 1994, the Bank paid $9,000, $149,870 and
$106,751, respectively, to companies controlled by Directors G. Clark and
Moxley, among others, for sales commissions, reimbursement of marketing expenses
and management fees associated with the disposition of real estate owned by the
Bank totaling $1.8 million and representing primarily residential building lots.
PRINCIPAL BENEFICIAL OWNERS OF THE COMPANY'S COMMON STOCK
Principal Owners
No persons were known by the Company to own beneficially, directly or
indirectly, more than 5% of the Company's Common Stock outstanding on December
31, 1996 except as follows:
Name and Address Shares Beneficially Percentage
of Stockholder Owned of Class
---------------- ------------------- ----------
Corinthian Capital Company 112,600 5.24%
1700 Broadway, Suite 712
Denver, CO 80290
7
<PAGE>
Beneficial Ownership of Executive Officers, Directors and Nominees
The following table lists the number of shares of Common Stock of the
Company beneficially owned by directors and executive officers of the Company
and the Bank, directly or indirectly, as of March 14, 1997.
<TABLE>
<CAPTION>
Shares of Stock Options % of
Common Stock and Warrants (1) Class
------------ ---------------- -----
<S><C>
Anand S. Bhasin (2) 23,349 639 1.12
John M. Bond, Sr. 24,364 5,243 1.37
John M. Bond, Jr. (3) 51,682 56,925 4.93
Garnett Y. Clark, Jr. 17,777 5,317 1.07
James Clark, Jr. 18,479 788 *
Hugh F.Z. Cole, Jr. (4) 21,064 1,621 1.06
G. William Floyd (5) 24,750 4,848 1.37
Robert J. Gaw 24,045 5,248 1.36
Mary T. Gould (6)(7) 83,308 14,068 4.50
William L. Hermann (8) 26,980 - 1.26
Herschel L. Langenthal (9) 59,222 6,340 3.04
Harry L. Lundy, Jr. (10) 54,388 4,838 2.75
Richard E. McCready 19,448 4,449 1.11
James R. Moxley, Jr. 20,771 9,887 1.42
Osborne A. Payne (11) 18,479 5,567 1.12
Patricia T. Rouse 28,386 4,374 1.52
Mary S. Scrivener 17,770 8,687 1.23
Robert N. Smelkinson 55,445 5,286 2.82
Theodore G. Venetoulis (12) 12,972 4,362 *
Michael T. Galeone 1,856 12,975 *
Charles C. Holman (13) 4,485 6,437 *
Robert W. Locke (14) 2,768 13,800 *
John A. Scaldara, Jr. (3)(15) 31,301 5,580 1.71
========= ======= =====
All directors and executive
officers (23 persons) (16) 613,211 187,279 34.27
========= ======= =====
Company totals 2,148,312 220,397
========= =======
</TABLE>
* Less than 1%
(1) Represents number of shares of Common Stock subject to stock options
and warrants currently exercisable.
(2) Includes 2,044 shares of Common Stock owned by Mr. Bhasin's children.
(3) Includes 29,878 shares of Common Stock held by the Company's 401(k)
Plan and Trust on December 31, 1996 for which Mr. Bond, Jr. and Mr.
Scaldara serve as trustees. Beneficial ownership of such shares is
expressly disclaimed, except as to approximately 7,907 and 3,335
shares held for the accounts of Messrs. Bond, Jr. and Scaldara,
respectively.
(4) Includes 2,090 shares of Common Stock for which Mr. Cole is a trustee.
(5) Includes 5,500 shares of Common Stock for which Mr. Floyd is a trustee.
(6) Includes 27,937 shares of Common Stock and 3,300 warrants owned by a
partnership of which Mrs. Gould is a 5% general partner; the beneficial
ownership of such shares is expressly disclaimed.
(7) Includes 27,434 shares of Common Stock and 6,600 warrants owned by
spouse; the beneficial ownership of such shares is expressly
disclaimed.
(8) Includes 2,364 shares of Common Stock owned by a corporation of which
Mr. Hermann owns an interest.
8
<PAGE>
(9) Includes 24,603 shares of Common Stock for which Mr. Langenthal is
a trustee and 7,000 shares of Common Stock owned by two
partnerships of which Mr. Langenthal owns an interest.
(10) Includes 28,761 shares of Common Stock owned by a corporation and a
limited partnership of which Mr. Lundy owns interests.
(11) Includes 13,695 shares of Common Stock owned by a corporation of which
Mr. Payne owns an interest.
(12) Includes 12,912 shares of Common Stock held by a trust; the beneficial
ownership of such shares is expressly disclaimed.
(13) Includes approximately 813 shares of Common Stock held for the
account of Mr. Holman in the Company's 401(k) Plan and Trust.
(14) Includes approximately 1,153 shares of Common Stock held for the
account of Mr. Locke in the Company's 401(k) Plan and Trust.
(15) Includes 152 shares of Common Stock for which Mr. Scaldara is trustee.
(16) Includes 29,878 shares of Common Stock held by the Company's 401(k)
Plan and Trust on December 31, 1996 for which Messrs. Bond, Jr. and
Scaldara are trustees.
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The following report is submitted by the Personnel, Compensation and
Stock Option Committee of the Board of Directors (the "Compensation Committee").
