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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-24302
COLUMBIA BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1545782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10480 Little Patuxent Parkway
Columbia, Maryland 21044
(Address of principal executive offices) (zip code)
410-465-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
[cover page 1 of 2 pages]
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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 24, 2000 $54,761,784
State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share:
Shares outstanding at March 24, 2000 7,155,233
Documents Incorporated by Reference:
Portions of Annual Report to Stockholders for Fiscal Year Ended
December 31, 1999, incorporated by reference into Part II.
Portions of Definitive Proxy Statement dated April 13, 2000,
incorporated by reference into Part III.
[cover page 2]
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TABLE OF CONTENTS
PART I PAGE
----
Item 1 - Business................................................... 2
Item 2 - Properties................................................. 9
Item 3 - Legal Proceedings.......................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders........ 11
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6 - Selected Financial Data..................................... 11
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 7a - Quantitative and Qualitative Disclosures About Market Risk.. 11
Item 8 - Financial Statements and Supplementary Data................. 11
Columbia Bancorp and Subsidiary:
Independent Auditors' Report
Consolidated Statements of Condition as of
December 31, 1999 and 1998
Consolidated Statements of Income and Comprehensive Income for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................ 12
PART III
Item 10 - Directors and Executive Officers of the Registrant.......... 12
Item 11 - Executive Compensation...................................... 13
Item 12 - Security Ownership of Certain Beneficial Owners and Management 13
Item 13 - Certain Relationships and Related Transactions.............. 13
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 14
Signatures............................................................. 18
(1)
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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 as of December 31,
1999 had nine branch locations in Howard County, Maryland; four branch locations
in Baltimore County, Maryland; and two branch locations in Baltimore City,
Maryland. The Bank also has mortgage and commercial loan origination offices in
Howard and Baltimore Counties, Maryland. At December 31, 1999, the Company had
total assets of $467.7 million, total loans, net of unearned income, of $315.5
million, total deposits of $367.5 million and stockholders' equity of $40.9
million.
On September 28, 1999, the Company and Suburban Bancshares, Inc. ("Suburban")
signed a definitive merger agreement providing for Suburban and Suburban Bank of
Maryland ("Suburban Bank") to merge with and into the Company and the Bank. On
March 8, 2000, the Company issued 2,641,746 shares of its common stock for all
the outstanding common stock of Suburban. The business combination will be
accounted for as a pooling-of-interests combination and, accordingly, the
Company's historical financial statements presented in future reports will be
restated to include the accounts and results of operations of Suburban.
Following the merger, the Company will operate twenty-three branches in Howard,
Baltimore, Prince Georges and Montgomery counties and Baltimore City. The
unaudited financial information of the Company and Suburban on a pro forma
combined basis as of and for the year ended December 31, 1999 is as follows (in
thousands except per share amounts):
Assets $691,237
Loans, net of unearned income 452,432
Deposits 554,566
Stockholders' equity 61,286
Net interest income 29,363
Net income 5,885
Diluted earnings per share .82
The Bank is an independent, community bank that 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 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.
(2)
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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 major network
systems.
* 24-hour telephone banking.
* PC-Banking.
* Internet 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, 1999, the Company's loan portfolio, net of unearned
income, totaled $315.5 million, representing approximately 67.5% of its total
assets of $467.7 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, 1999:
<TABLE>
<CAPTION>
Amount Percent
---------- ----------
(dollars in thousands)
<S> <C> <C>
Commercial...................................... $ 82,835 26.2%
Real estate - development and construction(1)... 93,478 29.6
Real estate - mortgage:
Residential................................... 10,684 3.4
Commercial.................................... 20,297 6.4
Consumer:
Retail (2).................................... 106,189 33.7
Credit card................................... 2,217 .7
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Total loans..................................... $315,700 100.0%
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</TABLE>
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(1) At December 31, 1999, loans to individuals for the purchase of residential
building lots and the construction of primary personal residences
represented $13.8 million.
(2) Includes $97.2 million in retail loans secured by the borrowers' principal
residences in the form of home equity lines of credit and second mortgages.
(3)
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Commercial Loans. The Company originates secured and unsecured loans for
business purposes. Commercial business loans are made to provide working capital
to businesses in the form of lines of credit which may be secured by real
estate, accounts receivable, inventory, equipment or other assets. At December
31, 1999, $82.8 million or 26.2% 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 that secures the loan. 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 consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
Amount Percent
----------- ----------
(dollars in thousands)
<S> <C> <C>
Residential construction(1) ...... $44,875 48.0%
Residential land development...... 31,595 33.8
Commercial construction........... 9,168 9.8
Residential land acquisition(2)... 7,840 8.4
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$93,478 100.0%
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</TABLE>
___________
(1) Includes $12.3 million of loans to individuals for construction of primary
personal residences.
(2) Includes $1.5 million of loans to individuals for the purchase of
residential building lots.
The Company makes residential real estate development and construction loans
generally to provide interim financing on property during the development and
construction period. Borrowers include builders, developers and persons who will
ultimately occupy the single family dwelling. 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.
Residential construction loans constitute the largest component of the real
estate development and construction loan portfolio, representing primarily loans
for the construction of single family dwellings. At December 31, 1999, loans to
individuals for the construction of primary personal residences accounted for
$12.3 million of the $44.9 million residential construction portfolio. These
loans are typically secured by the property under construction, frequently
include additional collateral (such as a second mortgage on the borrower's
present home), and commonly have maturities of six to twelve months. The
remaining $32.6 million of residential construction loans represented loans to
residential builders and developers. Approximately 61% of the units under
construction were for 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
that permit the sale of the mortgage loan in the secondary mortgage loan market.
The Company's practice is to immediately sell substantially all residential
mortgage loans in the secondary market with servicing released.
Loans for the development of residential land represented the second largest
component of the real estate development and construction loan portfolio at
December 31, 1999, totaling $31.6 million or 33.8% of the portfolio. Generally,
development loans are extended 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 eighteen 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.
The Company has limited loan losses in this area of lending through monitoring
of development and construction loans with on-site inspections and control of
disbursements on loans in process. Development and construction loans are
secured by the properties under development or construction and personal
guarantees are
(4)
<PAGE>
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 sales 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 that 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, 1999, $10.7 million or 3.4% 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, 1999, $20.3 million or
6.4% of the Company's total loan portfolio consisted of commercial mortgage
loans. Such loans are primarily secured by office condominiums, retail
buildings, warehouse and general purpose business space. Although terms and
amortization periods 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 and to
underwrite the business entity from a cash flow perspective.
Consumer Loans. At December 31, 1999, $108.4 million or 34.4% of the Company's
total loan portfolio consisted of 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 primarily include home
equity loans and lines of credit and second mortgages.
Home equity loans and lines of credit 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 maximum terms of fifteen to
thirty years and the interest rates are generally adjustable. The Company
secures these loans with mortgages on the homes (typically a second mortgage).
The second mortgage loans originated by the Company have maximum terms ranging
from ten to thirty years. They carry a fixed rate of interest for the first five
years, repricing every five years thereafter at a predetermined spread to the
prime rate of interest.
Potential Problem Loans. There were no loans identified at December 31, 1999
with potential weaknesses that were not adversely classified.
(5)
<PAGE>
Competition
While promotional activities emphasize the many advantages of dealing with a
locally-run institution closely attuned to the needs of its community, the
Company faces strong competition in all areas of its operations. This
competition comes from entities operating in the Baltimore/Washington
metropolitan area, which include offices of most of the largest banks in
Maryland. Its most direct competition for deposits comes from other commercial
banks, 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 that 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. 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.
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 a financial activity or incidental to a
financial activity or complementary to a financial activity and not providing a
substantial risk to the safety and soundness of financial institutions or the
financial system generally.
(6)
<PAGE>
In making such determination, the Federal Reserve Board is required to weigh
various factors specified by statute.
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 8.0%. At least half of the
total capital is required to be "Tier 1 capital," consisting of common equity,
retained earnings and a limited amount of perpetual preferred stock, after
subtracting goodwill and certain other intangible assets and making various
other adjustments. The remainder ("Tier 2 capital") may consist of (a) the
allowance for loan losses of up to 1.25% of risk-weighted 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.
As of December 31, 1999 and 1998, the Company's total risk-based capital
ratios were 12.1% and 12.7%, respectively, and its Tier 1 risk-based capital
ratios were 11.0% and 11.5%, respectively. In addition to the risk-based capital
guidelines, the Federal Reserve Board has adopted a minimum Tier 1 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 4.0%. 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, 1999 and 1998, the Company's Tier 1 leverage ratios were 8.8% and
9.0%, respectively.
The capital adequacy guidelines 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 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
(7)
<PAGE>
federal bank agencies, or the bank's own internal model is a quantitative
factor, among other quantitative and qualitative factors, available for use by
examiners in determining the adequacy of an individual bank's capital for
interest rate risk. Other quantitative factors include the bank's historical
financial performance and its earnings exposure to interest rate movements.
Qualitative factors include the adequacy of the bank's internal interest rate
management. Establishment of an explicit supervisory threshold, defining a
"normal" level of interest rate risk exposure is expected at some future date.
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, privacy protection, 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 with respect to its deposit insurance. As a
result of the acquisition of Fairview Federal Savings and Loan Association
("Fairview") in June 1992, approximately $135.1 million or 39.7% 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"). As of December 31, 1999, the
Company's FDIC insurance premium was 2.12 cents per $100 of both BIF and 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
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, the Company's earnings will be impacted by movement in interest rates,
as discussed in "Management's Discussion and Analysis - Market Risk and Interest
Rate Sensitivity" on pages 22 through 25 of the 1999 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
(8)
<PAGE>
Employees
At December 31, 1999, the Company and the Bank had 246 employees of whom 40
were officers, 202 were full-time employees and 44 were part-time employees.
The Company believes its employee relations are good.
ITEM 2. PROPERTIES
- -------------------
The Company owned the following properties at December 31, 1999, with a book
value of $5.0 million:
<TABLE>
<CAPTION>
Location Description
-------- -----------
<S> <C>
Ellicott City Administrative Office Office building producing
9171 Baltimore National Pike $192,000 annual rental income
Ellicott City, MD 21042
Ellicott City Primary branch location, including
9151 Baltimore National Pike additional administrative offices
Ellicott City, MD 21042
Long Gate Full-service branch
4450 Long Gate Parkway
Ellicott City, MD 21043
Timonium Full-service branch
67 West Aylesbury Road
Timonium, MD 21093
Columbia Town Center Detached drive-through branch with
10480 Little Patuxent Parkway ground lease
Columbia, MD 21044
River Hill Detached drive-through branch with
6030 Daybreak Circle ground lease
Clarksville, MD 21029
</TABLE>
The Company leased the following facilities at December 31, 1999, at an
aggregate annual rental of $1.3 million. In addition, in February 2000, the
Company leased an additional 11,000 square feet of office space to accommodate
past and anticipated growth, exclusive of branch growth.
<TABLE>
<CAPTION>
Location Description Lease Expiration Date
-------- ----------- ---------------------
<S> <C> <C>
Blakehurst Retirement community branch 10/03
1055 West Joppa Road
Towson, MD 21204
Columbia Town Center Full-service branch and 5/13
10480 Little Patuxent Parkway administrative offices
Columbia, MD 21044
Cross Keys Full-service branch 11/05
5100 Falls Road, Suite 96
Baltimore, MD 21210
</TABLE>
(9)
<PAGE>
<TABLE>
<CAPTION>
Location Description Lease Expiration Date
-------- ----------- ---------------------
<S> <C> <C>
Edenwald Retirement community branch 12/08
800 Southerly Road
Baltimore, MD 21286
Harmony Hall Retirement community branch 11/00
6336 Cedar Lane
Columbia, MD 21044
Harper's Choice Full-service branch 3/05
5485 Harper's Farm Road
Columbia, MD 21044
Heaver Plaza Full-service branch and 2/11
1301 York Road administrative offices
Lutherville, MD 21093
Oakland Mills Full-service branch 9/18
5880 Robert Oliver Place
Columbia, MD 21044
Olney Administrative office 4/01
3418 Olandwood Court
Olney, MD 20832
River Hill Full-service branch 11/17
6030 Daybreak Circle
Clarkesville, MD 21029
Roland Park Place Retirement community branch 1/02
830 West 40th Street
Baltimore, MD 21211
Vantage House Retirement community branch 2/06
5400 Vantage Point Road
Columbia, MD 21044
Wilde Lake Full-service branch 6/02
10451 Twin Rivers Road
Columbia, MD 21044
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Company is party to legal actions which are routine and incidental to its
business. In management's opinion, the outcome of these matters, individually
or in the aggregate, will not have a material adverse impact on the results of
operations or financial position of the Company.
(10)
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At a special meeting of stockholders held February 23, 2000, the Company
received stockholder approval for the merger of Suburban Bancshares, Inc. and
Suburban Bank of Maryland with and into the Company and the Bank. The voting
for the proposed merger is summarized below.
<TABLE>
<CAPTION>
Total Shares %
----------------- -------
<S> <C> <C>
For 3,053,950 67.7%
Against 205,236 4.6
Abstain 5,750 .1
Not voted 1,243,733 27.6
----------------- -------
Total shares outstanding
on record date 4,508,669 100.0%
================= =======
</TABLE>
Not Voted
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------------------
The information required by this Item is set forth by reference to the
information appearing under the captions "Dividends and Common Stock" on page
47 and "Recent Common Stock Prices" on page 54 of the 1999 Annual Report to
Stockholders included in Exhibit 13.1 filed herewith.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The information required by this Item as to the Company is incorporated by
reference to the information appearing under the caption "Selected Financial
Highlights" on page 8 of the 1999 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 27 of the 1999 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 22 through 25 of the 1999 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 Auditors' Report thereon are incorporated by reference to
the 1999 Annual Report to Stockholders included in Exhibit 13.1, pages 28
through 52, filed herewith. The supplementary data required by this Item as to
the Company
(11)
<PAGE>
is incorporated by reference to the information appearing under the caption
"Selected Quarterly Financial Data" on page 53 of the 1999 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 neither changes in nor disagreements with accountants on
accounting and financial disclosure.
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 2000 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, 2000.
<TABLE>
<CAPTION>
Position with the
Name Age Company and the Bank
---- --- --------------------
<S> <C> <C>
John M. Bond, Jr. 56 President and Chief Executive Officer of the Company and the
Bank and Treasurer of the Company.
Michael T. Galeone 51 Executive Vice President of the Bank.
Stephen A. Horvath 50 Executive Vice President of the Bank.
Robert W. Locke 54 Executive Vice President of the Bank.
Scott C. Nicholson 38 Executive Vice President of the Bank.
John A. Scaldara, Jr. 36 Executive Vice President, Chief Financial Officer and Secretary
of the Company and the Bank.
</TABLE>
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. He is
currently a member of the Board for the Economic Development Authority for
Howard County and the Howard County Chamber of Commerce, as well as several
other organizations involved in education and community welfare. Mr. Galeone
attended Temple University, Institute of Technology.
Mr. Horvath directs the Washington Region of the Bank, acquired as part of
the merger of Suburban and Suburban Bank with and into the Company and the Bank,
as of March 8, 2000. Prior to the merger, Mr. Horvath served as Director,
President and Chief Operating Officer of Suburban and Suburban Bank. He has also
held positions with Crestar and First Union National Bank. Mr. Horvath is active
in civic affairs, serving as Chairman of the Prince Georges United Way Campaign
and Chairman of the Finance Committee of the Prince Georges Chamber of
Commerce. He is a graduate of Denison University (B.A.), Baldwin-Wallace College
(M.B.A.) and the Stonier Graduate School of Banking.
(12)
<PAGE>
Mr. Locke directs the commercial lending activities of the Bank. He has
over 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 as Chairman of the
Board of Directors of the Baltimore County Chamber of Commerce. He also serves
on the Board of Directors of the Better Business Bureau and the Baltimore
Division of the American Heart Association. He is a graduate of Colgate
University (B.A.) and City College of New York (M.S.Ed).
Mr. Nicholson directs the acquisition, development and construction loan
activities of the Bank. He has 16 years of experience in real estate lending
with the Bank, First American Metro Corporation, Equitable Federal Savings Bank,
First Texas Savings Association and Lumbermen's Investment Corporation. Mr.
Nicholson is actively involved in civic and professional affairs, serving with
various organizations including the Rotary Club of Columbia Town Center, the
Soccer Association of Columbia/Howard County and as Director of Development
Guaranty Group of Montgomery County, Inc., a subsidiary of Maryland National
Capital Building Industry Association. Mr. Nicholson attended The University of
Texas at Austin and St. Edwards University.
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 LLP in
Baltimore. He is a graduate of Loyola College (B.A.) and is actively involved in
civic organizations, serving as Chairman of the Howard Hospital Foundation. Mr.
Scaldara has served as Secretary of the Company and the Bank since January 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 2000 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 2000
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 2000 Annual Meeting of
Stockholders included in Exhibit 99.1 filed herewith.
(13)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
a. Exhibits
(2.1) Plan and Agreement to Merge, dated September 28, 1999, among
Columbia Bancorp and Suburban Bancshares, Inc., previously filed
with the Commission as an Exhibit to, and incorporated herein by
reference from, the Form 8-K filed by the Company on October 4,
1999 (File No. 0-24302).
(2.2) First Amendment to Plan and Agreement to Merge, dated November
24, 1999, among Columbia Bancorp and Suburban Bancshares, Inc.,
previously filed with the Commission as an Exhibit to, and
incorporated herein by reference from, Amendment No. 1 to the
Company's Registration Statement on Form S-4 filed by the Company
on December 29, 1999 (Reg. No. 333-91887).
(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. 0-24302).
(3.1a) Articles Supplementary dated September 27, 1999 (filed herein as
Exhibit 3.1a).
(3.2) Form of Amended and Restated By-laws of the Company, restated as
of March 8, 2000 (filed herein as Exhibit 3.2).
(4.1) Not Applicable.
(9.1) Not Applicable.
(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. 0-24302).
(10.1a) Amendment dated September 28, 1998 to the Company's 1987 Stock
Option Plan, 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,
1998 (File No. 0-24302).
(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. 0-24302).
(14)
<PAGE>
(10.5) Suburban Bancshares, Inc. 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 March 21, 2000 (Reg. No. 333-32912).
(10.6) Form of the Company's Incentive Stock Option Agreement for use
under the 1997 Suburban Bancshares, Inc. 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 March 21, 2000 (Reg. No. 333-32912).
(10.7) 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. 0-24302).
(10.7a) Amendment dated December 18, 1997 to the 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-K for
fiscal year ended December 31, 1997 (File No. 0-24302).
(10.8) 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. 0-24302).
(10.8a) Amendment dated December 16, 1997 to the 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-K for
fiscal year ended December 31, 1997 (File No. 0-24302).
(10.9) 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. 0-24302).
(10.9a) Amendment dated December 16, 1997 to the 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-
K for fiscal year ended December 31, 1997 (File No. 0-24302).
(10.10) Form of Employment Agreement dated February 26, 1999 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-K for fiscal year ended December 31, 1998 (File
No. 0-24302).
(10.11) 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. 0-24302).
(10.12) 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. 0-24302).
(15)
<PAGE>
(10.13) 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).
(10.13a)Amendment dated September 26, 1998 to 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
Annual Report on Form 10-K for fiscal year ended December 31,
1998 (File No. 0-24302).
(10.14) Form of Board Chairman's Services Agreement with Winfield M.
Kelly, Jr., previously filed with the Commission as an Exhibit
to, and incorporated herein by reference from, the Company's
Registration Statement on Form S-4 filed by the Company on
December 1, 1999 (Reg. No. 333-91887).
(10.15) Form of Employment Agreement with Stephen A. Horvath, previously
filed with the Commission as an Exhibit to, and incorporated
herein by reference from, the Company's Registration Statement on
Form S-4 filed December 1, 1999 (Reg. No. 333-91887).
(10.16) Form of Employment Agreement dated November 2, 1999 with Scott C.
Nicholson (filed herein as Exhibit 10.16).
(11.1) Not Applicable.
(12.1) Not Applicable.
(13.1) 1999 Annual Report to Stockholders (filed herein as Exhibit
13.1).
(16.1) Not Applicable.
(18.1) Not Applicable.
(21.1) List of Subsidiaries of the Company
<TABLE>
<CAPTION>
State of Percentage
Name Incorporation Owned by Ownership
---- ------------- -------- ----------
<S> <C> <C> <C>
The Columbia Maryland Columbia 100%
Bank Bancorp
McAlpine Maryland The Columbia 100%
Enterprises, Inc. Bank
Howard I, LLC Maryland The Columbia 100%
Bank
Howard II, LLC Maryland The Columbia 100%
Bank
</TABLE>
(22.1) Not Applicable.
(23.1) Consent of Independent Auditors (filed herein
as Exhibit 23.1).
(24.1) Not Applicable.
(27.1) Financial Data Schedule (filed herein as Exhibit 27.1).
(16)
<PAGE>
(99.1) Notice of the 2000 Annual Meeting of Stockholders, Proxy
Statement for the 2000 Annual Meeting of Stockholders and the
2000 Form of Proxy (filed herein as Exhibit 99.1).
b. Reports on Form 8-K
1. Current Report on Form 8-K dated March 10, 2000 reporting, under Item
5, the completion of the merger of Suburban Bancshares, Inc. and
Suburban Bank of Maryland with and into the Company and the Bank,
respectively, effective March 8, 2000.
2. Current Report on Form 8-K dated October 4, 1999 reporting, under Item
5, that on September 28, 1999 the Company entered into a Plan and
Agreement to Merge (the "Agreement") with Suburban Bancshares, Inc.
The Agreement provided for Suburban Bancshares, Inc. and Suburban Bank
of Maryland to merge with and into the Company and the Bank,
respectively, in a pooling-of-interests transaction.
(17)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Columbia Bancorp
(Registrant)
March 27, 2000 By: /s/
-------------------------------
John M. Bond, Jr.
President, Chief Executive Officer
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 3/27/00
Winfield M. Kelly, Jr. Board
/s/
- ---------------------------- Vice Chairman of the 3/27/00
James R. Moxley, Jr. the Board
/s/
- ---------------------------- Chairman of the 3/27/00
Herschel L. Langenthal Executive Committee
/s/
- ---------------------------- President, Chief 3/27/00
John M. Bond, Jr. Executive Officer and
Treasurer
/s/
- ---------------------------- Secretary 3/27/00
John A. Scaldara, Jr. and Chief Financial
Officer
/s/
- ---------------------------- Director 3/27/00
Anand S. Bhasin
(18)
<PAGE>
Signature Title Date
- --------- ----- ----
- ---------------------------- Director 3/27/00
Robert R. Bowie, Jr.
- ---------------------------- Director 3/27/00
Garnett Y. Clark, Jr.
/s/
- ---------------------------- Director 3/27/00
Hugh F.Z. Cole, Jr.
/s/
- ---------------------------- Director 3/27/00
G. William Floyd
/s/
- ---------------------------- Director 3/27/00
William L. Hermann
/s/
- ---------------------------- Director 3/27/00
Charles C. Holman
/s/
- ---------------------------- Director 3/27/00
Harry L. Lundy, Jr.
