May 6, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
450 5th Street, N.W.
Washington, D.C. 20549
Re: Registration on Form 10
Union National Bancorp, Inc.
Dear Sir/Madam:
On behalf of Union National Bancorp, Inc. (the "Company"), we hereby
transmit for filing Form 10 - General Form for Registration of Securities
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
Please contact Abba David Poliakoff at (410) 576-4067 or Edward E.
Obstler at (410) 576-4227 with any questions or comments.
Very truly yours,
Matthew S. Gilman
:lll
attachment
F10LTR.FRM
cc: Edward E. Obstler, Esquire
Abba David Poliakoff, Esquire
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
UNION NATIONAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1862338
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
117 East Main Street, Westminster, Maryland 21157
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (410) 848-7200
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
<PAGE>
ITEM 1. BUSINESS
General
Union National Bancorp, Inc. ("Union National") was incorporated under
the laws of the State of Maryland on January 19, 1994, and is a one-bank holding
company headquartered in Westminster, Maryland.
Union National is primarily engaged in commercial and retail banking
services and in businesses related to banking services through its sole
subsidiary, Union National Bank ("UNB"). UNB was founded in Westminster in 1816
under the name of Bank of Westminster, and was briefly known during the period
of 1821 to 1830 as a branch of the Farmers & Mechanics Bank of Frederick. In
1865, UNB became known as "The Union National Bank of Westminster". UNB is
currently in its 180th year of operation.
Market Areas
The primary service area of UNB consists of all of Carroll County,
Maryland, the western portion of Baltimore County, Maryland, and the very
northern edge of Howard County, Maryland.
Union National does not maintain data on specific characteristics of
its market area. The geographic market information concerning Carroll County is
taken from "Demographic & Development Data Manual" published by the Carroll
County Department of Planning (July 1995) and "Brief Economic Facts of Carroll
County, Maryland" published by the Carroll County Department Economic
Development (1995-1996).
Carroll County (the "County"), one of seven jurisdictions of the
Baltimore metropolitan area, lies 31 miles northwest of Baltimore and 56 miles
north of Washington, D.C. The County seat is Westminster, and it includes seven
other incorporated towns. While farming and agri-business remain an important
and vital part of Carroll County's economy, commercial and industrial activities
have gained in economic importance. The largest business clusters are located in
the central, western and southern portions of the County.
Carroll County has experienced a growth in population of approximately
13% overall during the past five years. Approximately 54% of the County's
population commutes to work to areas outside of Carroll County. The County labor
force is highly independent and rooted in strong, rural, work ethic tradition.
Manufacturing accounts for over 14% of total employment. During 1995, Carroll
County experienced an unemployment rate of 4.5%, up just slightly from 4.4% in
1994. No significant change is expected in the unemployment rate as industry and
business continues to grow in Carroll County.
Based on UNB's experience in real estate lending transactions and the
appraisals obtained for such transactions, real estate values in Carroll County
remained relatively flat for the past five years, with a mild decline in values
over the past two years.
UNB has eight full service banking offices in Carroll County, four of
which are located in Westminster, one in Finksburg, one in Hampstead, one in
Eldersburg, and one in Sykesville. UNB also has one loan production office,
which is located in the same building as Union National's office headquarters in
Westminster, Maryland.
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Lending and Deposit Activities
Lending Activities
UNB provides a full range of retail and commercial banking services
designed to meet the borrowing and depository needs of small and medium sized
businesses and consumers in local areas. Substantially all of UNB's loans are to
customers located within its service area. UNB has no foreign loans or highly
leveraged transaction loans, as defined by the Federal Reserve Board ("FRB").
All of the loans in UNB's loan portfolio have been originated by UNB. UNB
conducts its lending activities pursuant to the loan policies adopted by its
Board of Directors. These loan policies grant individual loan officers authority
to make secured and unsecured loans in specific dollar amounts; larger loans
must be approved by senior officers or various loan committees. UNB's management
information systems and loan review policies are designed to monitor lending
sufficiently to ensure adherence to UNB's loan policies.
The commercial loans offered by UNB include (i) commercial real estate
loans, (ii) working capital and other commercial loans, (iii) construction
loans, (iv) SBA-guaranteed loans, and (v) agricultural loans. UNB's commercial
real estate loans are used to provide permanent financing for retail and office
buildings, multiple-family buildings and churches. Commercial real estate
secured loans are generally written for a fifteen year term or amortized over a
longer period with balloon payment by the fifteenth year. Personal guarantees
are obtained on nearly all commercial loans. Credit analyses, loan review and an
effective collections process are also used to minimize any potential losses.
UNB employs five full-time commercial loan officers.
Consumer loans offered by UNB include (i) residential real estate
loans, (ii) personal unsecured lines of credit, (iii) personal installment loans
(including indirect lending through auto sales companies), and (iv) home equity
loans (fixed-rate term and open ended revolving lines of credits).
Residential mortgage products include adjustable rate as well as
conventional, fixed-rate loans. Terms vary from a five-year balloon to a 30-year
fully amortized loan. UNB does not purchase loans but is active in secondary
market lending and is also a member of the Federal Home Loan Bank of Atlanta.
Personal unsecured revolving lines of credit with variable interest rates and
principal amounts ranging from $1,000 to $10,000 are offered to credit-worthy
bank customers. The largest segment of UNB's installment loan portfolio is
secured by motor vehicles and are fixed-rate loans. "Indirect dealer paper"
accounts for most of the loans, although direct auto loans are also available
with terms of 30 to 48 months for used cars and up to 60 months for new cars.
Credit checks, credit scoring and debt to income ratios of 40% or less are used
to qualify borrowers. Home equity products include both a fixed-rate term
product and an open-end revolving line of credit with maximum loan to value
ratios of 85% of current appraisal or 80% of current tax assessment.
Lending in the residential area remained constant in 1996 while the
installment area saw growth of 3.2%. Industry standard debt to income ratios are
used to qualify borrowers on all consumer loans. Managers and assistant managers
have retail lending authorities at each of the branch locations. In addition,
UNB employs two full-time retail lenders and one mortgage lender in the central
loan production office in Westminster, Maryland.
Loan Approval
Individual loan authorities are established by UNB's Board of Directors
upon recommendation by the Senior Credit Officer. In establishing individual
loan authority the experience of the lender is taken
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into consideration, as well as the type of lending in which the officer is
involved. The Officer's Loan Committee consists of the President of UNB, the
Senior Credit Officer, Senior Commercial Loan Officer and at least one other
Commercial Loan Officer and the Credit Analyst. The Officer's Loan Committee has
the authority to approve and consummate loans up to $1,600,000. The full Board
of Directors reviews on a monthly basis all commercial and residential loans
approved by individual officers and the Officer's Loan Committee. All loan
requests exceeding $1,600,000 must be approved by the Management Oversight
Committee. These requests come to the Committee with a review, analysis and
recommendation by the lender and the Officer's Loan Committee.
UNB generally requires that loans secured by first mortgages on real
estate have loan to value ratios within specified limits, ranging from 65% for
loans secured by raw land to 80% for improved property, with the exception of
secondary market programs which allow loan to value ratios as high as 97%. UNB
also makes loans secured by second mortgages on real estate. UNB offers
Adjustable Rate Mortgage products, as well as conventional fixed rate products.
UNB participates in various community development programs in an effort
to meet its responsibilities under the Community Reinvestment Act ("CRA"). UNB
has consistently rated a "Satisfactory" record in meeting its obligations under
the CRA.
Deposit Activities
UNB also offers a full range of deposit and personal banking services
insured by the Federal Deposit Insurance Corporation ("FDIC"), including (i)
commercial checking and small business checking products, (ii) trust and cash
management services, (iii) retirement accounts such as Individual Retirement
Accounts ("IRA") and Simplified Employee Pension accounts, retail deposit
services such as certificates of deposit, money market accounts, savings
accounts, checking account products and Automated Teller Machines ("ATMs"),
Point of Sale and other electronic services, and (iv) other personal
miscellaneous services such as safe deposit boxes, foreign draft, foreign
currency exchanges, night depository services, travelers checks, merchant credit
cards, direct deposit of payroll, U.S. savings bonds, official bank checks and
money orders. UNB offers credit cards and a full range of trust services through
one of its correspondent banking relationships.
The principal sources of funds for UNB are core deposits (demand
deposits, interest-bearing transaction accounts, money market accounts, savings
deposits and certificates of deposit). UNB solicits these deposits from
individuals, businesses, foundations and governmental authorities. Substantially
all of UNB's deposits are from the local market areas surrounding each of its
offices.
Investment Portfolio and Activities
UNB's investment portfolio has several objectives. A key objective is
to provide a balance in UNB's asset mix of loans and investments consistent with
its liability structure, and to assist in management of interest rate risk. The
investments augment UNB's capital position in the risk based capital formula,
providing the necessary liquidity to meet fluctuations in credit demands of the
community and fluctuations in deposit levels. In addition, the portfolio
provides collateral for pledging against public funds, and a reasonable
allowance for control of tax liabilities. Finally, the investment portfolio is
designed to provide income for UNB. In view of the above objectives, the
portfolio is treated conservatively by management, and only securities that pass
conservative investment criteria are purchased. UNB does not engage in any
derivatives trading. The portfolio will commonly fluctuate between 20% and 30%
of UNB's assets.
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Additional Activities
UNB provides its customers with access to investment products through a
third party vendor, Primevest Financial Services, Inc., which offers annuities
and mutual fund products and is based in Minnesota.
Competition
UNB operates in a highly competitive environment, competing for
deposits and loans with commercial banks, savings banks, thrift institutions,
credit unions, and finance and mortgage companies. Some of these competitors
possess substantially greater financial resources than those available to UNB.
Also, certain of these institutions have significantly higher lending limits
than UNB and may provide various services for their customers, such as trust
services, which UNB does not offer directly to its customers.
