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
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
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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]
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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 17, 1998 $57,973,826
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 17, 1998 2,212,845
Documents Incorporated by Reference:
Portions of Annual Report to Stockholders for Fiscal Year Ended
December 31, 1997, incorporated by reference into Part II.
Portions of Definitive Proxy Statement dated March 27, 1998,
incorporated by reference into Part III.
[cover page 2 ]
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TABLE OF CONTENTS
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PART I PAGE
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Item 1 - Business................................................................ 2
Item 2 - Properties.............................................................. 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 7a - Quantitative and Qualitative Disclosures About Market Risk.............. 10
Item 8 - Financial Statements and Supplementary Data............................ 10
Columbia Bancorp and Subsidiary:
Independent Auditors' Report
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
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
PART IV
Item 14 - Exhibits and Reports on Form 8-K........................................ 12
Signatures........................................................................ 16
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PART I
ITEM 1. BUSINESS
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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 nine branch locations in Howard County, Maryland; two branch
locations in Baltimore County, Maryland; and two branch locations in Baltimore
City, Maryland. The Bank also has three mortgage origination offices in Howard,
Montgomery and Baltimore Counties, Maryland. At December 31, 1997, the Company
had total assets of $373.5 million, total loans, net of unearned income, of
$265.2 million, total deposits of $313.4 million and stockholders' equity of
$34.4 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
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.
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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.
* PC - 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, 1997, the Company's loan portfolio, net of
unearned income, totaled $265.2 million, representing approximately 71.0% of its
total assets of $373.5 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, 1997:
Amount Percent
----------------------
(dollars in thousands)
Commercial $ 37,519 14.1%
Real estate - development and construction(1) 110,413 41.5
Real estate - mortgage:
Residential 11,078 4.2
Commercial 21,146 8.0
Consumer:
Retail(2) 84,039 31.6
Credit card 1,639 .6
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Total loans $265,834 100.0%
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(1) At December 31, 1997, loans to individuals for constructing primary personal
residences represented $15.9 million.
(2) Approximately $76.6 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)
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which may be secured by real estate, accounts receivable, inventory, equipment
or other assets. At December 31, 1997, $37.5 million or 14.1% 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. Real estate development
and construction loans constitute the largest portion of the Company's lending
activities, and consisted of the following at December 31, 1997:
Amount Percent
----------------------
(Dollars in thousands)
Residential land development $48,081 43.5%
Residential construction(1) 47,579 43.1
Residential land acquisition(2) 9,704 8.8
Commercial construction 5,049 4.6
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$110,413 100.0%
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(1) Includes $13.6 million of loans to individuals for construction of primary
personal residences.
(2) Includes $2.3 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. Loans for the development of residential
land represented the largest component of the real estate development and
construction loan portfolio at December 31, 1997, totaling $48.1 million or
43.5% of the portfolio. Generally, development loans are extended only when
evidence is provided that the lots under development will be or have been sold
to builders satisfactory to the Company. These loans are generally extended for
a period of time sufficient to allow for the clearing and grading of the land
and the installation of water, sewer and roads, typically a minimum of 18 months
to three years. In addition, residential land development loans generally carry
a loan to value ratio not to exceed 75% of the value of the project as
completed.
Residential construction loans constitute the second largest component
of the real estate development and construction loan portfolio, representing
primarily loans for the construction of single family dwellings. At December 31,
1997, loans to individuals for the construction of primary personal residences
accounted for $13.6 million of the $47.6 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 $34.0 million of residential construction loans represented loans
to residential builders and developers. Approximately 50% of these loans were
for the construction of residential homes for which a binding sales contract
existed and the prospective buyers had 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.
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 75% 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 limited loan 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
(4)
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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 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, 1997, $11.1 million or 4.2% 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 the 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, 1997, $21.1
million or 8.0% 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, 1997, $85.7 million
or 32.2% of the Company's total loan portfolio consisted of consumer loans.
Home equity loans are originated by the Company for typically up to 90%
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).
Potential Problem Loans. At December 31, 1997, management had
identified seven credit facilities totaling approximately $2.2 million which,
while not adversely classified, had exhibited potential weaknesses. Five of
these facilities, extended to a single borrower and totaling $1.1 million, were
placed on nonaccrual status in February, 1998 and foreclosure proceedings have
been initiated. The loans are secured by 24 residential townhouse units in
various stages of completion. The weaknesses identified in the remaining two
loans may result in a reduced likelihood of repayment. All of 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
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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, 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, since June 1, 1997, banks have been
permitted to 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 was 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
benefits to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible
(6)
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adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies, 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 of 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, 1997
and 1996, the Company's total risk-based capital ratios were 12.5% and 13.2%,
respectively, and its Tier 1 risk-based capital ratios were 11.3% and 11.9%,
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, 1997 and 1996, the
Company's Tier 1 capital leverage ratios were 9.3% and 10.1%, respectively.
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
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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 $118.9 million or 39.4% 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.
Subsequent to this charge and effective October 1, 1996, the Company's FDIC
insurance premium associated with deposits insured by the SAIF fell from 23
cents per $100 of deposits to zero. Also effective October 1, 1996, the Company
began paying a Financing Corporation ("FICO") assessment. As of December 31,
1997, this assessment was 1.26 cents per $100 of BIF deposits and 6.28 cents per
$100 of SAIF deposits.
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.
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.
(8)
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Employees
At December 31, 1997, the Company and the Bank had 227 employees of
which 47 were officers, 197 were full-time employees and 30 were part-time
employees. The Company believes its employee relations are good.
ITEM 2. PROPERTIES
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The principal offices of the Company and the Bank are located at 10480
Little Patuxent Parkway, Columbia, Howard County, Maryland.
At December 31, 1997, the Company owned two banking offices, one
drive-through facility and an office building. These properties had a book value
of $5.1 million at December 31, 1997, and the office building was producing
annual rental income of $179,500. The remaining eleven banking offices and three
mortgage origination offices open at December 31, 1997 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 $232,000. Leases for the
remaining leased banking offices and mortgage origination offices expire from
1998 through 2037 (after giving effect to all renewal options), and aggregate
annual rent is currently $631,000. The Company believes that its facilities are
adequate for its current and near-term needs.
ITEM 3. LEGAL PROCEEDINGS
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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)
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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 45 and "Recent
Common Stock Prices" on page 51 of the 1997 Annual Report to Stockholders
included in Exhibit 13.1 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
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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 8 of the 1997 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 9 through 25 of the 1997 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
For information regarding the market risk of the Company's financial
instruments, see "Management's Discussion and Analysis - Market Risk and
Interest Rate Sensitivity" on pages 21 through 23 of the 1997 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The financial statements required by this Item as to the Company and
the Company's Independent Public Accountants' Report thereon is incorporated by
reference to the 1997 Annual Report to Stockholders included in Exhibit 13.1,
pages 26 through 49, filed herewith. The supplementary data required by this
Item as to the Company is incorporated by reference to the information appearing
under the caption "Selected Quarterly Financial Data" on page 50 of the 1997
Annual Report to Stockholders included in Exhibit 13.1 filed herewith.
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 1998 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. 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, 1998.
Position with the
Name Age Company and the Bank
---- --- --------------------
John M. Bond, Jr. 54 President, Chief Executive Officer and Treasurer
of the Company and the Bank.
Michael T. Galeone 49 Executive Vice President of the Bank.
Charles C. Holman 64 Executive Vice President of the Bank.
Robert W. Locke 52 Senior Vice President of the Bank.
John A. Scaldara, Jr. 34 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 of experience in the
consumer finance industry with the Bank and Household International Corporation.
Mr. Galeone is actively involved in civic and professional affairs, serving in
the past as President of the Howard County Arts Council and Vice Chair of the
Howard County Board of Realtors and currently a 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 of experience in the commercial lending area with the Bank and the
former Maryland National Bank and The National Bank of Washington. Mr. Locke is
actively involved in civic and professional affairs, serving in the past as a
director of the
(11)
<PAGE>
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 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 1998 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 Executive
Officers, Directors and Nominees" in the Company's Proxy Statement for the 1998
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 1998 Annual Meeting of
Stockholders included in Exhibit 99.1 filed herewith.
PART IV
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 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, 1995 (File No. 0-23402).
(3.2) Form of Restated By-Laws of the Company, restated as of
January 26, 1998 and in effect at all times since then
through March 27, 1998 (filed herein as Exhibit 3.2).
(10.1) Form of the Company's 1987 Stock Option Plan, as
amended April 17, 1990, December 18, 1995, and February
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-K for fiscal
year ended December 31, 1996 (File No. 0-23402).
(12)
<PAGE>
(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,
previously filed with the Commission as an Exhibit to,
and incorporated herein by reference from, the
Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1996 (File No. 0-23402).
(10.5) Form of Employment Agreement dated February 26, 1996
with John M. Bond, Jr., 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, 1995 (File
No. 0-23402).
(10.5a) Amdendment dated December 18, 1997 to the employment
agreement dated February 26, 1996 with John M. Bond,
Jr. (filed herein as Exhibit 10.5a).
(10.6) Form of Employment Agreement dated February 26, 1996
with Michael T. Galeone, 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, 1995 (File
No. 0-23402).
(10.6a) Amendment dated December 16, 1997 to the employment
agreement dated February 26, 1996 with Michael T.
Galeone (filed herein as Exhibit 10.6a).
(10.7) Form of Employment Agreement dated February 27, 1996
with Charles C. Holman, 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, 1995 (File
No. 0-23402).
(10.7a) Amendment dated December 16, 1997 to the employment
agreement dated February 27, 1996 with Charles C.
Holman (filed herein as Exhibit 10.7a).
(10.8) Form of Employment Agreement dated February 26, 1996
with John A. Scaldara, Jr., 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, 1995 (File
No. 0-23402).
(10.8a) Amendment dated December 16, 1997 to the employment
agreement dated February 26, 1996 with John A.
Scaldara, Jr. (filed herein as Exhibit 10.8a).
(13)
<PAGE>
(10.9) Form of Severance Agreement dated February 26, 1996
with Robert W. Locke, 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, 1995 (File
No. 0-23402).
(10.9a) Amendment dated December 16, 1997 to the severance
agreement dated February 26, 1996 with Robert W. Locke
(filed herein as Exhibit 10.9a).
(10.10) Agreements by and between the Bank and an affiliate of
Directors G. Clark and Moxley, 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, 1995
(File No. 0-23402).
(10.11) Agreements by and between the Bank and an affiliate of
Director G. Clark, 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, 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, previously filed with the
Commission as an Exhibit to, and incorporated herein
by reference from, the Company's Annual Report on Form
10-K for fiscal year ended December 31, 1996, (File
No. 0-23402).
(10.13) Data Processing agreements by and between the Bank and
M&I Data Services, Inc., including addendums thereto,
previously filed with the Commission as an Exhibit to,
and incorporated herein by reference from, the
Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1996 (File No. 0-23402).
(10.14) Form of the Company's 1997 Stock Option Plan
(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
July 29, 1997) (Reg. No. 333-10231).
(13.1) 1997 Annual Report to Stockholders (filed herein as
Exhibit 13.1).
(14)
<PAGE>
(21.1) List of Subsidiaries of the Company
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation Owned by Ownership
---- ------------- -------- ---------
<S><C>
The Columbia Maryland Columbia 100%
Bank Bancorp
McAlpine Maryland The Columbia 100%
Enterprises, Bank
Inc.
Howard I, LLC Maryland The Columbia 100%
Bank
</TABLE>
(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 1998 Annual Meeting of Stockholders,
Proxy Statement for the 1998 Annual Meeting of
Stockholders and the 1998 Form of Proxy (filed herein
as Exhibit 99.1).
b. Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ended December 31, 1997.
(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 23, 1998 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 3/23/98
___________________________________ Board
James R. Moxley, Jr.
/S/ Vice Chairman of 3/23/98
___________________________________ the Board
Herschel L. Langenthal
/S/ President, Chief 3/23/98
___________________________________ Executive Officer and
Treasurer
John M. Bond, Jr.
/S/ Secretary 3/23/98
___________________________________ and Chief Financial
Officer
John A. Scaldara, Jr.
/S/ Director 3/23/98
___________________________________
Anand S. Bhasin
(16)
<PAGE>
Signature Title Date
- --------- ----- ----
/S/ Director 3/23/98
___________________________________
Garnett Y. Clark
/S/ Director 3/23/98
___________________________________
James Clark, Jr.
/S/ Director 3/23/98
___________________________________
Hugh F.Z. Cole, Jr.
/S/ Director 3/23/98
___________________________________
G. William Floyd
/S/ Director 3/23/98
___________________________________
Robert J. Gaw
/S/
___________________________________ Director 3/23/98
Mary T. Gould
/S/ Director 3/23/98
___________________________________
William L. Hermann
/S/ Director 3/23/98
___________________________________
Harry L. Lundy, Jr.
/S/ Director 3/23/98
___________________________________
Richard E. McCready
/S/ Director 3/23/98
___________________________________
Patricia T. Rouse
/S/ Director 3/23/98
___________________________________
Maurice M. Simpkins
(17)
<PAGE>
Signature Title Date
- --------- ----- ----
/S/ Director 3/23/98
___________________________________
Mary S. Scrivener
/S/ Director 3/23/98
___________________________________
Robert N. Smelkinson
/S/ Director 3/23/98
___________________________________
Theodore G. Venetoulis
(18)
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Title of Exhibit
----------- ----------------
3.2 Form of Restated By-Laws of the Company, restated as of
January 26, 1998 and in effect at all times since then through
March 27, 1998.
10.5a Amendment dated December 18, 1997 to the employment agreement
dated February 26, 1996 with John M. Bond, Jr.
10.6a Amendment dated December 16, 1997 to the employment agreement
dated February 26, 1996 with Michael T. Galeone.
10.7a Amendment dated December 16, 1997 to the employment agreement
dated February 27, 1996 with Charles C. Holman.
10.8a Amendment dated December 16, 1997 to the employment agreement
dated February 26, 1996 with John A. Scaldara, Jr.
10.9a Amendment dated December 16, 1997 to the severance agreement
dated February 26, 1996 with Robert W. Locke.
13.1 Annual Report to Stockholders for the year ended December 31,
1997.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
99.1 Notice of the 1998 Annual Meeting of Stockholders, Proxy
Statement for the 1998 Annual Meeting of Stockholders and the
1998 Form of Proxy.
(i)
EXHIBIT 3.2
COLUMBIA BANCORP
1998 AMENDED AND RESTATED BY-LAWS
(AMENDED AND RESTATED AS OF JANUARY 26, 1998)
ARTICLE I.
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers, either at 3:00 p.m. on the third Tuesday of April in each
year if not a legal holiday, or at such other time on such other day falling on
or before the 30th day thereafter as shall be set by the Board of Directors.
Except as the Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
SECTION 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting. Special meetings of the stockholders
shall be called by the Secretary at the request of stockholders only on the
written request of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting. A request for a special meeting shall
state the purpose of the meeting and the matters proposed to be acted on at it.
The Secretary shall inform the stockholders who make the request of the
reasonably estimated costs of preparing and mailing a notice of the meeting and,
on payment of these costs to the Corporation, notify each stockholder entitled
to notice of the meeting.
SECTION 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at the
meeting and each other stockholder entitled to notice of the meeting. The notice
shall state the time and place of the meeting and, if the meeting is a
-1-
<PAGE>
special meeting or notice of the purpose is required by statute, the purpose of
the meeting. Notice is given to a stockholder when it is personally delivered to
him or her, left at his or her residence or usual place of business, or mailed
to him or her at his or her address as it appears on the records of the
Corporation. Notwithstanding the foregoing provisions, each person who is
entitled to notice waives notice if he or she before or after the meeting signs
a waiver of the notice which is filed with the records of stockholders'
meetings, or is present at the meeting in person or by proxy.
SECTION 1.05. QUORUM; VOTING. Unless any statute or the Charter
provides otherwise, at a meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of all the votes entitled to
be cast at the meeting constitutes a quorum, and a majority of all the votes
cast at a meeting at which a quorum is present is sufficient to approve any
matter which properly comes before the meeting, except that a plurality of all
the votes cast at a meeting at which a quorum is present is sufficient to elect
a director.
SECTION 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time without further notice by a majority vote of the
stockholders present in person or by proxy to a date not more than 120 days
after the original record date. Any business which might have been transacted at
the meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present.
SECTION 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. In
all elections for directors, each share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A stockholder may vote the stock the stockholder
owns of record either in person or by proxy. A stockholder may sign a writing
authorizing another person to act as proxy. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing the writing or causing
the stockholder's signature to be affixed to the writing by any reasonable
means, including facsimile signature. A stockholder may authorize another person
to act as proxy by transmitting, or authorizing the transmission of, a telegram,
cablegram, datagram, or other means of electronic transmission to the person
authorized to act as proxy or to a proxy solicitation firm, proxy support
service organization, or other person authorized by the person who will act as
proxy to receive the transmission. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date. A proxy is revocable by a stockholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is coupled with an interest. A proxy may be made
irrevocable for so long as it is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted under
the proxy or another general interest in the Corporation or its assets or
liabilities.
-2-
<PAGE>
SECTION 1.08. LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.09. CONDUCT OF BUSINESS AND VOTING. At all meetings of
stockholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions touching the qualification of
voters and the validity of proxies, the acceptance or rejection of votes and
procedures for the conduct of business not otherwise specified by these By-Laws,
the Charter or law, shall be decided or determined by the chairman of the
meeting. If demanded by stockholders, present in person or by proxy, entitled to
cast 10% in number of votes entitled to be cast, or if ordered by the chairman,
the vote upon any election or question shall be taken by ballot and, upon like
demand or order, the voting shall be conducted by two inspectors, in which event
the proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided, by such inspectors. Unless so demanded or
ordered, no vote need be by ballot and voting need not be conducted by
inspectors. The stockholders at any meeting may choose an inspector or
inspectors to act at such meeting, and in default of such election the chairman
of the meeting may appoint an inspector or inspectors. No candidate for election
as a director at a meeting shall serve as an inspector thereat.
SECTION 1.10. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings an unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
SECTION 1.11. STOCKHOLDER PROPOSALS. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director to
be elected to the Board of Directors of the Corporation, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including
-3-
<PAGE>
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by such stockholders and
such beneficial owner.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-Laws.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number of
Directors may be less than three but not less than one, and, if there is stock
outstanding and so long as there are less than three stockholders, the number of
Directors may be less than three but not less than the number of stockholders.
The Corporation shall have the number of directors provided in the Charter until
changed as herein provided. A majority of the entire Board of Directors may
alter the number of directors set by the Charter to not exceeding 30 nor less
than the minimum number then permitted herein, but the action may not affect the
tenure of office of any director.
SECTION 2.03. ELECTION AND TENURE OF DIRECTORS. The directors shall be
divided into classes, as nearly equal in number as possible, with the term of
office of the first class to expire at the 1988 Annual Meeting of Stockholders,
the term of office of the second class to expire at the 1989 Annual Meeting of
Stockholders, and the term of office of the third class to expire at the 1990
Annual Meeting of Stockholders. At each annual meeting of stockholders beginning
in 1988, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three year term.
SECTION 2.04 QUALIFICATION. No person shall stand for election as a
director who would be 70 years of age on or before the date of the election;
provided, that any person who is an incorporator or a member of the original
Board of Directors may be elected to serve for three terms as director (after
the initial term specified in the Corporation's Articles of Incorporation).
-4-
<PAGE>
SECTION 2.05. REMOVAL OF DIRECTOR. Subject to the rights of the holders
of any class or series separately entitled to elect one or more directors, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and then only by the affirmative vote of the holders of
at least 80% of the voting power of all classes of shares of capital stock
entitled to vote in the election for directors.
SECTION 2.06. VACANCY ON BOARD. Subject to the rights of the holders of
any class of stock separately entitled to elect one or more directors, the
stockholders may elect a successor to fill a vacancy on the Board of Directors
which results from the removal of a director. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. Subject to the
rights of the holders of any class of stock separately entitled to elect one or
more directors, a majority of the remaining directors, whether or not sufficient
to constitute a quorum, may fill a vacancy on the Board of Directors which
results from any cause except an increase in the number of directors, and a
majority of the entire Board of Directors may fill a vacancy which results from
an increase in the number of directors. A director elected by the Board of
Directors to fill a vacancy serves until the next annual meeting of stockholders
and until his or her successor is elected and qualifies.