The report addresses the executive compensation policies of the Bank and the
Company (collectively, the "Company") for 1996. The Compensation Committee is
composed of the following non-employee directors of the Company:
R. Smelkinson, Chairman H. Lundy
J. Bond, Sr. R. McCready
R. Gaw J. Moxley
M. Gould T. Venetoulis
H. Langenthal
The Compensation Committee establishes the compensation of senior
officers of the Company with the exception of Mr. Bond, Jr., the President and
Chief Executive Officer of the Company. Mr. Bond, Jr.'s compensation is
established by the Board of Directors of the Company based upon data provided
by, and recommendations of, the Compensation Committee. The Board of Directors
also establishes the compensation of the Chairman and Vice-Chairman of the Board
of Directors based on the recommendations of the Compensation Committee. In
addition, the Compensation Committee generally reviews all personnel related
issues, including salary administration related to all other employees, and
administers the Company's 1987 Stock Option Plan, as amended, 1990 Director
Stock Option Plan, 401(k) Plan and Trust, and Deferred Compensation Plan. The
overall goal of the Compensation Committee is the establishment and
administration of compensation policies directly related to attainment of
corporate operational and financial goals which provide the ability to attract,
motivate, reward and retain qualified senior officers.
In 1993, the Company commissioned an independent consultant to assist
in establishing a company-wide salary administration plan, which included senior
officer positions. Development of the plan included creating job descriptions
for all positions; rating the overall responsibility of each position based on
characteristics including job knowledge, problem-solving, accountability, human
relations, communications, supervision of others and marketing; assigning each
position to a salary grade based on level of overall responsibility; and,
developing salary ranges for each salary grade based on market information
available for similar positions at financial institutions both in the
communities where the Company does business and outside the Company's market
area. These results are
9
<PAGE>
updated annually by the Company's human resources staff using current market
data which reflect marketplace changes, inflation, and, if applicable,
corporate performance. This information is considered by the Compensation
Committee.
The individual components of the Company's compensation program
include:
(a) Base Salary. Base salary levels are established for senior officers
primarily based upon evaluation of historical performance, degree of
responsibility, level of experience and number of years with the Company. In
addition, the Compensation Committee considers compensation data available
through various surveys, including the Sheshunoff Bank Executive and Director
Compensation Survey, SNL Executive Compensation Review, Ben S. Cole Financial
Inc. Annual Survey, Bank Administration Institute Bank Cash Compensation and Key
Executive Compensation Surveys, Chesapeake Human Resources Association Annual
Benefits and Compensation Survey, and Starkey & Beall Regional Financial
Industry Salary Survey.
With respect to the base salary of $200,000 granted to Mr. Bond, Jr. for the
year 1996, the Compensation Committee took into account the Company's
performance during 1995 and survey information referred to above. Particular
emphasis was placed on Mr. Bond, Jr.'s individual performance, including his
leadership role through a period of aggressive growth.
(b) Annual Incentives/Bonuses. Bonuses are generally granted senior
officers based on the extent to which the Company achieves annual performance
objectives, as established by the Board of Directors. Such performance
objectives include net income, earnings per share and return on equity goals.
Bonuses may also be awarded to other officers and employees based on
recommendations by supervisors.
While the Company achieved many operational goals in 1996, financial performance
did not meet internal expectations. As such, no bonuses were awarded senior
officers.
(c) Stock Option Awards. The Compensation Committee believes that the
granting of stock options is the most appropriate form of long term compensation
for senior officers, since awards of equity encourage ownership in the success
of the Company. Stock option grants are discretionary and are limited by the
terms and conditions of the Company's 1987 Stock Option Plan, as amended. No
stock options were granted during 1996.
Compensation Committee Interlocks and Insider Participation
The table below provides the aggregate balance at December 31, 1996 of
loans in excess of $60,000 issued by the Bank to members of the Compensation
Committee. These loans were made in the ordinary course of business, made on
substantially the same terms, including interest rate and collateral
requirements, as those prevailing at the time for comparable transactions with
unrelated customers and did not involve more than a normal risk of
collectibility or present other unfavorable features.
Aggregate Loan
Balance at December 31, 1996
----------------------------
Richard E. McCready $124,602
James R. Moxley, Jr. 74,908
See also "Certain Relationships and Related Transactions" regarding
other transactions with Director Moxley.
In addition, Director Bond, Sr. is the father of Director and Executive
Officer Bond, Jr.
10
<PAGE>
Summary Compensation Table
The table below presents a summary of compensation for the last three
fiscal years of the chief executive officer of the Company and the other most
highly paid executive officers of the Company and the Bank whose total annual
salary and bonus exceeded $100,000 during the year ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation (a) Shares of Common
Name and ----------------------- Stock Underlying All Other
Principal Position Year Salary Bonus Options Awarded Compensation(b)
- ------------------ ---- ----------------------- ----------------- ---------------
<S><C>
John M. Bond, Jr. 1996 $200,000 $ - - $19,464
President and CEO 1995 175,000 60,000 - 4,821
1994 160,000 50,000 - 4,845
Michael T. Galeone 1996 $148,000 $ - - $ 4,213
Executive Vice President 1995 143,000 40,000 - 2,754
1994 138,000 33,000 - 2,600
Charles C. Holman 1996 $144,000 $ - - $15,800
Executive Vice President 1995 139,000 50,000 - 9,741
1994 134,000 38,000 - 8,778
Robert W. Locke 1996 $106,000 $ - - $ 9,071
Senior Vice President 1995 103,000 15,000 - 4,821
1994 103,000 12,500 - 4,845
John A. Scaldara, Jr. 1996 $100,000 $ - - $ 9,361
Chief Financial Officer 1995 90,000 25,000 - 4,821
and Corporate Secretary 1994 80,000 25,000 - 4,845
</TABLE>
(a) No officer named above received any perquisites and other personal
benefits the aggregate amount of which exceeded the lesser of $50,000
or 10% of the total annual salary and bonus reported for 1996 for such
officer in the Summary Compensation Table.