UNB does not maintain data concerning its competitive position within
its market area. Occasionally, limited market share data is produced by third
parties. According to a 1996 publication by the FDIC, at June 30, 1996 UNB had a
13.7% market share of deposits held by the Carroll County branches of banks,
savings associations and credit unions. Two other institutions had larger
deposit market shares (28.8% and 14.2%) for their Carroll County branches.
Financial institutions compete generally on the basis of rates and
service. In its lending business, UNB is subject to increasing competition from
consumer finance companies and mortgage companies which are not subject to the
same kind of regulatory restrictions as banks. Union National anticipates that
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, will
increase competitive pressures in UNB's market by permitting entry of additional
competitors.
While UNB will seek to remain competitive with the interest rates that
it charges on loans and offers on deposits, UNB believes that its success has
been and will continue to be due to its emphasis on its community banking,
customer service and relationships. With the continuing consolidation in the
banking industry, particularly in UNB's markets, smaller profitable banks are
gaining opportunities where larger institutions exit markets that are only
marginally profitable for them. Management of Union National believes it can
profitably utilize such opportunities by establishing a local presence in these
areas to provide community banking services.
Seasonality
Management does not believe that the deposits or the business of UNB in
general are seasonal in nature. The deposits may, however, vary with local and
national economic conditions but should not have a material effect on planning
and policy making.
Supervision and Regulation
General. Union National and UNB are extensively regulated under federal
and state law. Generally, these laws and regulations are intended to protect
depositors, not stockholders. The following is a summary description of certain
provisions of certain laws which affect the regulation of bank holding companies
and banks. The discussion is qualified in its entirety by reference to
applicable laws and regulations. Changes in such laws and regulations may have a
material effect on the business and prospects of the Union National and UNB.
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Federal Bank Holding Company Regulation and Structure. Union National
is a bank holding company within the meaning of the Bank Holding Company Act of
1956, as amended, and as such, it is subject to regulation, supervision, and
examination by the FRB. Union National is required to file annual and quarterly
reports with the FRB and to provide the FRB with such additional information as
the FRB may require. The FRB may conduct examinations of Union National and its
subsidiaries.
With certain limited exceptions, Union National is required to obtain
prior approval from the FRB before acquiring direct or indirect ownership or
control of more than 5% of any voting securities or substantially all of the
assets of a bank or bank holding company, or before merging or consolidating
with another bank holding company. Additionally, with certain exceptions, any
person proposing to acquire control through direct or indirect ownership of 25%
or more of any voting securities of Union National is required to give 60 days
written notice of the acquisition to the FRB, which may prohibit the
transaction, and to publish notice to the public.
Generally, a bank holding company may not engage in any activities
other than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the FRB, Union National may acquire more than 5% of the assets or outstanding
shares of a company engaging in non-bank activities determined by the FRB to be
closely related to the business of banking or of managing or controlling banks.
The FRB provides expedited procedures for expansion into approved categories of
non-bank activities.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries, on investments in their securities and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit Union National's ability to obtain funds
from UNB for its cash needs, including funds for the payment of dividends,
interest and operating expenses. Further, subject to certain exceptions, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. For example, UNB may not generally require a
customer to obtain other services from itself or Union National, and may not
require that a customer promise not to obtain other services from a competitor
as a condition to and extension of credit to the customer.
Under FRB policy, a bank holding company is expected to act as a source
of financial strength to its subsidiary banks and to make capital injections
into a troubled subsidiary bank, and the FRB may charge the bank holding company
with engaging in unsafe and unsound practices for failure to commit resources to
a subsidiary bank when required. A required capital injection may be called for
at a time when the holding company does not have the resources to provide it. In
addition, depository institutions insured by the FDIC can be held liable for any
losses incurred by, or reasonably anticipated to be incurred by, the FDIC in
connection with the default of, or assistance provided to, a commonly controlled
FDIC-insured depository institution. Accordingly, in the event that any insured
subsidiary of Union National causes a loss to the FDIC, other insured
subsidiaries of Union National could be required to compensate the FDIC by
reimbursing it for the estimated amount of such loss. Such cross guaranty
liabilities generally are superior in priority to the obligations of the
depository institution to its stockholders due solely to their status as
stockholders and obligations to other affiliates.
State Bank Holding Company Regulation. As a Maryland bank holding
company, Union National is subject to various restrictions on its activities as
set forth in Maryland law, in addition to those restrictions set forth in
federal law. See "Supervision and Regulation--Federal Bank Holding Company
Regulation and Structure." Under Maryland law, a bank holding company that
desires to acquire a bank
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or bank holding company that has its principal place of business in Maryland
must obtain approval from the Commissioner. Also, a bank holding company and its
Maryland state-chartered bank or trust company cannot directly or indirectly
acquire banking or non-banking subsidiaries or affiliates until the bank or
trust company receives the approval of the Commissioner.
Federal Bank Regulation. Union National's banking subsidiary is a
federally-chartered national bank regulated by the Office of Comptroller of the
Currency ("OCC"). The OCC may prohibit the institutions over which it has
supervisory authority from engaging in activities or investments that the agency
believes constitutes unsafe or unsound banking practices. Federal banking
regulators have extensive enforcement authority over the institutions they
regulate to prohibit or correct activities which violate law, regulation or a
regulatory agreement or which are deemed to constitute unsafe or unsound
practices. Enforcement actions may include the appointment of a conservator or
receiver, the issuance of a cease and desist order, the termination of deposit
insurance, the imposition of civil money penalties on the institution, its
directors, officers, employees and institution-affiliated parties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the removal of or restrictions on directors, officers, employees and
institution-affiliated parties, and the enforcement of any such mechanisms
through restraining orders or other court actions.
UNB is subject to certain restrictions on extensions of credit to
executive officers, directors, principal stockholders or any related interest of
such persons which generally require that such credit extensions be made on
substantially the same terms as are available to third persons dealing with UNB
and not involve more than the normal risk of repayment. Other laws tie the
maximum amount which may be loaned to any one customer and its related interests
to capital levels.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the OCC, have adopted standards covering
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. Union National, on behalf of UNB, believes
that it meets substantially all standards which have been adopted. FDICIA also
imposed new capital standards on insured depository institutions. See
"Supervision and Regulation--Capital Requirements."
Before establishing new branch offices, UNB must meet certain minimum
capital stock and surplus requirements and the Bank must obtain OCC approval.
Deposit Insurance. As a FDIC member institution, UNB's deposits are
insured to a maximum of $100,000 per depositor through the Bank Insurance Fund
("BIF"), administered by the FDIC, and each institution is required to pay
semi-annual deposit insurance premium assessments to the FDIC. The BIF
assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.
Limits on Dividends and Other Payments. Union National's current
ability to pay dividends is largely dependent upon the receipt of dividends from
its banking subsidiary, UNB. Both federal and state laws impose restrictions on
the ability of Union National to pay dividends. The FRB has issued a policy
statement which provides that, as a general matter, insured banks and bank
holding companies may pay
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dividends only out of prior operating earnings. For a Maryland state-chartered
bank or trust company, dividends may be paid out of undivided profits or, with
the prior approval of the Commissioner, from surplus in excess of 100% of
required capital stock. If, however, the surplus of a Maryland bank is less than
100% of its required capital stock, cash dividends may not be paid in excess of
90% of net earnings. In addition to these specific restrictions, bank regulatory
agencies, in general, also have the ability to prohibit proposed dividends by a
financial institution which would otherwise be permitted under applicable
regulations if the regulatory body determines that such distribution would
constitute an unsafe or unsound practice.
Capital Requirements. The federal banking regulators have adopted
certain risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. Treasury securities, to 100% for assets with relatively high credit
risk, such as business loans. For bank holding companies with less than
$150,000,000 in consolidated assets, the guidelines are applied on a bank-only
basis.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which include off balance sheet items,
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. "Tier 1," or core capital,
includes common equity, perpetual preferred stock (excluding auction rate
issues) and minority interest in equity accounts of consolidated subsidiaries,
less goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes, among other things, limited-life preferred
stock, hybrid capital instruments, mandatory convertible securities, qualifying
subordinated debt, and the allowance for loan and lease losses, subject to
certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of the
federal banking agencies. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk- weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31, 1996, UNB's ratio of Tier 1 to risk-weighted assets stood at 11.7%
and its ratio of total capital to risk-weighted assets stood at 12.9%. In
addition to risk-based capital, banks and bank holding companies are required to
maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage capital ratio, of at least 3%. As of December 31, 1996, UNB's leverage
capital ratio was 8.0%.
In August, 1995 and May, 1996, the federal banking agencies adopted
final regulations specifying that the agencies will include, in their
evaluations of a bank's capital adequacy, an assessment of the UNB's interest
rate risk ("IRR") exposure. The standards for measuring the adequacy and
effectiveness of a banking organization's interest rate risk management includes
a measurement of board of director and senior management oversight, and a
determination of whether a banking organization's procedures for comprehensive
risk management are appropriate to the circumstances of the specific banking
organization. UNB has internal IRR models that are used to measure and monitor
IRR. Additionally, the regulatory agencies have been assessing IRR on an
informal basis for several years. For these reasons, Union National does not
expect the addition of IRR evaluation to the agencies' capital guidelines to
result in significant changes in capital requirements for UNB.
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Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "--Federal Deposit Insurance Corporation
Improvement Act of 1991" below, as applicable to undercapitalized institutions.
In addition, future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of UNB to grow and could restrict the amount of
profits, if any, available for the payment of dividends to the Company.