/s/
- ---------------------------- Director 3/27/00
Richard E. McCready
/s/
- ---------------------------- Director 3/27/00
Kenneth H. Michael
/s/
- ---------------------------- Director 3/27/00
James R. Moxley, III
- ---------------------------- Director 3/27/00
Vincent D. Palumbo
/s/
- ---------------------------- Director 3/27/00
Mary S. Scrivener
(19)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/
- ---------------------------- Director 3/27/00
Lawrence A. Shulman
/s/
- ---------------------------- Director 3/27/00
Maurice M. Simpkins
/s/
- ---------------------------- Director 3/27/00
Robert N. Smelkinson
/s/
- ---------------------------- Director 3/27/00
Albert W. Turner
/s/
- ---------------------------- Director 3/27/00
Theodore G. Venetoulis
(20)
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No. Title of Exhibit
----------- ----------------
3.1a Articles Supplementary dated September 27, 1999.
3.2 Form of Amended and Restated By-Laws of Columbia Bancorp,
restated as of March 8, 3000.
10.16 Form of Employment Agreement dated November 2, 1999 with
Scott C. Nicholson.
13.1 Annual Report to Stockholders for the year ended December
31, 1999.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule.
99.1 Notice of the 2000 Annual Meeting of Stockholders, Proxy
Statement for the 2000 Annual Meeting of Stockholders and
the 2000 Form of Proxy.
(21)
<PAGE>
EXHIBIT 3.2
COLUMBIA BANCORP
1999 AMENDED AND RESTATED BY-LAWS
(Amended through and Restated as of March 8, 2000)
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 May 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. The Board of Directors shall have sole power to fix the date and time
of the special meeting.
SECTION 1.03. Place of Meetings. Unless the Charter provides otherwise,
meetings of stockholders shall be held at such place 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
-1-
<PAGE>
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 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 or transmitted to the
stockholder by electronic mail to any electronic mail address of the stockholder
or by any other electronic means. 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; however, a
share is not entitled to be voted if any installment payable on it is overdue
and unpaid. 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, an authorization by a telegram, cablegram, datagram, electronic
mail or any other electronic or telephonic means to the person authorized to act
as proxy or to any other person authorized to receive the proxy authorization on
behalf of the person authorized to act as the proxy, including a proxy
solicitation firm or proxy support service organization. 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
-2-
<PAGE>
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.
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. Nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation (i) who was a stockholder
of record at the time of giving notice(s) provided for in Section 1.11 and
Section 1.12, (ii) who is entitled to vote at the meeting and (iii) who complied
with the notice(s) procedures set forth in Section 1.11 and Section 1.12.
Nominations of persons for election to the Board of Directors and the proposal
of business to be considered by the stockholders may be made at a special
meeting of stockholders (a) only pursuant to the Corporation's notice of meeting
and (b), in the case of nominations of persons for election to the Board of
Directors, (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation (A) who was a stockholder of record at the time
of giving notice provided for in Section 1.11, (B) who is entitled to vote at
the meeting and (C) who complied with the notice procedures set forth in Section
1.11. The chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in Section 1.11, Section
1.12 and this Section and, if any proposed nomination or business is not in
compliance with Section 1.11, Section 1.12 and this Section, to declare that
such defective nomination or proposal be disregarded.
SECTION 1.10. Conduct of 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 of the meeting, the
vote upon any election or question shall be taken by ballot. Before any meeting
of the stockholders, the Board of Directors may appoint persons to act as
inspectors of election at the meeting and any adjournment thereof. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of stockholders, present in person or by proxy, entitled to cast 10%
in number of votes entitled to be cast, shall, appoint inspectors of election at
the meeting. The number of inspectors shall be either
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one or three. If inspectors are appointed at a meeting on the request of
stockholders, the holders of a majority of shares present in person or by proxy
shall determine whether one or three inspectors are to be appointed. No
candidate for election as a director at a meeting shall serve as an inspector
thereat. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
stockholder shall, appoint a person to fill that vacancy. The inspectors shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receive votes, ballots or
consents; hear and determine all challenges and questions in any way arising in
connection with the right to vote; count and tabulate all votes or consents;
determine when polls shall close; determine the result; and do any other acts
that may be proper to conduct the election or vote with fairness to all
stockholders. Unless so demanded or ordered, no vote need be by ballot and
voting need not be conducted by inspectors.
SECTION 1.11. Advance Notice Provisions for Election of Directors. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (b) by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section and on the record date for the determination
of stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section. A stockholder's notice must be
delivered to or mailed and received by the Secretary at the principal executive
offices of the Corporation (a) in the case of an annual meeting, 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 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; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs. A stockholder's notice to the
Secretary must be in writing and set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director, all information
relating to such person that is required to be disclosed in connection with
solicitations of proxies for election of directors pursuant to Regulation 14A of
the Exchange Act, and the rules and regulations promulgated thereunder; and
(b) as to the stockholder giving the notice (i) the name and address of such
stockholder as they appear on the Corporation's books and of the beneficial
owner, if any, on whose behalf the nomination is made, (ii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such
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stockholder and such beneficial owner, (iii) a description of all arrangements
or understandings between such stockholder and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholder, (iv) a representation that
such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Regulation 14A of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to be named as a nominee and to serve
as a director if elected. No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the procedures set forth
in this Section. If the chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman of the
meeting shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded. No adjournment or postponement of a
meeting of stockholders shall commence a new period for the giving of notice of
a stockholder proposal hereunder.
SECTION 1.12. Advance Notice Provisions for Business to be Transacted at
Annual Meeting. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is stockholder of record on the date of the giving of the notice provided for in
this Section and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section. A stockholder's notice must be delivered
to or mailed and received by 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 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. A stockholder's
notice to the Secretary must in writing and set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address of
such stockholder as they appear on the Corporation's books and of the beneficial
owner, if any, on whose behalf the proposal is made, (iii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder and such beneficial owner, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons
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(including their names) in connection with the proposal of such business by such
stockholder and any material interest of such stockholder in such business and
(v) a representation that such stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting. No
business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in Section 1.11 or in this Section, provided, however, that once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in Section 1.11 nor in this Section shall be deemed to
preclude discussion by any stockholder of any such business. If the chairman of
an annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the chairman of the
meeting shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted. No adjournment or
postponement of a meeting of stockholders shall commence a new period for the
giving of notice of a stockholder proposal hereunder.
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 three classes as nearly equal in number as possible. At each
successive annual meeting of stockholders, the holders of stock present in
person or by proxy at such meeting and entitled to vote thereat shall elect
members of each successive class to serve for three year terms and until their
successors are elected and qualify. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class shall, subject to Section 2.05, hold office for
a term that shall coincide with the remaining term of that class, but in no case
shall a decrease in the number of directors shorten the term of any incumbent
director.
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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
(with no age limit in the case of any person who is serving as the Chairman of
the Board, the Vice-Chairman of the Board, the chairman of any standing
committee of the Board of Directors or the President just prior to his election
or in the case of Albert W. Turner).
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 at least 80%
of the votes entitled to be cast generally for the election for directors. For
purposes of the foregoing, "cause," shall mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of a court, (iii) gross dereliction of
duty, (iv) conviction of any act involving moral turpitude or (v) commission of
an act that constitutes intentional misconduct or a knowing violation of law if
such action in either event results both in an improper substantial personal
benefit to the director and in a material injury to the Corporation.
SECTION 2.06. Vacancy on Board of Directors. 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 thereafter 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 of Directors or announced by the President
or the Chairman of the Board at such stockholders meeting, 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 time and at such place as may be designated from
time to time by the Board of Directors. No notice of such meeting following a
stockholders meeting or any other regular meeting shall be necessary if held as
hereinabove provided.
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
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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 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 of Directors and
filed with the minutes of proceedings of the Board of Directors.
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
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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 of Directors 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.
SECTION 2.13. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the Chairman of the Board or the President. Unless otherwise
specified therein such resignation shall take effect upon receipt thereof by the
Chairman of the Board or the President.
SECTION 2.14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who votes in favor of such action or fails
to make his dissent known at the meeting.
SECTION 2.15. Advisory Directors. The Board of Directors may by
resolution appoint advisory directors to the Board of Directors, who may also
serve as directors emeriti, and shall have such authority and receive such
compensation and reimbursement as the Board of Directors shall provide.
Advisory directors or directors emeriti shall not have the authority to
participate by vote in the transaction of business.
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 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
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procedure for determining the maximum number of shares to be issued, a committee
of the Board of Directors, 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 2.11.
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
Corporation may also have a Chairman of the Executive Committee. The Chairman
of the Executive Committee 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, the Vice Chairman of the
Board, the Chairman of the Executive Committee and the President shall be
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. Chairman of the Executive Committee. The Chairman of the
Executive Committee, if one be elected, shall preside at all meetings of the
Executive Committee of the Board of Directors 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 4.05. President. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board
and the Vice-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
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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 4.06. 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 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 4.07. 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 4.08. 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 4.09. Assistant and Subordinate Officers. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or
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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 4.10. 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
of Directors. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board of Directors) 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 officer, any committee or officer authorized by the Board of
Directors) may fill a vacancy which occurs in any office for the unexpired
portion of the term.
SECTION 4.11. Election, Tenure and Removal of the Chairman of the Board,
and the Vice Chairman of the Board and the Chairman of the Executive Committee.
The Board of Directors shall elect the Chairman of the Board, the Vice Chairman
of the Board and the Chairman of the Executive Committee, if any be elected.
The Chairman of the Board, the Vice Chairman of the Board and the Chairman of
the Executive Committee shall be appointed to hold their offices, respectively,
for two years, but not beyond their respective terms as directors. The Board of
Directors may remove the Chairman of the Board, the Vice Chairman of the Board
and the Chairman of the Executive Committee from their respective office at any
time. The removal of the Chairman of the Board and/or the Vice Chairman of the
Board and/or the Chairman of the Executive Committee does not prejudice
his/their rights as a director and stockholder of the Corporation conveyed by
the Charter and By-Laws of the Corporation or under any employment agreement.
SECTION 4.12. 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
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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 a 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 or (b) a statement
which provides in substance that the Corporation will furnish a full statement
of such information to any stockholder on request and without charge. Such
request may be made to the Secretary or to its transfer agent. Except as
provided in the Maryland Uniform Commercial Code - Investment Securities, the
fact that a stock certificate does not contain or refer to a restriction on
transferability that is adopted after the date of issuance does not mean that
the restriction is invalid or unenforceable. 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
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, and shall have the sole power to, 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 request a special meeting of stockholders, notice
of a meeting of stockholders, vote at a meeting of stockholders, 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. Any shares of the Corporation's own stock acquired by the
Corporation between the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders and the time of the meeting
may be voted at the meeting by the holder of record as of the record date and
shall
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be counted in determining the total number of outstanding shares entitled
to be voted at 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 of Directors considers necessary
or desirable. On receipt of a certification which complies with the procedure
adopted by the Board of Directors 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 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 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
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the Board, the President, a Vice-President, an Assistant Vice-President, 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 12calendar 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.
SECTION 6.05. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
SECTION 6.06. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the Board of Directors may select.
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 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
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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 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
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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. Contracts and Agreements. To the extent permitted by
applicable law, and except as otherwise prescribed by the Charter or these By-
Laws, the Board of Directors may authorize any officer, employee or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation. Such authority may be general or
confined to specific instances. 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. Reliance. Each director, officer, employee and agent of
the Corporation shall, in the performance of his or her duties with respect to
the Corporation, be entitled to rely on any information, opinion report or
statement, including financial statement or other financial data, prepared or
presented by an officer or employee of the Corporation whom the director,
officer, employee or agent reasonably believes to be reliable and competent in
the matters presented, by a lawyer, certified public accountant or other person
as to a matter which the director, officer, employee or agent reasonably
believes to be within the person's professional or expert competence or by a
committee of the Board on which the director, officer, employee and agent does
not serve, as to a matter within its designated authority, if the director,
officer, employee or agent believes the committee to merit confidence.
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SECTION 8.08. Amendments. These By-Laws may be repealed, altered, amended
or rescinded and new by-laws may be adopted (a) by the stockholders of the
Corporation (considered for this purpose as one class) by the affirmative vote
of not less than 80% of all the votes entitled to be cast by the outstanding
shares of capital stock of the Corporation generally in the election of
directors which are cast on the matter 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 the affirmative 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.
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EXHIBIT 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 2, 1999, 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 Scott C. Nicholson (the "Executive"). The Severance Agreement
dated as of February 26, 1996 and as amended December 16, 1997, between the
Corporation, the Bank and the Executive, is hereby terminated effective with the
execution of this Employment Agreement.
W I T N E S S E T H:
- - - - - - - - - -
The Executive will serve as the Executive Vice President of the Bank and
possesses an intimate knowledge of the business and affairs of the Corporation
and the Bank (each, a "Company" and collectively, the "Companies"). The
Companies recognize the Executive's contribution to the organization, growth and
success of the Companies and desire to enter into an employment agreement with
the Executive in order to assure to the Companies the benefits of the
Executive's expertise and knowledge. The Executive, in turn, desires to enter
into full-time employment with the Companies on the terms provided herein.
Accordingly, in consideration of the mutual covenants and representations
contained herein and the mutual benefits derived herefrom, the parties hereto
agree as follows:
1. Full-Time Employment of Executive.
----------------------------------
1.1. Duties and Status.
-----------------
(a) The Companies hereby engage the Executive as a full-time
executive employee for the period (the "Employment Period") specified in
paragraph 4.1, and the Executive accepts such employment, on the terms
and conditions set forth in this Agreement. During the Employment
Period, the Executive shall exercise authority and perform executive
duties as an Executive Vice President of the Bank.
(b) During the Employment Period, the Executive shall (i) not
engage in consulting work or any trade or business for his own account or
for or on behalf of any other person, firm or corporation which competes,
conflicts or materially interferes with the performance of his duties
hereunder in any way and (ii) accept such additional office or offices to
which he may be elected by the Board of Directors
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of either of the Companies, provided that the performance of the duties
of such office or offices shall be consistent with the scope of the
duties provided for in paragraph 1.1(a).
(c) The Executive shall be required to perform the services and
duties provided for in paragraph 1.1(a) only at the principal office of
either of the Companies in Columbia, Maryland, or at such other locations
acceptable to the Executive. The Executive shall be entitled to
vacation, leave of absence, and leave for illness or temporary disability
in accordance with the policies to be established for the Companies,
which shall be similar to those commonly offered at comparable banking
institutions, and any leave on account of illness or temporary disability
shall not constitute a breach by the Executive of his agreements
hereunder.
1.2. Compensation and General Benefits. As compensation for his
---------------------------------
services under this Agreement, the Executive shall be compensated as
follows:
(a) The Companies shall pay the Executive an annual salary which is
not less than the greater of (i) a base salary of $132,000.00 per annum,
or (ii) any subsequently established higher annual base salary. Such
salary shall be payable in periodic equal installments which are no less
frequent than monthly. Such salary shall be subject to normal periodic
review at least annually for increases based on the salary policies of
the Companies and contributions to the enterprises.
(b) The Executive shall be entitled to participate in such pension,
profit sharing, stock incentive, stock option, stock purchase, incentive,
group and individual disability, group and individual life, survivor
income, sickness, accident, dental, medical or health insurance and other
plans of the Companies which are in effect immediately prior to the
effective date of this Agreement or in any other or additional benefit
programs, plans or arrangements of the Companies which may be established
by the Companies, as and to the extent any such benefit programs, plans
or arrangements are or may from time to time be in effect, as determined
by the Companies and terms hereof. The Companies shall neither
(i) terminate or amend any benefit program, plan or arrangement of the
Companies pursuant to which the Executive, or his dependents,
beneficiaries or estate, is or shall be entitled to benefits, nor
(ii) terminate or amend any formula or method set forth in any benefit
program, plan or arrangement of the Companies pursuant to which the
amount and type of benefits to which the Executive, or his dependents,
beneficiaries or estate, is or shall be entitled thereunder are
determined, if such termination or amendment would in any way modify or
deprive the Executive, or his dependents, beneficiaries or estate, of any
benefits to which he, or his dependents, beneficiaries or estate, is or
shall be entitled under any benefit program, plan or arrangement of the
Companies, unless (a) the Executive expressly consents in writing to such
termination or amendment or (B) the amendment is required by law or
regulation and the Companies shall, to the extent necessary, provide, pay
or provide for payment of amounts equal to any benefits lost
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or reduced by such amendment. Throughout the period of his employment
hereunder, the Executive shall be entitled to the receipt of any personal
benefits from the Companies at the Companies' expense including, but not
limited to, any other perquisites provided by the Companies to executives
with comparable authority or duties. The term "benefit programs, plans,
or arrangements of the Companies" as used in this Agreement refers to the
matters in this paragraph 1.2(b).
2. Competition; Confidential Information. The Executive and the
-------------------------------------
Companies recognize that due to the nature of his association with the Companies
and of his engagements hereunder, and the relationship of the Executive to the
Companies, both in the past as an organizer and in the future hereunder, the
Executive has had access to and has acquired, will have access to and will
acquire, and has assisted in and may assist in developing, confidential and
proprietary information relating to the business and operations of the Companies
and their affiliates, including, without limiting the generality of the
foregoing, information with respect to its present and prospective systems,
customers, agents, accounts, deposits, loans, and sales and marketing methods.
The Executive acknowledges that such information has been and will continue to
be of central importance to the business of the Companies and their affiliates
and that disclosure of it to or its use by others could cause substantial loss
to the Companies. The Executive and the Companies also recognize that an
important part of the Executive's duties will be to develop good will for the
Companies and their affiliates through his personal contact with customers,
agents and others having business relationships with the Companies and their
affiliates, and that there is a danger that this good will, a proprietary asset
of the Companies and their affiliates, may follow the Executive if and when his
relationship with the Companies is terminated. The Executive accordingly agrees
as follows:
2.1. Non-Competition.
---------------
(a) During the Non-Competition Period, the Executive will not,
directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise, except for the account of and on
behalf of the Corporation or its affiliates ("affiliates" is defined
solely for purposes of this paragraph 2 as "Columbia Bancorp and its
subsidiaries"), engage in any activity competitive with the business of
the Companies or their affiliates, nor during the Non-Competition Period
will he, in competition with the Companies or their affiliates, solicit
or otherwise attempt to establish for himself or any other person, firm
or entity, any business relationships with any person, firm or
corporation which was, at any time during the Non-Competition Period, (i)
a state or national bank, (ii) a bank holding company, or (iii) a direct
or indirect subsidiary of a state or national bank or a bank holding
company, in each case which has its principal operations located in
Howard County, Maryland or within a 15 mile radius of the principal
office of the Corporation in Columbia, Maryland, excepting both the City
of Baltimore and Washington, D.C.
(b) The Non-Competition Period shall commence on the date of this
Agreement and shall terminate on:
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(i) The date of the termination of the Employment Period; or
(ii) If the Executive resigns in circumstances other than those
described in paragraph 4.3(a)(ii), two years after the date of such
resignation; provided, however, that if the Executive resigns during
a Change in Control Period in circumstances other than those
described in paragraph 4.3(a)(ii), the Non-Competition Period shall
terminate on the date of such resignation; or
(iii) If the Executive is terminated for cause (as defined in
paragraph 4.3(b)), two years after the date of such termination for
cause.
(c) Nothing in this paragraph 2 shall be construed to prevent the
Executive from owning, as an investment, not more than 1% of a class of
equity securities issued by any issuer and publicly traded and registered
under Section 12 of the Securities Exchange Act of 1934.
2.2. Trade Secrets. The Executive will keep confidential any trade
-------------
secrets or confidential or proprietary information of the Corporation and
its affiliates which are now known to him or which hereafter may become
known to him as a result of his employment or association with the
Companies and shall not at any time directly or indirectly disclose any
such information to any person, firm or corporation, or use the same in
any way other than in connection with the business of the Companies or
their affiliates during and at all times after the expiration of the
Employment Period. For purposes of this Agreement, "trade secrets or
confidential or proprietary information" means information unique to the
Companies or any of their affiliates which has a significant business
purpose and is not known or generally available from sources outside the
Companies or any of their affiliates or typical of industry practice.
3. Companies' Remedies for Breach. It is recognized that damages in
------------------------------
the event of breach of paragraph 2 by the Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Companies, in
addition to and without limiting any other remedy or right they may have, shall
have the right to an injunction or other equitable relief in any federal or
state court of competent jurisdiction in the State of Maryland, enjoining any
such breach, and the Executive hereby waives any and all defenses he may have on
the ground of lack of jurisdiction or competence of the court to grant such an
injunction or other equitable relief. The existence of this right shall not
preclude any other rights and remedies at law or in equity which the Companies
may have. In the event the Companies seek an injunction against the Executive
and lose, then the Companies shall be liable for damages and for any legal fees
incurred by the Executive in defending the action.
4. Employment Period.
-----------------
4.1. Duration. The Employment Period shall commence on the date of
--------
this Agreement (the "Effective Date") and shall continue until the
earlier of (i) the close of
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business on the date which is two years after the date on which, during
the Employment Period, either of the Companies gives written notice of
termination to the Executive or the Executive gives written notice of
termination to either of the Companies, as applicable, but not later than
the close of business on July 2, 2026, (ii) termination of this Agreement
(as defined in paragraph 4.3(a)), (iii) death of the Executive, (iv)
total disability of the Executive (as defined in paragraph 4.3(c)), (v)
resignation of the Executive in circumstances other than those described
under paragraph 4.3(a)(ii), or (vi) discharge of the Executive for cause
(as defined in paragraph 4.3(b)).
4.2. Payments after Employment Period.
--------------------------------
(a) In the event of a termination of this Agreement under paragraph
4.1(ii), the Companies shall pay to the Executive and provide him with
the following:
(i) During the remainder of the Employment Period (determined
without regard to paragraph 4.1(ii)), but not less than one year
following the occurrence of any event of termination under paragraph
4.1(ii), the Companies shall continue to pay the Executive his
salary at the rate and as required by paragraph 1.2(a) and in effect
immediately prior to the date of termination plus (in any year after
the first year) an annual bonus payable at the time or times
customary during the Employment Period, which bonus shall be
equivalent to a certain percentage of his salary paid to him by the
Companies for each such year during the remainder of the Employment
Period (determined without regard to paragraph 4.1(ii) but with
regard to paragraphs 4.1(iii) and (iv)), such percentage to be equal
to the average of the percentage of his salary which his annual
bonus represented during each of the three years immediately
preceding termination of this Agreement.
(ii) During the remainder of the Employment Period (determined
without regard to paragraph 4.1(ii) but with regard to paragraphs
4.1(iii) and (iv)), the Executive shall continue to be treated as an
executive (at the level provided for in paragraph 1.1(a)) under all
of the benefit programs, plans or arrangements of the Companies
described in paragraph 1.2(b). In addition, the Executive shall
continue to be entitled to all benefits and service credits for
benefits under all of the benefit programs, plans or arrangements of
the Companies described in paragraph 1.2(d) as if he were still
employed during such period under this Agreement.
(iii) If, despite the provisions of subparagraph (ii) above,
benefits, service credits, or the right to accrue further benefits
or service credits under any benefit programs, plans or arrangements
of the Companies described in paragraph 1.2(b) shall not be payable
or provided to the Executive, or his dependents, beneficiaries and
estate, because he is not longer an employee of
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one or both of the Companies, the Companies shall, to the extent
necessary, provide, pay or provide for payment of equivalent
benefits, service credits and rights to accrue further benefits or
service credits to or for the benefit of the Executive, his
dependents, beneficiaries and estate.