(b) Represents discretionary matching contributions made by the Company and
allocated forfeitures resulting from employee terminations as
determined under terms of the Company's 401(k) Plan and Trust. All
employees participating in the Company's 401(k) Plan and Trust receive
matching contributions and forfeitures on equivalent terms. Also
includes discretionary matching contributions made by the Bank as
determined under terms of the Bank's Deferred Compensation Plan.
Amounts for Mr. Holman include $4,999 in 1996, $4,920 in 1995 and
$3,933 in 1994 for the exclusive use of a Bank-owned automobile.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The table below provides an analysis of aggregated stock options
exercised during 1996 and outstanding stock options as of December 31, 1996 for
the named executive officers. There were no adjustments or amendments to the
exercise price of stock options previously awarded to any named Executive
Officer during 1996.
11
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock Underlying Value of Unexercised
Unexercised Options In-The-Money
Shares of Common at Fiscal Year-End Options at Fiscal Year-End
Stock Acquired Value ---------------------------- -------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------------- -------- ----------- ------------- ----------- -------------
<S><C>
John M. Bond, Jr. - $ - 53,625 1,375 $649,770 $15,950
Michael T. Galeone - - 12,975 1,025 151,049 11,890
Charles C. Holman 1,250 8,563 6,438 312 77,755 3,619
Robert W. Locke - - 13,800 200 162,467 2,320
John A. Scaldara, Jr. - - 5,580 1,420 64,466 16,472
</TABLE>
Retirement Plans and Supplemental Compensation Arrangements
Executive Officers, like other employees of the Company, or its
subsidiaries, are eligible to participate in the Columbia Bancorp 401(k) Plan
and Trust adopted January 1, 1989 (the "401(k) Plan"). Under terms of the 401(k)
Plan, eligible employees may defer a portion of their total compensation on a
pretax basis. In order to be eligible to participate in the 401(k) Plan, an
employee must have completed one year of service in which 1,000 hours were
worked. The maximum percentage of total compensation eligible for deferral and
the voluntary matching employer contribution are established annually by the
Board of Directors of the Company and are currently 15% and 50%, respectively.
An employee is vested in the matching employer contribution as follows: (i) 20%
after three years of service, (ii) 40% after four years of service, (iii) 60%
after five years of service, (iv) 80% after six years of service and (v) 100%
after seven years of service. Employees can direct the investment of their
contribution and the matching employer contribution into any one or more of
seven investment options which include a Bank money market account, five mutual
funds managed by Fidelity Investments, or Common Stock of the Company.
The vested portion of matching employer contributions made to the
401(k) Plan during 1996 for the named Executive Officers were as follows:
Mr. Bond, Jr., $4,750; Mr. Galeone, $4,213; Mr. Holman, $4,750; Mr.
Scaldara, Jr., $4,750; and Mr. Locke, $4,750.
Effective September 27, 1996, the Bank also established a nonqualified
deferred compensation arrangement (the "Deferred Compensation Plan") for
selected senior officers, including the named Executive Officers, of the Bank
and the Company or subsidiaries thereof (the "Senior Officers"). The Deferred
Compensation Plan provides supplemental retirement benefits for the Senior
Officers restricted from receiving further benefits under the 401(k) Plan as a
result of the limitations on pretax contributions imposed by the Internal
Revenue Code. Under the Deferred Compensation Plan, Senior Officers can continue
to make pretax contributions in excess of the IRS limits imposed on the 401(k)
Plan and receive matching employer contributions identical to what they would
have received in the 401(k) Plan if there were no IRS limitations. The maximum
amount that a Senior Officer may defer under the Deferred Compensation Plan,
when added to that deferred under the 401(k) Plan cannot exceed the maximum
percentage compensation deferral (currently 15%) as established by the Board of
Directors. Senior Officers may direct earnings on their contributions. The
matching employer contributions may be calculated based on (i) the Bank's prime
rate of interest in effect as of December 15 of the preceding year, (ii) the
performance of the Company's Common Stock, as if contributions and matching
employer contributions were used to purchase shares of the Company's Common
Stock and dividends were reinvested, or (iii) a combination of (i) and (ii).
12
<PAGE>
The vested portion of the matching employer contributions made to the
Deferred Compensation Plan during 1996 for named Executive Officers were as
follows: Mr. Bond, Jr., $14,714; Mr. Holman, $6,051; Mr. Scaldara, Jr.,
$4,611; and Mr. Locke, $4,321. Mr. Galeone did not participate during 1996.
The Deferred Compensation Plan may also provide for payment of a
death benefit in the event that a Senior Officer dies while in active service.