Federal Deposit Insurance Corporation Improvement Act of 1991. In
December, 1991, Congress enacted FDICIA, which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
significant revisions to several other federal banking statutes. FDICIA provides
for, among other things, (i) publicly available annual financial condition and
management reports for financial institutions, including audits by independent
accountants, (ii) the establishment of uniform accounting standards by federal
banking agencies, (iii) the establishment of a "prompt corrective action" system
of regulatory supervision and intervention, based on capitalization levels, with
more scrutiny and restrictions placed on depository institutions with lower
levels of capital, (iv) additional grounds for the appointment of a conservator
or receiver, and (v) restrictions or prohibitions on accepting brokered
deposits, except for institutions which significantly exceed minimum capital
requirements. FDICIA also provides for increased funding of the FDIC insurance
funds and the implementation of risked-based premiums. See "- Deposit
Insurance."
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." UNB is currently classified as
"well-capitalized." An institution may be deemed by the regulators to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a cash dividend) or paying any
management fees to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. If a depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized. Significantly undercapital-
ized depository institutions may be subject to a number of other requirements
and restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets and stop accepting
deposits from correspondent banks. Critically undercapitalized institutions are
subject to the appointment of a receiver or conservator, generally within 90
days of the date such institution is determined to be critically
undercapitalized.
FDICIA provides the federal banking agencies with significantly
expanded powers to take enforcement action against institutions which fail to
comply with capital or other standards. Such action may include the termination
of deposit insurance by the FDIC or the appointment of a receiver or
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conservator for the institution. FDICIA also limits the circumstances under
which the FDIC is permitted to provide financial assistance to an insured
institution before appointment of a conservator or receiver.
Interstate Banking Legislation. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 was enacted into law on September 29, 1994. The
law provides that, among other things, substantially all state law barriers to
the acquisition of banks by out-of-state bank holding companies were eliminated
effective on September 29, 1995. The law also permits interstate branching by
banks effective as of June 1, 1997, subject to the ability of states to opt-out
completely or to set an earlier effective date. Maryland generally established
an earlier effective date of September 29, 1995.
Monetary Policy. The earnings of a bank holding company are affected by
the policies of regulatory authorities, including the FRB, in connection with
the FRB's regulation of the money supply. Various methods employed by the FRB
are open market operations in United States Government securities, changes in
the discount rate on member bank borrowing and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. The monetary policies of the FRB have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
Employees
As of March 17, 1997, UNB had the equivalent of 114 full-time
employees. None of its employees is represented by a collective bargaining unit.
UNB considers relations with its employees to be good.
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ITEM 2. FINANCIAL INFORMATION
The following selected financial data should be read in conjunction
with Union National's consolidated financial statements, related notes and other
financial information included herein and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
(In Thousands of Dollars Except Per Share Data) Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
--------- --------- ---------- --------- ---------
RESULTS FROM OPERATIONS
Interest Income $ 17,361 $ 17,091 $ 15,109 $ 14,789 $ 14,804
Interest Expense 8,099 8,092 6,289 6,170 6,967
--------- --------- ---------- --------- ---------
Net Interest Income 9,262 8,999 8,820 8,619 7,837
Provision for Credit Losses 329 212 342 425 470
--------- --------- ---------- --------- ---------
Net Interest Income after Provision for Credit Losses 8,933 8,787 8,478 8,194 7,367
Non-Interest Income 1,086 978 1,315 1,029 874
Non-Interest Expense 7,200 7,058 6,800 6,179 5,595
--------- --------- ---------- --------- ---------
Income Before Income Taxes 2,819 2,707 2,993 3,044 2,646
Applicable Income Taxes 955 912 990 1,009 867
--------- --------- ---------- --------- ---------
Net Income before effect of accounting change 1,864 1,795 2,003 2,034 1,780
Effect of accounting change 0 0 0 0 248
--------- --------- ---------- --------- ---------
Net Income $ 1,864 $ 1,795 $ 2,003 $ 2,034 $ 2,028
========= ========= ========== ========= =========
FINANCIAL CONDITION
Total assets $225,036 $218,816 $207,226 $192,290 $175,511
Investment securities (including available for sale) 55,940 52,421 54,938 48,724 38,659
Loans, net of unearned income 147,351 146,822 139,730 128,498 127,652
Allowance for loan losses 1,772 1,769 1,671 1,503 1,365
Deposits 199,291 193,462 182,533 172,816 160,367
Stockholders' equity 18,053 16,540 13,948 14,061 12,125
PER SHARE DATA
Net income $ 2.23 $ 2.15 $ 2.40 $ 2.44 $ 2.43
Dividends 0.57 0.52 0.50 0.46 0.38
Stockholders' equity 21.65 19.83 16.72 16.86 14.54
PERFORMANCE RATIOS
Return on average assets 0.84% 0.84% 1.00% 1.10% 1.06%
Return on average equity 10.80 11.55 14.34 15.63 15.77
Net interest margin on average earning assets 4.53 4.56 4.83 5.12 5.13
Efficiency (non-interest expense / (net interest income +
non-interest income)) 69.58 70.75 67.09 64.04 64.22
LIQUIDITY AND CAPITAL RATIOS
Stockholders' equity (% assets) 8.02% 7.56% 6.73% 7.31% 6.91%
Risk-based:
Tier 1 Capital 11.72 10.86 10.42 10.62 9.83
Total Capital 12.87 12.01 11.77 10.94 10.75
Dividends (% net income) 25.51 24.16 20.82 18.86 17.80
Loans to deposits 73.94 75.89 76.55 74.36 79.60
ASSET QUALITY RATIOS
Allowance for credit losses to total loans 1.20% 1.20% 1.20% 1.17% 1.07%
Allowance for credit losses to non-performing loans 136.34 322.24 717.14 167.23 201.99
Net loan charge-offs to average total loans 0.22 0.08 0.13 0.22 0.16
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is designed to provide a better understanding
of the financial position of Union National and it should be read in conjunction
with the consolidated financial statements and notes included herein.
OVERVIEW
On June 30, 1994, Union National commenced operations as the parent
company of its sole subsidiary, UNB, which has conducted the business of banking
since 1816. Since UNB is the primary possession of the holding company, the
assets and liabilities of the holding company are made up almost entirely of the
assets and liabilities of UNB. The same is true for the income and expense of
Union National with the exception of activities conducted at the holding company
level only, such as mergers and acquisitions. All data for 1996, 1995, and 1994
is presented in this analysis in consolidated form and is compared to like data
for UNB for prior years.
Union National has increased in asset size by 44% since 1991. This
growth generally exceeded that of our peers, both locally and nationally, and it
was achieved internally without the benefit of geographical expansion or
acquisition. Over that period UNB faced drastic changes in the structure of the
financial services industry, ever stronger competition for both deposits and
loans, rapidly changing technology, both an economic recession and a strong
expansion with low levels of inflation, a return to low interest rates
interrupted by a sudden increase in rates, and continued changes in law and
regulation.
Total assets were $225.0 million at December 31, 1996, an increase of
$6.2 million or 2.8% over one year earlier. The primary source of these funds
was certificates of deposit. Growth in deposits has declined in recent years as
depositors have sought other avenues of investment to enhance their yields. In
1994, total assets increased $11.6 million or 5.6%. Loan growth slowed during
the second half of 1995 and remained sluggish throughout 1996. Other investments
have increased as loan growth has declined.
Net income rose 3.9% in 1996 to $1,863,522 from net income of
$1,794,228 in 1995 after a 10.5% decline from $2,003,837 in 1994. The return on
average assets was .84% in 1996 and 1995, and 1.0% in 1994. The return on
average equity was 10.80% in 1996, 11.55% in 1995, and 14.34% in 1994.
Dividends on common stock rose to $.57 in 1996 from $.52 in 1995, a
9.6% increase. In 1995, dividends were increased 4.0% from $.50 in 1994. As a
percent of income, dividends rose to 25.51% in 1996 from 24.16% in 1995 which
had risen from 20.82% in 1994. As of December 31, 1993, UNB adopted a change in
accounting method, "Accounting for Investment Securities" whereby certain
securities must be designated "available for sale". Any gain or loss in fair
value must be shown as an adjustment to equity, net of taxes. Initially, capital
rose as a result of this change, but the effect quickly turned negative in 1994
as interest rates rose and the fair value of available-for-sale securities
declined. During 1995, that process was reversed and continued throughout 1996
as interest rates declined and fair value for those securities increased. Except
for this equity adjustment, retained earnings continue to be the chief source of
increases in stockholders' equity.
NET INTEREST INCOME
Net interest income is the major component of Union National's
earnings, and it consists of the excess of interest income from earning assets
less the expense of interest bearing liabilities. Earning assets
12
<PAGE>
are composed primarily of loans and securities, while deposits and short-term
borrowings represent the major portion of interest bearing liabilities. Changes
in the volume and mix of these assets and liabilities, as well as changes in the
yields earned and rates paid, are determinants of the changes in net interest
income. The net interest margin is calculated as tax-equivalent net interest
income (income plus the tax savings from tax-exempt loans and investments)
divided by average earning assets and represents the company's net yield on its
earning assets.
Net interest income was $9,262,338 in 1996, $8,999,263 in 1995, and
$8,819,983 in 1994. These levels represent increases of $263,075 (2.9%) for 1996
and $179,280 (2.0%) for 1995. On a tax-equivalent basis, the respective net
interest incomes for 1996, 1995, and 1994, respectively, were $9,502,375,
$9,240,655, and $9,097,956. In 1994, the growth in net interest income slowed
because the growth of earning assets as well as the spread between the rate of
interest earned and that paid were declining. This trend has continued, but it
improved in 1996. The net interest spread dropped to 3.95% in 1996 from 4.01% in
1995, which was down from 4.38% in 1994. The net interest margin as a percentage
of earning assets was 4.53%, down slightly from 4.56% in 1995, which was down
significantly from 4.83% in 1994.