(b) In the event of a termination of this Agreement under paragraph
4.1(ii), the Executive in his discretion may elect, within 60 days
after such termination, to be paid a lump sum or other agreed
severance allowance in lieu of termination payments provided for in
paragraph 4.2(a) in an amount of cash which shall be negotiated and
agreed upon in writing between the Executive and the Companies. Among
the forms which the severance allowance may take, if negotiated and
agreed upon in writing between the Executive and the Companies, shall
be payment of equal installments to the Executive the present value of
which, computed at the time required by Section 4999 of the Internal
Revenue Code of 1986 (the "Code"), is below the threshold necessary to
trigger applicability of Section 4999 of the Code which imposes a
nondeductible excise tax on any recipient of an "excess parachute
payment" equal to 20% of the amount of such payment. In the event
that the Executive makes an election pursuant to this paragraph
4.2(b), the severance allowance shall represent the present fair
market value of the amount of salary, bonuses and all benefit
programs, plans and arrangements of the Companies which the Executive
would be entitled to during the Employment Period (determined without
regard to paragraph 4.1(iii)) under this Agreement. Upon the date
that the Companies and the Executive enter into a written agreement
providing for a severance payment, the Companies' obligations to the
Executive pursuant to paragraph 4.2(a) shall terminate. In the event
that the Executive and the Companies are unable to negotiate a
mutually satisfactory agreement concerning the amount of a severance
payment pursuant to this paragraph 4.2(b), then the Executive shall
receive termination payments and benefits as provided in paragraphs
4.2(a). Payments made under this paragraph 4.2(b) shall continue
notwithstanding the subsequent death or disability of the Executive.
(c) In the event of a termination of this Agreement under paragraph
4.1(iii), (i) the Companies shall pay the Executive's estate an amount
equal to six months' salary at the rate and as required by paragraph
1.2(a) and in effect immediately prior to the date of death, (ii) the
Companies shall continue benefits under the Companies' sickness,
accident or health insurance for a period of six months following
death of the Executive for those dependents and beneficiaries of the
Executive who were covered by such programs, plans or arrangements at
the date of the Executive's death, and (iii) the Executive's
dependents, beneficiaries and estate, as the case may be, will receive
such survivor and other benefits as they may be entitled under the
terms of the benefit programs, plans, and arrangements described in
paragraph 1.2(b) which provide benefits upon death of the Executive.
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(d) In the event of a termination of this Agreement under paragraph
4.1(iv), (i) the Companies shall pay the Executive an amount equal to
six months' salary at the rate and as required by paragraph 1.2(a) and
in effect immediately prior to the date of total disability, (ii) the
Companies shall continue benefits under the Companies' sickness,
accident and health insurance for two years following the date of
total disability for the Executive and his dependents and
beneficiaries who are covered by such programs, plans and arrangements
during the two-year period; and (iii) the Executive, and his
dependents, beneficiaries and estate, as the case may be, will receive
such benefits as they may be entitled under the terms of the benefit
programs, plans, and arrangements described in paragraph 1.2(b) which
provided benefits upon total disability of the Executive.
(e) In the event of a termination of this Agreement under paragraph
4.1(v) or (vi), the Executive, and his dependents, beneficiaries and
estate, as the case may be, will receive such benefits as they may be
entitled under the terms of the benefit programs, plans, and
arrangements of the Companies described in paragraph 1.2(b) which
provide benefits upon retirement, resignation or discharge for cause,
as the case may be.
(f) The Executive shall not be required to mitigate the amount of
any payment provided for in this paragraph 4.2 by seeking employment
or otherwise, nor shall the amount of any payment provided for in this
paragraph 4.2 be reduced by any compensation or remuneration earned by
the Executive as the result of employment by another employer, or
self-employment, or as a partner, after the date of termination or
otherwise. Any payment provided for in this paragraph 4.2 shall be
deemed "liquidated damages" rather than a "penalty."
4.3. Definitions. The following words shall have the specified meanings
------------
when used in the paragraphs specified:
(a) In paragraphs 4.1(ii), 4.2(a) and (b) and 5, the term
"termination" means termination (i) by either of the Companies of the
employment of the Executive with either of the Companies for any
reason other than death or total disability of the Executive or other
than for cause, or (ii) by resignation of the Executive due to a
significant change in the nature or scope of his authorities or duties
from those contemplated in paragraph 1.1, a reduction in total
compensation from that provided in paragraph 1.2, or the breach by
either of the Companies of any other provision of this Agreement.
(b) In paragraphs 4.1(vi) and 4.3(a)(i), the term "cause" means (i)
substantiated fraud, or substantiated misappropriation resulting in
material damage to the property or business of either of the
Companies; conviction for commission of a felony; (ii) continuance of
either willful and repeated failure or grossly negligent and repeated
failure by the Executive to perform his duties in
-7-
<PAGE>
compliance with this Agreement after written notice to the Executive
by the Board of Directors specifying such failure, provided that such
"cause" shall have been found by a majority vote of the Board of
Directors of each of the Companies (who are not serving as a designee
of a person having an interest in excess of 25% of the outstanding
stock of the Corporation) after at least 10 days' written notice to
the Executive specifying the cause proposed to be claimed and after an
opportunity for the Executive to be heard at meetings of such Board of
Directors; or (iii) a continued violation of paragraph 2 after written
notice to the Executive by the Board of Directors specifying such
violation and providing the Executive the opportunity to cease such
violation within 20 days from the date of receipt by the Executive of
such notice.
(c) In paragraphs 1.1(c), 4.1(iv), 4.2(d) and 4.3(a)(i), the term
"total disability" means total disability as defined in the Companies'
group and individual disability plans. If there is no such plan, then
"total disability" means total disability as defined in the
Executive's individual disability policy, and if there is no such
policy, as defined in the group disability plan for the law firm of
Piper & Marbury l.l.p., 36 South Charles Street, Baltimore, Maryland
21201.
5. Payments for Termination or Resignation after a Change in Control.
------------------------------------------------------------------
5.1. Definitions.
-----------
(a) A "Change in Control," as used in this Agreement, shall be
deemed to have occurred when:
(i) Any person (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) is or becomes the beneficial owner, directly or
indirectly, of 25% or more of the voting equity stock of the Corporation,
or any person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) other than the Corporation is or becomes the
beneficial owner, directly or indirectly, of 25% or more of the Common
Stock of the Bank; or
(ii) Any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) gains control of the election of a majority of
the Board of Directors of the Corporation, or any person (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder) other than the
Corporation gains control of the election of a majority of the Board of
Directors of the Bank; or
-8-
<PAGE>
(iii) Any person (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder) gains control of the management or policies of
either of the Companies; or
(iv) either of the Companies consolidates with, or merges with or
into, another entity (including a corporation, bank, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically
listed herein) or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets, or another such
entity consolidates with, or merges with or into, such Company, in any
such event pursuant to a transaction in which the issued and outstanding
shares of the voting equity stock of such Company are converted into or
exchanged for cash, securities or other property; or
(v) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of either
Company (together with any directors who are members of the Board of
Directors on the date hereof and any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders
of such Company was approved by a vote of 66-2/3% of the directors then
still in office who were either directors at the beginning of such period
of whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
of such Company then in office.
(b) A "Change in Control Period" shall mean the period commencing
90 days before a Change in Control and ending 365 days after such Change
in Control.
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
-9-
<PAGE>
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 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 Executive is
terminated during a Change
-10-
<PAGE>
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)."
6. Legal Costs. If (i) either of the Companies shall fail to pay
-----------
or provide for payment of any amounts required to be paid or provided for
hereunder at any time, (ii) the Executive desires to consult with or retain
counsel as to any possible breach by the Companies of this Agreement or as to
any of his rights under this Agreement, or (iii) the Executive desires to retain
counsel to review or negotiate the terms of this Agreement prior to the
effective date of this Agreement, the Executive shall be entitled to consult
with counsel, and the Companies agree to pay the reasonable fees and expenses of
independent counsel for the Executive in reviewing or negotiating this
Agreement, advising him or in bringing any proceedings, or in defending any
proceedings, involving the Executive's rights under this Agreement, such right
to reimbursement to be immediate upon the presentment by Executive of written
billings for such reasonable fees and expenses. The Executive shall be entitled
to receive interest (at the prime rate of interest established from time to time
at The First National Bank of Maryland) on any payments of such expenses, or any
other payments under this Agreement, that are overdue.
7. Notices. Any notice, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail/return receipt to the Executive at the last address
he has filed in writing with either of the Companies or, in the case of either
of the Companies, at its principal executive offices.
8. Binding Agreement. This Agreement shall be effective as of
-----------------
the date hereof and shall be binding upon and inure to the benefit of the
Executive, his executors, administrators and personal representatives. The
rights and obligations of the Corporation and of the Bank under this Agreement
shall inure to the benefit of and shall be binding upon the Companies, and shall
be transferred to and be binding upon any successor of either of the Companies
including, but not limited to, any successor of either of the Companies pursuant
to a merger, conversion, consolidation, or transfer of assets; provided, that
this Agreement may not be assigned by either of the Companies without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of either of the Companies, or any
-11-
<PAGE>
other successor in which either of the Companies does not cease to exist by
operation of the transaction in question as a matter of law, neither of the
Companies shall be relieved of its obligations hereunder; provided further, that
in the case of dissolution and winding up of the business of either of the
Companies, this Agreement and the obligations hereunder shall be binding upon
the trustee of either of the Companies' assets. It is recognized that, as parent
and subsidiary, the Companies are closely related and that all provisions for
compensation and benefits hereunder refer to compensation and benefits from the
Bank and the Corporation in the aggregate. The Bank and the Corporation shall be
free, without violating this Agreement, to provide salary and other benefits
from either of them in their full discretion, provided that in the aggregate
such salary and benefits comply with this Agreement; provided, however, that all
stock options and provisions for compensation measured by the performance of
stock shall relate to the Corporation's capital stock. The Companies shall be
jointly and severally liable to the Executive for all of the obligations of
either of them under this Agreement and any violation by either the Bank or the
Corporation of any of its obligations hereunder shall be deemed to be a
violation by the other of them. Any legal finding that either the Bank or the
Corporation is not legally required to fulfill any of its obligations under this
Agreement shall not be deemed to relieve the other of them from fulfilling such
obligations.
9. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the Executive and the Companies with respect to the subject
matter hereof and supersedes any and all prior understandings, written or oral,
including any prior employment agreements between the Companies and the
Executive. This Agreement may not be changed, modified, or discharged orally,
but only by an instrument in writing signed by the parties. This Agreement
shall be governed by the laws of the State of Maryland and the invalidity or
unenforceability of any provisions hereof shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on November 2, 1999.
ATTEST: COLUMBIA BANCORP
/s/
_____________________________ _____________________________________
John M. Bond, Jr.
President and Chief Executive Officer
ATTEST: THE COLUMBIA BANK
/s/
_____________________________ _____________________________________
John M. Bond, Jr.
President and Chief Executive Officer
WITNESS:
/s/
_____________________________ _____________________________________
Scott C. Nicholson
-12-
<PAGE>
1999 Annual Report
Columbia Bancorp Corporate Profile
Columbia Bancorp and Subsidiary
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 little more than a decade, 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, Bank of America and Allied Irish (ALLFIRST).
. The Bank is committed to expansion by introducing its unique and successful
style of banking to other communities in the Baltimore-Washington Corridor.
<PAGE>
Market Area
Columbia Bancorp and Subsidiary
HOWARD COUNTY
Columbia Town Center
Columbia Town Center Residential Mortgage and Commercial Lending Offices
Ellicott City
Ellicott City Acquisition, Development and Construction Office
Harmony Hall
Harper's Choice
Long Gate
Oakland Mills [TWO MAPS APPEAR HERE, DEPICTING THE FOLLOWING LOCATIONS:]
River Hill
Vantage House
Wilde Lake
MONTGOMERY COUNTY
Bethesda
Rockville
White Flint
PRINCE GEORGES COUNTY
Beltsville
Capitol Heights
Clinton
Greenbelt
Oxon Hill
BALTIMORE CITY
Cross Keys
Roland Park Place
BALTIMORE COUNTY
Blakehurst
Edenwald
Timonium
Heaver Plaza-Lutherville
Heaver Plaza Commercial Lending Office
The Columbia Bank Full Service Branches
The Columbia Bank Retirement Community Branches
The Columbia Bank Full Service Branches acquired on March 8, 2000 upon the
merger of Suburban Bank of Maryland with and into The Columbia Bank.
2
<PAGE>
Financial Highlights
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets $467,711 $427,335 $373,451 $317,234 $263,025
Loans, net of unearned income 315,507 274,413 265,194 237,875 190,691
Deposits 367,498 339,336 313,357 254,640 218,162
Stockholders' equity 40,893 38,354 34,385 30,975 28,064
Net income 5,215 4,746 4,168 3,752 3,429
- ----------------------------------------------------------------------------------------------------------------------
Per Share Data:
Net income per common share:
Basic $ 1.15 $ 1.05 $ .96 $ .87 $ 1.03
Diluted 1.14 1.03 .91 .83 .90
Tangible book value per common share 9.06 8.39 7.77 7.15 6.46
Dividends declared:
Common .33 .29 .25 .21 .13
Preferred -- -- -- -- 1.30
- ----------------------------------------------------------------------------------------------------------------------
Return on average assets 1.16% 1.18% 1.21% 1.34% 1.42%
Return on average stockholders' equity 13.23 12.94 12.78 12.71 15.60
Nonperforming assets and past-due loans to total assets 1.04 1.66 1.41 1.37 .49
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
REPORT TO SHAREHOLDERS
Columbia Bancorp and Subsidiary
As Columbia Bancorp prepared for the new millenium during 1999, it enjoyed
another record year while at the same time undertaking significant new
initiatives to enhance its status as one of the fastest growing and most
profitable new community banks of the last decade.
Most notably, in September Columbia Bancorp announced the acquisition of
Suburban Bancshares, Inc. This acquisition, which was successfully completed on
March 8, 2000, increased Columbia's total assets to approximately $700 million
and positioned Columbia for continued rapid growth in the Maryland suburban
communities surrounding Washington, D.C.
1999: PERFORMANCE HIGHLIGHTS*
Continued Rapid Growth
. At December 31, 1999, total assets of Columbia Bancorp reached a record
$467.7 million.
. Columbia Bancorp's subsidiary, The Columbia Bank, was the fifth largest of
196 remaining independent East Coast banks opened between 1988 and September
1999 according to a Danielson & Associates survey.
. Since its founding in 1987 through 1999, Columbia Bancorp assets have grown
at a 30% compound annual rate.
Record Profitability
. Net income increased 9.9% to $5.2 million, reaching a record level for the
eighth consecutive year.
. Return on assets and return on equity were 1.2% and 13.2%, respectively, both
exceeding peer group (defined as publicly traded commercial banks in
Maryland, Virginia, Pennsylvania and the District of Columbia with assets
less than $1.0 billion) averages.
. Fully diluted net income per common share increased 10.7% to $1.14.
Strong Asset Quality
. Net loan losses decreased from .12% in 1998 to .08% of average loans
outstanding, as compared to .14% for our peer group.
. Our ratio of nonperforming assets and past due loans to total assets
decreased to 1.04% and primarily reflected asset recovery efforts in our
residential and construction lending portfolio.
. Our allowance for credit losses decreased to 1.32% of loans outstanding, net
of unearned income, as compared to 1.17% for our peer group.
- ----------------------------------------------------------------------------
COLUMBIA BANCORP VS. PEER BANKS
COMPARATIVE RATIOS
- ----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
- ----------------------------------------------------------------------------
COLUMBIA PEER
BANCORP BANKS
- ----------------------------------------------------------------------------
Performance:
Return on average assets 1.16% 1.08%
Return on average equity 13.23 12.11
Net interest margin 5.23 4.39
Capital:
Year-end capital to year-end
risk-weighted assets:
Tier 1 11.01% 12.04%
Total 12.14 13.58
- ----------------------------------------------------------------------------
* 1999 as reported here does not include Suburban Bancshares, Inc.
4
<PAGE>
1999: SIGNIFICANT STEPS TO STRENGTHEN MARKET POSITION
Expansion in the Baltimore/Washington Corridor
Since the founding of Columbia Bancorp in 1987, its mission has been to become
the premier community banking institution in the Baltimore/Washington Corridor.
During the past twelve years, the Company has set its priorities to first
establish itself as the dominant community bank in its home market, Howard
County, and second, to expand into contiguous counties in the
Baltimore/Washington Corridor. We have accomplished the first objective and
have made significant progress towards achieving the second objective.
During 1999, our market share in Howard County continued to increase, reaching
15% and moving to within only 3% of the out-of-state market leader, Bank of
America. Moreover, with the acquisition of our only local banking competitor,
The Columbia Bank has become the only bank headquartered in Howard County.
- --------------------------------------------------------
HOWARD COUNTY
DEPOSIT MARKET SHARE
- --------------------------------------------------------
PERCENT OF TOTAL DEPOSITS AS OF JUNE 30, 1999
- --------------------------------------------------------
Bank of America 18%
Allied Irish (Allfirst) 17%
Columbia Bancorp 15%
F&M Bancorp 7%
First Union 6%
Citizens National Bank 5%
Sandy Spring Bancorp 5%
Sun Trust (Crestar) 5%
- --------------------------------------------------------
Source: FDIC
Expansion into neighboring counties of the Baltimore/Washington Corridor
continued as well. With the acquisition of Suburban Bancshares, Inc., Columbia
Bancorp joined forces with a well-established twenty-year old community bank
with offices in the suburban Washington, D.C. areas of Montgomery and Prince
George's Counties. Suburban Bancshares' Chairman, Winfield Kelly, has become
the Chairman of Columbia Bancorp and, as a well-known former state and local
governmental official and business and civic leader, will significantly
strengthen Columbia's marketing presence in suburban Washington, D.C. Columbia
also welcomed four additional Suburban Bancshares directors to our Board of
Directors; Albert W. Turner, Lawrence A. Shulman, Vincent D. Palumbo and
Kenneth H. Michael, each of who is also a civic leader.
Suburban Bancshares has specialized in business banking services and will
enhance Columbia's overall capabilities in these areas. Suburban is one of the
most active Small Business Administration loan program participants in the
Washington area. With its concentration in business lending, Suburban will help
to diversify risk by loan type with Columbia's portfolio.
During 1999, Columbia also continued its internal expansion with the
development of a new full-service drive-through branch in Baltimore County.
Located in Timonium, this branch opened in January 2000, and in its first two
months of operation gained approximately $2 million in deposits.
FUTURE GROWTH STRATEGY
Columbia Bancorp will continue to pursue its proven strategic plan for growth
in the Baltimore/Washington Corridor. The strength of our local market based
upon continued very favorable economic and demographic trends should support
significant additional growth.
As we continue to expand, our primary objective will be to strike an optimal
balance between growth and profitability. We believe that our future prospects
for maintaining our leadership position are excellent.
5
<PAGE>
- --------------------------------------------------------------------------------
IN MEMORIAL
We were saddened by the death of Robert J. Gaw on September 19, 1999. Mr. Gaw
was a founding director of Columbia Bancorp, a long-standing member of our
Executive Committee and chair of our Asset/Liability Committee. Mr. Gaw will be
greatly missed.
- --------------------------------------------------------------------------------
6
<PAGE>
Table of Contents
Columbia Bancorp and Subsidiary
- -------------------------------------------------------------------------------
Selected Financial Highlights 8
Management's Discussion and Analysis 9
Independent Auditors' Report 28
Consolidated Statements of Condition 29
Consolidated Statements of Income and Comprehensive Income 30
Consolidated Statements of Stockholders' Equity 31
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 34
Selected Quarterly Financial Data 53
Recent Common Stock Prices and Stock Performance Graph 54
Directors and Officers 55
Corporate Information 56
7
<PAGE>
- --------------------------------------------------------------------------------
Selected Financial Highlights
Columbia Bancorp and Subsidiary
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Interest income $ 34,254 $ 32,928 $ 30,194 $ 25,822 $ 22,210
Interest expense 12,893 13,018 11,473 8,769 7,892
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 21,361 19,910 18,721 17,053 14,318
Provision for credit losses 449 659 663 621 559
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 20,912 19,251 18,058 16,432 13,759
Noninterest income 3,377 3,424 2,182 1,788 1,300
Noninterest expense 16,323 15,384 13,722 12,081 9,472
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,966 7,291 6,518 6,139 5,587
Income tax provision 2,751 2,545 2,350 2,387 2,158
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,215 $ 4,746 $ 4,168 $ 3,752 $ 3,429
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data, at year-end:
Assets $467,711 $427,335 $373,451 $317,234 $263,025
Loans, net of unearned income 315,507 274,413 265,194 237,875 190,691
Deposits 367,498 339,336 313,357 254,640 218,162
Stockholders' equity 40,893 38,354 34,385 30,975 28,064
Per Share Data:
Number of shares of Common Stock
outstanding, at year-end (in thousands) 4,509 4,562 4,400 4,296 4,292
Net income:
Basic $ 1.15 $ 1.05 $ .96 $ .87 $ 1.03
Diluted 1.14 1.03 .91 .83 .90
Cash dividends declared:
Common .33 .29 .25 .21 .13
Preferred -- -- -- -- 1.30
Tangible book value, at year-end 9.06 8.39 7.77 7.15 6.46
Performance and Capital Ratios:
Return on average assets 1.16% 1.18% 1.21% 1.34% 1.42%
Return on average stockholders' equity 13.23 12.94 12.78 12.71 15.60
Net interest margin/(a)/ 5.23 5.48 5.99 6.60 6.46
Average stockholders' equity to average
total assets 8.79 9.09 9.44 10.53 9.07
Year-end capital to year-end
risk-weighted assets:
Tier 1 11.01 11.49 11.31 11.91 12.97
Total 12.14 12.68 12.51 13.16 14.12
Year-end Tier 1 leverage ratio 8.79 9.00 9.25 10.11 10.67
Cash dividends declared to net income 28.57 27.88 26.05 24.05 25.66
Asset Quality Ratios:
Allowance for credit losses, at year-end, to:
Total loans, net of unearned income 1.32% 1.45% 1.37% 1.38% 1.54%
Nonperforming and past-due loans 423.12 129.66 548.35 84.23 245.72
Net charge-offs to average total loans,
net of unearned income .08 .12 .13 .12 .12
Nonperforming and past-due loans to total
loans, net of unearned income, at year-end .33 1.11 .25 1.64 .63
Nonperforming assets and past-due loans
to total assets, at year-end 1.04 1.66 1.41 1.37 .49
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/(a)/Net interest margin is the ratio of net interest income, determined on a
fully-taxable equivalent basis, to total average interest-earning assets.
8
<PAGE>
General
Columbia Bancorp (the "Company") 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 that engages in general commercial banking
operations. The Bank provides a full range of financial services to individuals,
businesses and organizations through fifteen branch banking offices, mortgage
and commercial loan origination offices and twenty Automated Teller Machines
("ATMs"). 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, which 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 differences
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 2000.
Overview
Net income for 1999 increased for the eighth consecutive year to a record
level of $5.2 million, producing a 9.9% increase over the $4.7 million reported
in 1998. This represents diluted net income per share of $1.14 for 1999,
compared to $1.03 for 1998. Return on average assets and return on average
equity for 1999 were 1.16% and 13.23%, respectively. Tangible book value per
share increased to $9.06 at December 31, 1999 from $8.39 at December 31, 1998.