SECTION 2.07. REGULAR MEETINGS. After each meeting of stockholders at
which directors shall have been elected, the Board of Directors shall meet as
soon as practicable for the purpose of organization and the transaction of other
business. In the event that no other time and place are specified by resolution
of the Board, the President or the Chairman, with notice in accordance with
Section 2.09, the Board of Directors shall meet immediately following the close
of, and at the place of, such stockholders' meeting. Any other regular meeting
of the Board of Directors shall be held on such date and at any place as may be
designated from time to time by the Board of Directors.
SECTION 2.08. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or in
writing with or without a meeting. A special meeting of the Board of Directors
shall be held on such date and at any place as may be designated from time to
time by the Board of Directors. In the absence of designation such meeting shall
be held at such place as may be designated in the call.
SECTION 2.09. NOTICE OF MEETING. Except as provided in Section 2.07,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place of
the meeting. Notice is given to a director when it is delivered personally to
him or her, left at his or her residence or usual place of business, or sent by
telegraph, facsimile transmission or telephone, at least 24 hours before the
time of the meeting or, in the alternative by mail to his or her address as it
shall appear on the records of the Corporation, at least 72 hours before the
time of the meeting. Unless these By-Laws or a resolution of the Board of
Directors provides otherwise, the notice need not state the business to be
transacted at or the purposes of any regular or special meeting of the Board of
Directors. No notice of any
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meeting of the Board of Directors need be given to any director who attends
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened, or to any director who, in writing executed and filed with the records
of the meeting either before or after the holding thereof, waives such notice.
Any meeting of the Board of Directors, regular or special, may adjourn from time
to time to reconvene at the same or some other place, and no notice need be
given of any such adjourned meeting other than by announcement.
SECTION 2.10. QUORUM; ACTION BY DIRECTORS. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of business. In
the absence of a quorum, the directors present by majority vote and without
notice other than by announcement may adjourn the meeting from time to time
until a quorum shall attend. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified. Unless statute or the Charter
or By-Laws requires a greater proportion, the action of a majority of the
directors present at a meeting at which a quorum is present is action of the
Board of Directors. Any action required or permitted to be taken at a meeting of
the Board of Directors may be taken without a meeting, if an unanimous written
consent which sets forth the action is signed by each member of the Board and
filed with the minutes of proceedings of the Board.
SECTION 2.11. MEETING BY CONFERENCE TELEPHONE. At the discretion of the
chairman of the meeting, members of the Board of Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means constitutes presence in person
at a meeting.
SECTION 2.12. COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. Directors who are full-time employees of
the Corporation need not be paid for attendance at meetings of the board or
committees thereof for which fees are paid to other directors. A director who
serves the Corporation in any other capacity also may receive compensation for
such other services, pursuant to a resolution of the directors.
ARTICLE III.
COMMITTEES
SECTION 3.01. COMMITTEES. The Board of Directors may appoint from among
its members an Executive Committee and other committees composed of one or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to authorize dividends on stock, elect directors,
issue stock other than as provided in the next
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sentence, recommend to the stockholders any action which requires stockholder
approval, amend these By-Laws, or approve any merger or share exchange which
does not require stockholder approval. The Chairman of the Board and Vice
Chairman of the Board, if any, shall be members of all Committees appointed with
the exception of the Audit Committee. The President shall be a member of all
Committees appointed with the exception of the Audit Committee and Personnel,
Compensation and Stock Option Committee. If the Board of Directors has given
general authorization for the issuance of stock providing for or establishing a
method or procedure for determining the maximum number of shares to be issued, a
committee of the Board, in accordance with that general authorization or any
stock option or other plan or program adopted by the Board of Directors, may
authorize or fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including all
terms and conditions required or permitted to be established or authorized by
the Board of Directors.
SECTION 3.02. COMMITTEE PROCEDURE. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.03. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of these By-Laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of these By-Laws.
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ARTICLE IV.
OFFICERS
SECTION 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall have
a President, a Secretary, and a Treasurer who shall be the executive officers of
the Corporation. It may also have a Chairman of the Board; the Chairman of the
Board shall be an executive officer if he or she is designated as the chief
executive officer of the Corporation. Provided the Corporation has a Chairman of
the Board it may also have a Vice Chairman of the Board. The Vice Chairman of
the Board shall not be an executive officer of the Corporation. The Board of
Directors may designate who shall serve as chief executive officer, having
general supervision of the business and affairs of the Corporation, or as chief
operating officer, having supervision of the operations of the Corporation; in
the absence of designation the President shall serve as chief executive officer
and chief operating officer. It may also have one or more Vice-Presidents,
assistant officers, and subordinate officers as may be established by the Board
of Directors. A person may hold more than one office in the Corporation except
that no person may serve concurrently as both President and Vice-President nor
Chairman of the Board and Vice Chairman of the Board of the Corporation. The
Chairman of the Board and Vice Chairman of the Board shall be a directors; the
other officers may be directors.
SECTION 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present; and, in general, he or she
shall perform all such duties as are from time to time assigned to him or her by
the Board of Directors.
SECTION 4.03. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, if one be elected, in the absence of the Chairman of the Board, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he or she shall be present; and, in general, he or she shall perform all
such duties as are from time to time assigned to him or her by the Board of
Directors.
SECTION 4.04. PRESIDENT. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present; he or she may sign and execute, in the name
of the Corporation, all authorized deeds, mortgages, bonds, contracts or other
instruments, except in cases in which the signing and execution thereof shall
have been expressly delegated to some other officer or agent of the Corporation.
In general, he or she shall perform such other duties customarily performed by a
president of a corporation and shall perform such other duties and have such
other powers as are from time to time assigned to him or her by the Board of
Directors or the chief executive officer of the Corporation.
SECTION 4.05. VICE-PRESIDENTS. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his or her inability to act, shall perform the
duties and exercise the functions of the President, and when so
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acting shall have the powers of the President. If there be more than one
Vice-President, the Board of Directors may determine which one or more of the
Vice-Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors, the
chief executive officer, or the President may make such determination; otherwise
any of the Vice-Presidents may perform any of such duties or exercise any of
such functions. Each Vice-President shall perform such other duties and have
such other powers, and have such additional descriptive designations in their
titles (if any), as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.06. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he or she shall see that all notices are duly
given in accordance with the provisions of these By-Laws or as required by law;
he or she shall be custodian of the records of the Corporation; he or she may
witness any document on behalf of the Corporation, the execution of which is
duly authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same. In general, he or she shall perform such other duties customarily
performed by a secretary of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.07. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he or she shall perform such other duties customarily
performed by a treasurer of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.08. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.09. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board.
The Board of Directors (or, as to any assistant or subordinate officer, any
committee or officer authorized by the Board) may remove an officer at any time.
The removal of an officer does not prejudice any of his or her contract rights.
The Board of Directors (or, as to any assistant or subordinate
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officer, any committee or officer authorized by the Board) may fill a vacancy
which occurs in any office for the unexpired portion of the term.
SECTION 4.10. ELECTION, TENURE AND REMOVAL OF THE CHAIRMAN OF THE BOARD
AND VICE CHAIRMAN OF THE BOARD. The Board of Directors shall elect the Chairman
of the Board and Vice Chairman of the Board, if any be elected. The Chairman of
the Board and Vice Chairman of the Board shall be appointed to hold their
offices, respectively, for two years. The Board of Directors may remove the
Chairman of the Board and Vice Chairman of the Board from their respective
office at any time. The removal of the Chairman of the Board and/or Vice
Chairman of the Board does not prejudice his/their rights as a director and
stockholder of the Corporation conveyed by the Charter and By-Laws of the
Corporation.
SECTION 4.11. COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he or she is also a director of the
Corporation. The Board of Directors may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V.
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. Each stockholder is entitled to
certificates which represent and certify the shares of stock he or she holds in
the Corporation. Each stock certificate shall include on its face the name of
the Corporation, the name of the stockholder or other person to whom it is
issued, and the class of stock and number of shares it represents. It shall also
include on its face or back (a) a statement of any restrictions on
transferability and (b) a statement which provides in substance that the
Corporation will furnish to any stockholder on request and without charge a full
statement of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class which the
Corporation is authorized to issue, of the differences in the relative rights
and preferences between the shares of each series of a preferred or special
class in series which the Corporation is authorized to issue, to the extent they
have been set, and of the authority of the Board of Directors to set the
relative rights and preferences of subsequent series of a preferred or special
class of stock and any restrictions on transferability. Such request may be made
to the Secretary or to its transfer agent. It shall be in such form, not
inconsistent with law or with the Charter, as shall be approved by the Board of
Directors or any officer or officers designated for such purpose by resolution
of the Board of Directors. Each stock certificate shall be signed by the
Chairman of the Board, the President, or a Vice-President, and countersigned by
the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer.
Each certificate may be sealed with the actual corporate seal or a facsimile of
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it or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued. A certificate may not be
issued until the stock represented by it is fully paid.
SECTION 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. RECORD DATES OR CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be prior to the close of business on the day the
record date is fixed nor, subject to Section 1.06, more than 90 days before the
date on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of a
meeting of stockholders, the record date or the closing of the transfer books
shall be at least ten days before the date of the meeting.
SECTION 6.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the offices of a transfer agent
for the particular class of stock, or, if none, at the principal office in the
State of Maryland or the principal executive offices of the Corporation.
SECTION 5.05. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation; and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
SECTION 5.06. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any
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officer or officers of the Corporation. In their discretion, the Board of
Directors or such officer or officers may require the owner of the certificate
to give bond, with sufficient surety, to indemnify the Corporation against any
loss or claim arising as a result of the issuance of a new certificate. In their
discretion, the Board of Directors or such officer or officers may refuse to
issue such new certificate save upon the order of some court having jurisdiction
in the premises.
ARTICLE VI.
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the Chairman of the Board, the President, a
Vice-President or an Assistant Vice-President and countersigned by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary.
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The President or chief
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within 20 days after
the meeting, placed on file at the Corporation's principal office.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01. PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to
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indemnification, in whole or in part, in any such action shall also be
reimbursed by the Corporation. It shall be a defense to any action for advance
for expenses that (a) a determination has been made that the facts then known to
those making the determination would preclude indemnification or (b) the
Corporation has not received both (i) an undertaking as required by law to repay
such advances in the event it shall ultimately be determined that the standard
of conduct has not been met and (ii) a written affirmation by the Indemnified
Party of such Indemnified Party's good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met.
SECTION 7.02. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the Charter and these By-Laws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. The Corporation shall not be liable
for any payment under this By-Law in connection with a claim made by a director
or officer to the extent such director or officer has otherwise actually
received payment under insurance policy, agreement, vote or otherwise, of the
amounts otherwise indemnifiable hereunder. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of such director
or officer or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision hereof
is in force.
SECTION 7.03. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII.
SUNDRY PROVISIONS
SECTION 8.01. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising
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any of the powers of the Board of Directors. The books and records of the
Corporation may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. Minutes shall
be recorded in written form but may be maintained in the form of a reproduction.
The original or a certified copy of these By-Laws shall be kept at the principal
office of the Corporation.
SECTION 8.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"(seal)" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his or her duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.04. VOTING STOCK IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.05. MAIL. Any notice or other document which is required by
these By-Laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
SECTION 8.07. AMENDMENTS. Subject to the special provisions of Section
2.02, these By-Laws may be repealed, altered, amended or rescinded and new
by-laws may be adopted (a) by the stockholders of the Corporation by vote of not
less than 80% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at any meeting of the stockholders called for that
purpose (provided that notice of such proposal is included in the notice of such
meeting) or (b) by the Board of Directors by a vote of not less than two-thirds
of the Board of Directors at a meeting held in accordance with the provisions of
these By-Laws.
EXHIBIT 10.5A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, effective December 18, 1997, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and JOHN M. BOND, JR. (the "Executive"), amends the Employment
Agreement between the Corporation, the Bank and the Executive, dated February
26, 1996 (the "Employment Agreement").
W I T N E S S E T H:
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The Corporation and the Bank (each, a "Company" and collectively, the
"Companies") recognized the Executive's contribution to the organization, growth
and success of the Companies and entered into the Employment Agreement with the
Executive to secure his services. The Companies and the Executive desire to
amend the Employment Agreement as set forth below in this First Amendment to
clarify certain provisions thereof.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
Companies and the Executive agree to amend the Employment Agreement as follows:
1. Paragraph 5.2 shall be amended to read as follows:
"5.2. Amount of Payments. Except as provided in
paragraph 5.2(e), and in lieu of amounts payable under paragraph 4,
the Companies will pay the Executive the following amounts in the
following circumstances:
(a) (i) If the Executive is terminated by either of the
Companies in the circumstances described under paragraph
4.3(a)(i), or if the Executive resigns during a Change in Control
Period in the circumstances described under paragraph 4.3(a)(ii),
or if during a Change in Control Period the Executive resigns in
circumstances other than those described under paragraph
4.3(a)(ii) without having been offered an employment agreement the
terms of which are comparable to those of this Agreement, the
Companies will pay, or cause to be paid, to the Executive: (a) if
the Executive's termination or resignation occurs before the
Executive has attained the age of 62 years, an amount equal to
three times the sum of (i) the Executive's annual base salary
immediately before the Change in Control and (ii) the average of
the bonuses paid to the Executive over the past three years
(including years in which no bonus was awarded); or (b) if the
Executive's termination or resignation occurs on or after the
Executive has attained the age of 62 years, an amount equal to the
amount set forth in paragraph 5.2(a)(i)(a) multiplied by a
fraction, the numerator of which shall be
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1095 minus the number of days which have passed since the
Executive's 62nd birthday, and the denominator of which shall be
1095.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's termination or resignation.
(b) (i) If the Executive resigns during a Change in
Control Period in circumstances other than those described under
paragraph 4.3(a)(ii) after having been offered an employment
agreement the terms of which are comparable to those of this
Agreement, the Companies will pay, or cause to be paid, to the
Executive: (a) if the Executive's resignation occurs before the
Executive has attained the age of 64 years, an amount equal to the
sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to
the Executive over the past three years (including years in which
no bonus was awarded); or (b) if the Executive's resignation
occurs on or after the Executive has attained the age of 64 years,
an amount equal to the amount set forth in paragraph 5.2(b)(i)(a)
multiplied by a fraction, the numerator of which shall be 365
minus the number of days which have passed since the Executive's
64th birthday, and the denominator of which shall be 365.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's resignation.
(c) Except as provided in paragraph 5.2(e), if the
Executive is terminated by the Companies or resigns as described
in paragraph 5.2(a), or resigns as described in paragraph 5.2(b),
the Executive shall continue to receive all health, life, and
disability insurance benefits available to him pursuant to
paragraph 1.2(b) of this Agreement immediately before such
termination or resignation. The Executive shall continue to
receive such benefits until the earliest of (a) such time as the
Executive shall have been receiving substantially similar
insurance benefits for six months under subsequent employment, (b)
36 months after the date of a termination or resignation described
in paragraph 5.2(a) or 12 months after the date of a resignation
described in paragraph 5.2(b), or (c) such date as the Executive
shall have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors
and key employees shall immediately become fully vested in the
event of a Change of Control.
(e) The Executive is to receive no payments under
paragraph 5.2(a) or (b) and no benefits under paragraph 5.2(c) if
the
-2-
<PAGE>
Executive is terminated during a Change in Control Period after
having already attained the age of 65 years, or if the Executive
is terminated by either of the Companies during a Change in
Control Period upon the death or total disability of the Executive
or for cause. In an instance of death or total disability of the
Executive, however, the Executive and his dependents,
beneficiaries and estate shall receive any benefits payable to
them under paragraphs 4.2 (c) and 4.2 (d).
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 5.2 would,
if made, cause the Executive to have tax under Section 4999 of the
Code, the Executive may elect, at his discretion, to reduce the
amount payable to him under paragraph 5.2(a) or (b) by an amount
such that the aggregate after-tax amounts the Executive will
receive under paragraph 5.2 will be equal to the aggregate
after-tax amounts the Executive would receive without the
reduction he elected (i.e., the aggregate amounts after the
application of the tax under Section 4999 of the Code and other
taxes)."
IN WITNESS WHEREOF, the parties have executed and delivered this First
Agreement to the Employment Agreement on this 13th day of March, 1998.
ATTEST: COLUMBIA BANCORP
/s/ /s/
_____________________ _____________________
Name:
Title:
ATTEST: THE COLUMBIA BANK
/s/ /s/
_____________________ _____________________
Name:
Title:
WITNESS:
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
-3-
EXHIBIT 10.6A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, effective December 16, 1997, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and MICHAEL T. GALEONE (the "Executive"), amends the Employment
Agreement between the Corporation, the Bank and the Executive, dated February
26, 1996 (the "Employment Agreement").
W I T N E S S E T H:
- - - - - - - - - -
The Corporation and the Bank (each, a "Company" and collectively, the
"Companies") recognized the Executive's contribution to the organization, growth
and success of the Companies and entered into the Employment Agreement with the
Executive to secure his services. The Companies and the Executive desire to
amend the Employment Agreement as set forth below in this First Amendment to
clarify certain provisions thereof.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
Companies and the Executive agree to amend the Employment Agreement as follows:
1. Paragraph 5.2 shall be amended to read as follows:
"5.2. Amount of Payments. Except as provided in
paragraph 5.2(e), and in lieu of amounts payable under paragraph 4,
the Companies will pay the Executive the following amounts in the
following circumstances:
(a) (i) If the Executive is terminated by either of the
Companies in the circumstances described under paragraph
4.3(a)(i), or if the Executive resigns during a Change in Control
Period in the circumstances described under paragraph 4.3(a)(ii),
or if during a Change in Control Period the Executive resigns in
circumstances other than those described under paragraph
4.3(a)(ii) without having been offered an employment agreement the
terms of which are comparable to those of this Agreement, the
Companies will pay, or cause to be paid, to the Executive: (a) if
the Executive's termination or resignation occurs before the
Executive has attained the age of 63 years, an amount equal to two
times the sum of (i) the Executive's annual base salary
immediately before the Change in Control and (ii) the average of
the bonuses paid to the Executive over the past three years
(including years in which no bonus was awarded); or (b) if the
Executive's termination or resignation occurs on or after the
Executive has attained the age of 63 years, an amount equal to the
amount set forth in paragraph 5.2(a)(i)(a) multiplied by a
fraction, the numerator of which shall be
-1-
<PAGE>
730 minus the number of days which have passed since the
Executive's 63rd birthday, and the denominator of which shall be
730.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's termination or resignation.
(b) (i) If the Executive resigns during a Change in
Control Period in circumstances other than those described under
paragraph 4.3(a)(ii) after having been offered an employment
agreement the terms of which are comparable to those of this
Agreement, the Companies will pay, or cause to be paid, to the
Executive: (a) if the Executive's resignation occurs before the
Executive has attained the age of 64 years, an amount equal to the
sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to
the Executive over the past three years (including years in which
no bonus was awarded); or (b) if the Executive's resignation
occurs on or after the Executive has attained the age of 64 years,
an amount equal to the amount set forth in paragraph 5.2(b)(i)(a)
multiplied by a fraction, the numerator of which shall be 365
minus the number of days which have passed since the Executive's
64th birthday, and the denominator of which shall be 365.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's resignation.
(c) Except as provided in paragraph 5.2(e), if the
Executive is terminated by the Companies or resigns as described
in paragraph 5.2(a), or resigns as described in paragraph 5.2(b),
the Executive shall continue to receive all health, life, and
disability insurance benefits available to him pursuant to
paragraph 1.2(b) of this Agreement immediately before such
termination or resignation. The Executive shall continue to
receive such benefits until the earliest of (a) such time as the
Executive shall have been receiving substantially similar
insurance benefits for six months under subsequent employment, (b)
24 months after the date of a termination or resignation described
in paragraph 5.2(a) or 12 months after the date of a resignation
described in paragraph 5.2(b), or (c) such date as the Executive
shall have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors
and key employees shall immediately become fully vested in the
event of a Change in Control.
(e) The Executive is to receive no payments under
paragraph 5.2(a) or (b) and no benefits under paragraph 5.2(c) if
the
-2-
<PAGE>
Executive is terminated during a Change in Control Period after
having already attained the age of 65 years, or if the Executive
is terminated by either of the Companies during a Change in
Control Period upon the death or total disability of the Executive
or for cause. In an instance of death or total disability of the
Executive, however, the Executive and his dependents,
beneficiaries and estate shall receive any benefits payable to
them under paragraphs 4.2 (c) and 4.2 (d).