Average earning assets were $209,432,784 in 1996, up 3.4% from
$202,610,060 in 1995 which were 7.5% more than the $188,516,880 in 1994. Total
interest income, on a tax-equivalent basis, was $17,600,904 in 1996, up $269,145
or 1.6% from $17,331,759 in 1995 which was up $1,934,937 or 12.5% from the 1994
level. The tax equivalent yield on earning assets during 1996 fell to 8.40% from
8.55% in 1995 which was up from 8.16% in 1994.
Average interest bearing liabilities were $181,883,747 in 1996, up 2.1%
from $178,138,810 in 1995 which were up 7.2% from $166,247,829 in 1994. These
funds made up 82.24% of average assets in 1996 compared to 83.01% in 1995 and
83.08% in 1994. Total interest expense was $8,098,529 in 1996, up $6,425 or .1%
from $8,092,104 in 1995 which was 28.7% higher than the 1994 level.
During both 1995 and 1996, certificates of deposit were the primary
source of funds as customers were seeking a higher return. In addition, some
deposits were lost to investment markets, thus contributing to a lower growth in
the deposit base than in previous years. For several years prior to 1995, the
weighted interest rate of Union National's funds cost had declined. This trend
was reversed in late 1994 because money rates had increased, and Union National
increased its rates to attract the funds, resulting in a significant increase in
the cost of funds and a lower net interest margin in 1995. Yields on loans and
securities could not be raised enough to offset the cost. The margin bottomed
out in late 1995. The cost of funds declined throughout 1996, as Union National
reduced interest rates in an effort to manage the level of the net interest
margin.
In 1996 interest income from loans increased only slightly because of
both lower yields and low volume growth. Commercial loan volume, which is the
largest sector of the portfolio, declined during much of the year primarily
because of competition, and rates were reduced in an effort to compete. The
situation was similar in other sectors. In addition, a growth control measure,
the Interim Development Control Ordinance ("IDCO"), was passed by the Carroll
County Commissioners in an effort to balance the growth in needs of the
population for services with the ability to provide them. This move is expected
to have an extended impact on business within the county in the future. In 1995,
the commercial sector reflected growth in volume as well as higher yields which
were brought about by increases in the prime rate in 1994. Real estate lending
declined in 1995 due to increased competition.
13
<PAGE>
The following table illustrates average balances of assets,
liabilities, and stockholders' equity as well as the related income and expense
for each item and the average yields and cost for the years of 1994 through
1996:
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
<S> <C> <C> <C> <C> <C> <C>
(In thousands-tax equivalent basis)
1996 1995 1994
--------------------------- --------------------------- --------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- ------- --------- -------- -------
ASSETS
Loans:
Real estate $ 32,482 $ 2,947 9.07% $ 32,749 $ 2,964 9.05% $ 34,110 $ 3,228 9.46%
Consumer 31,267 2,721 8.70% 30,940 2,716 8.78% 24,080 2,111 8.77%
Commercial 81,058 7,930 9.78% 79,758 7,908 9.91% 71,503 6,514 9.11%
Tax-exempt 1,672 164 9.79% 1,195 112 9.38% 1,228 127 10.36%
Other Loans 0 0 0.00% 0 0 0.00% 0 0 0.00%
--------- ------- -------- ------- -------- -------
Total Loans 146,479 13,762 9.39% 144,642 13,700 9.47% 130,921 11,980 9.15%
--------- ------- -------- ------- -------- -------
Investment securities available
for sale:
Taxable 31,609 1,942 6.14% 27,342 1,698 6.21% 34,781 1,924 5.53%
Non-taxable 598 65 10.89% 3,729 327 8.78% 4,557 429 9.41%
--------- ------- -------- ------ -------- -------
Total securities available
for sale 32,207 2,007 6.23% 31,071 2,025 6.52% 39,338 2,353 5.98%
--------- ------- -------- ------ -------- -------
Investment securities held to
maturity:
Taxable 15,198 859 5.65% 20,819 1,164 5.59% 13,423 718 5.35%
Non-taxable 6,350 482 7.59% 3,222 270 8.37% 2,862 262 9.16%
--------- ------- -------- ------ -------- -------
Total securities held
to maturity 21,548 1,341 6.22% 24,041 1,434 5.96% 16,285 980 6.02%
--------- ------- -------- ------ -------- -------
Time deposits with other banks 1,101 61 5.54% 328 20 6.10% 0 0 0.00%
Federal funds sold 8,098 430 5.31% 2,528 153 6.05% 1,973 73 3.70%
--------- ------- ----- -------- ------ ---- -------- ------- ----
Total Earning Assets 209,433 17,601 8.40% 202,610 17,332 8.55% 188,517 15,386 8.16%
------- ------ -------
Less: allowance for credit (1,768) (1,759) (1,621)
losses
Cash and due from banks 5,838 6,034 6,164
UNB premises and equipment, 3,854 3,596 3,304
net
Other Assets 3,779 4,128 3,740
--------- --------- ---------
Total Assets $ 221,136 $ 214,609 $ 200,104
--------- --------- ---------
14
<PAGE>
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS (Continued)
1996 1995 1994
--------------------------- --------------------------- --------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- ------- --------- -------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing demand $ 18,462 379 2.05% $ 16,357 373 2.28% $ 16,463 403 2.45%
deposits
Regular savings deposits 33,190 909 2.74% 38,182 1,177 3.08% 47,675 1,543 3.24%
Money market savings deposits 18,528 586 3.16% 18,357 586 3.19% 20,349 618 3.04%
Time deposits 102,739 5,829 5.67% 89,308 5,056 5.66% 72,213 3,351 4.64%
-------- ------- -------- ------- --------- ------
Total Interest-Bearing
Deposits 172,919 7,703 4.45% 162,204 7,192 4.43% 156,700 5,915 3.77%
Other borrowings 8,965 396 4.42% 15,935 900 5.65% 9,548 374 3.92%
-------- ------- -------- ------- --------- ------
Total Interest-Bearing 181,884 8,099 4.45% 178,139 8,092 4.54% 166,248 6,289 3.78%
------- ------- ------
Liabilities
Net interest spread 9,502 3.95% 9,240 4.01% 9,097 4.38%
======= ==== ======= ==== ====== =====
Non-interest bearing demand
deposits 20,976 19,997 19,194
Accrued expenses and other
liabilities 1,017 943 688
Stockholders' equity 17,259 15,530 13,974
-------- -------- --------
Total Liabilities and
Stockholders' Equity $221,136 $214,609 $200,104
-------- -------- --------
Net interest income/earning 8.40% 8.55% 8.16%
assets
Net interest expense/earning 3.87% 3.99% 3.33%
---- ---- ----
assets
Net interest margin 4.53% 4.56% 4.83%
==== ==== ====
- --------------------------
<FN>
1. Loan fee income is included in interest income for each loan category and
yields are stated to include all income earned.
2. Balances of non-accrual loans and related income have been included for
computational purposes.
3. Tax-exempt income has been converted to a tax-equivalent basis using an
incremental rate of 34%.
</FN>
</TABLE>
15
<PAGE>
The following table describes the impact comparison on net interest
income resulting from changes in average balances and rates. The change in
interest due to both volume and rate has been allocated to volume and rate
changes in the proportion to the relationship of the absolute dollar amounts of
the change in each.
RATE AND VOLUME ANALYSIS
(In thousands-tax equivalent basis)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 Compared to 1995 1995 Compared to 1994
----------------------------------- ----------------------------
Increase Change Due to Increase Change Due to
------------- -------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- ---- ------ ---------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans:
Real estate $ (17) $ 7 $ (24) $ (264) $ (138) $ (126)
Consumer 5 (24) 29 605 3 602
Commercial 22 (106) 128 1,394 609 785
Tax-exempt 52 6 46 (15) (12) (3)
--------- ------- ------ --------- -------- --------
Other Loans -- -- -- -- -- --
Total Loans 62 (118) 179 1,720 462 1,258
--------- ------- ------ --------- -------- ---------
Investment securities available for sale:
Taxable 244 (20) 264 (226) 211 (437)
Non-taxable (262) 46 (308) (102) (27) (75)
--------- ------- ------ --------- -------- ----------
Total securities available for sale (18) 26 (44) (328) 184 (512)
--------- ------- ------ --------- -------- ----------
Investment securities held to maturity:
Taxable (305) 11 (316) 446 41 405
Non-taxable 212 (37) 250 8 (24) 32
--------- ------- ------ --------- -------- --------
Total securities held to maturity (93) (26) (66) 454 17 437
Time deposits with other banks 41 (2) 43 20 -- 20
Federal funds sold 277 (39) 316 80 53 27
--------- ------- ------ --------- -------- --------
Total Interest Income 269 (159) 428 1,946 716 1,230
--------- ------- ------ --------- -------- --------
INTEREST EXPENSE:
Interest-bearing demand deposits 6 (40) 46 (30) (27) (3)
Regular savings deposits (268) (123) (145) (366) (66) (300)
Money market savings deposits -- (5) 5 (32) 30 (62)
Time deposits 773 12 761 1,705 824 881
--------- ------- ------ --------- -------- --------
Total Interest-Bearing Deposits 511 (156) 667 1,277 761 516
Other borrowings (504) (153) (351) 526 221 305
--------- ------- ------ --------- -------- --------
Total Interest Expense 7 (309) 316 1,803 982 821
--------- ------- ------ --------- -------- --------
Net Interest Income $ 262 $ 150 $ 112 $ 143 $ (266) $ 409
========= ======= ====== ========= ======== =========
- -----------------------------
<FN>
(1) The change in interest due to both volume and rate has been allocated to
change due to volume and change to rate in proportion to the absolute volume
of each.
(2) Balances of non-accrual loans and related income have been included for
computational purposes.
(3) Tax-exempt income has been converted to a tax-equivalent basis using an
incremental rate of 34%.
</FN>
</TABLE>
NON-INTEREST INCOME
Total non-interest income was $1,085,800 in 1996, up $108,250 or 11.1%
from $977,550 in 1995 which was $337,782 or 25.7% lower than in 1994.