Total assets increased 9.4% in 1999 to $467.7 million, loans grew 15.0% to
$315.5 million and deposits increased 8.3% to $367.5 million.
The discussion that 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.
9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ -------------------------------
Average Average Average
(dollars in thousands) Balances/(a)/ Interest Rate Balances/(a)/ Interest Rate Balances/(a)/ Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans, net of
unearned income/(b)(c)/ $299,742 $27,774 9.27% $281,668 $27,789 9.87% $256,949 $26,786 10.42%
Investment securities
and securities
available-for-sale/(c)/ 98,141 6,052 6.17 74,454 4,766 6.40 55,974 3,440 6.15
Federal funds sold 15,342 691 4.50 13,577 712 5.24 3,113 193 6.20
-------- ------- -------- ------- -------- -------
Total interest-earning
assets 413,225 34,517 8.35 369,699 33,267 9.00 316,036 30,419 9.63
------- -------
Noninterest-earning assets:
Cash and due from banks 16,608 14,311 13,642
Property and equipment,
net 8,300 8,890 8,547
Other assets 14,321 14,216 10,914
Less allowance for credit
losses (4,125) (3,776) (3,513)
-------- -------- --------
Total assets $448,329 $403,340 $345,626
======== ======== ========
Liabilities and Stockholders'
Equity
Interest-bearing
liabilities:
NOW accounts $ 41,097 $ 428 1.04% $ 35,768 $ 539 1.51% $ 29,474 $ 609 2.07%
Savings accounts 48,177 1,328 2.76 45,660 1,439 3.15 45,415 1,560 3.43
Money market accounts 44,858 1,388 3.09 40,499 1,263 3.12 39,149 1,229 3.14
Certificates of deposit 149,839 7,164 4.78 147,789 7,797 5.28 122,737 6,696 5.46
Short-term borrowings 33,083 1,517 4.59 28,438 1,376 4.84 27,654 1,379 4.99
Long-term borrowings 20,000 1,068 5.34 11,052 604 5.47 -- -- --
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 337,054 12,893 3.83 309,206 13,018 4.21 264,429 11,473 4.34
------- ---- ------- ---- ------- ----
Noninterest-bearing liabilities:
Noninterest-bearing
deposits 69,402 55,863 46,876
Other liabilities 2,465 1,594 1,701
Stockholders' equity 39,408 36,677 32,620
-------- -------- --------
Total liabilities and
stockholders' equity $448,329 $403,340 $345,626
======== ======== ========
Net interest income $21,624 $20,249 $18,946
======= ======= =======
Net interest spread 4.52% 4.79% 5.29%
==== ==== ====
Net interest margin 5.23% 5.48% 5.99%
==== ==== ====
</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 $1.3 million, $1.7 million and $2.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
/(c)/ Interest on tax-exempt loans and securities is presented on a fully-
taxable equivalent basis.
10
<PAGE>
Net interest income on a tax equivalent basis increased to $21.6 million for
the year ended December 31, 1999, compared to $20.2 million for 1998. The
increase in net interest income during 1999 was the result of growth in average
interest-earning assets during 1999 of $43.5 million or 11.8%. While net
interest income increased in 1999, the net interest margin (representing net
interest income, on a fully-taxable equivalent basis, divided by average
interest-earning assets) declined from 5.48% during 1998 to 5.23%. The decline
reflected the impact of competitive forces on loan and deposit pricing 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 1999 and 1998.
<TABLE>
<CAPTION>
1999 over 1998 1998 over 1997
- -----------------------------------------------------------------------------------------------------
Due to change in Due to change in
Increase ---------------- Increase ----------------
(dollars in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans/(a)/ $ (15) $1,728 $(1,743) $1,003 $2,473 $(1,470)
Investment securities and
securities available-
for-sale/(a)/ 1,286 1,463 (177) 1,326 1,181 145
Federal funds sold (21) 86 (107) 519 553 (34)
- -----------------------------------------------------------------------------------------------------
Total 1,250 3,277 (2,027) 2,848 4,207 (1,359)
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits (730) 560 (1,290) 944 1,235 (291)
Borrowings 605 674 (69) 601 680 (79)
- -----------------------------------------------------------------------------------------------------
Total (125) 1,234 (1,359) 1,545 1,915 (370)
- -----------------------------------------------------------------------------------------------------
Net interest income $1,375 $2,043 $ (668) $1,303 $2,292 $ (989)
=====================================================================================================
</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 $1.2 million or 3.8% in
1999 as compared to 1998, primarily as a result of an increase in the average
balance of loans and investment securities outstanding in 1999 as compared to
1998. Average loans outstanding, net of unearned income, increased $18.1 million
or 6.4% during 1999 and reflected growth in the Company's retail and commercial
loan portfolios. Average investment securities and securities available-for-sale
increased $23.7 million or 31.8% during 1999 as compared to 1998 as a result of
increased purchases of U.S. agency securities and other debt securities.
The increase in interest income due to growth in average balances was
mitigated by a decrease in the yield on interest-earning assets from 9.00% in
1998 to 8.35% in 1999. Specifically, the yield on loans decreased to 9.27% in
1999, compared to 9.87% in 1998, causing a net decrease in interest on loans.
This decrease in rates was the result of competitive pricing pressures and a
decrease in the prime rate of interest of 75 basis points in the fourth quarter
of 1998, which impacted the Company's variable loan portfolio throughout most of
1999. The 75 basis point decrease in the prime rate of interest was recovered
through an increase of 50 basis points in the third quarter of 1999 and 25 basis
points in the fourth quarter of 1999.
Interest income on a tax equivalent basis increased $2.8 million or 9.4% in
1998 as compared to 1997, also primarily as a result of an increase in the
average balance of loans and investment securities outstanding. Average loans
outstanding, net of unearned income, increased $24.7 million or 9.6% during 1998
and reflected growth in the Company's retail and commercial loan portfolios.
Average investment securities and securities available-for-sale increased $18.5
million or 33.0% during 1998 as compared to 1997 as a result of increased
investments in U.S. Treasury securities and other debt securities.
The increase in interest income due to average balances was mitigated by a
decrease in the yield on interest-earning assets from 9.63% in 1997 to 9.00% in
1998. Specifically, the yield on loans decreased to 9.87% in 1998, compared to
10.42% in 1997. This decrease was the result of competitive pricing pressures
and a decrease in the prime rate of interest of 75 basis points in the fourth
quarter, which impacted the Company's variable rate loan portfolio. In
addition, loans, the Company's highest yielding asset, on average declined as a
percentage of interest-earning assets from 81.3% in 1997 to 76.2% in 1998.
11
<PAGE>
Interest Expense
Interest expense decreased $125,000 in 1999 compared to 1998 due to a decrease
in the average rate on interest-bearing liabilities from 4.21% in 1998 to 3.83%
in 1999. The decrease in average rates occurred in response to the fourth
quarter 1998 decrease in the prime rate of interest. For example, rates on
certificates of deposits, the largest product within the deposit portfolio and
the product with the longest repricing lag, decreased from 5.28% in 1998 to
4.78% in 1999. The impact of this decrease was substantially mitigated by a
$14.3 million or 5.3% increase in the average balance of interest-bearing
deposits and an increase of $13.4 million or 34.4% in the average balance of
long-term and short-term borrowings.
Interest expense increased $1.5 million in 1998 as compared to 1997,
reflecting growth in deposits and borrowings. Specifically, average interest-
bearing deposits and borrowings increased $32.9 million and $11.8 million,
respectively, in 1998 as compared to 1997. The increase in interest expense due
to average balances was mitigated by a decrease in the rate on interest-bearing
liabilities from 4.34% in 1997 to 4.21% in 1998.
Provision and Allowance for Credit 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 $449,000 for 1999 as
compared with $659,000 and $663,000 for 1998 and 1997, respectively.
The factors considered 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 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
economic environment. Regular review of the quality of the loan portfolio 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, 1999 the Allowance was 1.32% of total loans, net of unearned
income. The Allowance at December 31, 1999 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 for
the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 3,965 $ 3,632 $ 3,293 $2,929 $ 2,578
Less losses charged-off:
Commercial 152 -- 4 -- 72
Real estate 128 -- 23 137 23
Retail 83 331 272 142 140
Credit cards 14 13 66 29 23
- ---------------------------------------------------------------------------------------------------------
Total losses charged-off 377 344 365 308 258
- ---------------------------------------------------------------------------------------------------------
Recoveries of losses previously charged-off:
Commercial 3 1 -- 4 --
Real estate 37 2 20 38 25
Retail 89 8 13 9 22
Credit cards 6 7 8 -- 3
- ---------------------------------------------------------------------------------------------------------
Total recoveries 135 18 41 51 50
- ---------------------------------------------------------------------------------------------------------
Net losses charged-off 242 326 324 257 208
Provision for credit losses 449 659 663 621 559
- ---------------------------------------------------------------------------------------------------------
Allowance at end of year $ 4,172 $ 3,965 $ 3,632 $3,293 $ 2,929
=========================================================================================================
Ratio of allowance to nonperforming
and past-due loans/(a)/ 423.12% 129.66% 548.35% 84.23% 245.72%
=========================================================================================================
Ratio of allowance to loans, net of
unearned income 1.32% 1.45% 1.37% 1.38% 1.54%
=========================================================================================================
</TABLE>
/(a)/ There is no direct relationship between the size of the Allowance (and the
related provision for credit losses) and 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.
12
<PAGE>
The following table presents the allocation of the Allowance at December 31
among the various loan categories.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 795 $ 626 $ 526 $ 566 $ 350
Real estate 1,497 1,767 1,448 1,946 1,201
Consumer 503 413 337 275 207
Unallocated 1,377 1,159 1,321 506 1,171
- ---------------------------------------------------------------------------
$4,172 $3,965 $3,632 $3,293 $2,929
===========================================================================
</TABLE>
The table below provides a percentage breakdown of the loan portfolio by
category to total loans, net of unearned income at December 31.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial 26.2% 18.2% 14.1% 12.8% 15.3%
Real estate 39.2 50.0 53.5 58.2 58.1
Consumer 34.6 31.8 32.4 29.0 26.6
- ---------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
===========================================================================
</TABLE>
Noninterest Income
Noninterest income, comprised primarily of gains and fees recognized on the
sales of residential mortgage loans and fees charged for services, totaled $3.4
million for the years ended 1999 and 1998.
Service fee income increased by $322,000 in 1999, led largely by increased fee
income for services provided to commercial customers. Other changes in service
fee income included increased fees collected for use of the Company's ATMs by
account holders of other financial institutions, and increased fee income
associated with checks returned for insufficient funds. Gains and fees on sales
of residential mortgage loans decreased $363,000 during 1999, and corresponded
to a 45.8% decrease in the volume of residential mortgage loans sold from $159.0
million in 1998 to $86.1 million in 1999. Higher interest rates contributed to
the decrease in the volume of residential mortgage loans sold.
Noninterest income increased $1.2 million, or 56.9%, during 1998 as compared
to 1997. Gains and fees on sales of residential mortgage loans increased
$912,000 during 1998, and corresponded to a 206% increase in the volume of
residential mortgage loans sold. Service fee income increased by $153,000 in
1998, led largely by increased ATM fees and higher earnings on official checks
processed through a third-party servicer.
Noninterest Expense
Noninterest expense primarily consists of costs associated with personnel,
occupancy and equipment, data processing and marketing. The Company's
noninterest expense for 1999 totaled $16.3 million, representing an increase of
$939,000 or 6.1% over 1998.
Salaries and employee benefits, the largest component of noninterest expense,
increased $474,000 or 6.1% over 1998, growing from $7.7 million during 1998 to
$8.2 million during 1999. The increase was primarily attributable to merit
increases and increased costs associated with a competitive labor market.
Occupancy and equipment expenses, recorded net of rental income, grew
$198,000, or 6.4%, during 1999, primarily as a result of the opening of a new
branch in Timonium, Maryland and scheduled increases in rent on branch
facilities. Data processing costs increased $156,000, or 20.0%, due to a larger
customer base and increased transaction activity, especially electronic
transaction activity.
Noninterest expense for 1998 totaled $15.4 million and represented an increase
over 1997 of 12.1% or $1.7 million. The increase was primarily driven by the
corporate expansion efforts initiated in the latter half of 1997. As a result,
salaries and benefits increased from $6.8 million in 1997 to $7.7 million during
1998. The number of full-time equivalents employed during the year increased
from 190 in 1997 to 213 in 1998, accounting for approximately $675,000 in
additional costs. In addition, the Company incurred an increase in occupancy and
equipment expenses of $644,000 during 1998, also as a result of the expansion of
its branch network.
13
<PAGE>
Income Taxes
Income tax expense was $2.8 million in 1999, compared to $2.5 million and $2.4
million in 1998 and 1997, respectively. The effective tax rate was 34.5% in
1999, down from 34.9% in 1998 and 36.1% in 1997. The decrease from 1997 to 1999
was the result of changes in state tax laws that now permit, on a fully phased-
in basis, the exclusion of interest income on U.S. Treasury securities and
certain other debt obligations. Revised state tax laws, however, now subject the
Company, on a fully 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 cash concentration activities and processing coin and currency
transactions), cash balances may be higher than industry averages for banks of a
similar asset size.
Analysis of Investments
The investment portfolio consists of investment securities and securities
available-for-sale. Investment securities are those securities that the Company
has the positive intent and ability to hold to maturity and are carried at
amortized cost. Securities available-for-sale are those securities which the
Company intends to hold for an indefinite period of time but not necessarily
until maturity. These securities are carried at fair value and may be sold as
part of an asset/liability management strategy, liquidity management, interest
rate risk management, regulatory capital management or other similar factors.
The components of the investment portfolio were as follows at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Securities Securities Securities
Investment Available- Investment Available- Investment Available-
(dollars in thousands) Securities for-Sale Securities for-Sale Securities for-Sale
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $14,999 $ -- $53,978 $ -- $62,952 $ --
Collateralized mortgage
obligations and mortgage-backed
securities/(a)/ 3,810 4 802 6 504 7
Securities of U.S. Government
sponsored agencies 74,603 -- 19,002 -- 1,515 499
Trust preferred stocks -- 11,725 -- 9,103 -- --
Municipal securities -- -- -- -- -- 200
Other equity securities -- 235 -- -- -- --
Investment in Federal Home
Loan Bank stock -- 1,282 -- 1,125 -- 968
- -----------------------------------------------------------------------------------------------------------------------------
$93,412 $13,246 $73,782 $10,234 $64,971 $1,674
=============================================================================================================================
</TABLE>
/(a)/ The entire balance is issued and guaranteed by U.S. Government sponsored
agencies.
The investment portfolio increased $22.6 million from December 31, 1998 to
December 31, 1999. The increase represented purchases of agency securities
totaling $56.9 million, purchases of trust preferred stocks totaling $2.7
million and purchases of mortgage-backed securities totaling $2.8 million.
Maturities and repayments of U.S. Treasury securities and agency securities
totaled $40.0 million during 1999. There were no securities sold during 1999,
1998 or 1997.
The amortized cost, estimated fair values and weighted average yield of debt
securities at December 31, 1999, by maturities, are shown below. 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.
14
<PAGE>
<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/(a)/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.Treasury securities:
Due one year or less $14,999 $-- $ 7 $14,992 $ -- $ $ -- $ -- 5.66%
Trust preferred stocks:
Due after ten years -- -- -- -- 11,904 50 229 11,725 7.97%
Mortgage-backed
securities:
Due after one through
five years 742 1 -- 743 4 -- -- 4 5.20%
Due after ten years 3,068 -- 48 3,020 -- -- -- -- 6.23%
Securities of U.S.
Government sponsored
agencies:
Due one year or less 15,002 -- 58 14,944 -- -- -- -- 6.05%
Due after one through
five years 59,601 -- 944 58,657 -- -- -- -- 6.20%
-----------------------------------------------------------------------------------------------
$93,412 $ 1 $1,057 $92,356 $11,908 $50 $229 $11,729 6.29%
===============================================================================================================================
</TABLE>
/(a)/ Tax-equivalent weighted average yield.
Analysis of Loans
The table below represents a breakdown of loan balances of the Company at
December 31.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and lease receivables $ 82,835 $ 49,841 $ 37,519 $ 30,517 $ 29,275
Real estate-development and construction/(a)/ 93,478 111,868 110,413 112,838 89,877
Real estate-mortgage:
Residential 10,684 9,950 11,078 11,897 12,726
Commercial 20,297 16,280 21,146 14,470 9,108
Consumer:
Retail/(b)/ 106,189 85,146 84,039 67,731 49,225
Credit card 2,217 1,694 1,639 1,543 1,527
- ---------------------------------------------------------------------------------------------------------------------------
Total loans $315,700 $274,779 $265,834 $238,996 $191,738
===========================================================================================================================
</TABLE>
/(a)/ At December 31, 1999, 1998, 1997, 1996, and 1995 loans to individuals for
constructing primary personal residences amounted to $12,329, $14,119,
$15,895, $10,780 and $16,071, respectively.
/(b)/ Primarily loans secured by the borrowers' principal residences in the form
of home equity lines of credit and second mortgages.
During 1999, the Company's loan portfolio rebounded from the slow growth
experienced in 1998. Total loans increased $40.9 million during the year ended
December 31, 1999, representing a 14.9% increase. Commercial loans, inclusive of
commercial mortgages, exhibited the strongest growth during 1999, increasing
$37.0 million as compared to December 31, 1998. This increase reflected
sustained business development efforts, most recently in the Baltimore County
region, and the implementation of expanded product lines. Retail loans,
primarily second mortgages and home equity lines of credit, increased $21.0
million due to a lower rate of payoff activity given the interest rate
environment and the introduction of new product lines. These increases were
mitigated by a decrease in real estate development and construction loans of
$18.4 million, due largely to increased competition.
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, 1999. There were no other
loan concentrations exceeding 10% of gross loans as of December 31, 1999.
15
<PAGE>
<TABLE>
<CAPTION>
Total
(dollars in thousands) Principal
- ----------------------------------------------------------------
<S> <C>
Loans receivable $ 89,931
Unused credit lines 70,442
Letters of credit/(a)/ 11,989
--------
$172,362
========
</TABLE>
/(a)/ Includes letters of credit totaling $5,352 that
are secured by cash.
The following table shows the contractual maturities and interest rate
sensitivities of the Company's loans at December 31, 1999, exclusive of
nonaccrual loans totaling $981,000. Some loans may include contractual
installment payments that 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 is not intended to be a forecast of future cash repayments.
<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> <C> <C> <C> <C> <C> <C>
Commercial $ 9,089 $ 37,491 $21,844 $ 6,851 $ 5,738 $ 227 $ 81,240
Leases 617 -- 893 -- -- -- 1,510
Real estate-construction 7,694 83,801 863 375 -- -- 92,733
Real estate-mortgage 2,642 1,547 7,085 6,393 11,020 2,294 30,981
Consumer 8,713 3,288 14,115 3,365 23,121 55,653 108,255
- -------------------------------------------------------------------------------------------------------------------------------
$28,755 $126,127 $44,800 $16,984 $39,879 $58,174 $314,719
================================================================================================================================
</TABLE>
The following table provides information concerning nonperforming assets and
past-due loans at December 31.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans/(a)/ $ 981 $2,995 $ 599 $3,851 $1,051
Other real estate owned 3,828 4,043 4,622 448 89
- -------------------------------------------------------------------------------------------------
Total nonperforming assets $4,809 $7,038 $5,221 $4,299 $1,140
=================================================================================================
Loans past-due 90 days or more $ 5 $ 63 $ 63 $ 59 $ 141
=================================================================================================
</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 interest and/or principal is in doubt. 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. Management may grant a waiver from nonaccrual status
for a 90-day past-due loan that is both well secured and in the process of
collection.
The largest component of nonperforming assets at December 31, 1999 was the
Company's portfolio of other real estate owned totaling $3.8 million. At
December 31, 1999 other real estate owned consisted of the following properties:
. A residential development project in which the Company owns a 75% interest,
with a remaining 20 single family and 150 townhouse building lots, at a
carrying value of $3.4 million. The Company has entered into a contract with
an independent third-party contractor to manage the completion of development
work. As of December 31, 1999, 60 single family and 32 townhouse lots had been
delivered. All remaining single family and townhouse lots are under option
contract of sale with two residential builders with a takedown schedule that
extends through September 2003.
. A residential development project with a carrying value of $396,000,
consisting of two townhouse building pads with a total of twelve units. The
Company plans to market the property for sale.
Nonaccrual loans totaled $981,000 at December 31, 1999 and consisted primarily
of a residential development project with a carrying value of $640,000. At
December 31, 1999, the project included thirteen townhouse units in various
stages of completion. The underlying real estate was sold and the loan was paid
in full subsequent to December 31, 1999.
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 past-due interest. The Company generally
considers a period of delay in payment to include delinquency up to 90 days.
16
<PAGE>
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), 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 interest and/or principal is in doubt or the date that principal
or interest is 90 days or more past-due.
Impaired loans at December 31, 1999 totaled $830,000. All of these impaired
loans were on nonaccrual status at December 31, 1999 and all were collateral
dependent loans. Collateral dependent loans are measured based on the fair value
of the collateral. There were no impaired loans at December 31, 1999 with an
allocated valuation allowance. An impaired loan is charged-off when the loan, or
a portion thereof, is considered uncollectible.
Other Earning Assets
Residential mortgage loans originated for sale decreased from $17.4 million at
December 31, 1998 to $2.7 million at December 31, 1999. This change was due to
decreased mortgage banking activity associated with higher interest rates.
Federal funds sold decreased $13.4 million as compared to December 31, 1998,
totaling $3.7 million at December 31, 1999, as the growth in loans and
investments outpaced the growth in deposits and borrowings.
Deposit Analysis
The following table sets forth the average deposit balances and average rates
paid on deposits during the years ended December 31.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total noninterest-bearing deposits $ 69,402 -- % $ 55,863 --% $ 46,876 --%
Interest-bearing deposits:
NOW accounts 41,097 1.04 35,768 1.51 29,474 2.07
Savings accounts 48,177 2.76 45,660 3.15 45,415 3.43
Money market accounts 44,858 3.09 40,499 3.12 39,149 3.14
Certificates of deposit 149,839 4.78 147,789 5.28 122,737 5.46
- ---------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 283,971 3.63 269,716 4.10 236,775 4.27
- ---------------------------------------------------------------------------------------------------------
Total deposits $353,373 2.92% $325,579 3.39% $283,651 3.56%
=========================================================================================================
</TABLE>
Total deposits increased $28.2 million during the year ended December 31,
1999. The aggregate growth in deposits during 1999 was primarily attributable to
growth in demand deposits totaling $16.1 million and growth in money market
accounts totaling $6.3 million. This growth resulted from the continued
penetration of the Bank's market, especially considering the retail branch
expansion in 1997 and the successful business development initiatives of the
commercial banking unit during 1999. As a result of the continued penetration
of its core market, Howard County, Maryland, the Bank's market share (defined as
total deposits in the Bank's Howard County branches divided by total deposits in
all financial institutions in Howard County and based on data collected by the
FDIC as of June 30th of each year) grew from 14% at June 30, 1998 to 15% at June
30, 1999.