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 5.2 would,
if made, cause the Executive to have tax under Section 4999 of the
Code, the Executive may elect, at his discretion, to reduce the
amount payable to him under paragraph 5.2(a) or (b) by an amount
such that the aggregate after-tax amounts the Executive will
receive under paragraph 5.2 will be equal to the aggregate
after-tax amounts the Executive would receive without the
reduction he elected (i.e., the aggregate amounts after the
application of the tax under Section 4999 of the Code and other
taxes)."
IN WITNESS WHEREOF, the parties have executed and delivered this First
Agreement to the Employment Agreement on this 13th day of March, 1998.
ATTEST: COLUMBIA BANCORP
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/s/ /s/ Michael T. Galeone
_____________________ ______________________
Michael T. Galeone
-3-
EXHIBIT 10.7A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, effective December 16, 1997, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and CHARLES C. HOLMAN (the "Executive"), amends the Employment
Agreement between the Corporation, the Bank and the Executive, dated February
27, 1996 (the "Employment Agreement").
W I T N E S S E T H:
- - - - - - - - - -
The Corporation and the Bank (each, a "Company" and collectively, the
"Companies") recognized the Executive's contribution to the organization, growth
and success of the Companies and entered into the Employment Agreement with the
Executive to secure his services. The Companies and the Executive desire to
amend the Employment Agreement as set forth below in this First Amendment to
clarify certain provisions thereof.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
Companies and the Executive agree to amend the Employment Agreement as follows:
1. Paragraph 5.2 shall be amended to read as follows:
"5.2. Amount of Payments. Except as provided in
paragraph 5.2(e), and in lieu of amounts payable under paragraph 4,
the Companies will pay the Executive the following amounts in the
following circumstances:
(a) (i) If the Executive is terminated by either of the
Companies in the circumstances described under paragraph
4.3(a)(i), or if the Executive resigns during a Change in Control
Period in the circumstances described under paragraph 4.3(a)(ii),
or if during a Change in Control Period the Executive resigns in
circumstances other than those described under paragraph
4.3(a)(ii) without having been offered an employment agreement the
terms of which are comparable to those of this Agreement, the
Companies will pay, or cause to be paid, to the Executive: (a) if
the Executive's termination or resignation occurs before the
Executive has attained the age of 63 years, an amount equal to two
times the sum of (i) the Executive's annual base salary
immediately before the Change in Control and (ii) the average of
the bonuses paid to the Executive over the past three years
(including years in which no bonus was awarded); or (b) if the
Executive's termination or resignation occurs on or after the
Executive has attained the age of 63 years, an amount equal to the
amount set forth in paragraph 5.2(a)(i)(a) multiplied by a
fraction, the numerator of which shall be
-1-
<PAGE>
730 minus the number of days which have passed since the
Executive's 63rd birthday, and the denominator of which shall be
730.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's termination or resignation.
(b) (i) If the Executive resigns during a Change in
Control Period in circumstances other than those described under
paragraph 4.3(a)(ii) after having been offered an employment
agreement the terms of which are comparable to those of this
Agreement, the Companies will pay, or cause to be paid, to the
Executive: (a) if the Executive's resignation occurs before the
Executive has attained the age of 64 years, an amount equal to the
sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to
the Executive over the past three years (including years in which
no bonus was awarded); or (b) if the Executive's resignation
occurs on or after the Executive has attained the age of 64 years,
an amount equal to the amount set forth in paragraph 5.2(b)(i)(a)
multiplied by a fraction, the numerator of which shall be 365
minus the number of days which have passed since the Executive's
64th birthday, and the denominator of which shall be 365.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's resignation.
(c) Except as provided in paragraph 5.2(e), if the
Executive is terminated by the Companies or resigns as described
in paragraph 5.2(a), or resigns as described in paragraph 5.2(b),
the Executive shall continue to receive all health, life, and
disability insurance benefits available to him pursuant to
paragraph 1.2(b) of this Agreement immediately before such
termination or resignation. The Executive shall continue to
receive such benefits until the earliest of (a) such time as the
Executive shall have been receiving substantially similar
insurance benefits for six months under subsequent employment, (b)
24 months after the date of a termination or resignation described
in paragraph 5.2(a) or 12 months after the date of a resignation
described in paragraph 5.2(b), or (c) such date as the Executive
shall have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors
and key employees shall immediately become fully vested in the
event of a Change in Control.
(e) The Executive is to receive no payments under
paragraph 5.2(a) or (b) and no benefits under paragraph 5.2(c) if
the
-2-
<PAGE>
Executive is terminated during a Change in Control Period after
having already attained the age of 65 years, or if the Executive
is terminated by either of the Companies during a Change in
Control Period upon the death or total disability of the Executive
or for cause. In an instance of death or total disability of the
Executive, however, the Executive and his dependents,
beneficiaries and estate shall receive any benefits payable to
them under paragraphs 4.2 (c) and 4.2 (d).
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 5.2 would,
if made, cause the Executive to have tax under Section 4999 of the
Code, the Executive may elect, at his discretion, to reduce the
amount payable to him under paragraph 5.2(a) or (b) by an amount
such that the aggregate after-tax amounts the Executive will
receive under paragraph 5.2 will be equal to the aggregate
after-tax amounts the Executive would receive without the
reduction he elected (i.e., the aggregate amounts after the
application of the tax under Section 4999 of the Code and other
taxes)."
IN WITNESS WHEREOF, the parties have executed and delivered this First
Agreement to the Employment Agreement on this 13th day of March, 1998.
ATTEST: COLUMBIA BANCORP
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/s/ /s/ Charles C. Holman
_____________________ _____________________
Charles C. Holman
-3-
EXHIBIT 10.8A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, effective December 16, 1997, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and JOHN A. SCALDARA, JR. (the "Executive"), amends the Employment
Agreement between the Corporation, the Bank and the Executive, dated February
26, 1996 (the "Employment Agreement").
W I T N E S S E T H:
- - - - - - - - - -
The Corporation and the Bank (each, a "Company" and collectively, the
"Companies") recognized the Executive's contribution to the organization, growth
and success of the Companies and entered into the Employment Agreement with the
Executive to secure his services. The Companies and the Executive desire to
amend the Employment Agreement as set forth below in this First Amendment to
clarify certain provisions thereof.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
Companies and the Executive agree to amend the Employment Agreement as follows:
1. Paragraph 5.2 shall be amended to read as follows:
"5.2. Amount of Payments. Except as provided in
paragraph 5.2(e), and in lieu of amounts payable under paragraph 4,
the Companies will pay the Executive the following amounts in the
following circumstances:
(a) (i) If the Executive is terminated by either of the
Companies in the circumstances described under paragraph
4.3(a)(i), or if the Executive resigns during a Change in Control
Period in the circumstances described under paragraph 4.3(a)(ii),
or if during a Change in Control Period the Executive resigns in
circumstances other than those described under paragraph
4.3(a)(ii) without having been offered an employment agreement the
terms of which are comparable to those of this Agreement, the
Companies will pay, or cause to be paid, to the Executive: (a) if
the Executive's termination or resignation occurs before the
Executive has attained the age of 63 years, an amount equal to two
times the sum of (i) the Executive's annual base salary
immediately before the Change in Control and (ii) the average of
the bonuses paid to the Executive over the past three years
(including years in which no bonus was awarded); or (b) if the
Executive's termination or resignation occurs on or after the
Executive has attained the age of 63 years, an amount equal to the
amount set forth in paragraph
-1-
<PAGE>
5.2(a)(i)(a) multiplied by a fraction, the numerator of which
shall be 730 minus the number of days which have passed since the
Executive's 63rd birthday, and the denominator of which shall be
730.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's termination or resignation.
(b) (i) If the Executive resigns during a Change in
Control Period in circumstances other than those described under
paragraph 4.3(a)(ii) after having been offered an employment
agreement the terms of which are comparable to those of this
Agreement, the Companies will pay, or cause to be paid, to the
Executive: (a) if the Executive's resignation occurs before the
Executive has attained the age of 64 years, an amount equal to the
sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to
the Executive over the past three years (including years in which
no bonus was awarded); or (b) if the Executive's resignation
occurs on or after the Executive has attained the age of 64 years,
an amount equal to the amount set forth in paragraph 5.2(b)(i)(a)
multiplied by a fraction, the numerator of which shall be 365
minus the number of days which have passed since the Executive's
64th birthday, and the denominator of which shall be 365.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's resignation.
(c) Except as provided in paragraph 5.2(e), if the
Executive is terminated by the Companies or resigns as described
in paragraph 5.2(a), or resigns as described in paragraph 5.2(b),
the Executive shall continue to receive all health, life, and
disability insurance benefits available to him pursuant to
paragraph 1.2(b) of this Agreement immediately before such
termination or resignation. The Executive shall continue to
receive such benefits until the earliest of (a) such time as the
Executive shall have been receiving substantially similar
insurance benefits for six months under subsequent employment, (b)
24 months after the date of a termination or resignation described
in paragraph 5.2(a) or 12 months after the date of a resignation
described in paragraph 5.2(b), or (c) such date as the Executive
shall have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors
and key employees shall immediately become fully vested in the
event of a Change in Control.
-2-
<PAGE>
(e) The Executive is to receive no payments under
paragraph 5.2(a) or (b) and no benefits under paragraph 5.2(c) if
the Executive is terminated during a Change in Control Period
after having already attained the age of 65 years, or if the
Executive is terminated by either of the Companies during a Change
in Control Period upon the death or total disability of the
Executive or for cause. In an instance of death or total
disability of the Executive, however, the Executive and his
dependents, beneficiaries and estate shall receive any benefits
payable to them under paragraphs 4.2 (c) and 4.2 (d).
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 5.2 would,
if made, cause the Executive to have tax under Section 4999 of the
Code, the Executive may elect, at his discretion, to reduce the
amount payable to him under paragraph 5.2(a) or (b) by an amount
such that the aggregate after-tax amounts the Executive will
receive under paragraph 5.2 will be equal to the aggregate
after-tax amounts the Executive would receive without the
reduction he elected (i.e., the aggregate amounts after the
application of the tax under Section 4999 of the Code and other
taxes)."
IN WITNESS WHEREOF, the parties have executed and delivered this First
Agreement to the Employment Agreement on this 13th day of March, 1998.
ATTEST: COLUMBIA BANCORP
/s/ /s/ John M. Bond, Jr.
_____________________ ______________________
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/s/ /s/ John M. Bond, Jr.
_____________________ ______________________
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/s/ /s/ John A. Scaldara, Jr.
_____________________ __________________________
John A. Scaldara, Jr.
-3-
EXHIBIT 10.9A
FIRST AMENDMENT TO SEVERANCE AGREEMENT
THIS FIRST AMENDMENT, effective December 16, 1997, between COLUMBIA
BANCORP, a Maryland corporation (the "Corporation"), THE COLUMBIA BANK, a
Maryland trust company and a principal subsidiary of the Corporation (the
"Bank"), and ROBERT W. LOCKE (the "Executive"), amends the Severance Agreement
between the Corporation, the Bank and the Executive, dated February 26, 1996
(the "Severance Agreement").
W I T N E S S E T H:
- - - - - - - - - -
The Executive serves as a Senior Vice President of the Bank and has
contributed to the growth and success of the Corporation and the Bank (each, a
"Company" and collectively, the "Companies"). The Companies entered into the
Severance Agreement with the Executive in order to assure him of certain
benefits if he is terminated or resigns in certain circumstances in the event of
a change in control of the Companies. The Companies and the Executive desire to
amend the Severance Agreement as set forth below in this First Amendment to
clarify certain provisions thereof.
Accordingly, in consideration of the mutual covenants and
representations contained herein and the mutual benefits derived herefrom, the
parties hereto agree to amend the Severance Agreement as follows:
Paragraph 1.2 is amended to read as follows:
"1.2. Amount of Payments. Except as provided in
paragraph 1.2(e), the Companies will pay the Executive the following
amounts in the following circumstances:
(a) (i) If the employment of the Executive with either of
the Companies is terminated during a Change in Control Period by either
of the Companies for any reason other than death or total disability of
the Executive or other than for cause, or if the Executive resigns
during a Change in Control Period due to a significant change in the
nature or scope of his authorities or duties from those immediately
prior to the Change in Control period, a reduction in total
compensation from that provided immediately prior to the Change in
Control period, or the breach by either of the Companies of any other
provision of this Agreement, the Companies will pay, or cause to be
paid, to the Executive: (a) if the Executive's termination or
resignation occurs before the Executive has attained the age of 63
years, an amount equal to two times the sum of (i) the Executive's
annual base salary immediately before the Change in Control and (ii)
the average of
-1-
<PAGE>
the bonuses paid to the Executive over the past three years (including
years in which no bonus was awarded); or (b) if the Executive's
termination or resignation occurs on or after the Executive has
attained the age of 63 years, an amount equal to the amount set forth
in paragraph 1.2(a)(i)(a) multiplied by a fraction, the numerator of
which shall be 730 minus the number of days which have passed since the
Executive's 63rd birthday, and the denominator of which shall be 730.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's termination or resignation.
(b) (i) If the Executive resigns during a Change in
Control Period for any reason other than due to a significant change in
the nature or scope of his authorities or duties from those immediately
prior to the Change in Control period, or a reduction in total
compensation from that provided immediately prior to the Change in
Control period, or the breach by either of the Companies of any other
provision of this Agreement, the Companies will pay, or cause to be
paid, to the Executive: (a) if the Executive's resignation occurs
before the Executive has attained the age of 64 years, an amount equal
to the sum of (i) the Executive's annual base salary immediately before
the Change in Control and (ii) the average of the bonuses paid to the
Executive over the past three years (including years in which no bonus
was awarded); or (b) if the Executive's resignation occurs on or after
the Executive has attained the age of 64 years, an amount equal to the
amount set forth in paragraph 1.2(b)(i)(a) multiplied by a fraction,
the numerator of which shall be 365 minus the number of days which have
passed since the Executive's 64th birthday, and the denominator of
which shall be 365.
(ii) Such payment shall be made in one lump sum within
15 business days after the Executive's resignation.
(c) Except as provided in paragraph 1.2(e), if the
Executive is terminated by the Companies or resigns as described in
paragraph 1.2(a), or resigns as described in paragraph 1.2(b), the
Executive shall continue to receive all health, life, and disability
insurance benefits available to him pursuant to his employment with the
Companies immediately before such termination or resignation. The
Executive shall continue to receive such benefits until the earliest of
(a) such time as the Executive shall have been receiving substantially
similar insurance benefits for six months under subsequent employment,
(b) 24 months after the date of a termination or resignation described
in paragraph 1.2(a) or 12 months after the date of a resignation
described in paragraph 1.2(b), or (c) such date as the Executive shall
have attained the age of 65 years.
(d) All options granted to the Executive under the
Corporation's stock option award arrangements providing for the
granting of options to acquire common stock to founders, directors and
key employees shall immediately become fully vested in the event of a
Change in Control.
-2-
<PAGE>
(e) The Executive is to receive no payments under
paragraph 1.2(a) or (b) and no benefits under paragraph 1.2(c) if the
Executive is terminated during a Change in Control Period after having
already attained the age of 65 years, or if the Executive is terminated
by either of the Companies during a Change in Control Period upon the
death or total disability of the Executive or for cause.
(f) Notwithstanding the foregoing, in the event that any
of the amounts payable to the Executive under paragraph 1.2 would, if
made, cause the Executive to have tax under Section 4999 of the Code,
the Executive may elect, at his discretion, to reduce the amount
payable to him under paragraph 1.2(a) or (b) by an amount such that the
aggregate after-tax amounts the Executive will receive under paragraph
1.2 will be equal to the aggregate after-tax amounts the Executive
would receive without the reduction he elected (i.e., the aggregate
amounts after the application of the tax under Section 4999 of the Code
and other taxes).
IN WITNESS WHEREOF, the parties have executed and delivered this First
Agreement to the Severance Agreement on this 13th day of March, 1998.
ATTEST: COLUMBIA BANCORP
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/s/ /s/ John M. Bond, Jr.
_____________________ _____________________
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/s/ /s/ Robert W. Locke
_____________________ _____________________
Robert W. Locke
-3-
[COLUMBIA LOGO HERE]
COLUMBIA BANCORP ANNUAL REPORT 1997
CELEBRATING A DECADE OF COMMUNITY SERVICE
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 1
Columbia Bancorp Corporate Profile
[COLUMBIA LOGO HERE]
Columbia Bancorp is a bank holding company whose subsidiary, The Columbia
Bank, commenced operations in 1988.
Headquartered in Columbia, Maryland, The Columbia Bank is the largest
community bank in Howard County, one of the wealthiest counties in the United
States.
In less than ten 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, Allied Irish (First National Bank of Maryland) and NationsBank.
The Bank's continued commitment is to expand by introducing its unique and
successful style of banking to other communities of the Baltimore-Washington
Corridor.
[MAP APPEARS BELOW]
Banking Offices of the Columbia Bank
Residential Mortgage Lending Offices
Home Market Area
Target Area
HOWARD COUNTY
Columbia Town Center
Columbia Town Center
Residential Mortgage
Lending Office
Ellicott City
Harmony Hall
Harper's Choice
Long Gate
Oakland Mills
River Hill
Vantage House
Wilde Lake
BALTIMORE CITY
Cross Keys
Roland Park Place
BALTIMORE COUNTY
Blakehurst
Heaver Plaza - Lutherville
Heaver Plaza Residential
Mortgage Lending Office
MONTGOMERY COUNTY
Olney Residential Mortgage
Lending Office
<PAGE>
2 COLUMBIA BANCORP AND SUBSIDIARY
Financial Highlights
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Assets $373,451 $317,234 $263,025 $224,208 $206,592
Loans, net of unearned income 265,194 237,875 190,691 162,253 131,365
Deposits 313,357 254,640 218,162 189,463 176,285
Stockholders' equity 34,385 30,975 28,064 16,873 15,459
Net income 4,168 3,752 3,429 2,416 1,743
- ----------------------------------------------------------------------------------------------------------
Per Share Data:
Net income per common share:
Basic $ 1.93 $ 1.75 $ 2.06 $ 1.80 $ 1.16
Diluted 1.82 1.66 1.80 1.57 1.16
Tangible book value per common share 15.54 14.29 12.92 11.61 10.28
Dividends declared:
Common .50 .42 .25 .14 --
Preferred -- -- 1.30 1.20 1.20
- ----------------------------------------------------------------------------------------------------------
Return on average assets 1.21% 1.34% 1.42% 1.13% .88%
Return on average
stockholders' equity 12.78 12.71 15.60 15.01 11.85
Nonperforming assets and
past-due loans to total assets 1.41 1.37 .49 1.29 2.29
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE-PLOT POINTS BELOW]
Loans, Net of
Unearned Income Deposits Total Assets Net Income
($ in Millions) ($ in Millions) ($ in Millions) ($ in Thousands)
93 131.4 93 176.3 93 206.6 93 1,743
94 162.3 94 189.5 94 224.2 94 2,416
95 190.7 95 218.2 95 263 95 3,429
96 237.9 96 254.6 96 317.2 96 3,752
97 265.2 97 313.4 97 373.5 97 4,168
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 3
Report to Shareholders
As we approach the tenth anniversary of the opening of THE COLUMBIA BANK in
May 1988, we look back with pride on our 34 percent compound annual rate of
growth in total assets over the past decade. However, our record of superior
profitability as compared to other DE NOVO banks of the past decade, is equally
important to us. During the third quarter of 1997, Danielson Associates, Inc., a
recognized authority on new banks, published a report based upon 1996 income
which ranked THE COLUMBIA BANK as the 5th most profitable of all banks opened on
the East Coast since 1984. Our greatest achievement has been creating a balance
between growth and profitability which is consistent with maximizing shareholder
value.
During 1997, we successfully completed several major growth initiatives
without compromising our ability to deliver consistent increases in
profitability. These initiatives included opening three new full-service
branches and two residential mortgage lending offices, while at the same time
continuing to invest heavily in our back-office infrastructure. Our underlying
business strategy has remained constant since our founding: to provide
comprehensive and competitive banking services in a convenient community banking
format, with emphasis on a high level of customer service.
1997 PERFORMANCE HIGHLIGHTS
RAPID GROWTH
(bullet) At December 31, 1997 total assets were $373.5 million, representing a
17.7 percent annual increase. This growth was driven by a 13.5 percent annual
increase in loans outstanding, inclusive of loans held for sale, and a 23.1
percent increase in deposits.