16
<PAGE>
Service charge income on deposit accounts was $796,490 in 1996, up
$73,469 or 10.2% from $723,021 in 1995 which was $467,558 or 39.2% below the
$1,190,579 in 1994. In 1996, fees were increased. In 1995, high volume check
processing for a group of related accounts was largely curtailed, resulting in
lower fee income and a return to historical levels. Other service charge income
was $152,765 in 1996, down $5,581 or 3.5% from $158,346 in 1995 which was up
$30,593 or 23.9% from $127,753 in 1994. Other income was $116,754 in 1996, up
$23,806 or 25.6% from $92,948 in 1995 which was up $44,696 or 92.6% from 48,252
in 1994. In 1996, recoveries of prior expenses or losses occurred which totaled
$44,486. In 1995 two recoveries of prior losses occurred which totaled $58,205.
Gains on the sales of loans were $19,791 in 1996, $4,300 in 1995 and $39,453 in
1994. There were no securities gains or losses in 1996 compared to losses of
$1,065 in 1995 and losses of $90,705 in 1994.
NON-INTEREST EXPENSE
Non-interest expense in 1996 was $7,200,410, an increase of $141,773 or
2.0% from $7,058,637 in 1995 which was $259,103 or 3.8% over $6,799,534 in 1994.
These increases are generally direct reflections of the growth in assets as well
as the related investment in services, branches, and facilities. However, in
1996, overall operating expenses declined, and the expenses related to the
termination of the acquisition of Maryland Permanent Bank resulted in the
increase over 1995.
Salaries and benefits totaled $3,879,323 in 1996, up $157,893 or 4.2%
from $3,721,430 in 1995 which was $328,145 or 9.7% over 1994. Personnel expense
represented 53.9% of total non-interest expense in 1996 compared to 52.7% in
1995 and 49.9% in 1994. Full-time equivalent employees at year end were 114 in
1996, 113 in 1995, and 109 in 1994. The expense increase was due mainly to
normal increases and pension plan expenses partially offset by decreases in
health insurance and other benefits in 1996, loan department expansion and
pension plan expenses in 1995 and salary increases and pension plan expenses
offset by outsourcing the proof function in 1994. While the total staff has
generally grown, the average assets per employee have increased from $1.80
million in 1994 to $1.92 million in 1995 and $1.93 million in 1996. This shows
increased automation of functions as well as a general improvement in the
efficient allocation of resources since assets have grown more rapidly than the
size of the staff to support the business. This effect slowed in 1996 as asset
growth slowed.
Occupancy expense was $802,443 in 1996, up $136,373 or 20.5% from the
$666,070 of 1995 which was $54,844 or 9.0% above 1994. Equipment expense was
$335,136 in 1995, down $6,595 or 1.9% from $341,731 in 1995 which was up $11,651
or 3.5% from 1994.
Other operating expense was $2,183,508 in 1996, down $145,898 or 6.3%
from $2,329,406 in 1995 which was $148,957 or 6.0% under 1994. In 1996 and 1995,
156.2% and 120.6%, respectively, of the decline in other operating expenses was
due to reduced FDIC premiums. In addition, significant reductions occurred in
1996 in marketing expenses, and check processing fees. These reductions were
partially offset by the one-time write-off of expenses related to the aborted
acquisition of Maryland Permanent Bank. In 1995, check processing fees fell
significantly due to the processing reduction discussed in the non-interest
income section. These reductions were partially offset by abnormally high legal
and professional fees and increases in other expenses.
INCOME TAXES
Income tax expense was $955,206 in 1996, $911,948 in 1995, and $989,944
in 1994. The 1996 expense was 4.7% over 1995 which was down 7.9% from the year
before. Income taxes were 33.9% of net income before taxes in 1996, 33.7% in
1995, and 33.1% in 1994. Federal income tax accounted for
17
<PAGE>
81.8% of total tax in 1996 compared to 79.6% in 1995 and 80.6% in 1994. As
non-taxable income declines as a result of the 1986 Tax Reform Act, tax expense
rises faster than net income, and federal tax is making up an increasing portion
of the total.
SECURITIES PORTFOLIO
The following table presents the composition of the securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
1996 1995 1994
------------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Treasury and Agency securities $ 26,115,700 $ 18,082,210 $ 22,449,299
State and Municipal Obligations 6,250,734 7,362,851 7,356,224
Mortgage-backed Securities 22,368,159 25,791,958 24,124,429
Other Securities 1,205,179 1,183,512 1,007,775
------------------- ------------------ -----------------
Total Investment Securities $ 55,939,772 $ 52,420,531 $ 54,937,727
=================== ================== =================
Available for Sale (Fair Value) $ 38,866,761 $ 27,040,617 $ 31,079,845
Held to Maturity (Amortized Cost) 17,073,011 25,379,914 23,857,882
------------------- ------------------ -----------------
Total Investment Securities $ 55,939,772 $ 52,420,531 $ 54,937,727
=================== ================== =================
</TABLE>
Total holdings in the investment portfolio at year-end were $55,939,772
in 1996, $52,420,531 in 1995, and $54,937,727 in 1994. The portfolio was
expanded during 1994 as short term borrowings were used to take advantage of the
rising interest rates of investment instruments. Liquidity declined as loans
grew sharply in late 1994 and early 1995 and as deposit growth declined. As a
result, the portfolio declined during 1995. Even though liquidity improved in
the second half of 1995, the portfolio was not increased since the rates on
overnight funds were as high as longer term rates, thereby curtailing the
incentive to extend maturities. During 1996, the portfolio was increased as the
spread of longer term investments to overnight funds widened, and further
additions will settle early in 1997. Holdings of tax-free securities fell 15.1%
after a .1% rise in 1995 and a .5% decline in 1994. The total portfolio had an
average maturity of 2.9 years on December 31, 1996 compared with 3.8 years in
1995 and 2.9 years in 1994. These maturities represent estimates of the actual
life of instruments considering mortgage-back pay downs and puts for tax-free
securities.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115") in 1993, requiring securities to be classified
according to the bank's ability and intent to hold securities until maturity.
Any instruments for which Union National wishes to reserve the right to sell
prior to maturity must be classified as available for sale, and their carrying
values must regularly be adjusted to fair value with an offsetting adjustment,
net of taxes, to the bank's stockholders' equity. This change was implemented as
of December 31, 1993. In 1996, there were $38,866,761 classified as available
for sale and $17,073,011 as held to maturity compared with $27,040,617 and
$25,379,914, respectively, in 1995 and $31,079,845 and $23,857,882,
respectively, in 1994. The change resulted in an initial increase in carrying
value of $464,591 in 1993, but an increase in interest rates caused the carrying
value to decline by $2,768,472 in 1994 because of this change. In 1995, this
increase in rates was reversed, and the fair value of available for sale
securities exceeded amortized cost by $197,175 at year-end. In 1996, declines in
some rates caused a small increase in values, and the fair value was $207,716
above amortized cost by year-end. In September, 1994, $10,000,000 of available
for sale securities were transferred to held to
18
<PAGE>
maturity. In December, 1995, $6,300,000 of available for sale securities were
transferred to held to maturity, and $1,500,000 were transferred from held to
maturity to available for sale. The remaining securities now classified held to
maturity that were originally available for sale currently have a fair value
that is $303,162 under the amortized cost.
The following table sets forth the maturity distribution and weighted
average yields of the securities portfolio as of December 31, 1996. The weighted
average yields are calculated on the basis of the carrying value of the
securities and their related interest income adjusted for the amortization of
premium and accretion of discount. Yields on tax-exempt securities have been
computed on a tax-equivalent basis, assuming a federal tax rate of 34%.
<TABLE>
<CAPTION>
MATURITY OF THE INVESTMENT SECURITIES PORTFOLIO
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Totals
-------------- --------- ---------- ------------- ------
Book Average Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY
U.S.Government Treasury & Agency
Securities $ 0 $2,550,751 5.78% $ 0 $ 0 $ 2,550,751 5.78%
State, County, & Municipal Obligations 400,040 11.59% 1,729,985 7.09% 3,518,208 7.20% 0 5,648,233 7.46%
Mortgage-backed Securities 0 4,345,009 7.30% 4,529,018 7.58% 0 8,874,027 7.45%
---------- ---------- ---------- --------- ----------
Total Held to Maturity 400,040 11.59% 8,625,745 6.81% 8,047,226 7.41% 0 17,073,011 7.20%
---------- ---------- ---------- --------- ----------
AVAILABLE FOR SALE
U.S. Government Treasury & Agency
Securities 2,505,450 5.65% 19,059,500 6.57% 2,000,000 7.07% 0 23,564,950 6.50%
State, County, & Municipal Obligations 0 0 602,500 14.10% 0 602,500 14.11%
Mortgage-backed Securities 0 1,952,837 5.97% 2,801,035 6.24% 8,740,260 6.42% 13,494,132 6.32%
Equity Securities 0 0 0 1,205,179 6.67% 1,205,179 6.67%
Total Available for Sale 2,505,450 5.65% 21,012,337 6.51% 5,403,535 7.28% 9,945,439 6.53% 38,866,761 6.56%
----------- ----------- ---------- --------- -----------
Total Securities $ 2,905,490 6.47% $29,638,082 6.60% $13,450,761 7.36% $9,945,439 6.53% $55,939,772 6.73%
=========== =========== =========== ========== ===========
</TABLE>
LOAN PORTFOLIO
Total loans outstanding on December 31, 1996 were $147,350,540 compared
with $146,821,594 in 1995 and $139,729,907 in 1994. The portfolio represented
65.5% of total assets on December 31,1996 compared with 67.1% and 67.4% in 1995
and 1994, respectively.