At January 1, 1997, the death benefit for each of the named Executive Officers
was as follows: Mr. Bond, Jr., $825,000; Mr. Holman, $61,000; Mr. Scaldara,
Jr., $675,000; and Mr. Locke, $283,000. Mr. Galeone did not qualify for the
death benefit at January 1, 1997.
In order to partially offset the costs associated with the Deferred
Compensation Plan, the Bank has purchased life insurance contracts on the lives
of the participating Senior Officers, with the Bank as beneficiary.
Employment Contracts and Change in Control Agreements
The Company and the Bank (collectively, the "Companies") entered into
an employment agreement dated February 26, 1996 with John M. Bond, Jr. (the
"Agreement"). The Agreement supersedes the prior employment agreement. The terms
of the Agreement continue until the earlier of (i) the close of business on the
date which is three years after the date on which either party provides written
notice of termination, other than for "cause", as defined in the Agreement, but
no later than the close of business on the sixty-fifth birthday of Mr. Bond,
Jr., or (ii) the date on which Mr. Bond, Jr.'s employment is otherwise
terminated pursuant to the provisions of the Agreement. Under terms of the
Agreement, Mr. Bond, Jr. serves as President and Chief Executive Officer of the
Companies with a minimum annual base compensation of $215,000, which is subject
to normal periodic review, at least annually, for increases based on the salary
policies of the Companies and Mr. Bond, Jr.'s contributions to the Companies.
Mr. Bond, Jr. is also entitled to participate in all incentive and benefit
programs offered by the Companies. If Mr. Bond, Jr.'s employment is terminated,
other than for "cause", the Companies are required to continue to provide
benefits to him and pay his salary for a predetermined period plus, under
certain circumstances, pay an annual bonus as determined in accordance with the
terms of the Agreement. The Agreement also contains a non-competition provision
which prohibits Mr. Bond, Jr., during his employment with the Companies, or for
a period of three years following voluntary resignation or termination for
"cause", from directly or indirectly engaging in activities competitive with the
business of the Companies.
The Agreement also provides that in the event of (i) termination, other
than for "cause", (ii) resignation due to a significant change in the nature or
scope of authority and duties, or (iii) resignation as a result of not having
been offered a new employment agreement with similar terms, 90 days prior to, or
within one year after, any "change in control" (as defined in the Agreement) of
the Companies, Mr. Bond, Jr., within 15 days of termination, will be paid a lump
sum payment equal to three times the sum of his annual base compensation and the
average of the bonuses paid to him over the past three years. In the event of
voluntary resignation 90 days prior to, or within one year after, any "change in
control" of the Companies, Mr. Bond, Jr., within 15 days of resignation, will be
paid a lump sum payment equal to the sum of his annual base salary and the
average of the bonuses paid to him over the past three years. Any payments made
in connection with a "change in control" of the Companies after Mr. Bond, Jr.
reaches 62 years of age will be pro-rated to age 65.
Messrs. Galeone, Holman and Scaldara also have employment agreements
specifying minimum annual base compensation of $154,000, $152,000 and $120,000,
respectively. The other terms of these agreements are similar to those of the
Agreement, except that the duration is a two-year continuous period and the lump
sum payment payable in the event of (i) termination other than for "cause", (ii)
resignation due to a significant change in the nature and scope of authorities
and duties, or (iii) resignation as a result of not having been offered a new
employment agreement with similar terms, 90 days prior to, or within one year
after, any "change in control" of the Companies is equal to two times the sum of
the applicable officer's base annual compensation and the average of
13
<PAGE>
such officer's bonuses for the past three years. In addition, any payments
made in connection with a "change in control" of the Companies after reaching
63 years of age will be pro-rated to age 65.
The Companies entered into a change in control agreement dated February
26, 1996 with Mr. Locke. The change in control agreement provides that in the
event of (i) termination, other than for "cause", or (ii) resignation due to a
significant change in the nature or scope of authority and duties, 90 days prior
to, or within one year after, any "change in control" of the Companies, Mr.
Locke, within 15 days of termination, will be paid a lump sum payment equal to
two times the sum of his annual base compensation and the average of the bonuses
paid to him over the past three years. In the event of voluntary resignation 90
days prior to, or within one year after, any "change in control" of the
Companies, Mr. Locke, within 15 days of resignation, will be paid a lump sum
payment equal to the sum of his annual base salary and the average of the
bonuses paid to him over the past three years. Any payments made in connection
with a "change in control" after Mr. Locke reaches 63 years of age will be
pro-rated to age 65.
The Company's 1987 Stock Option Plan, as amended, and 401(k) Plan, and
the Bank's Deferred Compensation Plan, all provide that in the event of a
"change in control" (as defined by each of the plans), all amounts not fully
vested become immediately 100% vested.
Stockholder Return Performance Graph
The following graph compares the cumulative total return on the
Company's Common Stock during the five years ended December 31, 1996 with that
of a broad market index (Nasdaq, U.S. Companies) and an industry peer group
index (all publicly traded banks in Maryland, Pennsylvania, Virginia and the
District of Columbia with total assets of less than $1 billion). The graph
assumes $100 was invested on December 31, 1991 in the Company's Common Stock and
in each of the indices and assumes reinvestment of dividends.