RECORD PROFITABILITY
(bullet) Core operating earnings continued to be strong. Net income of $4.2
million was up 11.1 percent over 1996, reaching a record level for the sixth
consecutive year.
(bullet) Return on assets and return on equity were 1.2 percent and 12.8
percent, respectively, comparing favorably with peer group ratios.
(bullet) Our net yield on earning assets has remained strong at 5.9 percent,
well above the 4.8 percent recorded by our peer institutions.
(bullet) Our efficiency ratio (noninterest expense as a percentage of operating
income) for 1997 of 66.5 percent was only slightly higher than our peer group
ratio in spite of the fact that we continued to invest heavily in infrastructure
and expansion.
STRONG ASSET QUALITY
(bullet) Net loan losses to average loans equaled .13 percent, consistent with
the strong overall quality of our loan portfolio.
(bullet) Nonperforming assets and past-due loans to total assets increased
slightly to 1.41 percent, but this increase continued to reflect primarily
isolated problems encountered with two loan relationships, each secured by
residential real estate. Such increases in nonperforming assets occur from
time-to-time in the normal course of our residential development and
construction lending business.
<PAGE>
4 COLUMBIA BANCORP AND SUBSIDIARY
INCREASED SHAREHOLDER VALUE
(bullet) Stockholders' equity reached $34.4 million with tangible book value per
share of $15.54.
(bullet) Diluted earnings per share were $1.82, as compared to $1.66 for 1996.
(bullet) Market capitalization increased significantly to $74.8 million at
December 31, 1997.
(bullet) In December, 1997 we increased our quarterly common stock dividend from
$.12 to $.14 per share, which represents a compound annual growth rate of 47
percent since we began paying dividends in 1994, while maintaining a prudent
dividend pay-out ratio of 24.8%.
- -------------------------------------------------------
COLUMBIA BANCORP VS. PEER BANKS
COMPARATIVE RATIOS
- -------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------
PEER
COLUMBIA BANKS*
- -------------------------------------------------------
PERFORMANCE:
Return on average assets 1.21% 1.04%
Return on average equity 12.78 12.16
Net yield on earning assets 5.94 4.76
Efficiency ratio 66.47 63.84
CAPITAL:
Year-end capital to year-end
risk-weighted assets:
Tier 1 11.31% 14.34%
Total 12.51 15.37
ASSET QUALITY:
Nonaccrual loans to total assets .16% .58%
Nonperforming assets and
past-due loans to total assets 1.41 .70
Net charge-offs to average loans .13 .12
- -------------------------------------------------------
*ALL PUBLICLY TRADED BANKS IN MARYLAND, PENNSYLVANIA,
VIRGINIA AND THE DISTRICT OF COLUMBIA WITH TOTAL ASSETS
LESS THAN $1 BILLION.
STRATEGIC DIRECTION AND GROWTH INITIATIVES DURING 1997
Our performance is the product of a significant competitive advantage: we are
a banking company whose ownership, management and employees, and business
activities are concentrated in a robust, dynamic...AND LOCAL geographic
area--consisting of our Howard County home market and selected contiguous
sub-markets with very similar characteristics.
- -----------------------------------------------------
HOWARD COUNTY
MARKET DEMOGRAPHICS
- -----------------------------------------------------
HOWARD
COUNTY MARYLAND U.S.
- -----------------------------------------------------
Population
PROJECTED GROWTH
(1995-2020) 12% 5% 5%
Households
PROJECTED GROWTH
(1995-2020) 18% 7% 7%
Average Household
Income
PROJECTED (1999) $77,640 $61,260 $48,308
Unemployment Rate
(12/97) 2.5% 4.7% 5.5%
- -----------------------------------------------------
SOURCE: THE WADLEY-DONOVAN GROUP LTD., CLARITAS INC.,
US BUREAU OF CENSUS.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 5
We understand this banking environment and have created our organizational
structure with the flexibility to make informed, rapid decisions...and to
deliver responsive, courteous service to our customers. Unlike many of our
larger competitors, we are not hampered by rigid organizational structures
frequently dependent upon out-of-state decision makers. As banking industry
consolidation continues in Maryland, it is evident that our community banking
franchise has increasing long-term viability and value based upon this local
competitive advantage.
We are aided by the strong growth of our home market which continues to
provide us new expansion opportunities. Our success can be measured by our
increasing market share which places us well ahead of such major regional banks
as First Union and Crestar.
- ----------------------------------------------------
HOWARD COUNTY, MARYLAND
DEPOSIT MARKET SHARE
- ----------------------------------------------------
PERCENT OF TOTAL DEPOSITS AS OF JUNE 30, 1997
- ----------------------------------------------------
Allied Irish (First National Bank of Maryland) 20%
NationsBank Corporation 18
COLUMBIA BANCORP 13
First Union/Signet 9
Commercial and Farmers Bank 6
Citizens National Bank 5
Crestar 4
- ----------------------------------------------------
SOURCE: FDIC
NEW OFFICE EXPANSION
(bullet) Our Long Gate Center Branch in Ellicott City, Wilde Lake Village Center
Branch in Columbia, and River Hill Village Center Branch in Clarksville opened
in 1997. We now have a total of nine full-service branches, plus four
limited-service retirement community branches.
(bullet) In July we opened a new Towson-area full-service Residential Mortgage
Lending center to service consumers in Baltimore City and Baltimore and Harford
Counties. In August we added another such center in Olney, focused on Montgomery
and Prince George's Counties.
TECHNOLOGICAL ENHANCEMENTS
(bullet) Completing a major data processing and systems upgrade begun in 1996,
we have installed fully automated work stations with state-of-the-art terminals
for all branch personnel.
(bullet) PC based banking was introduced in 1997. This innovation has received a
strong endorsement from customers who recognize that our product offerings
compare very favorably with those of our much larger competitors.
ORGANIZATIONAL STRENGTH
Since opening in May 1988, we have grown from eleven to 227 employees. These
individuals are the first and foremost strength of our organization. We have
unusual depth of experienced management for a community bank, which enables us
to compete effectively with the largest institutions. Most importantly, our
staff is dedicated and committed to delivering the highest possible levels of
customer service.
<PAGE>
6 COLUMBIA BANCORP AND SUBSIDIARY
[PHOTO APPEARS HERE]
HERSCHEL L. LANGENTHAL
VICE CHAIRMAN
JAMES R. MOXLEY, JR.
CHAIRMAN
JOHN M. BOND, JR.
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
The same management team that helped form Columbia Bancorp a decade ago is
still with the Company. Members of our management team are leaders in our
community, serving on a wide variety of boards and in other positions. During
the past year, our Chairman was named Howard County "Business Person of the
Year," our President received honors as "Entrepreneur of the Year" for Financial
Services in a major regional competition, and our Bank was cited as "Business of
the Year" by the Maryland Private Industry Council. These awards are indicative
of our approach to doing business.
OUTLOOK FOR THE FUTURE
Our goal continues to be to improve profitability while maintaining superior
asset quality and above-average growth. We intend to leverage our capital
position as we seek new growth opportunities, including possible additional
acquisitions.
We continue to see substantial opportunities within our marketplace. As the
largest community bank headquartered in Howard County, at the heart of the
Baltimore-Washington Corridor, we are well positioned to continue gaining market
share as the banking industry consolidation in Maryland disrupts still more
customer relationships.
Investors viewed our progress favorably during 1997, as Columbia Bancorp
enjoyed a healthy increase in market capitalization. Yet, as we view our
prospects for the future and valuation levels applicable to our peers, we
believe that there is still considerable growth potential. We will continue to
build shareholder value by striving for an optimal balance between rapid growth
and enhanced profitability.
<PAGE>
Table of Contents
Selected Financial Highlights 8
Management's Discussion and Analysis 9
Independent Auditors' Report 26
Consolidated Statements of Condition 27
Consolidated Statements of Income 28
Consolidated Statements of Stockholders' Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 32
Selected Quarterly Financial Data 50
Recent Common Stock Prices and Stock Performance Graph 51
Directors and Officers 52
Corporate Information 54
<PAGE>
8 COLUMBIA BANCORP AND SUBSIDIARY
Selected Financial Highlights
<TABLE>
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S><C>
Consolidated Income Statement Data:
Interest income $ 30,194 $ 25,822 $ 22,210 $ 17,031 $ 14,188
Interest expense 11,473 8,769 7,892 5,705 5,466
--------------------------------------------------------
Net interest income 18,721 17,053 14,318 11,326 8,722
Provision for credit losses 663 621 559 242 505
--------------------------------------------------------
Net interest income after
provision for credit losses 18,058 16,432 13,759 11,084 8,217
Noninterest income 2,648 2,058 1,575 1,821 2,580
Noninterest expense 14,188 12,351 9,747 8,966 7,961
--------------------------------------------------------
Income before income taxes 6,518 6,139 5,587 3,939 2,836
Income taxes 2,350 2,387 2,158 1,523 1,093
--------------------------------------------------------
Net income $ 4,168 $ 3,752 $ 3,429 $ 2,416 $ 1,743
========================================================
Consolidated Balance Sheet Data, at year-end:
Assets $373,451 $317,234 $263,025 $224,208 $206,592
Loans, net of unearned income 265,194 237,875 190,691 162,253 131,365
Deposits 313,357 254,640 218,162 189,463 176,285
Stockholders' equity 34,385 30,975 28,064 16,873 15,459
-------------------------------------------------------
Number of shares of Common Stock
outstanding 2,200 2,148 2,146 1,040 1,040
Per Share Data:
Net income:
Basic $ 1.93 $ 1.75 $ 2.06 $ 1.80 $ 1.16
Diluted 1.82 1.66 1.80 1.57 1.16
Cash dividends declared:
Common .50 .42 .25 .14 --
Preferred -- -- 1.30 1.20 1.20
Tangible book value, at year-end 15.54 14.29 12.92 11.61 10.28
Performance and Capital Ratios:
Return on average assets 1.21% 1.34% 1.42% 1.13% .88%
Return on average stockholders' equity 12.78 12.71 15.60 15.01 11.85
Net yield on earning assets (a) 5.94 6.60 6.46 5.90 4.88
Average stockholders' equity to
average total assets 9.44 10.53 9.07 7.53 7.39
Year-end capital to year-end
risk-weighted assets (b):
Tier 1 11.31 11.91 12.97 9.28 9.34
Total 12.51 13.16 14.12 10.56 10.87
Year-end Tier 1 leverage ratio (b) 9.25 10.11 10.67 7.39 6.73
Cash dividends declared to net income 26.05 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 1.37% 1.38% 1.54% 1.59% 1.80%
Nonperforming and past-due loans 548.35 84.23 245.72 222.62 126.19
Net charge-offs to average total
loans, net of unearned income .13 .12 .12 .02 .17
Nonperforming and past-due loans to total
loans, net of unearned income, at year-end .25 1.64 .63 .71 1.43
Nonperforming assets and past-due
loans to total assets, at year-end 1.41 1.37 .49 1.29 2.29
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net yield on earning assets is the ratio of net interest income to total
average interest-earning assets.
(b) 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>
COLUMBIA BANCORP AND SUBSIDIARY 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
Columbia Bancorp was formed November 16, 1987 and is a Maryland chartered
bank holding company. The Company holds all of 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. The Bank
provides a full range of financial services to individuals, businesses and
organizations through thirteen branch banking offices, three mortgage loan
origination offices and fourteen Automated Teller Machines. Deposits in the Bank
are insured by the Federal Deposit Insurance Corporation (the "FDIC"). The
Company considers its home market area to be Howard County, Maryland, with
extension of business throughout the contiguous counties comprising central
Maryland.
FORWARD - LOOKING STATEMENTS
In addition to historical information, this annual report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such a difference include, but are not
limited to, those discussed in this section. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risk factors described in other documents the Company files from time to
time with the Securities and Exchange Commission, including the Quarterly
Reports on Form 10-Q to be filed by the Company in 1998.
OVERVIEW
The Company reported an increase in net income from $3.8 million in 1996 to
$4.2 million in 1997, representing an 11.1% increase and marking the sixth
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 FDIC to recapitalize the Savings Association Insurance Fund
("SAIF").
Diluted net income per share for 1997 was $1.82 as compared to $1.66 ($1.79
if adjusted to exclude the SAIF assessment) for 1996. Return on average assets
and return on average equity for 1997 were 1.2% and 12.8%, respectively.
Tangible book value per share increased to $15.54 at December 31, 1997.
The year 1997 can be characterized as a year during which the Company
continued its aggressive growth strategy and investment in the future, balanced
with solid financial results. Key factors which influenced the Company's
financial performance during 1997 and which will continue to influence future
performance include:
(bullet) Expansion of the Company's branch network with the addition of
three full-service branch facilities in Howard County, Maryland.
(bullet) Expansion of the Company's mortgage banking business, including
the addition of personnel as well as the opening of two offices
in Baltimore and Montgomery Counties, Maryland.
(bullet) Growth in total deposits of 23.1%. Core deposits, representing
deposits exclusive of certificates of deposit in excess of
$100,000, grew $51.9 million or 21.4%.
(bullet) Growth in loans, net of unearned income and inclusive of loans
held for sale, of $32.3 million or 13.5%.
(bullet) Maintenance of the net yield on earning assets well above the
peer group's ratio. The net yield on earning assets was 5.9%
during 1997 as compared to 4.8% for the peer group.
<PAGE>
10 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
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.
INCOME STATEMENT ANALYSIS
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, are also important.
The following table sets forth, for the periods indicated, information
regarding the average balances of interest-earning assets and interest-bearing
liabilities, the amount of interest income and interest expense and the
resulting yields on average interest-earning assets and rates paid on average
interest-bearing liabilities. Average balances are also provided for
noninterest-earning assets and noninterest-bearing liabilities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------- ------------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Assets
Interest-earning assets:
Loans, net of
unearned
income (b)(c) $256,949 $26,786 10.42% $215,348 $23,447 10.89% $175,363 $19,832 11.31%
Investment securities
and securities
available-for-sale (c) 55,974 3,265 5.83 35,714 2,000 5.60 36,752 1,887 5.13
Federal funds sold 3,113 193 6.20 7,194 375 5.21 9,628 491 5.10
Total interest-earning -------------------- -------------------- --------------------
assets 316,036 30,244 9.57 258,256 25,822 10.00 221,743 22,210 10.02
------- ------- -------
Noninterest-earning assets:
Cash and due from
banks 13,642 12,856 11,296
Property and
equipment, net 8,547 7,085 6,359
Other assets 10,914 5,366 5,524
Less allowance for
credit losses (3,513) (3,211) (2,721)
-------- -------- --------
Total assets $345,626 $280,352 $242,201
======== ======== ========
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 11
Management's Discussion and Analysis (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------- ------------------------
AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE BALANCES (a) INTEREST RATE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Liabilities and
Stockholders' Equity
Interest-bearing liabilities:
NOW accounts $ 29,474 $ 609 2.07% $ 25,479 $ 521 2.04% $ 23,688 $ 484 2.04%
Savings accounts 45,415 1,560 3.43 44,022 1,420 3.22 43,864 1,527 3.48
Money market accounts 39,149 1,229 3.14 34,860 1,098 3.15 31,059 1,036 3.33
Certificates of deposit 122,737 6,696 5.46 92,125 5,010 5.44 74,289 4,038 5.44
Short-term borrowings 27,654 1,379 4.99 15,974 720 4.51 16,045 807 5.03
----------------- ------------------- -------------------
Total interest-bearing
liabilities 264,429 11,473 4.34 212,460 8,769 4.13 188,945 7,892 4.18
Noninterest-bearing ------- ------- ------
liabilities:
Noninterest-bearing
deposits 46,876 36,785 29,885
Other liabilities 1,701 1,595 1,398
Stockholders' equity 32,620 29,512 21,973
-------- -------- --------
Total liabilities and
stockholders' equity $345,626 $280,352 $242,201
======== ======== ========
Net interest income $ 18,771 $17,053 $14,318
======== ======= =======
Net interest spread 5.23% 5.87% 5.84%
==== ==== ====
Net yield on
earning assets 5.94% 6.60% 6.46%
==== ==== ====
</TABLE>
(a) Average balances are calculated as the average of month-end balances.
(b) Average loan balances include first mortgage loans originated for sale
and nonaccrual loans. Interest income on loans includes amortized loan
fees, net of costs, of $2.0 million, $2.4 million, and $1.8 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
(c) Interest on tax exempt loans and securities is presented on a
fully-taxable equivalent basis.
Net interest income on a tax equivalent basis increased to $18.8 million for
the year ended December 31, 1997, compared to $17.1 million for 1996. The
increase in net interest income during 1997 was primarily the result of growth
in average interest-earning assets during 1997 of $57.8 million or 22.4%. While
interest income increased in 1997, the net interest margin (representing net
interest income divided by average interest-earning assets) declined from 6.6%
during 1996 to 5.9% during 1997. The decline reflected the impact of competitive
forces on loan and deposit pricing, a larger nonperforming loan portfolio and
changes in the mix of interest-earning assets and funding sources.
The following table and the related discussions of interest income and
interest expense provide further analysis of the increases in net interest
income during 1997 and 1996.
<PAGE>
12 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
<TABLE>
<CAPTION>
1997 OVER 1996 1996 OVER 1995
-------------------------------------------------------------------
INCREASE DUE TO CHANGE IN INCREASE DUE TO CHANGE IN
---------------- -------------------
(DOLLARS IN THOUSANDS) (DECREASE) VOLUME RATE (DECREASE) VOLUME RATE
- ------------------------------------------------------------------------------------------------------------------------
<S><C>
Interest income:
Loans (a) $3,339 $4,384 $(1,045) $3,615 $3,742 $(127)
Investment securities and
securities available-for-sale (a) 1,265 1,180 85 113 (14) 127
Federal funds sold (182) (243) 61 (116) (117) 1
-----------------------------------------------------------------
Total 4,422 5,321 (899) 3,612 3,611 1
-----------------------------------------------------------------
Interest expense:
Deposits 2,045 1,707 338 964 964 --
Short-term borrowings 659 575 84 (87) (3) (84)
-----------------------------------------------------------------
Total 2,704 2,282 422 877 961 (84)
-----------------------------------------------------------------
Net interest income $1,718 $3,039 $(1,321) $2,735 $2,650 $ 85
=================================================================
</TABLE>
(a) Interest on tax exempt loans and securities is presented on a fully-taxable
equivalent basis.
(b) 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 on a tax equivalent basis increased $4.4 million or 17.1% in
1997 as compared to 1996, primarily as a result of an increase in the average
balance of loans and investment securities outstanding in 1997 as compared to
1996. Average loans outstanding, net of unearned income, increased $41.6 million
or 19.3% during 1997 and reflected growth in the Company's consumer, commercial
and residential development and construction loan portfolios. Average investment
securities and securities available-for-sale increased $20.3 million or 56.7%
during 1997 as compared to 1996 as a result of increased investments in U.S.
Treasury securities.
The increase in interest income due to average balances was mitigated by a
decrease in the yield on interest-earning assets from 10.00% in 1996 to 9.57% in
1997. Specifically, the yield on loans decreased to 10.42% in 1997, compared to
10.89% in 1996 as a result of competitive pricing pressure and a higher
nonperforming loan portfolio on average. In addition, loans, the Company's
highest yielding asset, on average declined as a percentage of interest-earning
assets from 83.4% in 1996 to 81.3% in 1997.
Interest income increased $3.6 million or 16.3% in 1996 as compared to 1995,
also primarily as a result of an increase in the average balance of loans
outstanding. Average loans outstanding, net of unearned income, increased $40.0
million or 22.8% during 1996. Loans also became a larger percentage of average
interest-earning assets, increasing from 79.1% in 1995 to 83.4% in 1996.
Interest Expense
Interest expense increased $2.7 million or 30.8% in 1997 as compared to 1996.
This increase reflected growth in deposits and short-term borrowings combined
with an increase in the cost of funds. Specifically, average interest-bearing
deposits and short-term borrowings increased $40.3 million and $11.7 million,
respectively, during 1997. Also, the cost of interest-bearing funds increased
from 4.1% in 1996 to 4.3% in 1997, reflecting a higher interest rate environment
as well as competitive pricing pressure.