The following table provides the maturities of certificates of deposit of the
Company in amounts of $100,000 or more at December 31. The Company had no
brokered deposits as of December 31, 1999, 1998 or 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Maturing in:
3 months or less $12,549 $10,019 $ 5,864
Over 3 months through 6 months 7,241 6,663 3,629
Over 6 months through 12 months 5,041 7,218 5,681
Over 12 months 4,383 2,657 3,823
- -----------------------------------------------------------------------
$29,214 $26,557 $18,997
=======================================================================
</TABLE>
17
<PAGE>
Short-term Borrowings
Short-term borrowings consist of short-term promissory notes issued to certain
qualified investors and borrowings from the Federal Home Loan Bank of Atlanta
("FHLB"). The short-term promissory notes are in the form of commercial paper,
reprice daily and have maturities of 270 days or less. Short-term borrowings
from the FHLB outstanding during 1999, 1998 and 1997 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 at and for the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding at year-end:
Short-term promissory notes $34,724 $27,012 $20,725
Borrowings from FHLB 2,000 -- 3,000
Weighted average interest rate at year-end:
Short-term promissory notes 5.4% 4.4% 5.1%
Borrowings from FHLB 4.6 -- 6.5
Maximum outstanding at any month-end:
Short-term promissory notes $39,296 $29,573 $22,831
Borrowings from FHLB 8,200 17,500 18,500
Average outstanding:
Short-term promissory notes 32,293 24,357 18,177
Borrowings from FHLB 790 4,081 9,477
Weighted average interest rate during the year:
Short-term promissory notes 4.6% 4.7% 4.8%
Borrowings from FHLB 5.5 5.6 5.3
</TABLE>
Long-term Borrowings
At December 31, 1999 and 1998, the Company had three long-term advances from
the FHLB totaling $20 million, with fixed rates of interest ranging from 4.64%
to 5.51%. The advances are scheduled to mature in 2008, but all carry conversion
options which allow the FHLB to convert the fixed interest rate of each advance
to a three month LIBOR-based floating rate on specified dates in 2003. If the
FHLB elects to convert an advance, the Company has the option of terminating the
advance at that time, without penalty.
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,
1999, total deposits were $367.5 million. Core deposits, defined as all deposits
except certificates of deposit of $100,000 or more, totaled $338.3 million or
92.1% of total deposits. Also, the Bank, as a member of the 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, 1999, outstanding advances from the FHLB totaled $22.0 million. The
Bank's approved credit line was $65.4 million. However, the Bank had sufficient
collateral to borrow up to $96.7 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,
1999, federal funds sold totaled $3.7 million.
Market Risk and Interest Rate Sensitivity
The Company's interest rate risk represents the level of exposure it has to
fluctuations in interest rates and is primarily measured as the change in
earnings and the theoretical market value of equity that result from changes in
interest rates. 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 a 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 management 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
monitor rate sensitive assets and rate sensitive liabilities. Spread management
requires 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.
One tool used by the Company to assess and manage its interest rate risk is
the gap analysis. The gap analysis, summarized in the following table, measures
the mismatch in repricing between interest-sensitive assets and interest-
sensitive liabilities and provides a
18
<PAGE>
general indication of the interest sensitivity of the balance sheet at a
specified point in time. By limiting the size of the gap position, the Company
can limit the net interest at risk arising from repricing imbalances. The
following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1999 and the Company's interest sensitivity gap at that date. A
negative sensitivity gap for any time period indicates that more interest-
bearing liabilities will mature or reprice during that time period than
interest-earning assets. 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 negative interest sensitivity gap
position would generally result in a decrease in net interest income, and during
periods of falling interest rates, a short-term negative interest sensitivity
gap position would generally result in an increase in net interest income
(assuming all earning assets and interest-bearing liabilities are affected by a
rate change equally and simultaneously).
The Company has managed its interest rate risk primarily through the
origination of variable rate loans. At December 31, 1999, $207.0 million of the
total loan portfolio, or 65.6%, represented variable rate loans. Of this amount,
$203.2 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. While the Company believes its cumulative
interest sensitivity gap position is currently at a satisfactory level, there
can be no assurances that the Company will maintain the current interest
sensitivity gap position. Future 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, 1999. The table does
not give effect to prepayments or extensions of loans as a result of changes in
general market rates. Moreover, while the table does indicate the opportunities
to reprice assets and liabilities within certain time frames, it does not
account for timing differences that occur during periods of repricing. For
example, changes to 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 totaling $136.5 million are less
sensitive than interest-bearing liabilities maturing in three months or less.
19
<PAGE>
<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> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 3,703 5.0% $ -- --% $ -- --% $ -- --%
Investment securities 6,000 5.6 24,002 5.9 12,250 5.8 48,094 6.3
Securities available-for-sale 7,372 7.4 -- -- 4 8.1 -- --
Residential mortgages
originated for sale 2,707 7.8 -- -- -- -- -- --
Loans/(b)/:
Commercial 46,595 9.6 7,063 8.2 4,405 8.5 5,218 8.3
Leases 272 9.9 345 10.3 488 10.3 349 10.4
Real estate - development
and construction 87,116 9.6 4,753 8.0 372 8.0 54 9.0
Real estate - mortgage:
Residential 615 9.1 1,431 7.4 459 7.0 1,270 7.9
Commercial 7,712 10.0 2,324 8.5 215 8.3 233 8.3
Retail 49,213 9.3 4,075 8.8 7,074 8.9 8,971 8.9
Credit card -- -- 2,217 7.5 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 211,305 9.3 46,210 7.0 25,267 7.3 64,189 6.9
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts 41,985 1.1 -- -- -- -- -- --
Savings accounts 48,022 3.1 -- -- -- -- -- --
Money market accounts 46,460 2.3 -- -- -- -- -- --
Certificates of deposit 54,986 4.8 56,041 5.1 33,952 5.3 5,116 5.8
Short-term borrowings 36,724 5.3 -- -- -- -- -- --
Long-term borrowings -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
Liabilities 228,177 3.3 56,041 5.1 33,952 5.3 5,116 5.8
- -------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(16,872) $ (9,831) $ (8,685) $59,073
===============================================================================================================================
Cumulative interest
sensitivity gap $(16,872) $(26,703) $(35,388) $23,685
===============================================================================================================================
Cumulative interest
sensitivity gap ratio -3.6% -5.7% -7.6% 5.1%
===============================================================================================================================
</TABLE>
/(a)/ Weighted average rate at December 31, 1999, presented on a fully-taxable
equivalent basis.
/(b)/ Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totaling
$981,000.
20
<PAGE>
<TABLE>
<CAPTION>
Interest Sensitivity Period
- ------------------------------------------------------------------------------------------------------------------------------------
After 3 After 4
Through Through After Fair
(dollars in thousands) 4 Years War/(a)/ 5 Years War/(a)/ 5 Years War/(a)/ Total War/(a)/ Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ -- --% $ -- --% $ -- --% $ 3,703 5.0% $ 3,703
Investment securities -- -- -- -- 3,066 6.2 93,412 6.1 92,356
Securities available-for-sale -- -- -- -- 5,870 8.6 13,246 7.9 13,246
Residential mortgages
originated for sale -- -- -- -- -- -- 2,707 7.8 2,707
Loans/(b)/:
Commercial 4,447 8.8 7,774 8.5 5,738 7.7 81,240 9.1 81,118
Leases 53 8.4 3 9.4 -- -- 1,510 10.2 1,508
Real estate - development
and construction 438 8.5 -- -- -- -- 92,733 9.5 92,767
Real estate - mortgage:
Residential 331 8.2 436 8.5 6,142 8.1 10,684 8.0 10,689
Commercial 2,146 8.9 2,790 8.6 4,877 7.9 20,297 9.0 20,266
Retail 7,339 8.6 9,056 8.9 20,310 8.1 106,038 8.9 107,564
Credit card -- -- -- -- -- -- 2,217 7.5 2,222
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 14,754 8.7 20,059 8.7 46,003 8.0 427,787 8.4 428,146
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW accounts -- -- -- -- -- -- 41,985 1.1 41,985
Savings accounts -- -- -- -- -- -- 48,022 3.1 48,022
Money market accounts -- -- -- -- -- -- 46,460 2.3 46,460
Certificates of deposit 2,648 5.7 1,779 4.9 -- -- 154,522 5.1 154,893
Short-term borrowings -- -- -- -- -- -- 36,724 5.3 56,723
Long-term borrowings 20,000 5.3 -- -- -- -- 20,000 5.3 20,058
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 22,648 5.3 1,779 4.9 -- -- 347,713 4.0 368,141
- ------------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $(7,894) $18,280 $46,003 $ 80,074
====================================================================================================================================
Cumulative interest
sensitivity gap $15,791 $34,071 $80,074
====================================================================================================================================
Cumulative interest
sensitivity gap ratio 3.4% 7.3% 17.1%
====================================================================================================================================
</TABLE>
/(a)/ Weighted average rate at December 31, 1999, presented on a fully-taxable
equivalent basis.
/(b)/ Loans receivable are stated before deducting unearned income and allowance
for credit losses. The balance also excludes nonaccrual loans totaling
$981,000.
The analysis provided in the table above includes the following significant
assumptions: Fixed-rate loans and investments other than mortgage-backed
securities are scheduled by contractual maturity, and variable-rate loans and
investments other than mortgage-backed securities are scheduled by repricing
date. Mortgage-backed securities are scheduled according to estimated maturity
based upon the most recent monthly prepayment factors, which may change.
Residential mortgage loans originated for sale are scheduled based on their
expected sale dates, generally 10 to 14 days after settlement. Long-term
advances from the FHLB are scheduled according to their conversion option date.
The Company also uses a computer simulation analysis to assess and manage its
interest rate risk. The simulation analysis assumes an immediate, parallel
shift of 200 basis points in the Treasury Yield Curve. The analysis measures
the potential change in earnings and in the market value of portfolio equity
over a one-year time horizon and captures optionality factors such as call
features imbedded in investment and loan portfolio contracts. Measured based on
November 30, 1999 data, the simulation analysis provided the following profile
of the Company's interest rate risk:
21
<PAGE>
<TABLE>
<CAPTION>
Immediate Rate Change
--------------------------------------------------------------------------------------------------------
+200BP -200BP Policy
------ ------ ------
<S> <C> <C> <C>
Net interest income at risk 1.1% -5.0% +/-7.5%
Economic value of equity 12.6% -9.4% +/-20.0%
</TABLE>
As of December 31, 1999, based on the mix of assets and liabilities and the
then current interest rate environment, management does not believe there has
been a significant change since November 30, 1999.
Both of the above tools used to assess interest rate risk have strengths and
weaknesses. Because the gap analysis reflects a static position at a single
point in time, it is limited in quantifying the total impact of market rate
changes which do not affect all earning assets and interest-bearing liabilities
equally or simultaneously. In addition, gap reports depict the existing
structure, excluding exposure arising from new business. While the simulation
process is a powerful tool in analyzing interest rate sensitivity, many of the
assumptions used in the process are highly qualitative and subjective and are
subject to the risk that past historical activity may not generate accurate
predictions of the future. Both measurement tools, however, provide a
comprehensive evaluation of the Company's exposure to changes in interest rates,
enabling management to better control the volatility of earnings.
Capital Resources and Adequacy
Total stockholders' equity was $40.9 million at December 31, 1999,
representing an increase of $2.5 million or 6.6% from December 31, 1998. The
growth of stockholders' equity during 1999 was primarily attributable to the
earnings of the Company of $5.2 million less cash dividends declared on common
stock of $1.5 million. In addition, in November 1998, the Board of Directors of
the Company approved a stock repurchase program that authorized the repurchase
of up to 400,000 shares of the Company's common stock, subject to applicable
laws and regulations. During 1999, the Company repurchased and retired 85,800
shares at prices ranging from $13.75 to $16.50, which reduced total
stockholders' equity by $1.3 million.
The Federal Reserve Board has adopted risk-based guidelines for bank holding
companies. As of December 31, 1999, 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 certain other intangibles and
making various 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 average assets) of
4.0% 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.
22
<PAGE>
The tables below present the Company's capital position relative to its
various minimum statutory and regulatory capital requirements at December 31,
1999.
<TABLE>
<CAPTION>
Tier 1 Leverage Ratio
- ------------------------------------------------------------------------------------------------------------------
Percent of
(dollars in thousands) Amount Average Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital/(a)/ $ 40,972 8.8%
Tier 1 leverage ratio requirement 18,645 4.0
- ------------------------------------------------------------------------------------------------------------------
Excess $ 22,327 4.8%
==================================================================================================================
Quarterly average total assets $466,122
========
<CAPTION>
Risk-Based Capital Ratio
- ------------------------------------------------------------------------------------------------------------------
Percent of
Risk-weighted
(dollars in thousands) Amoount Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital/(a)/ $ 40,972 11.0%
Risk-based Tier 1 capital requirement 14,881 4.0
- ------------------------------------------------------------------------------------------------------------------
Excess $ 26,091 7.0%
==================================================================================================================
Tier 1 capital/(a)/ $ 40,972 11.0%
Tier 2 capital/(b)/ 4,181 1.1
- ------------------------------------------------------------------------------------------------------------------
Total risk-based capital 45,153 12.1
Risk-based capital requirements 29,762 8.0
- ------------------------------------------------------------------------------------------------------------------
Excess $ 15,391 4.1%
==================================================================================================================
Risk-weighted assets $372,028
========
</TABLE>
<TABLE>
<S> <C>
/(a)/ Tier 1 capital is comprised of the following at December 31, 1999:
GAAP capital $40,893
Less intangible assets (37)
Add unrealized losses on securities available-for-sale, net of taxes 107
Add 50% of investment in unconsolidated subsidiary 9
-------
$40,972
=======
</TABLE>
/(b)/ Tier 2 capital is comprised of the allowance for credit losses plus 50% of
the Company's investment in an unconsolidated subsidiary, limited to 1.25%
of risk-weighted assets.
Year 2000 Readiness Disclosure
The following information represents "Year 2000 Readiness Disclosure" in
conformance with the Year 2000 Information and Readiness Disclosure Act of 1998
(Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998.
The Company reports "business as usual" subsequent to the year 2000 event.
All systems have successfully transitioned to the year 2000, including all data
processing systems, automated delivery channels, the Bank's internal network and
all communications equipment. These systems are currently processing without
interruption and there has been no loss of service from major third party
service providers. Although the Company believes that its internal year 2000
issues have been addressed appropriately and is not aware of any specific
remaining year 2000 issues, there can be no assurance that all these issues,
including those that may affect vendors and suppliers, have been fully resolved.
The Company will continue to closely monitor all systems throughout the year.
Recent Accounting Developments
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. It is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Initial application of the Statement should
be as of the beginning of an entity's fiscal quarter. On that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of SFAS No. 133. Earlier application is encouraged. The Company does not
currently have any hedging relationships or derivative instruments that would
require reclassification under the provisions of SFAS No. 133.
23
<PAGE>
Subsequent Events
On March 8, 2000, the Company issued 2,641,746 shares of its common stock for
all the outstanding common stock of Suburban Bancshares, Inc ("Suburban"). The
business combination will be accounted for as a pooling-of-interests combination
and, accordingly, the Company's historical statements presented in future
reports will be restated to include the accounts and results of operations of
Suburban. Following the merger, the Company will operate twenty-three branches
in Howard, Baltimore, Prince Georges and Montgomery counties and Baltimore
City. The unaudited combined results of operations of the Company and Suburban
on a pro forma basis for 1999 would have produced net income of $5.9 million and
diluted earnings per share of $.82.
24
<PAGE>
Independent Auditors' Report
Columbia Bancorp and Subsidiary
The Board of Directors and Stockholders
Columbia Bancorp:
We have audited the consolidated statements of condition of Columbia Bancorp
and subsidiary as of December 31, 1999 and 1998 and the related consolidated
statements of income and comprehensive income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
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, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Baltimore, MD /s/ KPMG LLP
January 21, 2000, except as to note 16, ------------------------
which is as of February 23, 2000 KPMG LLP
25
<PAGE>
Consolidated Statements of Condition
Columbia Bancorp and Subsidiary
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (note 2) $ 19,751 $ 15,430
Federal funds sold 3,703 17,099
Investment securities - fair value $92,356 in 1999
and $74,308 in 1998 (note 3) 93,412 73,782
Securities available-for-sale (note 3) 13,246 10,234
Residential mortgage loans originated for sale 2,707 17,387
Loans (notes 4 and 5):
Commercial 81,325 49,841
Lease receivables 1,510 --
Real estate - development and construction 93,478 111,868
Real estate - mortgage:
Residential 10,684 9,950
Commercial 20,297 16,280
Retail, principally residential equity lines of credit 106,189 85,146
Credit card 2,217 1,694
- --------------------------------------------------------------------------------------------
Total loans 315,700 274,779
Less:
Unearned income, net of origination costs 193 366
Allowance for credit losses 4,172 3,965
- --------------------------------------------------------------------------------------------
Loans, net 311,335 270,448
Other real estate owned (notes 4 and 6) 3,828 4,043
Property and equipment, net (note 7) 8,200 8,616
Prepaid expenses and other assets (notes 8 and 12) 11,529 10,296
- --------------------------------------------------------------------------------------------
Total assets $467,711 $427,335
============================================================================================
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand deposits $ 76,509 $ 60,372
Interest-bearing deposits:
Savings and checking 136,467 128,866
Certificates of deposit:
Under $100,000 125,308 123,541
$100,000 and over 29,214 26,557
- --------------------------------------------------------------------------------------------
Total deposits 367,498 339,336
Short-term borrowings (note 13) 36,724 27,012
Long-term borrowings (note 14) 20,000 20,000
Accrued expenses and other liabilities 2,596 2,633
- --------------------------------------------------------------------------------------------
Total liabilities 426,818 388,981
- --------------------------------------------------------------------------------------------
Stockholders' equity (notes 11, 16 and 17):
Common stock, $.01 par value per share; authorized
9,550,000 shares; outstanding 4,508,625 and 4,561,650
shares at December 31, 1999 and 1998, respectively 45 46
Additional paid-in capital 22,384 23,491
Retained earnings 18,571 14,846
Accumulated other comprehensive income (107) (29)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 40,893 38,354
Commitments and contingent liabilities (notes 9 and 10)
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $467,711 $427,335
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
Consolidated Statements of Income and
Comprehensive Income
Columbia Bancorp and Subsidiary
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per-share data) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $27,743 $27,768 $26,742
Investment securities 5,820 4,448 3,259
Federal funds sold 691 712 193
- -------------------------------------------------------------------------------------------------------------------
Total interest income 34,254 32,928 30,194
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 10,308 11,195 10,094
Borrowings 2,585 1,823 1,379
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 12,893 13,018 11,473
- -------------------------------------------------------------------------------------------------------------------
Net interest income 21,361 19,910 18,721
Provision for credit losses (note 4) 449 659 663
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 20,912 19,251 18,058
- -------------------------------------------------------------------------------------------------------------------
Noninterest income:
Fees charged for services 1,702 1,380 1,227
Gains and fees on sales of mortgage loans, net of costs 905 1,268 356
Other 770 776 599
- -------------------------------------------------------------------------------------------------------------------
Total noninterest income 3,377 3,424 2,182
- -------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 8,223 7,749 6,815
Occupancy, net (notes 9 and 15) 2,049 1,885 1,420
Equipment 1,251 1,217 1,038
Data processing 936 780 598
Marketing 544 540 544
Cash management services 422 338 413
Professional fees 197 361 392
Net expense (income) on other real estate
owned (note 6) 37 (38) 134
Deposit insurance 140 126 112
Stationery and supplies 352 369 324
Postage 254 244 209
Other 1,918 1,813 1,723
- -------------------------------------------------------------------------------------------------------------------
Total noninterest expense 16,323 15,384 13,722
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,966 7,291 6,518
Income tax provision (note 12) 2,751 2,545 2,350
- -------------------------------------------------------------------------------------------------------------------
Net income 5,215 4,746 4,168
Other comprehensive income net of tax-
unrealized gain (loss) on securities
available-for-sale (78) (28) 7
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 5,137 $ 4,718 $ 4,175
===================================================================================================================
Net income per common share:
Basic $ 1.15 $ 1.05 $ .96
Diluted 1.14 1.03 .91
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
Consolidated Statements of Stockholders' Equity
Columbia Bancorp and Subsidiary
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
(dollars in thousands) Stock Capital Earnings Income Equity
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 $43 $22,599 $ 8,341 $ (8) $30,975
Cash dividends declared
on common stock -- -- (1,086) -- (1,086)
Exercise of options for
139,236 shares of common stock 1 636 -- -- 637
Exercise of warrants for
15,800 shares of common stock -- 72 -- -- 72
Common stock exchanged
(25,346 shares) -- (744) -- -- (744)
Tax benefit of nonqualified
stock options exercised -- 356 -- -- 356
Net income -- -- 4,168 -- 4,168
Other comprehensive
income items -- -- -- 7 7
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 44 22,919 11,423 (1) 34,385
Cash dividends declared
on common stock -- -- (1,323) -- (1,323)
Exercise of options for
37,320 shares of common stock 1 151 -- -- 152
Exercise of warrants for
136,000 shares of common stock 1 617 -- -- 618
Purchase of 12,000 shares
of common stock -- (196) -- -- (196)
Net income -- -- 4,746 -- 4,746
Other comprehensive
income items -- -- -- (28) (28)
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 46 23,491 14,846 (29) 38,354
Cash dividends declared
on common stock -- -- (1,490) -- (1,490)
Exercise of options for
33,846 shares of common stock -- 187 -- -- 187
Common stock exchanged
(1,071 shares) -- (15) -- -- (15)
Purchase of 85,800 shares
of common stock (1) (1,279) -- -- (1,280)
Net income -- -- 5,215 -- 5,215
Other comprehensive
income items -- -- -- (78) (78)
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $45 $22,384 $18,571 $(107) $40,893
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
Consolidated Statements Of Cash Flows
Columbia Bancorp and Subsidiary
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,215 $ 4,746 $ 4,168
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,139 1,126 1,049
Amortization of loan fee income (1,339) (1,681) (2,017)
Provision for credit losses 449 659 663
Provision for losses on other real estate owned 17 30 46
Gains and fees on sales of mortgage loans,
net of costs (905) (1,268) (356)
Gains on sales of other assets -- (15) (16)
Proceeds from sales of residential
mortgage loans originated for sale 86,131 158,988 51,863
Disbursements for residential mortgage
loans originated for sale (70,545) (168,550) (56,513)
Loan fees deferred, net of origination costs 1,166 1,407 1,535
Increase in prepaid expenses and other assets (499) (642) (420)
Increase (decrease) in accrued expenses and other
liabilities (82) 591 441
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 20,747 (4,609) 443
- ------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing activities:
Loan disbursements in excess of
principal repayments (39,947) (12,959) (28,850)
Loan purchases (4,631) (4,459) (5,408)
Loan sales 3,371 7,814 3,021
Purchases of investment securities (59,659) (37,829) (35,957)
Purchases of securities available-for-sale (3,142) (9,309) (18)
Proceeds from maturities and principal
repayments of investment securities 40,052 29,056 10,812
Proceeds from maturities and principal
repayments of securities available-for-sale 2 702 2,709
Additions to other real estate owned (1,724) (1,770) (430)
Sales of other real estate owned 1,965 2,653 273
Purchases of property and equipment (748) (754) (2,489)
Disposals of property and equipment -- 112 2
Purchase of life insurance (470) -- (895)
Increase in cash surrender value of life insurance (212) (204) (178)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (65,143) (26,947) (57,408)
- ------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Consolidated Statements Of Cash Flows (continued)
Columbia Bancorp and Subsidiary
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows provided by (used in)
financing activities:
Net increase in deposits $28,162 $25,979 $58,717
Increase (decrease) in short-term borrowings 9,712 3,287 (6,402)
Increase in long-term borrowings -- 20,000 --
Cash dividends distributed on common stock (1,445) (1,266) (1,035)
Net proceeds (disbursements) from stock options
and warrants exercised and common
stock exchanged 172 770 (35)
Purchase of common stock (1,280) (196) --
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 35,321 48,574 51,245
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (9,075) 17,018 (5,720)
Cash and cash equivalents at beginning of year 32,529 15,511 21,231
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $23,454 $32,529 $15,511
======================================================================================================
Supplemental information:
Interest paid on deposits and borrowings $12,991 $12,808 $11,389
Income taxes paid 2,880 2,845 2,165
Transfers of loans to other real estate owned 43 334 4,063
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
Notes to Consolidated Financial Statements
Columbia Bancorp and Subsidiary
December 31, 1999, 1998 and 1997
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 that engages in general commercial banking
operations. Deposits in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC").