Five Year Cumulative Total Return
[Graph appears here--see plot points below]
Index Data:
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Columbia Bancorp 100 157.87 214.12 315.92 409.91 516.16
Nasdaq, US Companies 100 116.38 133.59 130.59 184.67 227.16
Peer Group 100 140.95 187.51 206.09 260.03 310.92
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PROPOSAL 2 - ADOPTION OF THE 1997 STOCK OPTION PLAN
On February 24, 1997, the Board of Directors of the Company unanimously
approved and adopted the 1997 Stock Option Plan (the "Plan"). The purpose of the
Plan is to align the interests of key employees, directors and consultants ("Key
Persons") with the interests of shareholders, by encouraging and creating
ownership of Common Stock of the Company and to provide meaningful long-term
incentive opportunities. The Plan is intended to enable the Company to attract
and retain qualified Key Persons who contribute to its success.
A copy of the Plan is attached to this Proxy Statement as Exhibit A.
The following is a summary of the principal terms of the Plan; it is qualified
in its entirety by reference to the full text of the Plan.
The Plan is administered by the Board of Directors or, to the extent
determined by the Board of Directors, a committee consisting of not less than
two non-employee directors of the Company to be appointed by and to serve at the
pleasure of the Board of Directors (referred to hereafter collectively as the
"Administrator"). The Board of Directors has appointed the Personnel,
Compensation and Stock Option Committee to serve as the Administrator. Subject
to the limitations set forth in the Plan, the Administrator has complete
discretion to determine the time or times, if any, when options will be granted
under the Plan, the number of shares to be optioned, the eligible Key Persons to
whom options will be granted, the number of shares to be optioned to each
eligible Key Person, whether an option will be a non-qualified stock option or
an incentive stock option, and any other provisions relating to the granting of
options. As of February 24, 1997, approximately 50 Key Persons were eligible to
participate in the Plan. Because participation and the amount of options to be
granted under the Plan are subject to the discretion of the Administrator, the
benefits or amounts that will be received by any participant or groups of
participants if the Plan is approved are not currently determinable.
The Plan initially provides for 150,000 shares of Common Stock of the
Company to be reserved and available for issuance. From and after such time as
the number of outstanding shares of Common Stock as reflected on the Company's
quarterly or year-end balance sheet exceeds 2,148,000, the total number of
shares of Common Stock reserved and available under the Plan shall automatically
be increased so as to equal seven (7) percent of the number of shares of Common
Stock then outstanding. However, no more than 150,000 shares of Common Stock of
the Company shall be cumulatively available for issuance pursuant to incentive
stock options granted under the Plan. In addition, no participant may receive
options during the life of the Plan covering or representing more than 100,000
shares. Shares subject to an option which expires without being exercised or
which is otherwise forfeited, terminated, surrendered or canceled, and shares of
Common Stock that are surrendered to the Company in connection with any option
(whether or not such surrendered shares were acquired pursuant to the Plan),
shall be available for further award under the Plan.
In general, the option price per share for an incentive stock option
issued pursuant to the Plan shall not be less than the fair market value per
share on the date the option is granted and the option price per share for a
non-qualified stock option shall not be less than 50% of the fair market value
per share on the date the option is granted. During the time that the Company's
Common Stock is listed on the National Association of Securities Dealers, Inc.
Automated Quotations System ("Nasdaq"), the fair market value per share on a
particular date shall be the closing sale price per share on such date. As of
March 19, 1997, the fair market value of a share of Common Stock of the Company
was $22 31/32 per share. When an option is exercised, the option price may be
paid in cash, by tendering shares of Common Stock (including shares issuable
pursuant to exercise of the option) having a fair market value as of the date of
exercise equal to the total purchase price, by any combination of these methods
of payment, or by any method established by the Administrator. An option granted
under the Plan may include a right to surrender up to 100% of the option to the
extent exercisable in exchange for receipt by the participant of cash or shares
equal to the excess of the fair market value of the shares covered by the option
or portion so surrendered over the aggregate exercise price for such shares.
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<PAGE>
The Administrator shall determine the date on which an option shall
expire; provided, however, that options shall terminate not later than ten years
after the date of grant.
Options granted under the Plan may be either incentive stock options or
non-qualified stock options. The federal income tax consequences to a
participant and the Company will differ depending upon whether an option is an
incentive stock option or a non-qualified stock option.
A participant who is granted an incentive stock option generally will
not recognize any taxable income, nor will the Company deduct any compensation
expense, upon either the grant or the exercise of such incentive stock option,
provided that the participant is an employee of the Company or its subsidiary
throughout the period commencing on the date of grant of the option and ending
three months prior to exercise of the option. An incentive stock option is
subject to a holding period, defined in the Internal Revenue Code of 1986, as
amended (the "Code"), as the later of two years from the date of the grant of
the option or one year from the date the stock is transferred to the participant
upon exercise of the option. If a participant disposes of stock acquired
pursuant to an incentive stock option after expiration of the holding period,
the participant must recognize as capital gains income the difference between
the option price paid and the amount received upon disposition of the stock. If
a participant disposes of the stock prior to the expiration of the holding
period, the participant must recognize as compensation income the lesser of (i)
the difference between the option price paid and the fair market value of the
stock at the time of exercise, or (ii) the difference between the amount
realized upon such disposition and the option price paid. Any additional gain
realized will be recognized as capital gain, either long-term or short-term,
depending upon how long the shares were held by the participant. In the event of
such a disqualifying disposition, the Company generally may deduct an amount
equal to such difference as compensation expense.