Interest expense increased $877,000 in 1996 as compared to 1995, again
reflecting growth in deposits. Average interest-bearing deposits increased $23.6
million or 13.6% in 1996, as compared to 1995.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 13
Management's Discussion and Analysis (continued)
Provision and Allowance for Loan Losses
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 $663,000 for the year ended
1997 as compared with $621,000 and $559,000 for the years ended 1996 and 1995,
respectively.
The factors used by management in determining the adequacy of the Allowance
include the 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 borrowers 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, 1997 the Allowance was 1.37% of total
loans, net of unearned income. The Allowance at December 31, 1997 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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S><C>
Allowance at beginning of year $3,293 $2,929 $2,578 $2,366 $2,067
Less losses charged-off:
Commercial 4 -- 72 -- 52
Real estate 23 240 23 37 101
Retail 272 39 140 57 44
Credit cards 66 29 23 32 25
-----------------------------------------------------
Total losses charged-off 365 308 258 126 222
-----------------------------------------------------
Recoveries of losses previously charged-off:
Commercial -- 4 -- 5 2
Real estate 20 38 25 55 6
Retail 13 9 22 33 6
Credit cards 8 -- 3 3 2
-----------------------------------------------------
Total recoveries 41 51 50 96 16
-----------------------------------------------------
Net losses charged-off 324 257 208 30 206
Provision for credit losses 663 621 559 242 505
-----------------------------------------------------
Allowance at end of year $3,632 $3,293 $2,929 $2,578 $2,366
=====================================================
Ratio of allowance to nonperforming
and past-due loans (a) 548.35% 84.23% 245.72% 222.62% 126.19%
=====================================================
Ratio of allowance to loans, net of
unearned income 1.37% 1.38% 1.54% 1.59% 1.80%
=====================================================
</TABLE>
(a) 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.
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.
<PAGE>
14 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
The following table presents the allocation of the Allowance among the
various loan categories.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S><C>
Commercial $ 526 $ 566 $ 350 $ 362 $ 315
Real estate 1,448 1,946 1,201 816 750
Consumer 337 275 207 185 173
Unallocated 1,321 506 1,171 1,215 1,128
-----------------------------------------------------
$3,632 $3,293 $2,929 $2,578 $2,366
=====================================================
</TABLE>
The table below provides a percentage breakdown of the loan portfolio by
category to total loans, net of unearned income.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S><C>
Commercial 14.1% 12.8% 15.3% 15.2% 12.1%
Real estate 53.5 58.2 58.1 59.2 63.4
Consumer 32.4 29.0 26.6 25.6 24.5
-------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
=======================================================
</TABLE>
Noninterest Income
The Company's primary sources of noninterest income are fees charged for
services and gains and fees recognized on the sales of residential mortgage
loans. In addition, included in noninterest income is the increase in cash
surrender value on life insurance contracts, covering certain executive
officers, for which the Bank is the beneficiary. Noninterest income increased
$590,000 during 1997 as compared to 1996. The increase during 1997 was primarily
the result of an increase in fees charged for services of $262,000, reflecting
growth in deposit accounts. The total number of non-certificate deposit accounts
increased 14.5%, from 23,200 at December 31, 1996 to 26,600 at December 31,
1997. The Company also continued its promotion of fee-based cash management
services to numerous larger and more sophisticated corporate customers. The
recognition of the increase in cash surrender value of $201,000 during 1997 also
contributed to the growth in noninterest income. The insurance contracts were
purchased in November 1996 and April 1997 and therefore, did not contribute
significantly to 1996 noninterest income. Gains and fees on sales of residential
mortgage loans increased $69,000 during 1997 as compared to 1996 and
corresponded with an increase in residential mortgage loans sold from $47.9
million in 1996 to $51.9 million in 1997.
Noninterest income increased $483,000 during 1996 as compared to 1995. The
growth in noninterest income during 1996 was primarily driven by an increase in
fees charged for services of $233,000, reflecting expansion of the Company's
deposit base. In addition, gains and fees on sales of residential mortgage loans
increased $103,000, reflecting an increased volume of loans sold.
Noninterest Expense
Noninterest expense primarily consists of costs associated with personnel,
occupancy and equipment, data processing and marketing. The Company's
noninterest expense for 1997 totalled $14.2 million, representing an increase of
$1.8 million or 14.9% over 1996. The increase was primarily driven by continued
corporate expansion. Expansion initiatives during 1997 included the addition of
three full-service branch facilities and the expansion of the Company's mortgage
banking operations with the addition of two offices in Baltimore and Montgomery
Counties, Maryland.
Salaries and employee benefits, the largest component of noninterest expense,
increased from $6.0 million during 1996 to $7.3 million during 1997. The
increase was primarily attributable to higher staffing
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 15
Management's Discussion and Analysis (continued)
levels required during 1997 in order to accommodate growth. At December 31,
1997, the Company employed 197 full-time and 30 part-time employees compared to
160 full-time and 25 part-time employees at December 31, 1996.
Occupancy and equipment expenses, recorded net of rental income, grew
$545,000 or 28.5% during 1997. The increase was attributable to the addition of
three full-service branch facilities and two mortgage banking locations and the
recognition of a full year's costs associated with branch expansion initiatives
completed in 1996.
The growth in noninterest expense during 1997 was also attributable to an
increase in professional fees of $118,000 and in net expenses on other real
estate owned of $123,000. In both cases, the increases reflected a higher level
of activity associated with the workout of problem assets.
Growth in noninterest expense during 1997 was mitigated by a decline in the
Company's FDIC insurance premium of $575,000. The decline reflected the $486,000
special, one-time FDIC assessment levied in 1996 to recapitalize the SAIF.
Noninterest expense for 1996 totalled $12.4 million and represented an
increase over 1995 of 26.7% or $2.6 million. The primary component of the
increase was an increase in salaries and employee benefits. The Company employed
a total of 185 employees at December 31, 1996 versus 164 employees at December
31, 1995. In addition, the Company incurred an increase in occupancy and
equipment expenses of $587,000 during 1996 as a result of the expansion of its
branch network (which included the addition of two full-service branch
facilities and the relocation of a third branch facility) and the upgrading of
backoffice data processing. Also, the Company was assessed a special, one-time
FDIC assessment of $486,000.
Income Taxes
Income tax expense was $2.4 million in 1997 and 1996, with higher pre-tax
income in 1997. The 1997 effective tax rate was 36.1%, down from 38.9% for 1996
and 38.6% for 1995. The decrease in 1997 was a result of changes in state tax
laws which now permit, on a phased-in basis, the exclusion of interest income on
U.S. Treasury obligations. The changes in state tax laws, however, now subject
the Company, on a phased-in basis, to personal property taxes which are included
in other noninterest expense.
REVIEW OF FINANCIAL CONDITION
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.
<PAGE>
16 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
The components of the investment portfolio at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
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 $62,952 $ -- $36,968 $ -- $18,987 $ 3,489
Collateralized mortgage
obligations and mortgage-backed
securities (a) 504 7 1,312 173 3,780 406
Securities of U.S. Government
sponsored agencies 1,515 499 1,515 2,531 2,000 5,029
Municipal securities -- 200 -- 700 -- 700
Investment in Federal Home
Loan Bank Stock -- 968 -- 950 -- 950
-------------------------------------------------------------------
$64,971 $1,674 $39,795 $4,354 $ 24,767 $10,574
===================================================================
</TABLE>
(a) The entire balance is issued and guaranteed by U.S. Government sponsored
agencies.
The investment portfolio increased $22.5 million from December 31, 1996 to
December 31, 1997. The increase represented purchases of U.S. Treasury
securities totalling $36.0 million with maturities of two years, net of
maturities and repayments. There were no securities sold during 1997, 1996 or
1995.
The amortized cost and estimated fair values and tax equivalent yield of debt
securities at December 31, 1997, 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.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES SECURITIES AVAILABLE-FOR-SALE
-------------------------------------- ------------------------------------- CURRENT
UNREALIZED UNREALIZED WEIGHTED
AMORTIZED ---------- ESTIMATED AMORTIZED ----------- ESTIMATED AVERAGE
(DOLLARS IN THOUSANDS) COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE YIELD
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
U.S. Treasury
securities:
Due one year or less $26,989 $ 56 $ 3 $27,042 $-- $-- $-- $-- 6.17%
Due after one
through five years 35,963 146 -- 36,109 -- -- -- -- 6.18
Collateralized
mortgage obligations
and mortgage-backed
securities:
Due one year or less 504 -- 4 500 -- -- -- -- 5.02
Due after one
through five years -- -- -- -- 7 -- -- 7 8.10
Securities of U.S.
Government
sponsored agencies:
Due one year or less 1,515 -- 16 1,499 500 -- 1 499 4.06
Municipal securities:
Due one year or less -- -- -- -- 200 -- -- 200 4.88
-----------------------------------------------------------------------------------------
$64,971 $202 $23 $65,150 $707 $-- $ 1 $706 6.10%
=========================================================================================
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 17
Management's Discussion and Analysis (continued)
Analysis of Loans
The table below represents a breakdown of loan balances of the Company at
December 31.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S><C>
Commercial $ 37,519 $ 30,517 $ 29,275 $ 24,819 $ 15,947
Real estate--development and construction (a) 110,413 112,838 89,877 72,857 57,453
Real estate--mortgage:
Residential 11,078 11,897 12,726 13,383 13,491
Commercial 21,146 14,470 9,108 10,251 12,872
Consumer:
Retail (b) 84,039 67,731 49,225 40,354 31,149
Credit card 1,639 1,543 1,527 1,432 1,238
---------------------------------------------------------
Total loans $265,834 $238,996 $191,738 $163,096 $132,150
=========================================================
</TABLE>
(a) At December 31, 1997, 1996, 1995, 1994 and 1993 loans to individuals for
constructing primary personal residences represented $15,895, $10,780,
$16,071, $18,631 and $16,456, respectively, of these loans.
(b) Primarily loans secured by the borrowers' principal residences in the form
of home equity lines of credit and second mortgages.
Total loans increased $26.8 million during the year ended December 31, 1997,
representing an 11.2% increase. Commercial loans, inclusive of commercial
mortgages, and retail loans, primarily second mortgages and home equity lines of
credit, exhibited strong growth during 1997, accounting for $13.7 million and
$16.4 million, respectively, of the overall growth in the portfolio. The
residential development and construction portfolio declined from $112.8 million
at December 31, 1996 to $110.4 million at December 31, 1997 largely as a result
of competitive pressures.
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, 1997. There were no other
loan concentrations exceeding 10% of gross loans as of December 31, 1997.
TOTAL
(DOLLARS IN THOUSANDS) PRINCIPAL
------------------------------------------------------
Loans receivable $ 94,922
Unused credit lines 55,220
Letters of credit (a) 13,797
--------
$163,939
========
(a) Includes letters of credit totalling $4,378 which are secured by cash.
The following table shows the contractual maturities and interest rate
sensitivities of loans of the Company at December 31, 1997, exclusive of
nonaccrual loans totalling $599,000. 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.
<PAGE>
18 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
<TABLE>
<CAPTION>
MATURING
------------------------------------------------------------------------------
IN ONE YEAR OR LESS AFTER 1 THROUGH 5 YEARS AFTER 5 YEARS
- -------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE TOTAL
- -------------------------------------------------------------------------------------------------------------
<S><C>
Commercial $ 1,008 $24,063 $ 1,558 $ 9,997 $ 358 $ 436 $ 37,420
Real estate--construction 10,818 97,443 1,388 497 -- -- 110,146
Real estate--mortgage 3,249 1,235 5,261 14,074 5,958 2,447 32,224
Consumer 5,888 3,420 9,836 4,146 536 61,619 85,445
------------------------------------------------------------------------------
$20,963 $126,161 $18,043 $28,714 $6,852 $64,502 $265,235
==============================================================================
</TABLE>
The following table provides information concerning nonperforming assets and
past-due loans.
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S><C>
Nonperforming loans:
Nonaccrual loans (a) $ 599 $3,851 $1,051 $ 679 $ 563
Other real estate owned 4,622 448 89 1,731 2,865
-----------------------------------------------------
Total nonperforming assets $5,221 $4,299 $1,140 $2,410 $3,428
=====================================================
Loans past-due 90 days or more $ 63 $ 59 $ 141 $ 479 $1,312
=====================================================
</TABLE>
(a) 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.
The largest component of nonperforming assets at December 31, 1997 was the
Company's portfolio of other real estate owned totalling $4.6 million. At
December 31, 1997 other real estate owned included the following four
properties:
(bullet) A residential development project consisting of 107 single family and
122 townhouse building lots with a carrying value of $3.1 million. The
Company has entered into a contract with an independent third-party
contractor to manage the completion of development work. In addition,
40 single family and 67 townhouse lots are under contract of sale with
a takedown schedule which runs through July 2000. The remaining lots
are being marketed for sale.
(bullet) A construction project consisting of a 24 unit residential condominium
building with a carrying value of $981,000. Currently, 18 of the 24
units are under contract of sale and the remaining 6 units are being
marketed for sale.
(bullet) A construction project consisting of two residential condominium
building pad sites with a carrying value of $304,000. The property is
currently under contract of sale.
(bullet) Three commercial condominium units with a carrying value of $279,000.
One of the three units is currently under contract of sale. The
remaining two units are being marketed for sale.
Nonaccrual loans totalled $599,000 at December 31, 1997 and consisted
primarily of a residential mortgage totalling $267,000, which was paid in full
subsequent to December 31, 1997, and eight home equity lines of credit and
second mortgages totalling $197,000.
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.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 19
Management's Discussion and Analysis (continued)
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 and 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. 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, 1997 totalled $443,000 and were all collateral
dependent loans. Collateral dependent loans are measured based on the fair value
of the collateral. There were no impaired loans at December 31, 1997 with an
allocated valuation allowance. An impaired loan is charged-off when the loan, or
a portion thereof, is considered uncollectible.
Deposit 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,
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) BALANCE RATE BALANCE RATE BALANCE RATE
- ---------------------------------------------------------------------------------------------------------------
<S><C>
Total noninterest-bearing deposits $ 46,876 --% $ 36,785 --% $ 29,885 --%
Interest-bearing deposits:
NOW accounts 29,474 2.07 25,479 2.04 23,688 2.04
Savings accounts 45,415 3.43 44,022 3.22 43,864 3.48
Money market accounts 39,149 3.14 34,860 3.15 31,059 3.33
Certificates of deposit 122,737 5.46 92,125 5.44 74,289 5.44
------------------------------------------------------------------
Total interest-bearing deposits 236,775 4.27 196,486 4.10 172,900 4.10
------------------------------------------------------------------
Total deposits $283,651 $233,271 $202,785
==================================================================
</TABLE>
Total deposits increased $58.7 million during the year ended December 31,
1997. The aggregate growth in deposits during 1997 was primarily attributable to
growth in certificates of deposit totalling $36.8 million and growth in
noninterest-bearing deposits totalling $12.6 million.
<PAGE>
20 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
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, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S><C>
Maturing in:
3 months or less $ 5,864 $ 4,336 $3,194
Over 3 months through 6 months 3,629 2,659 1,902
Over 6 months through 12 months 5,681 2,728 739
Over 12 months 3,823 2,427 2,146
------------------------------------------
$18,997 $12,150 $7,981
==========================================
</TABLE>
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 outstanding during
1997, 1996 and 1995 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:
<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S><C>
Amount outstanding at year-end:
Short-term promissory notes $20,725 $12,127 $15,299
Borrowings from FHLB 3,000 18,000 --
Weighted average interest rate at year-end:
Short-term promissory notes 5.1% 4.8% 5.3%
Borrowings from FHLB 6.5 6.7 --
Maximum outstanding at any month-end:
Short-term promissory notes $22,831 $15,369 $15,299
Borrowings from FHLB 18,500 18,000 20,500
Average outstanding:
Short-term promissory notes 18,177 12,090 7,503
Borrowings from FHLB 9,477 3,884 8,542
Weighted average interest rate during the year:
Short-term promissory notes 4.8% 4.4% 4.6%
Borrowings from FHLB 5.3 4.8 5.4
</TABLE>
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,
1997, total deposits were $313.4 million. Core deposits, defined as all deposits
except certificates of deposit of $100,000 or more, totalled $294.4 million or
93.9% 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, 1997, outstanding advances from the
FHLB
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 21
Management's Discussion and Analysis (continued)
totalled $3.0 million. The Bank's approved credit line was $45.0 million.
However, the Bank had sufficient collateral to borrow up to $62.2 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, 1997, federal funds sold totalled $2.0
million.
Market Risk and Interest Rate Sensitivity
Market risk represents the risk of loss from adverse changes in market prices
and rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, investment and deposit taking activities. Interest rate
risk is the exposure of the Company's earnings and capital arising from changes
in interest rates. The Company's profitability is affected by fluctuations in
interest rates. A sudden and substantial change in interest rates may adversely
impact the Company's earnings to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. In addition, as rates change, the fair market value of assets
and liabilities, and correspondingly, the Company's capital, change. Given the
potential exposure to adverse changes in interest rates, management actively
monitors and manages its interest rate risk.
The Asset/Liability Management Committee of the Board of Directors (the
"ALCO") oversees the Company's management of interest rate risk. The objective
of the management of interest rate risk is to optimize net interest income
during periods of volatile as well as stable interest rates while maintaining an
appropriate balance between the maturity and repricing characteristics of assets
and liabilities that is consistent with the Company's liquidity, asset and
earnings growth, and capital adequacy goals. Critical to the managment of this
process is the ALCO's interest rate program designed to manage interest rate
sensitivity (gap management) and balance sheet mix and pricing (spread
management). Gap management represents those actions taken to measure and watch
rate sensitive assets and rate sensitive liabilities. Spread management
represents managing investments, loans, and funding sources to achieve an
acceptable spread between the Company's return on its earning assets and its
cost of funds.
Currently, the Company does not believe the use of derivative financial
instruments and hedging strategies are appropriate in the management of its
interest rate risk. Since the Company is not exposed to significant market risk
from trading activities, does not utilize hedging strategies and/or off balance
sheet management strategies, and does not have an asset and liability structure
which possesses meaningful optionability (i.e., assets and liabilities which may
prepay or extend given changes in interest rates), the ALCO relies primarily on
analyses of the Company's interest sensitivity gap position (i.e.,
interest-earning assets less interest-bearing liabilities) and internal budgets
to assess interest rate risk exposure.
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1997 and the Company's interest sensitivity gap. 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 reasonably balanced
cumulative interest sensitivity 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 rising
interest rates, a short-term positive interest sensitivity gap position would
generally result in an increase in net interest income, and during periods of
falling interest rates, a short-term positive interest sensitivity gap position
would generally result in a decrease in net interest income.
The Company has managed its interest rate risk primarily through the
origination of variable rate loans. At December 31, 1997, $220.0 million of the
total loan portfolio, or 80.8%, represented variable rate loans. Of this amount,
$193.4 million were loans tied to the prime rate of interest, which generally
reprice either immediately upon the change in the prime rate of interest or
during the month following a change in the prime rate of interest. As the
following table indicates, the strategy of emphasizing variable rate lending
results in a positive interest sensitivity gap for all periods. With a positive
interest sensitivity gap, the Company was positioned well and benefited from the
rise in the prime rate of interest in March, 1997. The Company's cumulative
interest sensitivity gap position is currently at a level satisfactory to
management.
<PAGE>
22 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
There can be no assurances, however, that the Company will be able
to maintain the current interest sensitivity gap position. The level of the
movement of interest rates up or down is an uncertainty and could impact the
earnings of the Company.