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 judgments 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 processes,
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.
Investment securities
The Company classifies its securities as trading securities, investment
securities or securities available-for-sale. The Company has no trading
securities. Investment securities are debt securities that 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 an item of other comprehensive income until realized. Transfers of
securities between categories are recorded at fair value on the date of
transfer. The accumulated unrealized holding gains or losses on debt securities
at the time of a transfer 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.
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.
31
<PAGE>
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 interest and/or principal
in doubt. 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. Management may grant a waiver from nonaccrual status
for a 90-day past-due loan that is both well secured and in the process of
collection.
A loan is considered 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 Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan " ("SFAS No. 114"), the
Company measures impaired loans (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 vale 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 Company recognizes interest
income for impaired loans consistent with its method for nonaccrual loans.
Specifically, interest payments received are normally applied to principal.
The Company provides for credit losses through the establishment of an
allowance for credit losses by provisions charged against earnings. The factors
considered by management in determining the adequacy of the allowance for losses
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 as having the potential for further
deterioration taking into consideration collateral value and the financial
strength of the borrowers and guarantors; and a continuing evaluation of the
economic environment. 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.
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
less selling costs. Subsequent write-downs are included in noninterest expense,
along with operating income and expenses of such properties, and gains or losses
realized upon disposition.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are charged to operating expenses.
Depreciation generally is computed on the straight-line basis over the estimated
useful lives of the assets. Leasehold improvements are generally amortized over
the lesser of the terms of the related leases or the lives of the assets.
Maintenance and repairs are expensed as incurred.
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 based on enacted tax rates expected to be in effect when
such amounts are realized or settled. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they will be
realized based upon consideration of available evidence, including tax planning
strategies and other factors.
Per share data and net income per common share
In May 1998, the Board of Directors declared a two-for-one stock split-up in
the form of a 100% stock dividend that was distributed to stockholders in June
1998. Share and per share data presented in the consolidated financial
statements and notes thereto have been adjusted, where appropriate, to give
retroactive effect to this distribution.
Basic earnings per share ("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
32
<PAGE>
the effects of all potentially dilutive common shares outstanding during the
period. The dilutive effects of options, discussed in note 11, and their
equivalents are computed using the treasury stock method.
Information relating to the calculations of earnings per common share is
summarized as follows for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income used in EPS
computation $5,215,121 $5,215,121 $4,745,523 $4,745,523 $4,167,531 $4,167,531
====================================================================================================================
Weighted average
shares outstanding 4,516,050 4,516,050 4,529,052 4,529,052 4,325,512 4,325,512
Dilutive securities -- 66,574 -- 98,872 -- 259,686
- --------------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares
used in EPS computation 4,516,050 4,582,624 4,529,052 4,627,924 4,325,512 4,585,198
====================================================================================================================
Net income per common share $ 1.15 $ 1.14 $ 1.05 $ 1.03 $ .96 $ .91
====================================================================================================================
</TABLE>
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.
Comprehensive income
Comprehensive income includes all changes in stockholders' equity during a
period, except those relating to investments by and distributions to
stockholders. The Company's comprehensive income consists of net earnings and
unrealized gains and losses on securities available-for-sale and is presented in
the statements of income and comprehensive income. Accumulated other
comprehensive income is displayed as a separate component of stockholders'
equity.
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, 1999
and 1998, the required reserve balances were $8.3 million and $5.8 million,
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, 1999 and 1998, the required compensating balances were
$117,720 and $113,040, respectively.
33
<PAGE>
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, 1999 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities $14,999 $-- $ 7 $14,992
Federal agency securities 74,603 -- 1,002 73,601
Mortgage-backed securities 3,810 1 48 3,763
- -------------------------------------------------------------------------------------------
Total $93,412 $ 1 $1,057 $92,356
===========================================================================================
Securities available-for-sale:
Trust preferred stocks $11,904 $50 $ 229 $11,725
Mortgage-backed securities 4 -- -- 4
Other equity securities 235 -- -- 235
Investment in Federal Home Loan
Bank stock 1,282 -- -- 1,282
- -------------------------------------------------------------------------------------------
Total $13,425 $50 $ 229 $13,246
===========================================================================================
</TABLE>
The amortized cost and estimated fair values of investment securities and
securities available-for-sale at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury securities $53,978 $403 $-- $54,381
Federal agency securities 19,002 124 -- 19,126
Mortgage-backed securities 802 2 3 801
- -------------------------------------------------------------------------------------------
Total $73,782 $529 $ 3 $74,308
===========================================================================================
Securities available-for-sale:
Federal agency securities $ 9,152 $ 15 $64 $ 9,103
Mortgage-backed securities 5 1 -- 6
Investment in Federal Home Loan
Bank stock 1,125 -- -- 1,125
- -------------------------------------------------------------------------------------------
Total $10,282 $ 16 $64 $10,234
===========================================================================================
</TABLE>
The Company is required to maintain an investment in the stock of the Federal
Home Loan Bank of Atlanta ("FHLB") in an amount equal to at least 1% of the
unpaid balance of the Company's residential mortgage loans, 5% of its
outstanding advances from the FHLB or $500, whichever is greater. The
investment in FHLB stock at December 31, 1999 was equal to approximately 5%
of the outstanding advances from the FHLB.
The amortized cost and estimated fair values of nonequity investment
securities and securities available-for-sale at December 31, 1999 and 1998, 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 penalties.
34
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
(dollars in thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities:
Due in one year or less $30,001 $29,936 $42,985 $43,226
Due after one year through five years 59,601 58,657 29,995 30,281
Collateralized mortgage obligations
and mortgage-backed securities 3,810 3,763 802 801
- --------------------------------------------------------------------------------------------------
Total $93,412 $92,356 $73,782 $74,308
==================================================================================================
Securities available-for-sale:
Due after ten years $11,904 $11,725 $ 9,152 $ 9,103
Mortgage-backed securities 4 4 5 6
- --------------------------------------------------------------------------------------------------
Total $11,908 $11,729 $ 9,157 $ 9,109
==================================================================================================
</TABLE>
There were no sales of investment securities or securities available-for-sale
during 1999 or 1998. At December 31, 1999, investment securities and securities
available-for-sale with an aggregate book value and fair value of $9.0 million
and $9.0 million, respectively, were pledged as collateral, primarily for FHLB
borrowings.
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:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(dollars in thousands) 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 981 $2,995
Other real estate owned 3,828 4,043
- ---------------------------------------------------------
Total nonperforming assets $4,809 $7,038
=========================================================
Loans past-due 90 days or more $ 5 $ 63
=========================================================
</TABLE>
At December 31, 1999, other real estate owned consisted of the following
properties:
. A residential development project in which the Company owns a 75%
interest, with a remaining 20 single family and 150 townhouse building
lots with a carrying value of $3.4 million. The project is being
completed under the direction of the Company. At December 31, 1999, 60
single family and 32 townhouse lots had been delivered. All remaining
single family and townhouse lots were under option contract of sale with
two residential builders with a takedown schedule that extends through
September 2003.
. A residential development project consisting of twelve townhouse units
with a carrying value of $396,000. The Company plans to market this
property for sale.
At December 31, 1999, nonaccrual loans consisted primarily of a residential
development project with a carrying value of $640,000.
Impaired loans totaled $830,000 and $2.8 million at December 31, 1999 and
1998, respectively, and were all collateral dependent loans. There were no
impaired loans at December 31, 1999 or 1998 with an allocated valuation
allowance.
The average recorded investment in impaired loans, the amounts of income
recognized, and the amounts of income recognized on a cash basis were as follows
during the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average recorded investment in impaired loans $302 $846 $285
Interest income recognized during impairment -- -- --
Interest income recognized on a cash basis during impairment -- -- 3
===============================================================================================
</TABLE>
35
<PAGE>
An analysis of the allowance for credit losses is summarized as follows for
the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $3,965 $3,632 $3,293
Provision charged to expense 449 659 663
Charge-offs (377) (344) (365)
Recoveries 135 18 41
- --------------------------------------------------------------------------------------
Balance at end of year $4,172 $3,965 $3,632
======================================================================================
Ratio of allowance to loans, net of unearned income 1.32% 1.45% 1.37%
======================================================================================
</TABLE>
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 executive officers and directors for the
years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 3,231 $ 3,415 $ 2,258
Additions 1,231 1,838 2,750
Repayments (1,093) (2,022) (1,593)
- --------------------------------------------------------------------------------------
Balance at end of year $ 3,369 $ 3,231 $ 3,415
======================================================================================
</TABLE>
NOTE 6: OTHER REAL ESTATE OWNED
Net expense (income) on other real estate owned is summarized as follows for
the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net (gain)/loss on sales $(157) $(167) $(49)
Operating expenses 177 99 137
Provision for losses 17 30 46
- --------------------------------------------------------------------------------------
Net expense (income) $ 37 $(38) $134
======================================================================================
</TABLE>
Interest capitalized on a construction project carried in other real estate
owned totaled $170,000 and $156,000 in 1999 and 1998, respectively. No interest
was capitalized in 1997.
NOTE 7: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,070 $ 2,070
Buildings and leasehold improvements 6,052 5,869
Furniture and equipment 5,684 5,219
Software 566 466
Automobiles 70 70
- --------------------------------------------------------------------------------------------
14,442 13,694
Less accumulated depreciation and amortization 6,242 5,078
- --------------------------------------------------------------------------------------------
$ 8,200 $ 8,616
============================================================================================
</TABLE>
36
<PAGE>
NOTE 8: PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued interest receivable $ 3,652 $ 3,016
Net deferred tax asset 1,879 1,674
Cash surrender value of life insurance 4,820 4,138
Other 1,178 1,468
- --------------------------------------------------------------------------------------------
$11,529 $10,296
============================================================================================
</TABLE>
NOTE 9: COMMITMENTS AND CONTINGENT LIABILITIES
The Company occupies office space under lease agreements expiring at various
dates to 2019. A summary of the noncancellable payments due under these leases
is as follows at December 31, 1999 (in thousands):
2000 $1,332
2001 1,181
2002 1,099
2003 807
2004 597
After 2004 4,458
------
$9,474
======
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 $1.3 million, $1.1 million and $844,000 in 1999, 1998 and
1997, respectively.
The Company utilizes a third party servicer to provide data processing
services under terms of an agreement that expires in October 2004. Data
processing costs are based upon account and transaction volume and currently
approximate $82,000 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.
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>
- ------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit and available credit lines:
Commercial $ 42,307 $ 29,008
Real estate - development and construction 101,199 96,183
Real estate - residential mortgage 4,566 5,038
Retail, principally home equity lines of credit 42,138 37,803
Credit card 10,709 5,937
- ------------------------------------------------------------------------------------
200,919 173,969
Standby letters of credit 12,762 15,519
Limited recourse on mortgage loans sold 7,457 4,156
- ------------------------------------------------------------------------------------
$221,138 $193,644
====================================================================================
</TABLE>
37
<PAGE>
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,
including the Bank; 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. Most of the loans resulting from these commitments are variable rate
loans.
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 credit
lines generally do not extend for more than 12 months. Available development and
construction credit lines generally do not extend for more than 24 months.
Second mortgages and home equity credit lines generally extend for a period of
15 years and are reviewed annually. The majority of loans related to commercial
and home equity lines of credit carry variable rates of interest.
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. Of the total
$12.8 million standby letters of credit outstanding at December 31, 1999, $6.1
million represented letters of credit secured by cash balances held by the bank.
Limited recourse on mortgage loans sold relates to contractual provisions
under which the Company may be required to repurchase 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 totaled
approximately $90.0 million, $70.4 million and $12.0 million, respectively, at
December 31, 1999. 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 the
Company's exposure.
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) of the Internal Revenue Code, as
amended. Matching contributions made to the plan by the Company totaled $192,000
in 1999, $181,000 in 1998 and $151,000 in 1997.
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 to participant accounts
totaled $34,000 in 1999 and 1998 and $28,000 in 1997. Earnings on deferred
compensation includes interest credited on funds invested at the prime rate as
well as appreciation or depreciation of the value of funds invested in Columbia
Bancorp Common Stock. In 1999, the net loss to participants totaled $73,000. Net
earnings credited to participants totaled $11,000 in 1998 and $55,000 in 1997.
Stock Option Plans
The Company has stock option award arrangements that provide for the granting
of options to acquire common stock to 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 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. Director options may be exercised at any time after the
date of grant. Options expire ten years after the date of grant.
38
<PAGE>
Information with respect to stock options is as follows for the years ended
December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 271,498 $11.24 193,200 $ 6.57 299,658 $ 4.74
Exercised (33,846) 5.54 (37,320) 4.58 (139,236) 4.58
Granted 74,860 15.16 118,350 16.89 32,800 14.81
Forfeited (14,014) 16.33 (2,732) 16.40 (22) 4.55
- -----------------------------------------------------------------------------------------------
Outstanding at
end of year 298,498 $12.63 271,498 $11.24 193,200 $ 6.57
===============================================================================================
</TABLE>
A summary of information about stock options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options
Outstanding
-------------------------
Weighted Options
Average Exercisable
Exercise Remaining -----------
Price Shares Life (Years) Shares
-----------------------------------------------------------
<S> <C> <C> <C>
$ 4.55 40,414 1.8 40,414
4.83 37,660 3.8 37,660
5.00 8,520 4.0 8,520
6.25 770 .3 770
6.82 1,474 .1 1,474
11.00 12,000 7.2 6,000
11.31 13,410 10.0 13,410
16.00 54,900 9.1 8,000
16.88 103,000 8.1 37,750
17.00 26,350 8.6 20,850
-----------------------------------------------------------
298,498 6.8 174,848
===========================================================
</TABLE>
At December 31, 1999, 1998 and 1997, options to purchase 174,848, 161,848 and
160,400 shares of the Company's common stock, respectively, were exercisable at
weighted average prices of $10.07, $7.74 and $4.89, respectively.
The per share weighted average fair values of options granted during 1999,
1998 and 1997 were $6.05, $7.68 and $6.76, respectively. These values were
estimated using the Black-Scholes option pricing model and the following
assumptions:
1999 1998 1997
-------------------------------------------------------------------
Dividend yield 2.21% 1.65% 1.75%
Expected volatility 35.03% 35.93% 36.79%
Risk-free interest rate 5.00% 5.60% 5.49%
Expected lives 10 years 10 years 10 years
39
<PAGE>
The option prices were equal to the market prices of the common stock at the
date of grant for all options granted in 1999, 1998 and 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 common share would have been changed to
the following pro forma amounts for the years ended December 31:
<TABLE>
<CAPTION>
(dollars in thousands,
except per share data) 1999 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $4,937 $4,521 $4,156
-------------------------------------------------------------------------------------
Net income per common share:
Basic $ 1.09 $ 1.00 $ .96
Diluted 1.08 .98 .91
=====================================================================================
</TABLE>
NOTE 12: INCOME TAXES
The provision for income taxes was composed of the following for the years
ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $2,716 $2,458 $2,182
State 188 243 479
- ----------------------------------------------------------------------------------
2,904 2,701 2,661
Deferred:
Federal (125) (129) (255)
State (28) (27) (56)
- ----------------------------------------------------------------------------------
(153) (156) (311)
- ----------------------------------------------------------------------------------
$2,751 $2,545 $2,350
==================================================================================
</TABLE>
The types of temporary differences that give rise to significant portions of
the net deferred tax asset were as follows at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $1,498 $1,412
Deferred compensation 144 133
Deposits 94 80
Other 110 68
- ----------------------------------------------------------------------------------
Total deferred tax assets 1,846 1,693
Deferred tax liabilities:
Federal Home Loan Bank stock dividends 38 38
- ----------------------------------------------------------------------------------
Net deferred tax asset (included in prepaid expenses
and other assets) attributable to operations 1,808 1,655
Unrealized loss on investments charged to other
comprehensive income 71 19
- ----------------------------------------------------------------------------------
Net deferred tax asset $1,879 $1,674
==================================================================================
</TABLE>
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>
- -----------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate $2,708 $2,479 $2,216
State income taxes, net of federal income tax benefit 106 143 279
Other (63) (77) (145)
- -----------------------------------------------------------------------------------------
$2,751 $2,545 $2,350
=========================================================================================
</TABLE>
40
<PAGE>
NOTE 13: 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, reprice daily and have maturities of
270 days or less. Short-term 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 at and for the years ended December 31 is
as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding at year-end:
Short-term promissory notes $34,724 $27,012 $20,725
Borrowings from FHLB 2,000 -- 3,000
Weighted average interest rate at year-end:
Short-term promissory notes 5.4% 4.4% 5.1%
Borrowings from FHLB 4.6 -- 6.5
Maximum outstanding at any month-end:
Short-term promissory notes $39,296 $29,573 $22,831
Borrowings from FHLB 8,200 17,500 18,500
Average outstanding:
Short-term promissory notes 32,293 24,357 18,177
Borrowings from FHLB 790 4,081 9,477
Weighted average interest rate during the year:
Short-term promissory notes 4.6% 4.7% 4.8%
Borrowings from FHLB 5.5 5.6 5.3
</TABLE>
NOTE 14: LONG-TERM BORROWINGS
At December 31, 1999 and 1998, the Company had three long-term advances from
the FHLB totaling $20 million, with fixed rates of interest ranging from 4.64%
to 5.51%. The advances are scheduled to mature in 2008, but all carry conversion
options which allow the FHLB to convert the fixed interest rate of each advance
to a three month LIBOR-based floating rate on specified dates in 2003. If the
FHLB elects to convert an advance, the Company has the option of terminating the
advance at that time, without penalty.
NOTE 15: NET OCCUPANCY EXPENSE
Net occupancy expense is comprised of the following for the years ended
December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Occupancy expense $2,234 $2,074 $1,599
Rental income (185) (189) (179)
- -------------------------------------------------------------------------------
Net occupancy expense $2,049 $1,885 $1,420
===============================================================================
</TABLE>
NOTE 16: DIVIDENDS AND COMMON STOCK
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 $.33, $.29 and
$.25 for the years ended December 31, 1999, 1998 and 1997, respectively.
On December 21, 1999, the Board of Directors of the Bank authorized a cash
dividend of $406,000 to be paid to the Company on January 18, 2000. In addition,
on December 21, 1999, the Board of Directors of the Company declared a $.09 per
share cash dividend to shareholders of common stock of record on January 4,
2000, payable January 18, 2000.
41
<PAGE>
During the year ended December 31, 1999, the Company repurchased and retired
85,800 shares at an average price of $14.92 per share, pursuant to the Company's
stock repurchase program approved in November 1998. This program was rescinded
on February 23, 2000.
NOTE 17: REGULATORY MATTERS
The Company and the 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 (set forth in the table
below) of total and Tier 1 capital (as defined) to risk-weighted assets (as
defined), and of Tier 1 capital to average assets (as defined). Management
believes, as of December 31, 1999, that the Bank meets all capital adequacy
requirements to which it is subject. As of December 31, 1999, 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.
Regulatory capital amounts and ratios for the Company and the Bank are as
follows:
<TABLE>
<CAPTION>
Minimum To be Well
Requirements Capitalized under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
--------------- ------------------------- -------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Total capital (to risk-weighted assets):
Consolidated $45,153 12.1% $29,762 8.0% $37,203 10.0%
The Columbia Bank 43,044 11.6 29,678 8.0 37,097 10.0
Tier 1 capital (to risk-weighted assets):
Consolidated 40,972 11.0 14,881 4.0 22,322 6.0
The Columbia Bank 38,872 10.5 14,839 4.0 22,258 6.0
Tier 1 capital (to average assets):
Consolidated 40,972 8.8 18,645 4.0 23,306 5.0
The Columbia Bank 38,872 8.3 18,687 4.0 23,359 5.0
December 31, 1998
Total capital (to risk-weighted assets):
Consolidated $42,247 12.7% $26,647 8.0% $33,308 10.0%
The Columbia Bank 40,030 12.0 26,656 8.0 33,319 10.0
Tier 1 capital (to risk-weighted assets):
Consolidated 38,282 11.5 13,323 4.0 19,985 6.0
The Columbia Bank 36,067 10.8 13,328 4.0 19,991 6.0
Tier 1 capital (to average assets):
Consolidated 38,282 9.0 17,022 4.0 21,278 5.0
The Columbia Bank 36,067 8.5 16,979 4.0 21,224 5.0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
NOTE 18 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 values of securities held as investment and securities available-for-
sale are 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.
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.
Deposit liabilities
The fair value of demand deposits and savings accounts is the amount payable
on demand at December 31, 1999. 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.
Long-term borrowings
The fair value of long-term FHLB advances is estimated by discounting the
value of contractual cash flows using rates currently offered for advances with
similar terms and remaining maturities.