A participant who receives a non-qualified stock option generally must
recognize compensation income upon exercise of the option in an amount equal to
the difference between the option price paid and the fair market value of the
stock received upon exercise. Such amount generally may be deducted from income
by the Company. When the participant subsequently sells or disposes of the
stock, the participant will recognize as capital gains income or loss the
difference between the fair market value of the stock at the time of exercise
and the amount received upon disposition. Such capital gain or loss will be
either long-term or short-term depending upon how long the shares were held by
the participant.
The Board of Directors of the Company may terminate the Plan or amend
it in any way; provided, however, that the Board may not, without the consent of
the shareholders of the Company, make any amendment which increases the maximum
number of shares as to which options may be granted under the Plan (other than
certain adjustments specified in the Plan to reflect changes in capitalization
of the Company), increases the number of shares for which a Key Person may be
granted options, or extends the term of the Plan. Unless previously terminated
by the Board of Directors, the Plan shall terminate on, and no options shall be
granted after February 23, 2007. The Plan shall become effective on the date on
which it was adopted by the Board of Directors, provided that the Plan is
approved by the shareholders of the Company.
The Board of Directors recommends that the shareholders vote FOR approval of the
adoption of the Plan.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected KPMG Peat Marwick LLP,
independent public accountants, to audit the Company's financial statements for
the year ending December 31, 1997. KPMG Peat Marwick LLP has performed the
annual audits of the Company since its inception. Representatives of KPMG Peat
Marwick LLP plan to attend the Annual Meeting and will be available to answer
appropriate questions. The representatives will have the opportunity to make a
statement at the meeting if they so desire.
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OTHER MATTERS
The Board of Directors of the Company knows of no matters to be
presented for action at the Annual Meeting other than those mentioned above;
however, if any other matters properly come before the Annual Meeting, it is
intended that the persons named in the accompanying proxy will vote on such
other matters in accordance with their judgment of the best interests of the
Company. Other than the election of directors, each matter to be submitted to
the stockholders requires the affirmative vote of a majority of all the shares
voted at the meeting or a majority of all the shares outstanding and entitled to
be voted. Abstentions and broker non-votes are treated as shares not voted.
STOCKHOLDER PROPOSALS
All stockholder proposals intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company not later than November
27, 1997 for inclusion in the Company's proxy statement and proxy relating to
that meeting.
REPORT ON FORM 10-K
The Annual Report on Form 10-K and applicable exhibits are available
to stockholders free of charge upon written request. Requests should be sent
to Columbia Bancorp, 10480 Little Patuxent Parkway, Columbia, Maryland
21044, Attention: John A. Scaldara, Jr.
By Order of the Board of Directors
John A. Scaldara, Jr.
Corporate Secretary
March 25, 1997
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<PAGE>
EXHIBIT A
COLUMBIA BANCORP
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN:
The purpose of the Plan is to advance the interests of Columbia Bancorp
(the "Corporation") by assisting in attracting and retaining selected employees,
directors and consultants ("Key Persons") and providing them with increased
motivation to exert their best efforts on behalf of the Corporation.
2. ADMINISTRATION:
The Plan shall be administered by the Board of Directors or, to the
extent determined by the Board of Directors, a committee consisting of not less
than two non-employee directors of the Corporation (within the meaning of Rule
16b-3 of the Securities Exchange Act of 1934 (the "Exchange Act")) to be
appointed by and to serve at the pleasure of the Board of Directors (the Board
of Directors and/or such Committee, as applicable, referred to herein as the
"Administrator"). The Administrator shall have full power to construe and
interpret the Plan and promulgate such regulations with respect to the Plan as
may be deemed desirable, to determine the terms and conditions of options
granted under the Plan and to amend any option previously granted under the
Plan, provided that no such amendment shall materially adversely affect any
outstanding option without the consent of the grantee.
3. STOCK SUBJECT TO OPTION:
The total number of shares of common stock of the Corporation (par
value $.01 per share) ("Common Stock") reserved and available for issuance under
the Plan shall be 150,000; provided, however, that from and after such time as
the number of outstanding shares of Common Stock as reflected on the
Corporation's quarterly or year-end balance sheet exceeds 2,148,000, the total
number of shares of Common Stock reserved and available for issuance under the
Plan shall automatically be increased so as to equal seven (7) percent of the
number of then outstanding shares of Common Stock, provided, further, that no
more than 150,000 shares of Common Stock shall be cumulatively available for
incentive stock options qualifying under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). If any option, or portion of an option,
under the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited or otherwise terminated, surrendered or canceled as to any shares of
Common Stock, or if any shares of Common Stock are surrendered to the
Corporation in connection with any option or the exercise thereof (whether or
not such surrendered shares of Common Stock were acquired pursuant to the Plan),
the shares of Common Stock subject to such option and the surrendered shares of
Common Stock shall thereafter be available for further options under the Plan;
provided, however, that any such shares of Common Stock that are surrendered to
the Corporation in connection with any option or that are otherwise forfeited
after issuance shall not be available for purchase pursuant to any incentive
stock option qualifying under Section 422 of the Code.