UNB's loan portfolio is composed of commercial loans (including
commercial real estate), residential loans, and consumer installment loans
(including indirect auto). The commercial portfolio represents 57% of the total
portfolio and is comprised of commercial real estate mortgages, lines of credit,
tax-exempt loans through local municipalities, lines of credit, and demand notes
for various purposes, including but not limited to, working capital and
equipment purchases. The greatest majority of commercial loans are
collateralized by some form of real estate. The residential portfolio represents
22% of the overall loan portfolio and is a mix of well-seasoned mortgages along
with more recent loans. Only a minimal number of these mortgages have a loan to
value greater than 80%. Most residential mortgages are kept "in house", however
UNB is involved in selling mortgages on the secondary market. The consumer
portfolio makes up the remaining 21% of the loan portfolio. Included in the
consumer portfolio are direct installment loans for purposes such as vehicle
purchases, debt consolidation, home improvements, and indirect installment loans
purchased from approximately six auto dealerships, both new and used, and one
farm equipment dealer. Home equity loans (fixed term and variable rate lines of
credit) are also part of the consumer portfolio. Unsecured personal lines of
credit and personal time and demand
19
<PAGE>
loans comprise the remainder of the portfolio. UNB does not engage in foreign
lending, and involvement in speculative real estate and land development is
minimal. It is UNB's practice to lend primarily in the Carroll County market
area and to meet the needs of the community.
Some risk is involved in all types of lending. UNB, however, attempts
to manage that risk to minimize potential losses in all portfolios.
Concentrations in commercial loans continue to be minimal except in the general
area of real estate secured loans. Despite some recent devaluation in property
values, the portion of such loans at risk is not large barring any future major
economic crises. Additionally, financial analysis has become a helpful tool to
identify potential risk in the commercial portfolio. Residential loans are
generally well secured. Standard debt to income ratios are adhered to, and loan
to value ratios greater than 80% require Private Mortgage Insurance, again
reducing risk. The largest segment of the consumer portfolio is secured by motor
vehicles. Use of debt to income ratios and recent Credit Bureau scores have
assisted in the approval process. The collection department works delinquent
accounts quickly and attempts to minimize losses in the consumer portfolio.
The following table summarizes the composition of the loan portfolio at
the periods indicated:
<TABLE>
LOAN PORTFOLIO
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
------------ ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 27,563,398 $28,929,165 $28,265,832 $ 26,132,068 $ 23,824,480
Real Estate--Construction 1,842,538 2,494,150 4,147,476 4,147,986 6,901,377
Real Estate--Mortgage 91,262,059 89,709,340 85,709,692 84,728,316 86,999,214
Installment 27,219,780 26,368,732 22,313,141 14,259,506 10,863,282
------------ ------------ ------------ ------------ -------------
Total Loans 147,887,775 147,501,387 140,436,141 129,267,876 128,588,353
Deferred Loan Fees (537,235) (679,793) (706,234) (769,906) (936,142)
------------ ------------ ------------ ------------ ------------
Total Loans (net of deferred fees) 147,350,540 146,821,594 139,729,907 128,497,970 127,652,211
Allowance for Loan Losses (1,772,433) (1,769,077) (1,670,940) (1,503,371) (1,365,464 )
------------ ------------ ------------ ------------ -------------
Net Loans $145,578,107 $145,052,517 $138,058,967 $126,994,599 $ 126,286,747
============ ============ ============ ============ ==============
</TABLE>
The table below details the maturity distribution as well as the fixed
and variable rate distribution of the loan portfolio as of December 31, 1996:
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF LOANS
One Year Over One within Over Five Total
or Less Five Years Years Loans
------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 19,010,868 $ 5,238,564 $ 3,527,252 $ 27,776,684
Real Estate--Construction 973,675 167,661 600,764 1,742,100
Real Estate--Mortgage 44,291,334 20,830,557 26,036,438 91,158,329
Installment 7,087,545 19,753,423 369,694 27,210,662
------------- ------------ ------------- ---------------
Total $ 71,363,422 $ 45,990,205 $ 30,534,148 $ 147,887,775
============= ============ ============= ===============
Total Loans w/Predetermined Rates 2,426,236 32,601,535 30,403,842 65,431,613
Total Loans w/Variable Rates 68,937,186 13,388,670 130,306 82,456,162
------------- ------------ ----------- ---------------
Total $ 71,363,422 $ 45,990,205 $ 30,534,148 $ 147,887,775
============= ============ ============= ===============
</TABLE>
20
<PAGE>
ALLOWANCE FOR CREDIT LOSSES AND MANAGEMENT OF CREDIT RISK
A comparative analysis of the allowance for credit losses, including
charge-off activity, is presented below:
<TABLE>
<CAPTION>
ALLOWANCE FOR CREDIT LOSSES
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average Total Loans $146,478,690 $144,641,805 $130,920,960 $130,726,190 $116,005,632
============ ============ ============ ============ ============
Balance, beginning of period 1,769,077 1,670,940 1,503,371 1,365,464 1,080,735
------------- ------------- ------------- ------------- -------------
Less Charge-offs:
Commercial 263,682 84,063 87,845 26,429 96,153
Installment 123,050 122,824 116,007 236,044 128,888
Residential Real Estate -- -- 32,483 69,247 --
------------- ------------- ------------- ------------- -------------
Total Charge-offs 386,732 206,887 236,335 331,720 225,041
------------- ------------- ------------- ------------- -------------
Plus Recoveries:
Commercial 17,051 2,668 1,249 12,359 6,954
Installment 44,037 37,356 60,655 32,268 32,816
Residential Real Estate -- 53,000 -- -- --
------------- ------------- ------------- ------------- -------------
Total Recoveries 61,088 93,024 61,904 44,627 39,770
------------- ------------- ------------- ------------- -------------
Net Charge-offs 325,644 113,863 174,431 287,093 185,271
------------- ------------- ------------- ------------- -------------
Provision for Loan Losses 329,000 212,000 342,000 425,000 470,000
------------- ------------- ------------- ------------- -------------
Balance, end of period $ 1,772,433 $ 1,769,077 $ 1,670,940 $ 1,503,371 $ 1,365,464
============= ============= ============= ============= =============
Allowance for credit losses to period--
end total loans 1.20% 1.21% 1.20% 1.17% 1.07%
Allowance for credit losses to
nonaccrual loans 140.72 322.48 716.00 478.92 398.65
Net charge-offs to average loans
(annualized) 0.22 0.08 0.13 0.22 0.16
</TABLE>
The following table breaks down the allocation of the allowance for
credit losses by loan type. The allowance has been allocated to the various
categories of loans. This allocation does not limit the amount of the allowance
available to absorb losses from any type of loan and should not be viewed as an
indicator of the specific amount or specific categories in which future
charge-offs may ultimately occur:
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES IN DOLLARS
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 853,418 $ 455,916 $ 572,029 $ 255,993 $ 475,995
Real Estate Construction -- 4,095 -- -- --
Real Estate Mortgage 302,760 110,694 163,717 156,327 201,901
Installment 309,883 355,320 467,891 245,136 327,243
Unallocated Portion 306,372 843,052 467,303 845,915 360,325
----------- ----------- ----------- ----------- ------------
Total Allowance for Credit Losses $ 1,772,433 $ 1,769,077 $ 1,670,940 $ 1,503,371 $ 1,365,464
=========== =========== =========== =========== ============
</TABLE>
21
<PAGE>
The following table breaks down the loan portfolio by category as a
percentage of the whole:
LOAN CATEGORIES BY PERCENTAGES
1996 1995 1994 1993 1992
------ ------- ------ ------- ------
Commercial 57% 57% 56% 56% 51%
Residential Real Estate 22% 22% 23% 28% 34%
Installment 21% 21% 21% 16% 15%
----- ------ ------ ------ ------
Total 100% 100% 100% 100% 100%
===== ===== ===== ===== =====
Any increase in the level of the allowance is warranted because of the
increase in the size of the loan portfolio and the risk factors of the loans.
Management uses a detailed analyses of the portfolio to determine the adequacy
of the allowance for credit losses. Prior loss history along with current
trends, both nationally and locally, are taken into consideration: (i) Specific
reserves are established on all classified loans where a loss seems imminent;
(ii) A general reserve is established on identified problem loans where specific
potential losses are not yet determined, but likely; (iii) Smaller reserves are
also established on criticized loans that have identifiable weaknesses but are
not yet classified; and (iv) A general overall reserve is calculated on the
entire remainder of the portfolio by loan type and included as an unallocated
reserve allowance. In addition, it is UNB's practice to manage the risk elements
of lending through rigorous credit evaluation of prospective borrowers,
continuous review of the portfolio, diversification of the types of borrowers,
and by maintaining a well collateralized portfolio.
The following table details information concerning non-accrual,
restructured, and past due loans, as well as foreclosed assets. It is the policy
of UNB to consider a loan not in process of collection when there is doubt to
the full repayment of the principal and interest or when the loan is 90 days
past due. When either event occurs, the loan is placed on non-accrual status,
any previously accrued income is charged against income, and no future income is
accrued until performance is restored.
<TABLE>
<CAPTION>
NON-PERFORMING ASSETS
December 31,
------------
1996 1995 1994 1993 1992
----------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,259,558 $ 548,578 $ 233,373 $ 313,911 $ 342,521
Restructured loans -- -- -- -- --
Loans Past Due 90 or more days
accruing interest 40,192 -- -- 585,044 333,745
----------- ----------- ---------- ----------- ---------
Total Non-performing loans 1,299,750 548,578 233,373 898,955 676,266
Foreclosed Assets 391,236 183,067 288,960 159,844 --
----------- ----------- ---------- ----------- ---------
Total Non-performing assets $ 1,690,986 $ 731,645 $ 522,333 $ 1,058,799 $ 676,266
=========== =========== ========== =========== =========
Non-performing loans to total loans at period end 0.88% 0.37% 0.17% 0.70% 0.53%
Non-performing assets to period-end total loans plus
foreclosed assets 1.14% 0.50% 0.37% 0.82% 0.53%
</TABLE>
The loans listed above as not accruing are significantly past due and
are not considered to be in the process of collection. Income was recorded on
these loans in 1996 in the amount of $41,050 compared to income anticipated
under the original loan agreements of $136,213. In 1995, those amounts were
$24,774 and $66,798, respectively. Once the collection is deemed to be unlikely
over the foreseeable future, a loan is charged off. Even though a loan is
charged off, UNB continues to work with
22
<PAGE>
a borrower to collect that loan wherever possible. In addition to the above
loans, certain other loans, estimated to aggregate $3,921,754 at December 31,
1996, are currently being paid out in accordance with their terms but, in the
opinion of management, there is doubt as to the ability of the borrowers to
comply with the repayment terms in the future. While management does not
anticipate any loss not previously provided for these loans, economic conditions
may be such as to necessitate future modifications in the repayment terms.