It is important to note that the table represents the static gap position for
interest sensitive assets and liabilities at December 31, 1997. 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 $115.4 million are less sensitive
than interest-bearing liabilities maturing in three months or less.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
- -----------------------------------------------------------------------------------------------------------------
AFTER 3
THROUGH AFTER 1 AFTER 2
LESS THAN 12 THROUGH THROUGH
(DOLLARS IN THOUSANDS) 3 MONTHS WAR (a) MONTHS WAR (a) 2 YEARS WAR (a) 3 YEARS WAR (a)
- -----------------------------------------------------------------------------------------------------------------
<S><C>
Interest-earning assets:
Federal funds sold $ 2,014 6.4% $ -- --% $ -- --% $ -- --%
Investment securities 5,999 5.7 23,008 6.0 35,964 5.9 -- --
Securities available-for-sale 1,467 6.4 200 4.9 -- -- -- --
Residential mortgages
originated for sale 6,557 6.9 -- -- -- -- -- --
Loans (a):
Commercial 35,121 10.0 380 9.3 226 9.3 601 9.7
Real estate--development
and construction 103,929 10.1 4,829 8.2 433 8.4 955 9.3
Real estate--mortgage:
Residential 1,678 8.4 2,729 8.8 527 8.3 342 8.6
Commercial 15,735 10.1 646 9.5 455 8.6 1,184 9.0
Retail 47,647 9.9 2,765 9.0 4,081 8.8 5,366 9.6
Credit card -- -- 1,639 14.9 -- -- -- --
------------------------------------------------------------------------------
Total interest-earning assets 220,147 9.7 36,196 7.2 41,686 6.3 8,448 9.5
------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 31,418 1.9 -- -- -- -- -- --
Savings accounts 46,175 3.1 -- -- -- -- -- --
Money market accounts 37,850 3.1 -- -- -- -- -- --
Certificates of deposit 31,158 5.2 63,610 5.3 36,878 5.7 7,274 6.5
Short-term borrowings 23,725 5.3 -- -- -- -- -- --
------------------------------------------------------------------------------
Total interest-bearing
liabilities 170,326 3.6 63,610 5.3 36,878 5.7 7,274 6.5
------------------------------------------------------------------------------
Interest sensitivity gap $ 49,821 $ (27,414) $ 4,808 $ 1,174
==============================================================================
Cumulative interest
sensitivity gap $ 49,821 $ 22,407 $27,215 $28,389
==============================================================================
Cumulative interest
sensitivity gap ratio 13.3% 6.0% 7.3% 7.6%
==============================================================================
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 23
Management's Discussion and Analysis (continued)
<TABLE>
<CAPTION>
INTEREST SENSITIVITY PERIOD
- -----------------------------------------------------------------------------------------------------------------
AFTER 3 AFTER 4 FAIR
THROUGH THROUGH AFTER MARKET
(DOLLARS IN THOUSANDS) 4 YEARS WAR (a) 5 YEARS WAR (a) 5 YEARS WAR (a) TOTAL WAR (a) VALUE
- -----------------------------------------------------------------------------------------------------------------
<S><C>
Interest-earning assets:
Federal funds sold $ -- --% $ -- --% $ -- --% $ 2,014 6.4% $ 2,014
Investment securities -- -- -- -- -- -- 64,971 5.9 65,150
Securities available-for
sale -- -- -- -- 7 8.1 1,674 6.2 1,674
Residential mortgages
originated for sale -- -- -- -- -- -- 6,557 6.9 6,557
Loans (b):
Commercial 139 9.4 594 9.8 358 8.8 37,419 10.0 37,543
Real estate--development
and construction -- -- -- -- -- -- 110,146 10.0 110,407
Real estate--mortgage
Residential 161 8.3 267 8.0 5,373 8.3 11,077 8.5 12,228
Commercial 52 9.1 2,490 9.1 584 9.1 21,146 9.8 21,179
Retail 10,890 9.5 12,066 9.3 993 10.0 83,808 9.6 83,354
Credit card -- -- -- -- -- -- 1,639 14.9 1,639
---------------------------------------------------------------------------------
Total interest-earning
assets 11,242 9.5 15,417 9.2 7,315 8.6 340,451 9.0 341,745
---------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts -- -- -- -- -- -- 31,418 1.9 31,418
Savings accounts -- -- -- -- -- -- 46,175 3.1 46,175
Money market accounts -- -- -- -- -- -- 37,850 3.1 37,850
Certificates of deposit 1,429 5.4 980 5.7 -- -- 141,329 5.4 141,613
Short-term borrowings -- -- -- -- -- -- 23,725 5.3 23,725
---------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,429 5.4 980 5.7 -- -- 280,497 4.3 280,781
---------------------------------------------------------------------------------
Interest sensitivity gap $ 9,813 $14,437 $ 7,315 $ 59,954
=================================================================
Cumulative interest
sensitivity gap $38,202 $52,639 $59,954
=============================================
Cumulative interest
sensitivity gap ratio 10.2% 14.1% 16.1%
=============================================
</TABLE>
(a) Tax equivalent weighted average rate at December 31, 1997.
(b) Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totalling
$599,000.
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>
24 COLUMBIA BANCORP AND SUBSIDIARY
Management's Discussion and Analysis (continued)
Capital Adequacy
The Federal Reserve Board has adopted risk-based guidelines for bank holding
companies. As of December 31, 1997, 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 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.
<TABLE>
<CAPTION>
LEVERAGE CAPITAL RATIO
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------
PERCENT OF
(DOLLARS IN THOUSANDS) AMOUNT AVERAGE ASSETS
- -------------------------------------------------------------------------------------
<S><C>
Tier 1 capital (a) $ 34,202 9.3%
Leverage capital ratio requirement 11,092 3.0
----------------------------------
Excess $ 23,110 6.3%
==================================
Quarterly average total assets $369,724
========
</TABLE>
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIO
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------
PERCENT OF
RISK-BASED
(DOLLARS IN THOUSANDS) AMOUNT ASSETS
- -------------------------------------------------------------------------------------
<S><C>
Tier 1 capital (a) $ 34,202 11.3%
Risk-based Tier 1 capital requirement 12,101 4.0
-----------------------------------
Excess $ 22,101 7.3%
===================================
Tier 1 capital (a) $ 34,202 11.3%
Tier 2 capital (b) 3,632 1.2
-----------------------------------
Total risk-based capital 37,834 12.5
Fully phased-in risk-based capital requirements 24,202 8.0
- -------------------------------------------------------------------------------------
Excess $ 13,632 4.5%
===================================
Risk-based assets $302,519
========
</TABLE>
(a) Tier 1 capital is comprised of the following at December 31, 1997
GAAP capital $34,385
Less intangible assets (184)
Add unrealized losses on securities available-for-sale, net of taxes 1
-------
$34,202
=======
(b) Tier 2 capital is comprised of the allowance for credit losses limited to
1.25% of risk-based assets, or $3,632.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 25
Management's Discussion and Analysis (continued)
Year 2000 Action Plan
In 1997, the Company adopted a Year 2000 Action Plan (the "Plan"). The Plan
identifies the process by which the Company will address Year 2000 related
issues. It also establishes a committee, lead by senior management, assigned the
responsibility to complete Year 2000 preparations, with a targeted completion
date of December 31, 1998.The Plan includes several phases as follows:
awareness; assessment; renovation; validation; and implementation.
The Company relies heavily upon its third party service bureau to provide its
data processing services. The Company has reviewed the Year 2000 plan
established by its data processing service bureau and regularly evaluates the
progress being made. In addition, the Company is working with other vendors to
ensure timely completion of the Year 2000 project.
Costs associated with the Year 2000 project will primarily include costs
incurred to upgrade existing software and hardware not currently Year 2000
compliant. The Company estimates that these costs will be incurred in the normal
course of business as software and hardware is ordinarily upgraded to keep pace
with technological advances. These costs could range to $200,000 over a period
of eighteen months, much of which will be capitalized with the purchase of
hardware and software.
Recent Accounting Developments
In June 1997, The Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. It requires
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed in equal prominence with other financial statements. It requires that
an enterprise display an amount representing total comprehensive income for each
period. It does not require per share amounts of comprehensive income to be
disclosed. SFAS No. 130 is effective for both interim and annual periods
beginning after December 15, 1997.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997.
<PAGE>
26 COLUMBIA BANCORP AND SUBSIDIARY
Independent Auditors' Report
The Board of Directors
Columbia Bancorp:
We have audited the consolidated statements of condition of Columbia Bancorp
and subsidiary as of December 31, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
_________________________
January 22, 1998
Baltimore, MD
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 27
Consolidated Statements of Condition
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------
<S><C>
ASSETS
Cash and due from banks (note 2) $ 13,497,010 $ 17,753,174
Federal funds sold 2,013,538 3,477,436
Investment securities--fair value $65,149,749 in 1997
and $39,839,135 in 1996 (note 3) 64,970,889 39,795,128
Securities available-for-sale (note 3) 1,674,464 4,353,884
Residential mortgage loans originated for sale 6,557,090 1,551,408
Loans (notes 4 and 5):
Commercial 37,518,405 30,517,140
Real estate--development and construction 110,413,134 112,837,758
Real estate--mortgage:
Residential 11,077,563 11,897,386
Commercial 21,146,275 14,470,139
Retail, principally residential equity lines of credit 84,039,255 67,730,804
Credit card 1,639,070 1,543,175
----------------------------
Total loans 265,833,702 238,996,402
Less:
Unearned income, net of origination costs 640,189 1,121,326
Allowance for credit losses 3,631,664 3,292,754
----------------------------
Loans, net 261,561,849 234,582,322
Other real estate owned (notes 4 and 6) 4,621,873 447,550
Property and equipment, net (note 7) 9,125,396 7,683,598
Prepaid expenses and other assets (notes 8 and 13) 9,429,002 7,589,425
----------------------------
Total assets $373,451,111 $317,233,925
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $ 56,584,646 $ 43,980,900
Interest-bearing deposits:
Savings and checking 115,443,381 106,131,634
Certificates of deposit:
Under $100,000 122,332,803 92,376,853
$100,000 and over 18,996,613 12,150,499
----------------------------
Total deposits 313,357,443 254,639,886
Short-term borrowings (note 14) 23,725,237 30,127,073
Accrued expenses and other liabilities 1,983,617 1,492,127
----------------------------
Total liabilities 339,066,297 286,259,086
----------------------------
Stockholders' equity (notes 11, 12, 17 and 18):
Common stock, $.01 par value per share; authorized
9,550,000 shares; outstanding 2,200,165 and 2,148,004
shares at December 31, 1997 and 1996, respectively 22,002 21,480
Additional paid-in capital 22,918,578 22,598,578
Retained earnings 11,445,351 8,363,390
Net unrealized loss on securities available-for-sale (1,117) (8,609)
----------------------------
Total stockholders' equity 34,384,814 30,974,839
----------------------------
Commitments and contingent liabilities (notes 9 and 10)
Total liabilities and stockholders' equity $373,451,111 $317,233,925
============================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
28 COLUMBIA BANCORP AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S><C>
Interest income:
Loans $26,741,786 $23,447,203 $19,831,605
Federal funds sold 192,757 375,222 490,999
Investment securities 3,259,206 2,000,003 1,887,216
-------------------------------------------
Total interest income 30,193,749 25,822,428 22,209,820
-------------------------------------------
Interest expense:
Deposits 10,094,380 8,048,878 7,085,219
Short-term borrowings 1,378,970 720,148 806,572
-------------------------------------------
Total interest expense 11,473,350 8,769,026 7,891,791
-------------------------------------------
Net interest income 18,720,399 17,053,402 14,318,029
Provision for credit losses 663,000 621,000 559,000
-------------------------------------------
Net interest income after provision
for credit losses 18,057,399 16,432,402 13,759,029
-------------------------------------------
Noninterest income:
Fees charged for services 1,226,708 964,463 731,531
Gains and fees on sales of loans 822,629 753,309 650,722
Gains on sales of other assets 15,758 4,178 --
Other 583,226 336,353 192,572
-------------------------------------------
Total noninterest income 2,648,321 2,058,303 1,574,825
-------------------------------------------
Noninterest expense:
Salaries and employee benefits 7,335,340 6,040,464 5,085,616
Occupancy, net (notes 9 and 15) 1,419,858 1,104,441 657,358
Equipment 1,038,296 808,462 668,368
Data processing 597,367 572,617 325,141
Marketing 544,298 479,239 324,856
Cash management services 413,079 472,901 409,121
Professional fees 391,851 274,094 358,585
Net expense on other real estate
owned (note 6) 133,938 11,040 78,798
Deposit insurance 111,949 686,754 344,450
Equity in net loss of limited partnerships -- 87,390 96,000
Loss on disposition of property -- -- 128,466
Other (note 16) 2,202,213 1,814,500 1,270,345
-------------------------------------------
Total noninterest expense 14,188,189 12,351,902 9,747,104
-------------------------------------------
Income before income taxes 6,517,531 6,138,803 5,586,750
Income tax provision (note 13) 2,350,000 2,386,921 2,158,000
-------------------------------------------
Net income $ 4,167,531 $ 3,751,882 $ 3,428,750
===========================================
Net income per common share:
Basic $ 1.93 $ 1.75 $ 2.06
Diluted 1.82 1.66 1.80
===========================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 29
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<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, 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
Cash dividends declared
on common stock -- -- -- (1,085,570) -- (1,085,570)
Stock options exercised 775 -- 708,295 -- -- 709,070
Common stock exchanged (253) -- (744,597) -- -- (744,850)
Tax benefit of nonqualified
stock options exercised -- -- 356,302 -- -- 356,302
Net income -- -- -- 4,167,531 -- 4,167,531
Change in net unrealized loss
on securities available-for-sale -- -- -- -- 7,492 7,492
Balance -------------------------------------------------------------------
December 31, 1997 $22,002 $ -- $22,918,578 $11,445,351 $ (1,117) $34,384,814
===================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
30 COLUMBIA BANCORP AND SUBSIDIARY
Consolidated Statements Of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S><C>
Cash flows from operating activities:
Net income $ 4,167,531 $ 3,751,882 $ 3,428,750
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,048,239 780,494 623,804
Provision for credit losses 663,000 621,000 559,000
Provision for losses on other
real estate owned 46,000 9,000 25,538
Gains on sales of loans (822,629) (753,309) (650,722)
Gains on sales of other assets (15,758) (4,178) --
Loss on disposition of property -- -- 128,466
Equity in net loss of limited partnerships -- 87,390 96,000
Proceeds from sales of residential
mortgage loans originated for sale 51,862,516 47,871,455 38,857,990
Disbursements for residential
mortgage loans originated for sale (56,045,569) (47,624,384) (38,792,478)
Increase (decrease) in unearned income,
net of origination costs (481,137) 74,163 203,746
Increase in prepaid expenses and other assets (419,840) (1,097,306) (319,168)
Increase (decrease) in accrued expenses
and other liabilities 441,032 (51,343) 361,023
--------------------------------------------
Net cash provided by operating activities 443,385 3,664,864 4,521,949
--------------------------------------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of
principal repayments (28,849,967) (52,747,681) (39,213,089)
Loan purchases (5,408,162) (5,328,644) (2,106,148)
Loan sales 3,020,780 10,096,479 12,446,446
Purchases of investment securities (35,956,664) (28,468,034) (8,985,710)
Purchases of securities available-for-sale (17,600) -- --
Proceeds from maturities and principal
repayments of investment securities 10,812,169 13,457,913 11,138,478
Proceeds from maturities and principal
repayments of securities available-for-sale 2,709,111 6,284,853 1,222,221
Additions to other real estate owned (430,548) -- (142,004)
Sales of other real estate owned 273,162 80,145 1,758,303
Proceeds from investments in
limited partnerships -- 363,001 28,000
Purchases of property and equipment (2,489,295) (1,907,237) (905,520)
Disposal of property and equipment 2,000 34,543 --
Purchase of life insurance (895,000) (2,835,000) --
Increase in cash surrender value of life insurance (178,262) (25,246) --
--------------------------------------------
Net cash used in investing activities (57,408,276) (60,994,908) (24,759,023)
--------------------------------------------
</TABLE>
(continued)
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 31
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995 (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S><C>
Cash flows provided by (used in) financing activities:
Net increase in deposits $58,717,557 $36,478,364 $23,250,858
Increase (decrease) in short-term borrowings (6,401,836) 14,827,806 (1,596,443)
Cash dividend distributed on Series A preferred stock -- -- (454,072)
Cash dividend distributed on common stock (1,035,112) (859,228) (263,327)
Net proceeds (disbursements) from stock options
exercised and common stock exchanged (35,780) 21,663 47,329
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
Issuance of common stock, net of costs of issuance -- -- 8,387,699
--------------------------------------------
Net cash provided by financing activities 51,244,829 50,468,605 34,801,771
--------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,720,062) (6,861,439) 14,564,697
Cash and cash equivalents at beginning of year 21,230,610 28,092,049 13,527,352
--------------------------------------------
Cash and cash equivalents at end of year $15,510,548 $21,230,610 $28,092,049
Supplemental information: ============================================
Interest paid on deposits and short-term borrowings $11,388,727 $ 8,747,962 $ 7,802,276
Income taxes paid 2,165,000 2,910,445 1,985,000
Transfers of loans to other real estate owned 4,062,937 447,550 --
============================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
32 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
NOTE 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 allowances
for credit losses and other real estate owned, management prepares fair value
analyses 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 1996 and 1995 have been reclassified to conform to the
presentation for 1997.
INVESTMENT SECURITIES
The Company classifies its debt securities as trading securities, investment
securities or securities available-for-sale. The Company has no trading
securities. Investment securities are securities which the Company has the
intent and 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.
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. Gains and losses on sales of securities are determined on a specific
identification basis; purchases and sales of securities are recognized on a
trade-date basis.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 33
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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.
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.
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 and Disclosures" ("SFAS No. 118"), the Company
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. 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.
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.
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
<PAGE>
34 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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
The Company adopted SFAS No. 128, "Earnings per Share" ("SFAS No. 128") in
1997 and, as required by the Statement, earnings per share ("EPS") data
presented for prior periods have been restated to conform to the new standard.
In accordance with the provisions of SFAS No. 128, basic EPS is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding. Diluted EPS is computed after adjusting the
numerator and denominator of the basic EPS computation for the effects of all
potentially dilutive common shares outstanding during the period. The dilutive
effects of options and warrants, discussed in notes 12 and 13, and their
equivalents are computed using the "treasury stock" method.
Information relating to the calculations of earnings per common share is
summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
- ---------------------------------------------------------------------------------------------------
<S><C>
Net income $4,167,531 $4,167,531 $3,751,882 $3,751,882 $3,428,750 $3,428,750
Less annual dividends on
Series A preferred stock -- -- -- -- 184,072 --
---------------------------------------------------------------------
Adjusted earnings used in
EPS computation $4,167,531 $4,167,531 $3,751,882 $3,751,882 $3,244,678 $3,428,750
=====================================================================
Weighted average shares
outstanding 2,162,756 2,162,756 2,147,066 2,147,066 1,572,758 1,572,758
Dilutive securities -- 129,843 -- 112,896 -- 335,325
---------------------------------------------------------------------
Adjusted weighted average shares
used in EPS computation 2,162,756 2,292,599 2,147,066 2,259,962 1,572,758 1,908,083
=====================================================================
Net income per common share $ 1.93 $ 1.82 $ 1.75 $ 1.66 $ 2.06 $ 1.80
=====================================================================
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 35
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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. Information
concerning the pro forma effects of using an optional fair value-based method to
account for stock-based employee compensation plans is provided in note 11.
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.
NOTE 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, 1997
and 1996, the required reserve balances were $3,310,000 and $3,669,000,
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, 1997 and 1996, the required compensating
balances were $110,440 and $85,680, respectively.
NOTE 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, 1997 were as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------------------------------------------------
<S><C>
Investment securities:
U. S. Treasury securities $62,952,038 $201,552 $ 2,605 $63,150,985
Federal agency securities 1,515,152 -- 16,657 1,498,495
Collateralized mortgage obligations 503,699 -- 3,430 500,269
------------------------------------------------------
Total $64,970,889 $201,552 $22,692 $65,149,749
Securities available-for-sale: =======================================================
Federal agency securities $ 500,000 $ -- $ 815 $ 499,185
Mortgage-backed securities 7,170 209 -- 7,379
Municipal securities 200,242 58 -- 200,300
Investment in Federal Home Loan
Bank stock 967,600 -- -- 967,600
-------------------------------------------------------
Total $ 1,675,012 $ 267 $ 815 $ 1,674,464
=======================================================
</TABLE>
<PAGE>
36 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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>
The amortized cost and estimated fair values of nonequity investment
securities and securities available-for-sale at December 31, 1997 and 1996, 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>
1997 1996
-------------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
-------------------------------------------------------
<S> <C>
Investment securities:
Due in one year or less $28,503,671 $28,540,550 $ 9,994,199 $10,008,655
Due after one year through five years 35,963,519 36,108,930 28,488,543 28,532,043
Collateralized mortgage obligations
and mortgage-backed securities 503,699 500,269 1,312,386 1,298,437
-------------------------------------------------------
Total $64,970,889 $65,149,749 $39,795,128 $39,839,135
=======================================================
Securities available-for-sale:
Due in one year or less $ 700,242 $ 699,485 $ 2,545,002 $ 2,538,119
Due after one year through five years -- -- 700,628 693,078
Collateralized mortgage obligations
and mortgage-backed securities 7,170 7,379 171,288 172,687
--------------------------------------------------------
Total $ 707,412 $ 706,864 $ 3,416,918 $ 3,403,884
========================================================
</TABLE>
There were no sales of investment securities or securities available-for-sale
during 1997 or 1996. At December 31, 1997, investment securities and securities
available-for-sale with an aggregate book value and fair value of $11,649,553
and $11,680,711, respectively, were pledged as collateral, primarily for short
term borrowings.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 37
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1997 (continued)
NOTE 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 were as follows at December 31:
1997 1996
--------------------------------------
Nonaccrual loans $ 599,076 $3,850,762
Other real estate owned 4,621,873 447,550
-------------------------------------
Total nonperforming assets $5,220,949 $4,298,312
=====================================
Loans past-due 90 days or more $ 63,209 $ 58,641
=====================================
At December 31, 1997, other real estate owned included a land development
project consisting of 229 residential building lots with a carrying value of
$3,058,424, a 24 unit residential condominium construction project with a
carrying value of $980,701, two residential condominium building sites with a
carrying value of $303,874 and certain other properties acquired in satisfaction
of loans. The land development project is being completed under the direction of
the Company. Currently, 107 lots are under contract, for settlement through July
2000, and the remainder of the project is being marketed for sale. Construction
of the residential condominium project is complete and 18 units are under
contract, for settlement in early 1998. The remaining units are being marketed
for sale. The condominium building sites are under contract, for settlement in
1998.