4. ELIGIBILITY:
The individuals who shall be eligible to participate in the Plan shall
be the Key Persons of the Corporation, or of any corporation (a "Subsidiary") in
which the Corporation has a proprietary interest by reason of stock ownership,
including any corporation in which the Corporation acquires a proprietary
interest after the adoption of this Plan, but only if the Corporation owns or
controls, directly or indirectly, stock possessing not less than 50% of
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<PAGE>
the total combined voting power of all classes of stock in such corporation, as
determined and selected by the Administrator from time to time.
5. TERMS AND CONDITIONS OF OPTIONS:
Options under the Plan are intended to be either incentive stock
options qualifying under Section 422 of the Code, or non-statutory stock options
not qualifying under any section of the Code as the Administrator may determine
in its discretion from time to time, provided, however, that only Key Persons
who are employees of the Corporation or a Subsidiary shall be eligible to
receive incentive stock options. All options granted under the Plan shall be
issued upon such terms and conditions as the Administrator may determine from
time to time, subject to the following provisions (which shall apply to both
incentive and non-qualified stock options unless otherwise indicated):
(a) Option Price. The exercise price per share with respect to
each option shall be not less than: (i) for incentive stock options,
100% of the Fair Market Value of the Common Stock on the date the
option is granted and (ii) for nonqualified stock options, 50% of the
Fair Market Value of the Common Stock on the date the option is
granted. "Fair Market Value" of a share of Common Stock for any purpose
on a particular date shall mean the last reported sale price per share
of Common Stock, regular way, on such date or, in case no such sale
takes place on such date, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, or if the Common
Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so
quoted, the average of the high bid and low asked prices, regular way,
in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by
any such organization, the average of the closing bid and asked prices,
regular way, as furnished by a professional market maker making a
market in the Common Stock as selected in good faith by the
Administrator or by such other source or sources as shall be selected
in good faith by the Administrator. If, as the case may be, the
relevant date is not a trading day, the determination shall be made as
of the next preceding trading day. As used herein, the term "trading
day" shall mean a day on which public trading of securities occurs and
is reported in the principal consolidated reporting system referred to
above, or if the Common Stock is not listed or admitted to trading on a
national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.
(b) Individual Limit on Number of Options. Subject to
adjustments as provided in Section 8 of the Plan, the maximum number of
shares of Common Stock subject to options that may be granted under
this Plan to any one employee shall be limited to 100,000.
(c) Change in Control. Except as otherwise provided in an
option agreement, unexercised options shall immediately become
exercisable if: (A) Any person (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act and the regulations promulgated
thereunder) is or becomes the beneficial owner, directly or indirectly,
of 25% or more of the voting equity stock of the Corporation, or any
person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act and the regulations promulgated thereunder) other than the
Corporation is or becomes the beneficial owner, directly or indirectly,
of 25% or more of the Common Stock of The Columbia Bank, or (B) Any
person (as such term is used in Sections
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13(d) and 14(d) of the Exchange Act and the regulations promulgated
thereunder) gains control of the election of a majority of the
Board of Directors of the Corporation, or any person (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act and the
regulations promulgated thereunder) other than the Corporation gains
control of the election of a majority of the Board of Directors of The
Columbia Bank, or (C) Any person (as such term is used in Sections
13(d) and 14(d) of the Exchange Act and the regulations promulgated
thereunder) gains control of the management or policies of either of
the Corporation or The Columbia Bank, or (D) Either the Corporation
or The Columbia Bank consolidates with, or merges with or into,
another entity (including a corporation, bank, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not
specifically listed herein) or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets,
or another such entity consolidates with, or merges with or into, the
Corporation or The Columbia Bank in any such event pursuant to a
transaction in which the issued and outstanding shares of the voting
equity stock of the Corporation or The Columbia Bank are to be
converted into or exchanged for cash, securities or other property, or
(E) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of either
the Corporation or The Columbia Bank (together with any directors who
are members of such Board of Directors on the effective date hereof and
any new directors whose election or whose nomination for election was
approved by a vote of 66-2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of either the
Corporation or The Columbia Bank then in office.
(d) Term of Option. No stock option may be exercisable after
the expiration of 10 years after the date such option was granted.
(e) Options Nonassignable and Nontransferable. Each incentive
stock option and all rights thereunder, including the right to
surrender the option, shall not be assignable or transferable other
than by will or the laws of descent and distribution, and shall be
exercisable during the employee's lifetime only by the employee or his
or her guardian or legal representative. Except to the extent provided
by the Administrator, each non-statutory stock option and all rights
thereunder, including the right to surrender the option, shall not be
assignable or transferable other than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act
("DRO"), or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by the optionee or his or her guardian or
legal representative or transferee under a DRO.
6. SURRENDER OF OPTIONS FOR CASH OR STOCK:
Any option granted under the Plan may include a right to surrender to
the Corporation up to 100% of the option to the extent then exercisable and
receive in exchange a cash payment or a payment in stock or a combination of
cash and stock, in each case equal to the excess of the Fair Market Value of the
shares covered by the option or portion thereof surrendered (determined as of
the date the option is surrendered) over the aggregate exercise price for such
shares. Such right may be granted by the Administrator concurrently with the
option or thereafter by amendment upon such terms and conditions as the
Administrator may determine.