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 are as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(dollars in thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 19,751 $ 19,751 $ 15,430 $ 15,430
Federal funds sold 3,703 3,703 17,099 17,099
Investment securities and
securities available-for-sale 106,658 105,602 84,016 84,542
Residential mortgage loans
originated for sale 2,707 2,707 17,387 17,387
Loans receivable, net of unearned
income 315,507 274,413
Less allowance for credit losses 4,172 3,965
-------- --------
Loans, net 311,335 314,319 270,448 272,941
Financial liabilities:
Deposits 367,498 367,976 339,336 341,148
Short-term borrowings 36,724 36,724 27,012 27,012
Long-term borrowings 20,000 20,074 20,000 20,058
========================================================================================================
</TABLE>
43
<PAGE>
NOTE 19: FINANCIAL INFORMATION OF PARENT COMPANY
The following is financial information of Columbia Bancorp (parent company
only) at and for the years ended December 31:
<TABLE>
<CAPTION>
Balance Sheets
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and temporary investments $35,983 $27,648
Investment in The Columbia Bank 38,909 36,168
Investment securities available-for-sale 235 --
Other assets 925 1,949
- --------------------------------------------------------------------------------------------------------
$76,052 $65,765
========================================================================================================
Liabilities and stockholders' equity:
Short-term borrowings $34,724 $27,012
Other liabilities 435 399
Stockholders' equity 40,893 38,354
- --------------------------------------------------------------------------------------------------------
$76,052 $65,765
========================================================================================================
<CAPTION>
Statements of Income
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest income $1,510 $1,222 $ 970
Dividend income from subsidiary 2,490 1,323 1,086
Management fees from subsidiary 120 120 120
- --------------------------------------------------------------------------------------------------------
4,120 2,665 2,176
- --------------------------------------------------------------------------------------------------------
Expenses:
Interest expense on short-term borrowings 1,474 1,146 898
Director fees 104 104 86
Other expenses 194 275 248
- --------------------------------------------------------------------------------------------------------
1,772 1,525 1,232
- --------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity in undistributed
net income of The Columbia Bank 2,348 1,140 944
Income tax benefit 48 62 48
- --------------------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of The Columbia Bank 2,396 1,202 992
Equity in undistributed net income
of The Columbia Bank 2,819 3,544 3,176
- --------------------------------------------------------------------------------------------------------
Net income $5,215 $4,746 $4,168
========================================================================================================
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
- --------------------------------------------------------------------------------------------------------
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before undistributed net
income of The Columbia Bank $ 2,396 $ 1,202 $ 992
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization 12 11 13
Increase (decrease) in other liabilities 75 (200) 176
Decrease (increase) in other assets 928 (916) (561)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,411 97 620
- --------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing activities:
Increase in short-term borrowings 7,712 6,287 8,598
Cash dividend distributed on common stock (1,445) (1,266) (1,035)
Purchase of investment securities available-
for-sale (235) -- --
Purchase of common stock (1,280) (196) --
Net proceeds (disbursements) from stock options and
warrants exercised and common stock exchanged 172 770 (35)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,924 5,595 7,528
- --------------------------------------------------------------------------------------------------------
Net increase in cash and temporary
investments 8,335 5,692 8,148
Cash and temporary investments at beginning of year 27,648 21,956 13,808
- --------------------------------------------------------------------------------------------------------
Cash and temporary investments at end of year $35,983 $27,648 $21,956
========================================================================================================
</TABLE>
NOTE 20: ACQUISITION OF SUBURBAN BANCSHARES, INC. (UNAUDITED)
On March 8, 2000, the Company issued 2,641,746 shares of its common stock for
all of the outstanding stock of Suburban Bancshares, Inc. ("Suburban"). The
business combination will be accounted for as a pooling-of-interests combination
and, accordingly, the Company's historical consolidated financial statements
presented in future reports will be restated to include the accounts and results
of operations of Suburban.
The following unaudited pro forma data summarizes the combined assets and
results of operations of the Company and Suburban as if the combination had been
consummated on December 31, 1999.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
(dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $691,237 $665,901 $549,117
Net interest income 29,363 27,819 25,514
Net income 5,885 6,172 5,299
Diluted earnings per share .82 .85 .73
======== ======== ========
</TABLE>
45
<PAGE>
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
(dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
1999:
Interest income $8,116 $8,293 $8,786 $9,059
Net interest income 4,967 5,165 5,571 5,658
Provision for credit losses 135 92 63 159
Income before income taxes 1,963 1,916 2,030 2,057
Net income 1,260 1,270 1,337 1,348
Net income per common share:
Basic $ 0.27 $ 0.28 $ 0.30 $ 0.30
Diluted 0.27 0.28 0.29 0.30
1998:
Interest income $8,049 $8,137 $8,522 $8,220
Net interest income 4,915 4,944 5,143 4,908
Provision for credit losses 84 99 334 142
Income before income taxes 1,670 1,793 1,988 1,840
Net income 1,074 1,176 1,291 1,205
Net income per common share:
Basic $ 0.24 $ 0.26 $ 0.28 $ 0.27
Diluted 0.24 0.25 0.28 0.26
</TABLE>
Recent Common Stock Prices
The Company's Common Stock is traded on the National Association of Securities
Dealers' Automated Quotation System ("Nasdaq") National Market tier of The
Nasdaq Stock Market/SM/ under the symbol "CBMD".
The following table presents high and low sale prices and dividends per share
of the Company's Common Stock for the periods indicated.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Dividends
Low High Declared
---------------------------------------------------------------
<S> <C> <C> <C>
1999:
Fourth quarter $11.13 $13.00 $.09
Third quarter 12.75 13.88 .08
Second quarter 13.06 14.50 .08
First quarter 13.38 16.86 .08
1998:
Fourth quarter $12.38 $17.13 $.08
Third quarter 14.00 18.50 .07
Second quarter 17.13 18.50 .07
First quarter 15.75 18.38 .07
</TABLE>
As of December 31, 1999, there were 337 common stockholders of record holding
an aggregate of 4,508,625 shares. The Company believes there to be in excess of
1,900 beneficial owners of the Company's Common Stock.
46
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total return on the Company's
Common Stock during the five years ended December 31, 1999 with that of a broad
market index (Nasdaq, U.S. Companies) and two industry peer group indices; (i)
SNL Securities LC Bank Index for banks with assets from $250 million through
$500 million ("SNL $250M-$500M Bank Index"); and (ii) publicly traded commercial
banks in Maryland, Pennsylvania, Virginia and the District of Columbia with
total assets less than $1 billion ("CBMD Peer Group"). The graph assumes $100
was invested on December 31, 1994 in the Company's Common Stock and in each of
the indices and assumes reinvestment of dividends.
Five Year Cumulative Return
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Columbia Bancorp NASDAQ - Total U.S. SNL $250M-$500M Bank Index CBMD Peer Group
<S> <C> <C> <C> <C>
12/31/94 100.00 100.00 100.00 100.00
12/31/95 129.75 141.33 134.95 116.02
12/31/96 163.38 173.89 175.23 134.14
12/31/97 266.30 213.07 303.07 211.89
12/31/98 271.02 300.25 271.41 201.27
12/31/99 186.11 542.43 252.50 177.19
</TABLE>
47
<PAGE>
Directors and Officers
Columbia Bancorp and Subsidiary
COLUMBIA BANCORP
DIRECTORS*
Winfield M. Kelly, Jr. Richard E. McCready
Chairman Chairman
Columbia Bancorp Eastern Sales and Marketing
President & CEO
Dimensions Healthcare System Kenneth H. Michael
Chairman
James R. Moxley, Jr. The Michael Companies, Inc.
Vice Chairman
Columbia Bancorp James R. Moxley, III
President Vice President
Security Development Corp. SDC Group
Herschel L. Langenthal Vincent D. Palumbo, D.D.S.
Chairman of the Executive Committee President
Columbia Bancorp V.D. Palumbo, P.A.
Managing Partner
Langenmyer Co. Mary S. Scrivener
Anand S. Bhasin Lawrence A. Shulman
President Partner
Gemini Ventures Corp. Shulman, Rogers, Gandal,
Pordy & Ecker, P.A.
John M. Bond, Jr.
President and Chief Executive Officer Maurice M. Simpkins
Columbia Bancorp Vice President
The Ryland Group
Robert R. Bowie, Jr.
Founding Member Robert N. Smelkinson
Bowie & Jensen, LLC Retired Chairman
Smelkinson Sysco
Garnett Y. Clark, Jr.
President Albert W. Turner
GYC Group Ltd. Senior Partner
Carrollton Enterprises
Hugh F.Z. Cole, Jr.
Chairman and CFO Theodore G. Venetoulis
Brantly Development Group, Inc. President
H&V Communications
G. William Floyd
General Partner DIRECTORS EMERITUS
Venture Associates
James Clark, Jr.
William L. Hermann Retired President
President Maryland State Senate
William L. Hermann, Inc.
Mary T. Gould
Charles C. Holman
Retired Executive Vice President Patricia T. Rouse
The Columbia Bank Vice President and Secretary
The Enterprise Foundation
Harry L. Lundy, Jr.
President
Williamsburg Group L.L.C.
* Information is as of March 30, 2000 and includes newly appointed directors and
officers as a result of the merger of Suburban Bancshares, Inc. and Suburban
Bank of Maryland with and into Columbia Bancorp and The Columbia Bank, effective
March 8, 2000.
48
<PAGE>
THE COLUMBIA BANK
SENIOR OFFICERS*
John M. Bond, Jr.
President and
Chief Executive Officer
Michael T. Galeone
Executive Vice President
Stephen A. Horvath
Executive Vice President
Robert W. Locke, III
Executive Vice President
Scott C. Nicholson
Executive Vice President
John A. Scaldara, Jr.
Executive Vice President,
Chief Financial Officer
and Secretary
Steven M. Brunn
Senior Vice President
Cesar O. Cabrejas
Senior Vice President
Robert E. Dael
Senior Vice President
Andrea K. Griesmar
Senior Vice President
Brian K. Israel
Senior Vice President
Adelbert D. Karfonta
Senior Vice President
Harold J. Koch
Senior Vice President
Sibyl S. Malatras
Senior Vice President
Melissa M. Quirk
Senior Vice President
Mary Beth Taylor
Senior Vice President
Jeffrey S. Wagner
Senior Vice President
* Information is as of March 30, 2000 and includes newly appointed directors and
officers as a result of the merger of Suburban Bancshares, Inc. and Suburban
Bank of Maryland with and into Columbia Bancorp and The Columbia Bank, effective
March 8, 2000.
49
<PAGE>
BRANCH LOCATIONS*
BELTSVILLE HEAVER PLAZA
10421 Baltimore Boulevard 1301 York Road
Beltsville, MD 20705 Lutherville, MD 21093
Phone: (301) 931-2330 Phone: (410) 296-0490
BETHESDA LONG GATE
7900 Wisconsin Avenue 4450 Long Gate Parkway
Bethesda, MD 20814 Ellicott City, MD 21043
Phone: (301) 654-1040 Phone: (410) 203-2345
BLAKEHURST OAKLAND MILLS
1055 W. Joppa Road 5880 Robert Oliver Place
Towson, MD 21204 Columbia, MD 21045
Phone: (410) 494-6148 Phone: (410) 992-9411
CAPITOL HEIGHTS OXON HILL
8703 Central Avenue 6196 Oxon Hill Road
Capitol Heights, MD 20743 Oxon Hill, MD 20745
Phone: (301) 350-8100 Phone: (301) 567-2650
CLINTON RIVER HILL
7600 Old Branch Avenue 6030 Daybreak Circle
Clinton, MD 20735 Clarkesville, MD 21029
Phone: (301) 868-1215 Phone: (410) 531-7000
COLUMBIA TOWN CENTER ROCKVILLE
10480 Little Patuxent Parkway 30 West Gude Drive
Columbia, MD 21044 Rockville, MD 20850
Phone: (410) 730-5000 Phone: (301) 309-1771
CROSS KEYS ROLAND PARK PLACE
5100 Falls Road, Suite 96 830 West 40th Street
Baltimore, MD 21210 Baltimore, MD 21211
Phone: (410) 433-1990 Phone: (410) 366-1314
EDENWALD TIMONIUM
800 Southerly Road 67 West Aylesbury Road
Baltimore, MD 21286 Timonium, MD 21093
Phone: (410) 821-5699 Phone: (410) 560-1667
ELLICOTT CITY VANTAGE HOUSE
9151 Baltimore National Pike 5400 Vantage Point Road
Ellicott City, MD 21042 Columbia, MD 21044
Phone: (410) 465-4800 Phone: (410) 740-4066
GREENBELT WHITE FLINT
7505 Greenway Center Drive 11414 Rockville Pike
P.O. Box 298 Rockville, MD 20852
Greenbelt, MD 20768 Phone: (301) 770-6625
Phone: (301) 220-0733
WILDE LAKE
HARMONY HALL 10451 Twin Rivers Road
6336 Cedar Lane Columbia, MD 21044
Columbia, MD 21044 Phone: (410) 884-6800
Phone: (410) 531-1933
HARPER'S CHOICE
5485 Harper's Farm Road
Columbia, MD 21044
Phone: (410) 730-5181
* Information is as of March 30, 2000 and includes branches acquired as a result
of the merger of Suburban Bancshares, Inc. and Suburban Bank of Maryland with
and into Columbia Bancorp and The Columbia Bank, effective March 8, 2000.
50
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING
The Annual Meeting of
Stockholders will be held on
Tuesday, May 16, 2000 at
5:30 p.m. at:
Turf Valley Resort
and Conference Center
2700 Turf Valley Road
Ellicott City, MD 21042
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Attn: Investor Relations
Phone: (800) 368-5948
INDEPENDENT AUDITORS
KPMG LLP
111 S. Calvert Street
Baltimore, MD 21202
GENERAL COUNSEL
Piper Marbury Rudnick and Wolfe LLP
6225 Smith Avenue
Baltimore, MD 21209-3600
CORPORATE HEADQUARTERS
10480 Little Patuxent Parkway
Columbia, MD 21044
Phone: (410) 465-4800
Fax: (410) 750-0105
Internet:
http://www.thecolumbiabank.com
STOCK EXCHANGE LISTING
The Common Stock of
Columbia Bancorp is traded
on the Nasdaq National Market
tier of the Nasdaq Stock
Market/SM/ under the
symbol "CBMD."
ADDITIONAL INFORMATION
A copy of Columbia Bancorp's
annual report to the SEC on
Form 10-K may be obtained
without charge upon written
request to:
Columbia Bancorp
9151 Baltimore National Pike
Ellicott City, MD 21042
Attention: John A. Scaldara, Jr.
E-mail: [email protected]
51
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
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 21, 2000
except as to note 16, which is as of February 23, 2000, relating to the
consolidated statements of condition of Columbia Bancorp and subsidiary as of
December 31, 1999 and 1998, and the related consolidated statements of income
and comprehensive income, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999, which report appears in
the December 31, 1999 annual report on form 10-K of Columbia Bancorp.
/s/ KPMG LLP
------------
KPMG LLP
Baltimore, Maryland
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,751
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,703
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,246
<INVESTMENTS-CARRYING> 93,412
<INVESTMENTS-MARKET> 92,356
<LOANS> 315,700
<ALLOWANCE> (4,172)
<TOTAL-ASSETS> 467,711
<DEPOSITS> 367,498
<SHORT-TERM> 36,724
<LIABILITIES-OTHER> 2,596
<LONG-TERM> 20,000
0
0
<COMMON> 45
<OTHER-SE> 40,848
<TOTAL-LIABILITIES-AND-EQUITY> 467,711
<INTEREST-LOAN> 27,743
<INTEREST-INVEST> 5,820
<INTEREST-OTHER> 691
<INTEREST-TOTAL> 34,254
<INTEREST-DEPOSIT> 10,308
<INTEREST-EXPENSE> 12,893
<INTEREST-INCOME-NET> 21,361
<LOAN-LOSSES> 449
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,323
<INCOME-PRETAX> 7,966
<INCOME-PRE-EXTRAORDINARY> 5,215
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,215
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 5.23
<LOANS-NON> 981
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (3,965)
<CHARGE-OFFS> 377
<RECOVERIES> 135
<ALLOWANCE-CLOSE> (4,172)
<ALLOWANCE-DOMESTIC> (4,172)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.1
[LOGO]
COLUMBIA BANCORP
10480 Little Patuxent Parkway
Columbia, Maryland 21044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
Notice is hereby given that the Annual Meeting of Stockholders of Columbia
Bancorp will be held at the Turf Valley Resort and Conference Center, 2700 Turf
Valley Road, Ellicott City, Maryland 21042 on Tuesday, May 16, 2000, at 5:30
p.m. for the following purposes:
1. To elect six 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 April 5, 2000 as the
record date for the determination of stockholders entitled to notice of and to
vote at the meeting or any adjournments or postponements thereof.
Your Proxy is enclosed. You are encouraged to complete, date, sign and return
promptly the Proxy in the envelope provided even though you may plan to attend
the meeting. No postage is necessary for mailing in the United States.
Returning the Proxy will not limit your right to vote in person or to attend the
Annual Meeting, but will insure your representation if you cannot attend. If
you attend the meeting, you may revoke your Proxy and vote in person.
By Order of the Board of Directors
JOHN A. SCALDARA, JR.
Corporate Secretary
Columbia, Maryland
April 13, 2000
<PAGE>
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished on or about April 14, 2000 to stockholders
of Columbia Bancorp (the "Company") in connection with the solicitation of
proxies by the Company's Board of Directors to be used at the annual meeting of
stockholders described in the accompanying notice and at any adjournments or
postponements thereof. The purposes of the meeting are set forth in the
accompanying notice of annual meeting of stockholders.
Proxies and Voting
The accompanying proxy is solicited by the Board of Directors of the Company.
The Board of Directors has selected James R. Moxley, Jr. and Herschel L.
Langenthal, or either of them, to act as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted. This right of revocation is not limited
or subject to compliance with any formal procedure. Any stockholder may attend
the meeting and vote in person whether or not he or she has previously given a
proxy.
The record date for stockholders entitled to notice of and to vote at the
annual meeting was the close of business on April 5, 2000. At that date there
were outstanding and entitled to vote approximately 7,155,233 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, 1999, 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 six 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 April 5, 2000) 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 2000 Annual Meeting
to serve until the 2003 Annual Meeting (Class I)
Anand S. Bhasin Mr. Bhasin is 62 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. Mr.
Bhasin currently serves on the Audit and Community
Reinvestment Act ("CRA") Advisory Committees of the
Company and the Bank.
Robert R. Bowie, Jr. Mr. Bowie is 52 years old. He is a Founding Member of
the law firm Bowie & Jensen, LLC, located in Towson,
Maryland. He is a graduate of Harvard University and
University of Maryland Law School. Mr. Bowie has served
as a director of the Company and the Bank since
December, 1999. Mr. Bowie currently serves on the
Asset/Liability Management and Audit Committees of the
Company and the Bank.
Garnett Y. Clark, Jr. Mr. Clark is 57 years old. He is President of GYC Group
Ltd., a building and development company. He is also
President of Clark & Associates Realtors, Inc. Mr. Clark
currently serves on the Acquisition, Development and
Construction ("ADC"), Executive and Strategic Planning
Committees of the Company and the Bank.
Kenneth H. Michael Mr. Michael is 61 years old. He is the Chairman of The
Michael Companies, a real estate development and
management company. Mr. Michael previously served as a
director of Suburban Bancshares, Inc. ("Suburban") and
Suburban Bank of Maryland ("Suburban Bank"). He has
served as a director of the Company and the Bank since
March 8, 2000, the date on which Suburban and Suburban
Bank were merged with and into the Company and the Bank.
Mr. Michael currently serves as Chairman of the ADC
Committee of the Company and the Bank.
Maurice M. Simpkins Mr. Simpkins is 54 years old. He is Vice President for
Public Affairs at The Ryland Group, Inc., a residential
homebuilder and mortgage
2
<PAGE>
finance company, and has been with Ryland since 1971.
Mr. Simpkins has served as a director of the Company and
Bank since April, 1997. Mr. Simpkins currently serves as
Chairman of the CRA Advisory Committee and also serves
on the ADC Committee of the Company and the Bank.
Robert N. Smelkinson Mr. Smelkinson is 70 years old. He is the retired
Chairman of Smelkinson Sysco, a distribution company.
Mr. Smelkinson currently serves as Chairman of the
Personnel, Compensation and Stock Option ("PCSO")
Committee and also serves on the Executive and Strategic
Planning Committees of the Company and the Bank.
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.
Name of Director Information Regarding Director
- ---------------- ------------------------------
Directors to serve until the 2001 Annual Meeting (Class II)
Hugh F.Z. Cole, Jr. Mr. Cole is 58 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. Mr. Cole
currently serves as Chairman of the Audit Committee of
the Company and the Bank.
G. William Floyd Mr. Floyd is 68 years old. He is a general partner of
Venture Associates, a commercial real estate investment
firm. Mr. Floyd currently serves on the Audit Committee
of the Company and the Bank.
Herschel L. Langenthal Mr. Langenthal is 71 years old. He is the managing
partner of Langenmyer Company, an investment company.
Mr. Langenthal is Chairman of the Executive Committee of
the Company and the Bank and also serves on the
Asset/Liability Management, PCSO and Strategic Planning
Committees of each.
Richard E. McCready Mr. McCready is 66 years old. He is Chairman and CEO of
Eastern Sales and Marketing, a food brokerage company.
Mr. McCready currently serves on the Asset/Liability
Management Comm ittee of the Company and the Bank.
James R. Moxley, Jr. Mr. Moxley is 69 years old. He is President of Security
Development Corporation, a real estate development
company. Mr. Moxley is also Vice-Chairman of the Company
and is the father of Mr. Moxley, III. Mr. Moxley is
Chairman of the Strategic Planning Committee and also
serves on the ADC, Asset/Liability Management, CRA
Advisory, Executive and PCSO Committees of the Company
and the Bank.
3
<PAGE>
Vincent D. Palumbo Dr. Palumbo is 65 years old. He is President of V.D.
Palumbo, P.A. and is an oral and maxillofacila surgeon,
practicing in Fort Washington, Maryland. Dr. Palumbo
previously served as a director of Suburban and Suburban
Bank. He has served as a director of the Company and the
Bank since March 8, 2000, the date on which Suburban and
Suburban Bank were merged with and into the Company and
the Bank. Dr. Palumbo currently serves on the ADC and
Asset/Liability Management Committees of the Company and
the Bank.
Lawrence A. Shulman Mr. Shulman is 57 years old. Mr. Shulman is President of
Shulman, Rogers, Gandal, Pordy & Ecker, P.A., a law firm
in Rockville, Maryland. Mr. Shulman previously served as
a director of Suburban and Suburban Bank. He has served
as a director of the Company and the Bank since March 8,
2000, the date on which Suburban and Suburban Bank were
merged with and into the Company and the Bank. Mr.
Shulman currently serves on the Audit and PCSO
Committees of the Company and the Bank.
Directors to serve until the 2002 Annual Meeting (Class III)
John M. Bond, Jr. Mr. Bond, Jr. is 56 years old and has served as a
director and President, Chief Executive Officer, and
Treasurer of the Company since inception. Mr. Bond, Jr.
has also served as a director and President and Chief
Executive Officer of the Bank since inception. Mr. Bond
serves on the ADC, Asset/Liability Management, CRA
Advisory, Executive and Strategic Planning Committees of
the Company and the Bank.
William L. Hermann Mr. Hermann is 58 years old and is President of William
L. Hermann, Inc., a financial management company. Mr.
Hermann served as 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.
Mr. Hermann is Chairman of the Asset/Liability
Management Committee and also serves on the Strategic
Planning Committee of the Company and the Bank.
Charles C. Holman Mr. Holman is 66 years old. Since June, 1992 and until
his retirement effective December 31, 1998, Mr. Holman
served as Executive Vice President of the Bank and was
responsible for the Bank's acquisition, development and
construction loan portfolio. Mr. Holman has served as a
director of the Company and the Bank since December,
1998. Mr. Holman currently serves on the ADC and
Executive Committees of the Company and the Bank.
Winfield M. Kelly, Jr. Mr. Kelly is 64 years old. He is the President and CEO
of Dimensions Healthcare System, a health care company
located in Largo, Maryland. Mr. Kelly was appointed
Chairman of the Company and the Bank effective March 8,
2000, the date on which Suburban and Suburban Bank were
merged with and into the Company and the Bank.
Previously, Mr. Kelly served as Chairman and Chief
Executive Officer of Suburban and Suburban Bank. Mr.
Kelly serves on the ADC, Asset/Liability Management, CRA
Advisory, Executive, PCSO, and Strategic Planning
Committees of the Company and the Bank.
4
<PAGE>
Harry L. Lundy, Jr. Mr. Lundy is 59 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. Mr. Lundy currently serves on the ADC and
Strategic Planning Committees of the Company and the
Bank.