Impaired loans totalled $442,852 and $3,798,281 at December 31, 1997 and
1996, respectively, and were all collateral dependent loans. Collateral
dependent loans are measured based on the fair value of the collateral. There
were no impaired loans at December 31, 1997 or 1996 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 were:
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C>
Average recorded investment in impaired loans $284,741 $1,344,800
Interest income recognized during impairment -- 54,347
Interest income recognized on a cash basis during impairment 2,651 52,416
=======================
</TABLE>
An analysis of the allowance for credit losses is summarized as follows for
the years ended December 31:
1997 1996 1995
----------------------------------------------
Balance at beginning of year $3,292,754 $2,929,177 $2,578,499
Provision charged to expense 663,000 621,000 559,000
Charge-offs (365,560) (308,638) (258,783)
Recoveries 41,470 51,215 50,461
----------------------------------------------
Balance at end of year $3,631,664 $3,292,754 $2,929,177
==============================================
Ratio of allowance to loans,
net of unearned income 1.37% 1.38% 1.54%
==============================================
<PAGE>
38 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
NOTE 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 1997:
Balance at January 1, 1997 $2,258,648
Additions 2,749,842
Repayments (1,593,254)
----------
Balance at December 31, 1997 $3,415,236
==========
The Bank has issued letters of credit totalling $5,845 at December 31, 1997
and 1996 on behalf of parties related to directors of the Company. At December
31, 1997 and 1996, all of the letters of credit were collateralized by deposits
with the Bank.
During 1996 and 1995, the Bank paid $9,000 and $149,870, respectively, to
companies controlled by two directors for assistance with the disposition 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.
NOTE 6 OTHER REAL ESTATE OWNED
Other real estate owned was $4,621,873 and $447,550 at December 31, 1997 and
1996, respectively. Net expense on other real estate owned for the years ended
December 31 was:
1997 1996 1995
---------------------------------------------
Net gain on sales $(49,042) $(1,442) $(46,142)
Operating expenses 136,980 3,482 99,402
Provision for losses 46,000 9,000 25,538
---------------------------------------------
Net expense $133,938 $11,040 $ 78,798
=============================================
NOTE 7 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1997 1996
---------------------------
Land $ 2,070,000 $ 2,070,000
Buildings and leasehold improvements 5,713,785 4,372,747
Furniture and equipment 4,833,894 3,965,715
Software 377,459 203,960
Automobiles 103,782 95,221
---------------------------
13,098,920 10,707,643
Less accumulated depreciation and amortization 3,973,524 3,024,045
---------------------------
$ 9,125,396 $ 7,683,598
===========================
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 39
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
NOTE 8 PREPAID EXPENSE AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following at December 31:
1997 1996
---------------------------
Accrued interest receivable $2,857,287 $ 2,532,870
Net deferred tax asset 1,518,467 1,211,930
Cash surrender value of life insurance 3,933,508 2,860,246
Other 1,119,740 984,379
---------------------------
$9,429,002 $ 7,589,425
===========================
NOTE 9 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 at December 31, 1997:
1998 $939,398
1999 922,969
2000 907,975
2001 692,632
2002 600,628
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 $843,967, $621,782 and $350,798 in 1997, 1996, and 1995,
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 $50,000 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.
NOTE 10 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.
<PAGE>
40 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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 with
off-balance-sheet credit risk at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C>
Commitments to extend credit and available credit lines:
Commercial $ 28,125,910 $ 19,289,869
Real estate--construction 95,466,749 90,181,159
Real estate--residential mortgage 1,015,321 1,999,000
Retail, principally home equity lines of credit 32,814,491 27,875,093
Credit card 6,840,599 5,180,140
--------------------------
164,263,070 144,525,261
Standby letters of credit 14,588,281 14,328,062
Limited recourse on mortgage loans sold 5,765,550 4,817,850
--------------------------
$184,616,901 $163,671,173
==========================
</TABLE>
The Company evaluates the creditworthiness 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 advances to be made 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 from 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 a specified 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 $94.9 million, $55.2 million, and $13.8 million, respectively at
December 31, 1997.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 41
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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.
NOTE 11 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 $151,073 in 1997, $130,192 in 1996 and $101,020 in 1995.
DEFERRED COMPENSATION PLAN
The Company has 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 $83,379 in 1997 and $31,796 in 1996.
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 market price of the
common stock at the date of the grant. Employee options generally are not
exercisable prior to one year from the date of grant. Thereafter, employee
options are generally 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:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------------
<S> <C>
Outstanding at
beginning of year 149,829 $ 9.48 152,080 $9.49 153,933 $9.49
Exercised (69,618) 9.16 (2,251) 9.62 (1,853) 9.35
Granted 16,400 29.61 -- -- -- --
Forfeited (11) 9.09 -- -- -- --
--------------------------------------------------------------------
Outstanding at
end of year 96,600 $13.14 149,829 $9.48 152,080 $9.49
====================================================================
</TABLE>
<PAGE>
42 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
A summary of information about stock options outstanding at December 31, 1997 is
as follows:
OPTIONS
OUTSTANDING
------------------------
WEIGHTED OPTIONS
AVERAGE EXERCISABLE
EXERCISE REMAINING -----------
PRICE SHARES LIFE (YEARS) SHARES
-----------------------------------------------------
$ 9.09 46,655 2.5 46,655
9.65 20,080 5.8 20,080
10.00 4,720 6.0 4,720
12.50 605 2.2 605
13.64 8,140 1.6 8,140
22.00 6,000 9.2 --
34.00 10,400 10.0 --
--------------------------------------
96,600 4.5 80,200
======================================
At December 31, 1997 and 1996, options to purchase 80,200 and 144,809 shares,
respectively, were exercisable at weighted average prices of $9.77 and $9.48,
respectively.
The per share weighted average fair value of options granted during 1997 was
$13.51. This value was estimated using the Black-Scholes option pricing model
and the following assumptions:
Dividend yield 1.75%
Expected volatility 36.79%
Risk-free interest rate 5.49%
Expected lives 10 years
The option price was equal to the market price of the common stock at the
date of grant for all options granted in 1997 and, accordingly, no compensation
expense related to options was recognized. If the Company had applied a fair
value-based method to recognize compensation cost for the options granted, net
income and net income per share would have been changed to the following pro
forma amounts for the year ended December 31, 1997:
Net income $4,031,529
Net income per share: ==========
Basic $ 1.86
Diluted 1.76
==========
NOTE 12 WARRANTS
Warrants to acquire 68,000 shares and 75,900 shares of common stock at $9.09
per share were outstanding and exercisable at December 31, 1997 and 1996,
respectively.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 43
December 31, 1997, 1996 and 1995 (continued)
NOTE 13 INCOME TAXES
The provision for income taxes was composed of the following for the years
ended December 31:
1997 1996 1995
----------------------------------------------
Current:
Federal $2,182,314 $2,264,916 $1,814,399
State 479,045 497,177 429,177
----------------------------------------------
2,661,359 2,762,093 2,243,576
Deferred:
Federal (255,314) (307,641) (70,065)
State (56,045) (67,531) (15,511)
----------------------------------------------
(311,359) (375,172) (85,576)
----------------------------------------------
Provision for income taxes $2,350,000 $2,386,921 $2,158,000
==============================================
The types of temporary differences that give rise to significant portions of
the net deferred tax asset were as follows at December 31:
1997 1996
------------------------
Deferred tax assets:
Allowance for credit losses $1,290,397 $1,150,837
Deferred compensation 155,771 96,571
Deposits 58,831 32,658
Other 51,625 21,911
------------------------
Total deferred tax assets 1,556,624 1,301,977
------------------------
Deferred tax liabilities:
Loans receivable -- 51,890
Federal Home Loan Bank stock dividends 38,157 38,157
------------------------
Total deferred tax liabilities 38,157 90,047
------------------------
Net deferred tax asset (included in
prepaid expenses and other assets) $1,518,467 $1,211,930
========================
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:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
<S> <C>
Tax at federal statutory rate $2,215,961 $2,087,193 $1,899,495
State income taxes, net of federal income tax benefit 279,180 283,566 273,020
Other (145,141) 16,162 (14,515)
---------------------------------------
$2,350,000 $2,386,921 $2,158,000
=======================================
</TABLE>
<PAGE>
44 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continue)
NOTE 14 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 at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C>
Amount outstanding at year-end:
Short-term promissory notes $20,725,237 $12,127,073 $15,299,267
Borrowings from FHLB 3,000,000 18,000,000 --
Weighted average interest rate at year-end:
Short-term promissory notes 5.1% 4.8% 5.3%
Borrowings from FHLB 6.5 6.7 --
Maximum outstanding at any month-end:
Short-term promissory notes $22,831,150 $15,368,866 $15,299,267
Borrowings from FHLB 18,500,000 18,000,000 20,500,000
Average outstanding:
Short-term promissory notes 18,176,518 12,089,582 7,503,140
Borrowings from FHLB 9,476,923 3,884,615 8,541,949
Weighted average interest rate during the year:
Short-term promissory notes 4.8% 4.4% 4.6%
Borrowings from FHLB 5.3 4.8 5.4
</TABLE>
NOTE 15 NET OCCUPANCY EXPENSE
Net occupancy expense is comprised of the following for the years ended
December 31:
1997 1996 1995
-----------------------------------------------
Occupancy expense $1,599,399 $1,272,551 $850,501
Rental income (179,541) (168,110) (193,143)
-----------------------------------------------
Net occupancy expense $1,419,858 $1,104,441 $657,358
===============================================
NOTE 16 OTHER EXPENSE
Other expense is comprised of the following for the years ended December 31:
1997 1996 1995
-----------------------------------------------
Stationery and supplies $ 323,654 $ 260,631 $ 167,849
Postage 209,478 189,392 147,568
Director fees 119,000 118,738 119,913
ATM fees 100,195 148,609 131,443
Other (a) 1,449,886 1,097,130 703,572
-----------------------------------------------
$2,202,213 $1,814,500 $1,270,345
===============================================
(A) NO SINGLE ITEM INCLUDED IN THIS CATEGORY EXCEEDED ONE PERCENT OF TOTAL
INCOME.
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 45
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
NOTE 17 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 $.50, $.42
and $.25 for the years ended December 31, 1997, 1996 and 1995, respectively.
Dividends declared per share on the Company's Series A preferred stock were
$1.30 for the year ended December 31, 1995.
On December 18, 1997, the Board of Directors of the Bank authorized a cash
dividend of $308,000 to be paid to the Company on January 16, 1998. In addition,
on December 18, 1997, the Board of Directors of the Company declared a $.14 per
share cash dividend to shareholders of common stock of record on January 5,
1998, payable January 16, 1998.
NOTE 18 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 procedures. 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 Tier 1 capital
to risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1997, that the Bank meets all capital adequacy
requirements to which it is subject. As of December 31, 1997, 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>
46 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
Regulatory capital amounts and ratios for the Company and the Bank at
December 31 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>
December 31, 1997
Total capital (to risk weighted
assets):
Consolidated $37,833,747 12.5% $24,201,432 8.0% $30,251,789 10.0%
The Columbia Bank 36,093,606 12.0 24,164,825 8.0 30,206,032 10.0
Tier 1 capital (to risk weighted
assets):
Consolidated 34,202,083 11.3 12,100,716 4.0 18,151,074 6.0
The Columbia Bank 32,461,942 10.8 12,082,413 4.0 18,123,619 6.0
Tier 1 capital (to average
assets):
Consolidated 34,202,083 9.3 14,788,978 4.0 18,486,222 5.0
The Columbia Bank 32,461,942 8.9 14,649,269 4.0 18,311,586 5.0
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
===================================================================
</TABLE>
NOTE 19 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>
COLUMBIA BANCORP AND SUBSIDIARY 47
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
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, 1997. 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 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------------------------------------------------
<S> <C>
Financial assets:
Cash and due from banks $ 13,497,010 $ 13,497,010 $ 17,753,174 $ 17,753,174
Federal funds 2,013,538 2,013,538 3,477,436 3,477,436
Investment securities and
securities available-for-sale 66,645,353 66,824,213 44,149,012 44,193,019
Residential mortgage loans
originated for sale 6,557,090 6,557,090 1,551,408 1,551,408
Loans receivable, net of unearned
income 265,193,513 237,875,076
Less allowance for credit losses 3,631,664 3,292,754
----------- -----------
Loans, net 261,561,849 264,497,613 234,582,322 238,073,405
Financial liabilities:
Deposits 313,357,443 313,641,395 254,639,886 255,324,798
Short-term borrowings 23,725,237 23,725,237 30,127,073 30,127,073
=======================================================
</TABLE>
<PAGE>
48 COLUMBIA BANCORP AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
NOTE 20 FINANCIAL INFORMATION OF PARENT COMPANY
The following is financial information of Columbia Bancorp at and for the
years ended December 31 (parent company only):
BALANCE SHEETS
1997 1996
-----------------------------
Assets:
Cash and temporary investments $21,955,941 $13,808,287
Investment in The Columbia Bank 33,000,975 29,461,929
Other assets 696,588 148,579
-----------------------------
$55,653,504 $43,418,795
=============================
Liabilities and Stockholders' Equity:
Short-term borrowings $20,725,237 $12,127,073
Other liabilities 543,453 316,883
Stockholders' equity 34,384,814 30,974,839
-----------------------------
$55,653,504 $43,418,795
=============================
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
<S> <C>
Income:
Interest income $ 970,482 $ 613,892 $ 405,641
Dividend income from subsidiary 1,085,570 901,860 795,889
Management fees from subsidiary 120,000 120,000 160,000
---------------------------------------
2,176,052 1,635,752 1,361,530
---------------------------------------
Expenses:
Interest expense on short-term borrowings 897,867 532,042 342,635
Compensation expense 86,000 83,150 86,238
Other expenses 247,906 273,108 292,468
---------------------------------------
1,231,773 888,300 721,341
---------------------------------------
Income before taxes and equity in undistributed
net income of The Columbia Bank 944,279 747,452 640,189
Income tax benefit 48,000 59,200 59,900
---------------------------------------
Income before equity in undistributed
net income of The Columbia Bank 992,279 806,652 700,089
Equity in undistributed net income
of The Columbia Bank 3,175,252 2,945,230 2,728,661
---------------------------------------
Net income $4,167,531 $3,751,882 $3,428,750
=======================================
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 49
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995 (continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------
<S> <C>
Cash flows from operating activities:
Income before undistributed net income
of The Columbia Bank $ 992,279 $ 806,652 $ 700,089
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization 13,072 13,700 7,200
Increase (decrease) in other liabilities 176,112 (112,876) (149,553)
Decrease (increase) in other assets (561,081) 210,464 (144,675)
------------------------------------------------
Net cash provided by operating activities 620,382 917,940 413,061
------------------------------------------------
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 8,598,164 (3,172,194) 11,903,557
Cash dividends distributed on Series A preferred
stock -- -- (454,072)
Cash dividends distributed on common stock (1,035,112) (859,228) (263,327)
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
Net proceeds (disbursements) from stock options
exercised and common stock exchanged (35,780) 21,663 47,329
------------------------------------------------
Net cash provided by (used in) financing activities 7,527,272 (4,009,759) 19,558,060
------------------------------------------------
Net increase (decrease) in cash and temporary
investments 8,147,654 (3,091,819) 13,471,121
Cash and temporary investments at beginning of year 13,808,287 16,900,106 3,428,985
------------------------------------------------
Cash and temporary investments at end of year $21,955,941 $13,808,287 $16,900,106
================================================
</TABLE>
<PAGE>
50 COLUMBIA BANCORP AND SUBSIDIARY
Selected Quarterly Financial Data
A summary of selected quarterly financial data for the years ended December
31 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------------------------
<S><C>
1997:
Interest income $6,888,259 $7,507,563 $7,870,862 $7,927,065
Net interest income 4,352,640 4,743,789 4,836,888 4,787,082
Provision for credit losses 210,000 185,000 234,000 34,000
Income before income taxes 1,590,654 1,633,665 1,600,798 1,692,414
Net income 971,554 999,165 1,085,398 1,111,414
Net income per common share:
Basic $ 0.45 $ 0.47 $ 0.50 $ 0.51
Diluted 0.43 0.44 0.47 0.48
1996:
Interest income $6,057,036 $6,322,505 $6,540,053 $6,902,834
Net interest income 3,985,479 4,279,435 4,324,732 4,463,756
Provision for credit losses 184,600 175,400 189,501 71,499
Income before income taxes 1,674,017 1,650,625 1,229,770 1,584,391
Net income 1,023,017 1,009,625 751,370 967,870
Net income per common share:
Basic $ 0.48 $ 0.47 $ 0.35 $ 0.45
Diluted 0.45 0.45 0.33 0.43
</TABLE>
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 51
Recent Common Stock Prices and
Stock Performance Graph
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 MarketSM under the symbol "CBMD".
The following table presents high and low sale prices of the Company's Common
Stock for the periods indicated.
LOW HIGH
------------------------------------------------------
1997:
Fourth quarter $27.50 $38.50
Third quarter 23.25 29.25
Second quarter 21.25 23.88
First quarter 20.75 23.13
1996:
Fourth quarter $18.50 $22.00
Third quarter 17.25 19.00
Second quarter 18.50 20.00
First quarter 16.00 20.00
As of December 31, 1997 there were 307 common stockholders of record holding
an aggregate of 2,200,165 shares. The Company believes there to be in excess of
2,000 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, 1997 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, 1992 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]
Columbia Bancorp NASDAQ Peer Group
---------------- ------ ----------
12/31/92 100 100 100
12/31/93 135.63 114.8 133.03
12/31/94 200.11 112.21 146.21
12/31/95 259.65 158.7 184.48
12/31/96 326.95 195.19 220.59
12/31/97 532.91 239.53 370.51
<PAGE>
52 COLUMBIA BANCORP AND SUBSIDIARY
Directors and Officers
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, 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
Harry L. Lundy, Jr.
PRESIDENT
Williamsburg Builders, Inc.
Richard E. McCready
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
REM Enterprises, Inc.
Patricia T. Rouse
VICE PRESIDENT AND SECRETARY
The Enterprise Foundation
Maurice M. Simpkins
VICE PRESIDENT
The Ryland Group, Inc.
Mary S. Scrivener
Robert N. Smelkinson
RETIRED CHAIRMAN
Smelkinson Sysco
Theodore G. Venetoulis
PUBLISHER/POLITICAL CONSULTANT
DIRECTOR EMERITUS
Osborne A. Payne
PRESIDENT
Broadway-Payne, Inc.
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
Adelbert D. Karfonta
SENIOR VICE PRESIDENT
Robert W. Locke, III
SENIOR VICE PRESIDENT
Scott C. Nicholson
SENIOR VICE PRESIDENT
<PAGE>
COLUMBIA BANCORP AND SUBSIDIARY 53
THE COLUMBIA BANK
ADVISORY BOARD
COLUMBIA
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.