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<PAGE>
7. PAYROLL DEDUCTIONS:
In the discretion of the Administrator, there may be made available to
employee optionees an election for the payroll deduction each pay period over
the term of the option of amounts equal to the aggregate exercise price of any
or all of such options (and estimated federal income taxes thereon). Interest
will be paid on payroll deductions at rates prescribed from time to time by the
Administrator.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
If the shares of the Common Stock outstanding are increased, decreased,
or changed into or exchanged for a different number or kind of shares or
securities of the Corporation, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization, reclassification,
stock split-up, stock dividend, stock consolidation, or otherwise, an
appropriate and proportionate adjustment shall be made in the number or kind of
shares as to which options have been or may be granted (in the aggregate and to
any individual). Any such adjustment in an outstanding option shall be made
without change in the aggregate purchase price to be paid upon the exercise
thereof. Adjustments under this paragraph shall be made by the Board of
Directors, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final and conclusive. No fractional shares of Common
Stock shall be issued under the Plan on account of any such adjustment.
In the event of a reorganization, merger, consolidation, sale of
substantially all of the assets, or any other form of corporate reorganization
in which the Corporation is not the surviving entity or a statutory share
exchange in which the Corporation is not the issuer, all options then
outstanding under the Plan will terminate as of the effective date of the
transaction. The surviving entity in its absolute and uncontrolled discretion
may tender an option or options to purchase shares on its terms and conditions,
both as to the number of shares or otherwise, as shall substantially preserve
the rights and benefits of any option then outstanding under the Plan.
9. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS:
Options may be granted under the Plan from time to time in substitution
for stock options held by Key Persons of corporations who become or are about to
become Key Persons of the Corporation or a Subsidiary as the result of (i) a
merger or consolidation of the employing corporation with the Corporation or a
Subsidiary, (ii) the acquisition by the Corporation or a Subsidiary of the
assets of the employing corporation, or (iii) the acquisition by the Corporation
or a Subsidiary of stock of the employing corporation. The terms and conditions
of the substitute options so granted may vary from the terms and conditions set
forth in paragraph 5 of this Plan to such extent as the Administrator at the
time of the grant may deem appropriate to conform, in whole or in part, to the
provisions of the options in substitution for which they are granted.
10. EFFECTIVE DATE OF THE PLAN:
The Plan shall be effective February 24, 1997, provided it is approved
within one year of such date by a majority of the total votes eligible to be
cast at a meeting of the stockholders of the Corporation.
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<PAGE>
11. TERMINATION DATE:
No options may be granted under the Plan after February 23, 2007.
Subject to paragraph 5(d), options granted before the termination date for the
Plan may extend beyond that date.
12. AMENDMENT:
The Plan may be amended, suspended, terminated or reinstated, in whole
or in part, at any time by the Board of Directors; provided, however, that none
of the following changes may be made without the approval of the stockholders of
the Corporation:
(i) an increase in the number of shares of Common Stock
available under the Plan, other than adjustments pursuant to paragraph
8;
(ii) an increase in the number of shares for which a Key
Person may be granted options under the Plan; or
(iii) an extension of the term of the Plan.
13. COMPLIANCE WITH LAWS AND REGULATIONS:
The grant, holding and vesting of all options under the Plan shall be
subject to any and all requirements and restrictions that may, in the opinion of
the Administrator, be necessary or advisable for the purposes of complying with
any statute, rule or regulation of any governmental authority, or any agreement,
policy or rule of any stock exchange or other regulatory organization governing
any market on which the Common Stock is traded.
14. EXPENSES:
The Corporation shall bear all expenses and costs in connection with
the administration of the Plan.
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<PAGE>
REVOCABLE PROXY
COLUMBIA BANCORP
PLEASE MARK VOTES
[ ] AS IN THIS EXAMPLE
<TABLE>
<S><C>
With- For All
For hold Except
THIS PROXY IS SOLICITED ON BEHALF O F 1. Election of Directors [ ] [ ] [ ]
THE BOARD OF DIRECTORS
The undersigned stockholder of Columbia Bancorp A. Bhasin, G. Clark, R. Gaw, M. Simpkins, R. Smelkinson
hereby appoints James R. Moxley, Jr. and Herschel
L. Langenthal, or either of them, the lawful INSTRUCTION: To withhold authority to vote for any individual
attorneys and proxies of the undersigned, with nominee, mark "for All Except" and write the nominee's name
several powers of substitution, to vote all in the space provided below:
shares of Common Stock of Columbia Bancorp which
the undersigned is entitled to vote at the Annual -------------------------------------------------------------------
Meeting of Stockholders to be held April 28, 1997,
and at any and all adjournments and postponements
thereof. Any and all proxies heretofore given are
hereby revoked.
With-
For hold
2. Adoption of the 1997 Stock Option [ ] [ ]
Plan
3. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
This Proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is
made, this Proxy will be voted FOR Proposal 1 and FOR Proposal 2
and in the best judgment of the proxy holders on all other matters.
Please be sure to sign and date Date Please sign exactly as your name appears below. When shares
this Proxy in the box below. are held by joint tenants, both should sign. When signing as
___________ attorney, executor, administrator, trustee or guardian, please give
fully title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Stockholder sign above Co-holder (if any) sign above
</TABLE>
................................................................................
Detach above card, sign, date and mail in postage paid envelope provided.
COLUMBIA BANCORP
The above signed acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished therewith.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
23