DEPOSITS
UNB uses deposits as the primary source of funding of its assets. UNB
has experienced continuous growth of deposits, especially in certificates of
deposit. UNB offers individuals, businesses and non-profit organizations a
variety of accounts. These accounts, including checking, savings, money market,
and CD's, are obtained primarily from the communities which UNB services. The
following table details the average amount, the average rate paid on, and the
percent of the total of, the following primary deposit categories for the past
three years:
<TABLE>
<CAPTION>
AVERAGE DEPOSIT COMPOSITION AND COST
(In thousands of dollars)
1996 1995 1994
-------------------------- ------------------------- -----------------------------
Average % of Average % of Average % of
Balance Rate Total Balance Rate Total Balance Rate Total
---------- ------ -------- ------- ------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $ 20,986 10.82% 19,997 10.98% $ 19,194 10.91%
Interest-bearing demand deposits 18,462 2.05% 9.52% 16,357 2.28% 8.98% 16,463 2.45% 9.36%
Regular savings deposits 33,190 2.74% 17.12% 38,182 3.08% 20.96% 47,675 3.24% 27.10%
Money market savings deposits 18,528 3.16% 9.56% 18,357 3.19% 10.08% 20,349 3.04% 11.57%
Time deposits 102,739 5.67% 52.98% 89,308 5.66% 49.02% 72,213 4.64% 41.05%
---------- ----- ------ ------- ----- -------- -------- ----- ------
Total Interest-Bearing Deposits 172,919 4.45% 89.18% $162,204 4.43% 89.02% 156,700 3.77% 89.09%
---------- ----- ------ -------- ------ ------ -------- ----- -------
Total Deposits $ 193,905 3.97% 100.00% $182,201 3.95% 100.00% $175,894 3.36% 100.00%
========== ===== ======= ======== ===== ======= ======== ===== =======
</TABLE>
Total deposits were $199,291,435 on December 31, 1996 as compared to
$193,461,842 and $182,533,052 one and two years earlier, respectively. The main
source area in 1996 was certificates of deposits which grew $5.6 million or
5.6%. In addition, checking accounts rose $4.5 million or 11.2%. This growth was
partially offset by declines in regular savings of $2.2 million or 6.6%, and
$2.0 million or 10.4% in money market accounts. The main source area in 1995 was
certificates of deposits which grew $22.9 million or 29.9%. This growth was
partially offset by declines in checking accounts of $1.1 million or 4.7%, and
$10.8 million or 24.1% in regular savings.
The following is a summary of the maturity distribution of certificates
of deposit in the amounts of $100,000 or more as of December 31, 1996:
MATURITIES OR REPRICING OF CD'S OF $100,000 OR MORE ON DECEMBER 31, 1996
(In thousands of dollars)
Amount Percent
Three months or less $ 3,176 13.56%
Over three months through six months 4,983 21.29%
Over six months through twelve months 11,195 47.83%
Over twelve months 4,053 17.32%
-------- -------
$ 23,407 100.00%
======== =======
23
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, repurchase
agreements, and borrowings from the Federal Reserve Bank or the Federal Home
Loan Bank. Because deposit and loan growth occurred at different times, borrowed
funds were utilized increasingly during 1994 and 1995, until curtailed in 1996,
to fund loan growth and securities purchases. Management drew on lines of credit
with the Federal Home Loan Bank and a correspondent bank.
Repurchase agreements averaged $8,555,503 during 1996 compared to
$9,827,234 in 1995 and $9,548,185 in 1994. At year end, they were $6,808,596 in
1996, $3,140,710 in 1995, and $9,877,312 in 1994. These funds included customer
repurchase agreements in addition to those funds which were obtained solely to
provide liquidity. Borrowings from the Federal Home Loan Bank averaged $409,651
during 1996 and $6,107,439 during 1995. This source was not utilized during
1994. At year end, they totaled $5,000,000 in 1995 only.
LIQUIDITY
Assuring adequate liquidity involves meeting future cash flow needs.
This liquidity can be provided by reducing asset balances and increasing
deposits and short term borrowing, or a combination of both may be employed.
Traditionally, UNB has maintained a strong liquidity position because of a
concentration of core deposits such as regular savings and checking accounts. A
high percentage of money market accounts and certificates of deposit can also be
considered core deposits. Federal funds sold is UNB most liquid earning asset.
Other sources include money market instruments and securities classified
available for sale. In addition to these sources, UNB has total credit lines of
$43 million available from correspondent banks.
On December 31, 1996 securities available for sale and federal funds
sold totaled $47,749,311 compared with $30,090,617 in 1995 and $31,079,844 in
1994. These funds averaged $40,304,499 in 1996, $33,599,064 in 1995, and
$41,311,299 in 1994. (No securities were classified available for sale until
December 31, 1993. Asset liquidity is also provided by managing the maturities
of loans, securities, and certificates of deposit.
INTEREST RATE SENSITIVITY
An important element of both earnings performance and the maintenance
of sufficient liquidity is maintaining an appropriate balance between
rate-sensitive assets and rate-sensitive liabilities. Interest rate sensitivity
analysis is the measure of the vulnerability of net interest income to changes
in the level of rates. An interest rate sensitivity gap results when assets and
liabilities reprice at different intervals. If the gap is negative or liability
sensitive, the impact on earnings is negative if rates rise. A positive or asset
sensitive gap implies the risk of lower earnings if rates decline. To offset
this risk, UNB regularly forecasts its exposure to rate changes and monitors its
performance. In addition, the net interest margin is calculated weekly so that
interest rate changes and asset restructuring may be made as needed.
UNB's rate-sensitivity position reflects a small liability sensitive
position on a cumulative basis through one year and a decidedly cumulative asset
sensitive position in later periods. This analysis makes several assumptions.
First, both non-interest bearing and regular savings accounts are not rate
sensitive. Second, mortgage-backed securities are projected at the average
levels experienced over the most recent three months. Finally, repayment of loan
principal is projected at the most recent level.
24
<PAGE>
The following table illustrates the interest rate sensitivity gap of
Union National as of December 31, 1996. This table presents a position that
existed at a particular point in time. Although that position can change
continually, this position is also similar to other times as well.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1995
Maturing or repricing in:
-------------------------
<S> <C> <C> <C> <C> <C> <C>
1-90 91-180 181-365 1-5 Over 5
Days Days Days Years Years
---- ---- ---- ----- -----
RATE SENSITIVE ASSETS
Loans $ 67,554 $ 8,529 $ 8,875 $ 43,305 $18,558
Securities 12,659 3,997 4,022 30,089 6,654
Federal funds sold 3,050 0 0 0 0
-------- ------- ------- -------- -------
Total rate sensitive assets 83,263 12,526 12,897 73,394 25,212
-------- ------- ------- -------- -------
Cumulative rate sensitive assets 83,263 95,789 108,686 182,080 207,292
-------- ------- ------- -------- -------
RATE SENSITIVE LIABILITIES
Interest bearing checking 8,411 0 0 0 8,411
Money market deposits 9,801 0 0 0 9,801
Regular savings 17,052 0 0 0 17,052
Certificates of deposits 46,901 8,505 12,751 30,583 1,102
Short-term borrowings 8,141 0 0 0 0
-------- ------- ------- -------- -------
Total rate sensitive liabilities 90,306 8,505 12,751 30,583 36,366
-------- ------- -------- -------- -------
Cumulative rate sensitive liabilities $ 90,306 $98,811 $111,562 $142,145 $178,511
-------- ------- -------- ------- --------
Period gap (7,043) 4,021 146 42,811 (11,154)
Cumulative gap (7,043) (3,022) (2,876) 39,935 28,781
Cumulative rate sensitive assets to rate sensitive liabilities 92.20% 96.94% 97.42% 128.09% 116.12%
Cumulative gap to total assets (3.13)% (1.38)% (1.39)% 20.77% 16.40%
</TABLE>
OFF-BALANCE SHEET RISK
In the normal course of business, the company enters into financial
commitments with off-balance sheet risk. The company's maximum exposure to
accounting loss, based upon the credit risk associated with unfunded loan
commitments and letters of credit outstanding, is represented by the contract
amount of these items as of the dates indicated in the following table:
(In thousands of dollars)
December 31,
1996 1995 1994
--------- --------- --------
Commitments to extend credit $ 17,438 $ 16,947 $ 18,080
Standby letters of credit $ 2,308 $ 1,688 $ 1,712
Many of such commitments to extend credit may expire without being
drawn upon and, therefore, the total commitment amounts do not necessarily
represent future cash flow requirements. In making the commitments, the company
applies the same credit standards used in its lending process, and it
periodically reassesses the customer's credit worthiness through ongoing credit
reviews. The risks associated with making these commitments are also included in
the overall credit risk in determining the allowance for possible loan losses.