RETIRED 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.
H. Canfield Pitts, II
RESIDENT MANAGER
Merrill Lynch Pierce
Fenner & Smith, Inc.
Samuel A. Rittenhouse
RETIRED MANAGER
Electric Engineering
BGE
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
ADVISORY BOARD
BALTIMORE COUNTY
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.
<PAGE>
54 COLUMBIA BANCORP AND SUBSIDIARY
Corporate Information
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
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
LONG GATE
4450 Long Gate Parkway
Ellicott City, MD 21042
Phone: (410) 203-2345
OAKLAND MILLS
5865 Robert Oliver Place
Columbia, MD 21045
Phone: (410) 992-9411
RIVER HILL
6030 Daybreak Circle
Clarkesvillle, MD 21029
Phone: (410) 531-7000
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
WILDE LAKE
10451 Twin Rivers Road
Columbia, MD 21044
Phone: (410) 884-6800
RESIDENTIAL
MORTGAGE LENDING
OFFICES
COLUMBIA TOWN CENTER
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 730-5000
HEAVER PLAZA
1301 York Road
Lutherville, MD 21093
Phone: (410) 769-8070
OLNEY
18200 Georgia Avenue
Olney, MD 20832
Phone: (301) 924-9240
ANNUAL MEETING
The Annual Meeting of
Stockholders will be held on
Monday, April 27, 1998 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: 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 annu-
al 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.
Phone:(410) 465-4800
E-mail: [email protected]
<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 January 22,
1998, relating to the consolidated statements of condition of Columbia Bancorp
and subsidiary as of December 31, 1997 and 1996, 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, 1997, which report appears in the
December 31, 1997 annual report on Form 10-K of Columbia Bancorp.
/s/ KPMG Peat Marwick LLP
____________________________
KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,497,010
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,013,538
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,674,464
<INVESTMENTS-CARRYING> 64,970,889
<INVESTMENTS-MARKET> 65,149,749
<LOANS> 265,833,702
<ALLOWANCE> (3,631,664)
<TOTAL-ASSETS> 373,451,111
<DEPOSITS> 313,357,443
<SHORT-TERM> 23,725,237
<LIABILITIES-OTHER> 1,983,617
<LONG-TERM> 0
0
0
<COMMON> 22,002
<OTHER-SE> 34,362,812
<TOTAL-LIABILITIES-AND-EQUITY> 373,451,111
<INTEREST-LOAN> 26,741,786
<INTEREST-INVEST> 3,259,206
<INTEREST-OTHER> 192,757
<INTEREST-TOTAL> 30,193,749
<INTEREST-DEPOSIT> 10,094,380
<INTEREST-EXPENSE> 11,473,350
<INTEREST-INCOME-NET> 18,720,399
<LOAN-LOSSES> 663,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,188,189
<INCOME-PRETAX> 6,517,531
<INCOME-PRE-EXTRAORDINARY> 4,167,531
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,167,531
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.82
<YIELD-ACTUAL> 5.94
<LOANS-NON> 599,076
<LOANS-PAST> 63,209
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,230,474
<ALLOWANCE-OPEN> (3,292,754)
<CHARGE-OFFS> 365,560
<RECOVERIES> 41,470
<ALLOWANCE-CLOSE> (3,631,664)
<ALLOWANCE-DOMESTIC> (3,631,664)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
[COLUMBIA BANCORP LOGO]
COLUMBIA BANCORP
10480 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1998
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 27, 1998, 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 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 17, 1998 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
/s/ John A. Scaldara, Jr.
_________________________
JOHN A. SCALDARA, JR.
Corporate Secretary
Columbia, Maryland
March 27, 1998
<PAGE>
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished on or about March 27, 1998 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 John M. Bond, Jr. and Robert N.
Smelkinson, 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 date for stockholders entitled to notice of and to vote at
the annual meeting was the close of business on March 17, 1998. At that date
there were outstanding and entitled to vote 2,216,186 shares of Common Stock,
par value $.01 per share, of the Company. 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, 1997, 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.
1
<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 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 17, 1998) 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, each has served as a director of the Company and the Bank since
inception of the Company in 1987 and the Bank in 1988.
NAME OF NOMINEE INFORMATION REGARDING NOMINEE
- --------------- -----------------------------
Nominees for Directors to be elected at the 1998 Annual Meeting
to serve until the 2001 Annual Meeting (Class II)
Hugh F.Z. Cole, Jr. Mr. Cole is 56 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 66 years old. He is a general partner of
Venture Associates, a commercial real estate
investment firm.
Herschel L. Langenthal Mr. Langenthal is 69 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 64 years old. He is Chairman and CEO
of REM Enterprises, Inc., a food brokerage company.
James R. Moxley, Jr. Mr. Moxley is 67 years old. He is President of
Security Development Corporation, a real estate
development company. Mr. Moxley is also Chairman
of the Company.
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.
2
<PAGE>
NAME OF DIRECTOR INFORMATION REGARDING DIRECTOR
- ---------------- ------------------------------
Directors to serve until the 1999 Annual Meeting (Class III)
John M. Bond, Jr. Mr. Bond, Jr. is 54 years old and has served as a
director and President, Chief Executive Officer, and
Treasurer of the Company and the Bank since
inception.
William L. Hermann Mr. Hermann is 57 years old and is President of
William L. Hermann, Inc., a financial management
company. Mr. Hermann was also General Manager of the
Glenmore office of the Bank until December 1997. He
has served as a director of the Company and the Bank
since June 1989.
Harry L. Lundy, Jr. Mr. Lundy is 57 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 60 years old. She is Secretary of
Calvert General Contractors, a commercial
construction company.
Theodore G. Venetoulis Mr. Venetoulis is 63 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.
Directors to serve until the 2000 Annual Meeting (Class I)
Anand S. Bhasin Mr. Bhasin is 60 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 55 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 64 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 52 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 has served as a director of the Company and
Bank since April, 1997.
Robert N. Smelkinson Mr. Smelkinson is 68 years old. He is the retired
Chairman of Smelkinson Sysco, a distribution company.
3
<PAGE>
DIRECTOR EMERITUS
Directors James Clark, Jr., Mary T. Gould and Patricia Rouse 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 27, 1998. As a Director Emeritus, each is eligible to receive compensation
and perquisites offered to directors generally and may participate in discussion
at Board meetings of the Company and the Bank, but may not vote and may not be
counted for purposes of determining a quorum. The membership of Directors
Emeritus J. Clark, Jr., Gould and Rouse on committees of the Boards of Directors
of the Bank and the Company will cease effective with retirement.
Mr. Osborne A. Payne is currently serving as a Director Emeritus, with
a term that expires April, 1999.
BOARD AND COMMITTEE MEETINGS
The Board of Directors held ten meetings during 1997. 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 1997.
The Board of Directors has six standing committees. The committees are
the Executive; Acquisition, Development and Construction; Audit; Asset/Liability
Management; Community Reinvestment Act ("CRA") Advisory; and Personnel,
Compensation and Stock Option committees. The Board of Directors has not
established a Nominating Committee. The functions customarily attributable to a
Nominating Committee are performed by the Board of Directors as a whole. In
addition, the Board of Directors, from time to time, establishes special
committees which have a limited duration. Directors are appointed to each
committee, except the Executive Committee, for a one-year term. Directors are
appointed to the Executive Committee on a rotational basis with terms ranging
from three months to one year. 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 forty-seven meetings during 1997. The
Executive Committee currently consists of Directors Bhasin, Bond, Jr., G. Clark,
J. Clark, Jr., Cole, Langenthal (Chairman), Lundy, Moxley, 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.
Effective January 1, 1998, the Board of Directors established the
Acquisition, Development and Construction Committee, consisting of Directors
Bond, Jr., G. Clark, Gaw, Langenthal, Lundy, Moxley (Chairman) and Simpkins. The
Committee is responsible for monitoring business development strategies and
market trends specific to the Company's acquisition, development and
construction portfolio.
The Audit Committee held two meetings during 1997. The Audit Committee
consists of Directors Bhasin, J. Clark, Jr., Cole (Chairman), Floyd, Hermann,
Rouse and Venetoulis. The Committee is responsible for overseeing 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
1997. The Asset/Liability Management Committee consists of Directors Bhasin,
Bond, Jr., Floyd, Gaw (Chairman), Hermann,
4
<PAGE>
Langenthal, Moxley 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 six meetings during 1997. The CRA
Advisory Committee consists of Directors Bhasin, Bond, Jr., Langenthal, Moxley,
Rouse, Simpkins (Chairman) and Venetoulis 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 three
meetings during 1997. The Personnel, Compensation and Stock Option Committee
consists of Directors Gaw, Gould, Langenthal, Lundy, McCready, Moxley,
Smelkinson (Chairman), Simpkins 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 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
and stock options to purchase twenty-five shares of Common Stock of the Company
for each Board and committee meeting attended during 1998. Chairpersons of
committees, other than Mr. Langenthal and Mr. Moxley, will receive an additional
$25 for each committee meeting attended during 1998. 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 and stock options granted for meeting
attendance. These amounts are unchanged from those received during 1997. 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 1997. On
January 26, 1998, Directors Moxley and Langenthal were granted stock options to
purchase 5,000 and 3,000 shares of Common Stock of the Company, respectively, at
$33.75 per share, the then current market price. Total director fees paid by the
Company and the Bank for 1997 service were $119,000, inclusive of annual fees
paid the Chairman and Vice-Chairman.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING 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.
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, 1997, 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 Moxley inadvertently failed to file a report (representing
a transaction) required by Section 16(a) of the Act on a
5
<PAGE>
timely basis, and Director Simpkins failed to file a report (representing the
initial filing of ownership) 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, 1997, these loans totaled $3.4 million, or
approximately 10.5% of the total equity capital of the Bank.
PRINCIPAL BENEFICIAL OWNERS OF THE COMPANY'S COMMON STOCK
CERTAIN BENEFICIAL 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, 1997.
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 named Executive Officers of the
Company and the Bank, directly or indirectly, as of March 17, 1998.
Shares of Stock Options % of
Common Stock and Warrants (1) Class
------------ ---------------- -----
Directors:
Anand S. Bhasin (2) 23,349 639 1.08
John M. Bond, Jr. (3)(4) 86,155 13,790 4.49
Garnett Y. Clark, Jr 18,296 5,064 1.05
James Clark, Jr 16,589 678 *
Hugh F.Z. Cole, Jr. (5) 21,476 1,522 1.04
G. William Floyd 14,098 -- *
Robert J. Gaw 27,587 1,706 1.32
Mary T. Gould (6)(7) 90,705 7,204 4.41
William L. Hermann (8) 26,980 -- 1.22
Herschel L. Langenthal (9) 59,508 6,054 2.95
Harry L. Lundy, Jr. (10) 55,741 4,574 2.72
Richard E. McCready 19,459 4,438 1.08
James R. Moxley, Jr 20,533 9,587 1.36
Patricia T. Rouse 28,982 4,308 1.50
Mary S. Scrivener 18,082 8,159 1.18
Maurice M. Simpkins 5,587 -- *
Robert N. Smelkinson 55,533 5,198 2.74
Theodore G. Venetoulis (11) 12,983 4,351 *
Executive Officers:
Michael T. Galeone 1,856 8,500 *
Charles C. Holman (12) 4,570 6,750 *
Robert W. Locke (13) 13,232 3,000 *
John A. Scaldara, Jr. (14)(15) 33,156 7,750 1.84
====== ====== ====
6
<PAGE>
BENEFICIAL OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND NOMINEES, (continued)
Shares of Stock Options % of
Common Stock and Warrants (1) Class
------------ ---------------- -----
All directors and executive
officers (22 persons) (16) 622,721 103,272 31.3%
======= ======= ====
Company totals 2,212,845 137,020
========= =======
* 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 19,106 shares of Common Stock, 3,300 warrants and 1,690 stock
options for which Mr. Bond, Jr. is a co-trustee and remainder
beneficiary.
(4) Includes 31,736 shares of Common Stock held by the Company's 401(k)
Plan and Trust on December 31, 1997 for which Mr. Bond, Jr. and Mr.
Scaldara serve as trustees. Beneficial ownership of such shares is
expressly disclaimed, except as to approximately 8,745 shares held for
the account of Mr. Bond, Jr.
(5) Includes 2,121 shares of Common Stock for which Mr. Cole is a trustee.
(6) Includes 31,237 shares of Common Stock 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.
(9) Includes 24,603 shares of Common Stock for which Mr. Langenthal is a
trustee and 20,695 shares of Common Stock owned by two partnerships and
a corporation of which Mr. Langenthal owns an interest.
(10) Includes 29,246 shares of Common Stock owned by a corporation and a
limited partnership of which Mr. Lundy owns interests.
(11) Includes 12,912 shares of Common Stock held by a trust; the beneficial
ownership of such shares is expressly disclaimed.
(12) Includes approximately 829 shares of Common Stock held for the account
of Mr. Holman in the Company's 401(k) Plan and Trust.
(13) Includes approximately 1,176 shares of Common Stock held for the
account of Mr. Locke in the Company's 401(k) Plan and Trust.
(14) Includes 154 shares of Common Stock for which Mr. Scaldara is trustee.
(15) Includes 31,736 shares of Common Stock held by the Company's 401(k)
Plan and Trust on December 31, 1997 for which Mr. Bond, Jr. and Mr.
Scaldara are trustees. Beneficial ownership of such shares is expressly
disclaimed, except as to approximately 3,907 shares held for the
account of Mr. Scaldara.
(16) Includes 31,736 shares of Common Stock held by the Company's 401(k)
Plan and Trust for which Mr. Bond, Jr. and Mr. Scaldara are trustees.
7
<PAGE>
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 "Committee"). The report
addresses the executive compensation policies of the Bank and the Company
(collectively, the "Company") for 1997.
The Committee establishes the compensation of senior officers of the
Company with the exception of Mr. Bond, Jr., the President and Chief Executive
Officer. Mr. Bond, Jr.'s compensation is established by the Board of Directors
of the Company based upon data provided by and recommendations of the 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
Committee. In addition, the 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, 1997 Stock Option
Plan, 1990 Director Stock Option Plan, 401(k) Plan and Trust, and Deferred
Compensation Plan. The overall goal of the 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 updated annually by the Company's human resources staff
using current market data which reflects marketplace changes, inflation, and, if
applicable, corporate performance. This information is considered by the
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 the historical performance, degree
of responsibility, level of experience and number of years with the
Company. In addition, the Committee considers compensation data
available through various surveys, including the Sheshunoff Bank
Executive and Director Compensation Survey, SNL Executive Compensation
Review, 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 $215,000 granted to Mr. Bond, Jr.
for the year 1997, the Committee took into account the Company's
performance during 1996 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
continued 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.
8
<PAGE>
While the Company achieved many operational goals in 1997, financial
performance did not meet internal expectations. As such, no bonuses
were awarded senior officers.
(c) STOCK OPTION AWARDS. The 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, and the 1997 Stock Option Plan. In February 1997, Mr.
Scaldara was granted an incentive stock option for the purchase of
3,000 shares of the Company's common stock. The grant was reflective of
performance during 1996.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
provides with certain exceptions, for an annual $1,000,000 limitation on the
deduction that an employer may claim for compensation of certain executives. In
light of the current level of compensation for the Company's named executive
officers, the Committee has not adopted a policy with respect to the foregoing
deductibility limit, but will adopt such a policy should it become relevant.
R. Smelkinson, Chairman R. McCready
R. Gaw J. Moxley
M. Gould M. Simpkins
H. Langenthal T. Venetoulis
H. Lundy
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The table below provides the aggregate balance at December 31, 1997 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, 1997
----------------------------
Richard E. McCready $ 88,790
James R. Moxley, Jr. 1,404,615
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, 1997.
9
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation (a) Shares of Common
Name and -------------------------- Stock Underlying All
Principal Position Year Salary Bonus Options Awarded Compensation(b)
- ------------------ ---- ------ ----- --------------- ---------------
<S><C>
John M. Bond, Jr. 1997 $215,000 $ - - $16,857
President and CEO 1996 200,000 - - 19,464
1995 175,000 60,000 - 4,821
Michael T. Galeone 1997 $154,000 $ - - $ 8,368
Executive Vice President 1996 148,000 - - 4,213
1995 143,000 40,000 - 2,754
Charles C. Holman 1997 $152,000 $ - - $12,138
Executive Vice President 1996 144,000 - - 10,801
1995 139,000 50,000 - 4,821
Robert W. Locke 1997 $109,000 $ - - $ 8,967
Senior Vice President 1996 106,000 - - 9,071
1995 103,000 15,000 - 4,821
John A. Scaldara, Jr. 1997 $120,000 $ - 3,000 $ 9,722
Executive Vice President, 1996 100,000 - - 9,361
Chief Financial Officer 1995 90,000 25,000 - 4,821
and Corporate Secretary
</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 1997 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.
OPTION GRANTS IN LAST FISCAL YEAR
The table below provides analysis of all individual grants of stock options made
during the year ended December 31, 1997 to the named Executive Officers:
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or Grant Date
Name Options Granted Fiscal Year Base Price Expiration Date Value (a)
- ---- --------------- ----------- ---------- --------------- ---------
<S><C>
John A. Scaldara, Jr. 3,000 18.3% $22.00 February 24, 2007 $30,114
</TABLE>
(a) Estimated using the Black-Scholes option pricing model and the
following assumptions:
Dividend yield 1.75%
Expected volatility 36.79%
Risk free interest rate 5.49%
Expected life 10 years
10
<PAGE>
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 1997 and outstanding stock options as of December 31, 1997 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 1997.
<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. 49,500 $1,004,779 5,500 - $133,925 -
Michael T. Galeone 5,500 80,630 8,500 - 204,434 -
Charles C. Holman - - 6,750 - 167,443 -
Robert W. Locke 7,750 230,063 6,250 - 150,235 -
John A. Scaldara, Jr. - - 7,000 3,000 170,188 36,000
</TABLE>
RETIREMENT PLANS AND SUPPLEMENTAL COMPENSATION ARRANGEMENTS
Named 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 1997 for the named Executive Officers was follows: Mr. Bond,
Jr., $4,750; Mr. Galeone, $4,750; 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,
11
<PAGE>
(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).
The vested portion of the matching employer contributions made to the
Deferred Compensation Plan during 1997 for named Executive Officers were as
follows: Mr. Bond, Jr., $11,345; Mr. Holman, $6,626; Mr. Scaldara, Jr., $4,210;
Mr. Galeone, $2,942; and Mr. Locke, $3,455.
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, 1998, the death benefit for each of the named Executive Officers was
as follows: Mr. Bond, Jr., $953,000; Mr. Holman, $62,000; Mr. Scaldara, Jr.,
$692,000; Mr. Galeone, $688,000; and Mr. Locke, $314,000.
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 $225,000, 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 $160,000, $157,000 and $130,000,
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
12
<PAGE>
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 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, 1990 Stock Option
Plan, 1997 Stock Option Plan, 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, 1997 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, 1992 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:
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------ ------
Columbia Bancorp 100 135.63 200.11 259.65 326.95 532.91
Nasdaq, US Companies 100 114.80 112.21 158.70 195.19 239.53
Peer Group 100 133.03 146.21 184.48 220.59 370.51
13
<PAGE>
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, 1998. 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.
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 1999 Annual
Meeting of Stockholders must be received by the Company not later than November
26, 1998 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. (E-mail: [email protected])
By Order of the Board of Directors
/s/ John A. Scaldara, Jr.
_________________________
John A. Scaldara, Jr.
Corporate Secretary
March 27, 1998
14
<PAGE>
REVOCABLE PROXY
COLUMBIA BANCORP
[ ]PLEASE MARK VOTES
AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Columbia Bancorp hereby appoints John M. Bond,
Jr. and Robert N. Smelkinson, or either of them, the lawful attorneys and
proxies of the undersigned, with several powers of substitution, to vote all
shares of Common Stock of Columbia Bancorp which the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held April 27, 1998, and at any
and all adjournments and postponements thereof. Any and all proxies heretofore
given are hereby revoked.
Please be sure to sign and date this Proxy in the box below.
For Withhold For All
Except
1. Election of Directors [ ] [ ] [ ]
H. Cole, W. Floyd, H. Langenthal, R. McCready, J. Moxley
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR
ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. 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 IN THE BEST JUDGMENT OF THE PROXY HOLDERS ON ALL OTHER
MATTERS.
Please sign exactly as your name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full 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.
15