James R. Moxley, III Mr. Moxley, III is 39 years old. He is Vice President of
SDC Group, a real estate development company. He is the
son of Mr. Moxley, Jr. Mr. Moxley, III has served as a
director of the Company and the Bank since April 1999.
Mr. Moxley, III currently serves on the Asset/Liability
Management and CRA Advisory Committees of the Company
and the Bank.
Mary S. Scrivener Mrs. Scrivener is 62 years old. She is Secretary of
Calvert General Contractors, a commercial construction
company. Mrs. Scrivener currently serves on the CRA
Advisory and PCSO Committees of the Company and the
Bank.
Albert W. Turner Mr. Turner is 83 years old. He is a senior partner of
Carrollton Enterprises, Ltd., a real estate development
and management company located in Beltsville, Maryland.
Mr. Turner previously served as a director of Suburban
and Suburban Bank. He has served as a director of the
Company and the Bank since March 8, 2000, the date on
which Suburban and Suburban Bank were merged with and
into the Company and the Bank. Mr. Turner currently
serves on the Executive Committee of the Company and the
Bank.
Theodore G. Venetoulis Mr. Venetoulis is 65 years old. He is the President of
H&V Communications, a media and publishing company. 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. Mr. Venetoulis currently serves on
the CRA Advisory, Executive and Strategic Planning
Committees of the Company and the Bank.
Directors Emeritus
Mr. James Clark, Jr., Ms. Mary Gould and Ms. Patricia Rouse currently serve as
Directors Emeritus of the Company and the Bank. 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.
Terms for Mr. Clark, Jr., Ms. Gould and Ms. Rouse expire in May, 2000.
Board and Committee Meetings
The Board of Directors held eleven meetings during 1999. 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 1999.
The Board of Directors has seven standing committees. The committees are the
Executive; Acquisition, Development and Construction ("ADC"); Audit;
Asset/Liability Management ("ALM");
5
<PAGE>
Community Reinvestment Act ("CRA") Advisory; Personnel, Compensation and Stock
Option ("PCSO") and Strategic Planning committees. The Board of Directors has
not established a nominating committee. The functions customarily attributable
to a nominating committee are performed by the PCSO Committee and the Board of
Directors as a whole. The Board of Directors will consider nominees recommended
by stockholders. Such recommendations should be directed to the Board of
Directors of the Company in care of the Secretary. In addition, the Board of
Directors, from time to time, establishes special committees which have a
limited duration. Directors are appointed to each committee for a one-year term.
The Chairman of the Board and Vice-Chairman of the Board, are members of all
committees appointed, with the exception of the Audit Committee. The President
is a member of all committees appointed, with the except the Audit and PCSO
committees.
The Executive Committee held thirty-one meetings during 1999. During 1999,
the Executive Committee consisted of Directors Bond, Jr., Holman, Langenthal
(Chairman) and Moxley, Jr., and three additional directors who served as
Committee members on a rotational basis. Currently, the Executive Committee
consists of Directors Bond, Jr., Clark, Holman, Kelly, Langenthal (Chairman),
Moxley, Jr., Smelkinson, Turner 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.
The ADC Committee held five meetings during 1999. During 1999, the ADC
Committee consisted of Directors Bond, Jr., G. Clark (Chairman), Holman,
Langenthal, Lundy, Moxley, Jr. and Simpkins. Currently, the ADC Committee
consists of Directors Bond, Jr., Clark, Holman, Kelly, Lundy, Michael
(Chairman), Moxley, Jr., Palumbo and Simpkins. The Committee is responsible for
monitoring business development strategies and market trends specific to the
Company's acquisition, development and construction loan portfolio.
The Audit Committee held two meetings during 1999. During 1999, the Audit
Committee consisted of Directors Bhasin, Cole (Chairman), Floyd, Hermann and
Venetoulis. Currently, the Audit Committee consists of Directors Bhasin, Bowie,
Cole (Chairman), Floyd and Shulman. The Committee is responsible for overseeing
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 ALM Committee held four meetings during 1999. During 1999, the ALM
Committee consisted of Directors Bhasin, Bond, Jr., Hermann (Chairman),
Langenthal, Moxley, Jr., Moxley, III and Scrivener. Currently, the ALM
Committee consists of Directors Bond, Jr., Bowie, Hermann (Chairman), Kelly,
Langenthal, McCready, Moxley, Jr., Moxley, III and Palumbo. The Committee
monitors quarterly operating results, liquidity, asset mix, interest rate risk,
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 four meetings during 1999. During 1999, the
CRA Advisory Committee consisted of Directors Bhasin, Bond, Jr., Langenthal,
Moxley, Jr., Simpkins (Chairman) and Venetoulis. Currently, the CRA Advisory
Committee consists of Directors Bhasin, Bond, Jr., Kelly, Moxley, Jr., Moxley,
III, Scrivener, Simpkins (Chairman) and Venetoulis. 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 PCSO Committee held four meetings during 1999. During 1999, the PCSO
Committee consisted of Directors Langenthal, Lundy, McCready, Moxley, Jr.,
Simpkins, Smelkinson (Chairman) and Venetoulis. Currently, the PCSO Committee
consists of Directors Kelly, Langenthal, Moxley, Jr., Scrivener, Shulman and
Smelkinson (Chairman). The Committee oversees the compensation of all
6
<PAGE>
employees, except the compensation of the President and directors; reviews the
compensation of the President and directors, and makes recommendations regarding
changes to such 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.
In 1999, the Board of Directors established the Strategic Planning Committee.
During 1999, the Strategic Planning Committee consisted of Directors Bond, Jr.,
Hermann, Langenthal, Moxley, Jr., Smelkinson and Venetoulis. Currently, the
Strategic Planning Committee consists of Directors Bond, Jr., Clark, Hermann,
Kelly, Langenthal, Moxley, Jr. (Chairman), Lundy, Smelkinson and Venetoulis.
The Committee is responsible for analyzing the challenges and opportunities
which the Company faces in a dynamic banking industry and establishing strategic
initiatives.
Compensation of Directors
Non-employee directors of the Company and the Bank will receive $150 and stock
options to purchase thirty shares of Common Stock of the Company for each Board
and committee meeting, other than the Strategic Planning Committee, attended
during 2000. Chairpersons of committees, other than directors Langenthal and
Moxley, Jr., will receive $250 for each committee meeting attended during 2000.
Directors Moxley, Jr. and Langenthal, serving in the capacities of Chairman and
Vice-Chairman of the Company through March 8, 2000 and as Vice-Chairman and
Chairman of the Executive Committee, thereafter, 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 1999. Beginning March 8, 2000, Mr. Kelly will receive annual compensation
of $60,000 in his capacity as Chairman. The Chairman, Vice-Chairman and
Chairman of the Executive Committee are also eligible for a bonus to be awarded
at the discretion of the Board of Directors. No bonus was awarded for service
during 1999. Total director fees paid by the Company and the Bank for 1999
service were $125,250, inclusive of annual fees paid to the Chairman and Vice-
Chairman. In addition, on December 31, 1999, stock options to purchase 13,410
shares of the Company's Common Stock at $11.3125 per share, the then current
market price, were granted to directors for meeting attendance during 1999.
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, 1999, 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, III and Executive Vice President Nicholson
inadvertently each filed late the report required by Section 16(a) of the Act to
recognize their appointments as director and executive officer, respectively.
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
7
<PAGE>
than the normal risk of collectibility or present other unfavorable features. At
December 31, 1999, these loans totaled $3.4 million, or approximately 8.7% of
the total equity capital of the Bank.
In November 1997, the Bank acquired through foreclosure a 75% interest in a
residential development project consisting of 262 residential building lots in
various stages of development. Also, in November 1997, the Bank engaged The
Michael Companies, a real estate development company owned solely by Mr. Kenneth
Michael, to serve as development and marketing manager with respect to the
project. The Michael Companies earns a development fee of $1,200 per lot as
lots are developed and sold, $200 of which is deferred until all public
improvements have been dedicated and any bonds related to the property have been
released. In addition, The Michael Companies earns a sales commission of 4%,
the Bank's share being 3%, of the sales price of each lot at settlement. In
1998, the Bank paid The Michael Companies sales commissions of $52,380 and
development fees of $31,500, of which $5,250 was deferred. In 1999, the Bank
paid The Michael Companies sales commissions of $73,980 and development fees of
$51,300, of which $8,550 was deferred. As of December 31, 1999, 170 lots were
under option contract of sale at prices ranging from $31,000 to $50,000 with a
takedown schedule that extends through September 2003.
Pursuant to a services agreement between the Company and Winfield M. Kelly,
Jr., effective March 8, 2000, Mr. Kelly will serve as the Chairman of the
Company and the Bank. Under the services agreement, Mr. Kelly will receive (i)
annual director's fees of $60,000, and (ii) certain employee benefits. The term
of the amended agreement will expire upon the expiration of Mr. Kelly's initial
term as a director of the Company and is subject to automatic renewal upon his
re-election as Chairman by the board of directors. If the agreement is
terminated by the Company without cause or if Mr. Kelly terminates the agreement
for "cause", the Company must pay Mr. Kelly the sum of $120,000 as severance
compensation. If Mr. Kelly's agreement is terminated by the Company for
"cause", he will be entitled only to compensation earned prior to such
termination. Upon the earlier of (i) five years from March 8, 2000 or (ii) in
the event that the agreement is terminated or not renewed as a result of any
sale or exchange of stock resulting in a change in a controlling interest of the
Company or the Bank, the Company will pay Mr. Kelly $200,000 as additional
compensation.
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 March 24,
2000.
Beneficial Ownership of Executive Officers, Directors and Nominees
The following table lists the number of shares of Common Stock of the Company
beneficially owned at March 24, 2000 by directors and named Executive Officers
of the Company and the Bank, directly or indirectly.
<TABLE>
<CAPTION>
Shares of Stock % of
Common Stock Options/(1)/ Class
------------ ------------ -----
<S> <C> <C> <C>
Continuing Directors:
John M. Bond, Jr./(2)(3)/ 223,864 36,104 3.62
Hugh F.Z. Cole, Jr./(4)/ 44,239 3,283 *
G. William Floyd 28,196 435 *
William L. Hermann/(5)/ 56,460 1,490 *
Charles C. Holman 16,560 14,380 *
Winfield M. Kelly, Jr. 136,207 11,690 2.06
Herschel L. Langenthal/(6)/ 92,912 16,835 1.53
Harry L. Lundy, Jr./(7)/ 104,470 2,914 1.50
Richard E. McCready 46,112 2,423 *
James R. Moxley, Jr./(8)/ 47,437 23,008 *
James R. Moxley, III/(9)/ 11,653 270 *
Vincent D. Palumbo 60,180 2,338 *
Mary S. Scrivener 53,650 1,355 *
Lawrence A. Shulman 6,726 584 *
Albert W. Turner 211,924 584 2.97
Theodore G. Venetoulis/(10)/ 26,362 3,785 *
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Director Nominees:
Anand S. Bhasin/(11)/ 46,742 2,889 *
Robert R. Bowie, Jr. 100 - *
Garnett Y. Clark, Jr. 46,409 4,411 *
Kenneth H. Michael 42,342 2,338 *
Maurice M. Simpkins 11,174 1,685 *
Robert N. Smelkinson 118,040 5,382 1.72
Executive Officers:
Michael T. Galeone 5,912 19,300 *
Robert W. Locke/(12)/ 22,261 8,675 *
Scott C. Nicholson/(13)/ 1,844 12,000 *
John A. Scaldara, Jr./(14)(15)/ 92,344 23,310 1.61
========= ======= =====
All directors and executive
officers (26 persons)/(16)/ 1,465,070 201,468 22.65%
========= ======= =====
Company totals 7,155,233 302,916
========= =======
</TABLE>
* Less than 1%
/(1)/ Represents the number of shares of Common Stock subject to stock options
currently exercisable.
/(2)/ Includes 46,088 shares of Common Stock and 2,104 stock options for which
Mr. Bond, Jr. is a co-trustee and a remainder beneficiary. Also includes
33,888 shares held by Mr. Bond, Jr.'s spouse and 11,000 shares for which
Mr. Bond, Jr. has power of attorney.
/(3)/ Includes 89,050 shares of Common Stock held by the Company's 401(k) Plan
and Trust on December 31, 1999 for which Mr. Bond, Jr. serves as a
trustee. Beneficial ownership of such shares is expressly disclaimed,
except as to 18,214 shares held for the account of Mr. Bond, Jr.
/(4)/ Includes 692 shares of Common Stock for which Mr. Cole is a trustee.
/(5)/ Includes 7,228 shares of Common Stock owned by a corporation of which Mr.
Hermann owns an interest.
/(6)/ Includes 23,424 shares of Common Stock for which Mr. Langenthal is a
trustee and 39,990 shares of Common Stock owned by two partnerships and a
corporation of which Mr. Langenthal owns an interest. Also includes 7,040
shares held by Mr. Langenthal's spouse.
/(7)/ Includes 42,975 shares of Common Stock for which Mr. Lundy is a trustee
and 58,812 shares of Common Stock owned by a corporation and a limited
partnership of which Mr. Lundy owns an interest.
/(8)/ Includes 10,658 shares held Mr. Moxley, Jr.'s spouse.
/(9)/ Includes 2,671 shares of Common Stock owned by Mr. Moxley, III's children
and 216 shares held by Mr. Moxley, III's spouse.
/(10)/ Includes 26,220 shares of Common Stock held by a trust; the beneficial
ownership of such shares is expressly disclaimed.
/(11)/ Includes 4,088 shares of Common Stock owned by Mr. Bhasin's children and
4,806 shares held by Mr. Bhasin's spouse.
/(12)/ Includes 2,449 shares of Common Stock held for the account of Mr. Locke
in the Company's 401(k) Plan and Trust and 628 shares held by Mr. Locke's
spouse.
/(13)/ Shares are held for the account of Mr. Nicholson in the Company's 401(k)
Plan and Trust.
/(14)/ Includes 322 shares of Common Stock for which Mr. Scaldara is trustee.
/(15)/ Includes 89,050 shares of Common Stock held by the Company's 401(k) Plan
and Trust on December 31, 1999 for which Mr. Scaldara serves as a
trustee. Beneficial ownership of such shares is expressly disclaimed,
except as to 8,634 shares held for the account of Mr. Scaldara.
/(16)/ Includes 89,050 shares of Common Stock held by the Company's 401(k) Plan
and Trust for which Mr. Bond, Jr. and Mr. Scaldara are trustees.
9
<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 1999. The Committee is currently composed of
the following non-employee Directors of the Company:
Robert N. Smelkinson, Chairman James R. Moxley, Jr.
Winfield M. Kelly, Jr. Mary S. Scrivener
Herschel L. Langenthal Lawrence A. Shulman
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, Vice-
Chairman, and Chairman of the Executive Committee 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 1997 Stock Option
Plans and 401(k) Plan and Trust, and the Bank's 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.
The Company utilizes an internal salary administration plan for the basis of
its analysis of compensation levels throughout the Company, including senior
officers. The plan includes job descriptions for all positions and rates the
overall responsibility of each position based on characteristics including, job
knowledge, problem-solving, accountability, human relations, communications,
supervision of others and marketing. Each position is assigned to a salary grade
based on level of overall responsibility. Salary ranges for each salary grade
are developed 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 SNL Executive Compensation Review, Bank
Administration Institute Bank Cash Compensation and Key Executive
Compensation Surveys, and Starkey & Beall Regional Financial Industry
Salary Survey.
With respect to the base salary of $230,925 granted to Mr. Bond, Jr. for
the year 1999, the Committee took into account the Company's performance
during 1998 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 growth, and the Company's
continued strong financial performance.
10
<PAGE>
(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.
(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 1997 Stock Option Plan.
Personnel, Compensation and Stock Option Committee:
Robert N. Smelkinson, Chairman Mary S. Scrivener
Herschel L. Langenthal Theodore G. Venetoulis
James R. Moxley, Jr.
Compensation Committee Interlocks and Insider Participation
The table below provides the aggregate balance at December 31, 1999 of loans
in excess of $60,000 issued by the Bank to members of the PCSO Committee and/or
their affiliates. 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, 1999
----------------------------
James R. Moxley, Jr. $1,297,215
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 (collectively, the
"Executive Officers") whose total annual salary and bonus exceeded $100,000
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation (a) Shares of Common
Name and ---------------------------- Stock Underlying All Other
Principal Position Year Salary Bonus Options Awarded Compensation (b)
- ------------------ ---- ------ ----- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
John M. Bond, Jr. 1999 $230,925 $ - 12,000 $ (3,606)
President and CEO 1998 225,000 - 40,000 21,538
1997 215,000 - - 55,010
Michael T. Galeone 1999 $164,000 $12,000 2,000 $13,598
Executive Vice President 1998 160,000 15,000 8,000 14,996
1997 154,000 - - 8,505
Robert W. Locke 1999 $125,500 $12,000 3,500 $ 9,506
Executive Vice President 1998 115,500 7,500 8,000 11,814
1997 109,000 - - 14,633
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Scott C. Nicholson 1999 $121,333 $12,000 2,000 $ 3,800
Executive Vice President 1998 109,200 15,000 6,000 2,915
1997 104,000 - 6,000 2,939
John A. Scaldara, Jr. 1999 $140,000 $12,000 5,000 $ 7,105
Executive Vice President, 1998 130,000 - 8,000 12,454
Chief Financial Officer 1997 120,000 - 6,000 18,551
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 1999 for such officer in the
Summary Compensation Table.
(b) The amounts represent 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. The amounts
also include discretionary matching contributions made by the Bank as
determined under terms of the Bank's Deferred Compensation Plan and a
charge (credit) to reflect the appreciation (depreciation) of the
participants' account balance during the year. In addition, the Deferred
Compensation Plan provides for payment of a death benefit in the event that
a participant dies while in active service. At January 1, 2000, the death
benefit for each of the Executive Officers was as follows: Mr. Bond, Jr.,
$925,000; Mr. Galeone, $720,000; Mr. Locke, $356,000, and Mr. Scaldara,
Jr., $750,000.
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, 1999 to the Executive Officers:
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise or Grant Date
Name Options Granted (b) Fiscal Year Base Price Expiration Date Value (a)
- ---- ------------------- -------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
John M. Bond, Jr. 12,000 24.8% $16.00 January 20, 2009 $77,640
Michael T. Galeone 2,000 4.1% $16.00 January 18, 2009 $12,940
Robert W. Locke 3,500 7.2% $16.00 January 18, 2009 $22,645
Scott C. Nicholson 2,000 4.1% $16.00 January 18, 2009 $12,940
John A. Scaldara, Jr. 5,000 10.3% $16.00 January 18, 2009 $32,350
</TABLE>
___________________
(a) Estimated using the Black-Scholes option pricing model and the following
assumptions as of the grant date:
Dividend yield 2.00%
Expected volatility 35.03%
Risk free interest rate (average) 4.70%
Expected life 10 years
(b) The stock options granted become vested to the extent of 25% after one year
from the date of grant, 50% after two years from the date of grant, 75%
after three years from the date of grant and 100% after four years from the
date of grant.
12
<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 1999 and outstanding stock options as of December 31, 1999 for the
Executive Officers. There were no adjustments or amendments to the exercise
price of stock options previously awarded to any Executive Officer during 1999.
<TABLE>
<CAPTION>
Shares of
Common Stock Underlying Value of Unexercised
Unexercised Options In-The-Money
Shares of at Fiscal Options at Fiscal
Common Year-End Year-End
Stock Acquired Value --------------------------- ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Bond, Jr. - $ - 21,000 42, 000 $71,363 -
Michael T. Galeone 2,200 $15,934 16,800 8,000 $97,863 -
Robert W. Locke 2,200 $16,209 5,800 9,500 $25,269 -
Scott C. Nicholson - $ - 8,500 9,500 $26,888 $938
John A. Scaldara, Jr. 440 $ 3,187 18,560 14,000 $89,524 $938
</TABLE>
13
<PAGE>
Employment Contracts and Change in Control Agreements
The Company and the Bank entered into an employment agreement dated February
26, 1996 with John M. Bond, Jr. (the "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 $250,000 effective January 1, 2000, 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, Locke, Nicholson and Scaldara also have employment agreements
specifying minimum annual base compensation of $168,000, $132,000, $132,000 and
$146,000, respectively, effective January 1, 2000. The other terms of these
agreements are similar to those of the Agreement, except that the duration is a
two-year continuous period and the lump sum payment payable in the event of (i)
termination other than for "cause", (ii) resignation due to a significant change
in the nature and scope of authorities and duties, or (iii) resignation as a
result of not having been offered a new employment agreement with similar terms,
90 days prior to, or within one year after, any "change in control" of the
14
<PAGE>
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 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, 1999 with that of a broad
market index (Nasdaq, U.S. Companies), and two industry peer group indices: (i)
SNL Securities LC Bank Index for banks with assets from $250 million through
$500 million ("SNL $250-$500M Bank Index") and (ii) publicly traded commercial
banks in Maryland, Pennsylvania, Virginia and the District of Columbia with
total assets less than $1 billion ("CBMD Peer Group"). The graph assumes $100
was invested on December 31, 1994 in the Company's Common Stock and in each of
the indices and assumes reinvestment of dividends.
Five Year Cumulative Return
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
<TABLE>
<CAPTION>
Index Data:
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Columbia Bancorp 100.00 129.75 163.38 266.30 271.02 185.11
Nasdaq - Total US 100.00 141.33 173.89 213.07 300.25 542.43
SNL $250-$500M Bank Index 100.00 134.95 175.23 303.07 271.41 252.50
CBMD Peer Group 100.00 116.02 134.14 211.89 201.27 177.19
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors of the Company has selected KPMG LLP, independent
auditors, to audit the Company's financial statements for the year ending
December 31, 2000. KPMG LLP has performed the annual audits of the Company
since its inception. Representatives of KPMG 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 2001 Annual Meeting
of Stockholders must be received by the Company not later than December 15, 2000
for inclusion in the Company's proxy statement and proxy relating to that
meeting. The Company's by-laws require stockholders who intend to propose
business for consideration by stockholders at an annual meeting, other than
stockholder proposals that are included in the proxy statement, to give written
notice to the Secretary of the Company not less than sixty days and not more
than ninety days before the anniversary of the prior year's meeting. A
stockholder must submit a matter to be raised at the Company's 2001 meeting of
stockholders on or after February 15, 2001, but not later than March 17, 2001.
The written notice should be sent to the Company's principal office and must
include a brief description of the business, the reasons for conducting such
business, any material interest the stockholder has in such business, the name
and address of the stockholder as they appear on the Company's books and the
number of shares of the Company's Common Stock the stockholder beneficially
owns. If a stockholder intends to present a stockholder proposal at the 2001
Annual Meeting in a manner other than the inclusion of the proposal in the
Company's proxy statement and proxy relating to that meeting, unless the
stockholder notifies the Company of such intention by February 28, 2001, the
proxy holders named by the Company may exercise their discretionary voting
authority on the matter in accordance with their best judgement.
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
John A. Scaldara, Jr.
Corporate Secretary
April 13, 2000
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<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 James R. Moxley, Jr.
and Herschel L. Langenthal, 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 May 16,
2000, 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.
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<PAGE>
For Withhold For All
Except
1. Election of Directors [ ] [ ] [ ]
A. Bhasin, R. Bowie, Jr., G. Clark, Jr., K. Michael,
M. Simpkins, R. Smelkinson
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.
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