25
<PAGE>
CAPITAL MANAGEMENT
Banking regulatory authorities have implemented strict capital
guidelines directly related to the credit risk associated with an institution's
assets. Banks and bank holding companies are required to maintain capital levels
based on their "risk-adjusted" assets so that categories of assets with higher
"defined credit risks will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
Capital is classified Tier I common stockholders' equity less certain
intangible assets) and Total capital (Tier I plus the allowance for credit
losses). Minimum required levels must at least equal 4% for Tier I capital and
8% for Total capital. In addition, institutions must maintain a minimum of a 3%
leverage capital ratio (Tier I capital to average total assets).
Union National's capital position is presented in the following table:
December 31, Regulatory
1996 1995 Requirement
----- ------ -----------
Tier 1 capital to risk weighted assets.......... 11.7% 10.9% 4.0%
Total capital to risk weighted assets........... 12.9% 12.0% 8.0%
Capital leverage ratio.......................... 8.0% 7.6% 3.0%
RECENT STOCK PRICE RANGES AND DIVIDENDS
Union National's stock is sold and exchanged principally among area
residents. There were approximately 445 stockholders of record as of December
31, 1996. The table below shows the range from the lowest price paid to the
highest along with dividend payments each quarter:
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ----------------------------------
Price Range Dividends Price Range Dividends
Low High Declared Low High Declared
--- ---- -------- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $28.00 $28.00 $0.14 $26.00 $27.00 $0.13
2nd Quarter $31.00 $32.00 $0.14 $26.50 $27.00 $0.13
3rd Quarter $30.00 $33.75 $0.14 $29.00 $30.25 $0.13
4th Quarter $32.00 $35.88 $0.15 $30.00 $30.00 $0.13
</TABLE>
FAIR MARKET VALUE
The Financial Accounting Standards Board, through its Statement No. 107
("FASB 107"), and the FDIC Improvement Act of 1991 require banks to disclose the
fair value of all financial instruments. Approximately 90% of total assets, 95%
of total liabilities, and almost all off-balance sheet financial contracts in a
depository institution come under the definition. This disclosure is required
for banks with assets in excess of $150 million beginning with the 1992 annual
report.
26
<PAGE>
The fair market values of all financial instruments held by Union
National are disclosed in the independent auditor's report. For those financial
instruments which are traded in active financial markets, the fair value is the
market price. For loans and deposits with no quoted prices, FASB 107 provides
that the value be determined by means of discounted present value models or
option pricing models. The valuing technique employed for each group of
instruments is based upon the characteristics of each instrument.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, Union National adopted the provisions of the
Statement of Financial Accounting Standards Board No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114") and No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" ("SFAS
118"). The new statements require impaired loans to be measured at the present
value of expected cash flows by discounting those cash flows generally at the
effective interest rate or, a practical expedient, at the loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. The new statements also require troubled debt restructuring involving
a modification of terms to be remeasured on a discounted basis. This information
is included in the independent auditor's report under the footnote for loans.
Effective January 1, 1996, Union National adopted the provisions of the
Statement of Financial Accounting Standards Board No. 121, "Accounting of
Long-Lived Assets and for Long -Lived Assets to be Disposed of" ("SFAS 121").
This standard requires that long-lived assets be evaluated regularly for other
than temporary impairment. If circumstances suggest that their value may be
impaired, an assessment of recoverability is performed prior to any write-down
of the asset.
Effective January 1, 1997, Union National adopted the provisions of the
Statement of Financial Accounting Standards Board No. 125, "Accounting of
Long-Lived Assets and for Long -Lived Assets to be Disposed of" ("SFAS 121").
This standard provides for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings.
ITEM 3. PROPERTIES
Union National's principal office is located at 117 East Main Street in
Westminster, Maryland in a renovated turn-of-the century building. UNB's
commercial, mortgage and consumer lending operations, as well as its executive
offices, marketing department, human resources offices, deposit account support
services and offices for non-deposit investment products are housed here. UNB
owns this building and a 17,325 square feet storage facility and parking lot
directly across the street at 118 East Main Street.
Directly next door to the principal office is the main branch banking
facility for UNB with drive-up services located at 111 East Main Street,
Westminster, Maryland. This branch facility employs seven full time and two part
time employees and is also owned by UNB.
The two story branch office located at 7564 Main Street, Sykesville,
Maryland has 2,490 square feet dedicated to providing full banking services and
ATM access. This branch employs three full time and two part time employees. UNB
owns this facility and rents the upper floor to a local small business. UNB's
other six locations, all of which provide ATM services and five of which provide
drive-up services, are leased with terms currently ranging from five to fifteen
years and with annual rent payments currently ranging from $21,532 to $46,371.
27
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table reflects the beneficial ownership of Union
National's common stock, par value $.01 per share (the "Shares") as of March 17,
1997 held by directors, executive officers, each person known to Management to
own beneficially, directly or indirectly, more than 5% of Union National's
Shares, and all directors and executive officers as a group. Except as otherwise
indicated, the persons or entities listed below have sole voting and investment
power with respect to all Shares shown as beneficially owned by them. Unless
otherwise indicated, the address of all executive officers and directors is the
principal office of Union National.
Beneficial Owners and Management Number of Shares Percent of Class
- -------------------------------- ---------------- ----------------
5% Beneficial Owners:
Caroline R. Taylor ....................... 62,076 7.4%(1)
6 Ridge Road
Westminster, MD 21157
Virginia C. Wantz ........................ 63,816 7.6%(2)
205 St. Mark Way
Westminster, MD 21157
Union National Bank 401(k) Plan 63,444 7.6%(3)
117 East Main Street
Westminster, MD 21158
Executive Officers and Directors:
Virginia W. Smith......................... 2,882 *
Thomas F. See ............................ 17,321 2.1%(4)
Denise L. Owings.......................... 3,720 *(5)
K. Wayne Lockard.......................... 4,552 *(6)
Donald C. Essich.......................... 2,460 *
Joseph H. Beaver, Jr. .................... 24,224 2.9%(7)
Wesley D. Blakeslee....................... 1,970 *(8)
David L. Brauning......................... 10,974 1.3%(9)
Robert L. Bullock......................... 6,878 *
Dean H. Griffin .......................... 5,700 *(10)
Bernard Larry Jones, Sr................... 200 *
William R. Klinger........................ 378 *
Robert T. Scott........................... 760 *
Ethan A. Seidel........................... 300 *
Ellen Willis.............................. 100 *
Kenneth B. Wright......................... 1,150 *
All directors and executive officers
as a group (16 persons)................. 83,569 10.02%
*Less than 1%
- --------------------------
28
<PAGE>
(1) Includes 23,184 shares held by trustees for the benefit of Caroline R.
Taylor.
(2) Includes 32,136 shares held by trustees for the benefit of Virginia C.
Wantz.
(3) The Union National 401(k) plan, while owning 10.15% of the outstanding
stock of Union National, does not control the voting of those shares.
Each participant is forwarded a proxy statement and casts his vote
according to the same rules as any other stockholder.
(4) Includes 12,875 shares in the Union National 401(k) plan. Also includes
600 shares owned by his wife, Katherine K. See, as to which Mr. See
disclaims beneficial ownership.
(5) Includes 3,620 shares in the Union National 401(k) plan.
(6) Includes 1,050 shares owned by his wife, Bonnie M. Lockard, as to which
Mr. Lockard disclaims beneficial ownership.
(7) Includes 550 shares owned by his wife, Katherine G. Beaver, 540 shares
owned by his daughter, Katherine Elizabeth Beaver, and 615 shares owned
by his son, Sean Beaver, all of which Mr. Beaver disclaims beneficial
ownership.
(8) Includes 1,570 shares held in an individual retirement account.
(9) Include 4,596 shares held by Mr. Brauning and Horace S. Brauning, Jr.,
as trustees under the Last Will and Testament of Anna M. Brauning, as
to which Mr. Brauning disclaims beneficial ownership.
(10) Includes 300 shares owned by his son, John W. Griffin, and 140 shares
owned by his wife, Etta Ray Griffin, all of which Mr. Griffin disclaims
beneficial ownership.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Union National's Board of Directors presently consists of 14 members,
one-third (as nearly equal in number as possible) of whom are to be elected
annually to serve for a term of three years.
The following table sets forth the name, age and term of office of each
executive officer and director of Union National and the principal occupations
of these individuals during the past five years. The executive officers are
appointed to their respective offices annually. All directors of Union National
also serve as directors of UNB and the terms for both expire at the same time.
Unless otherwise indicated, the principal occupation listed for a person has
been that person's occupation for at least the past five years. Because a
majority of persons listed served as officers or directors of UNB before Union
National was formed as its holding company in 1994, the table indicates the
earliest year a person became an officer or director for UNB or Union National.
<TABLE>
<CAPTION>
Name, Age and Principal Occupations Director or Year Term as
Position with Company During Past Five Years Officer Since Director Expires
--------------------- ---------------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Virginia W. Smith, 47 President and Chief Executive 1995 1998
President and Chief Officer of Union National and
Executive Officer, UNB (January 1996 to present);
Director Executive Vice President of UNB
(August 1995 to January 1996);
Senior Vice President of First Fidelity
Bank (formerly Bank of Baltimore)
(1992 to 1995); Executive Vice
President of Signet Banking Corporation
(1992); President of Signet Mortgage
Corporation (1987 to 1992)
Thomas F. See, 50 Treasurer of Union National (1994 1979 --
Treasurer to present); Sr. Vice President and
Chief Financial Officer of UNB (1979 to
present)
29
<PAGE>
Name, Age and Principal Occupations Director or Year Term as
Position with Company During Past Five Years Officer Since Director Expires
--------------------- ---------------------- ------------- ----------------
Denise L. Owings, 43 Corporate Secretary of Union 1989 --
Corporate Secretary National (1994 to present); Corporate
Secretary to the Board of Directors
of UNB (1989 to present)
K. Wayne Lockard, 63 Self-employed real estate consultant 1973 1998
Chairman of the Board and partner in "Lockard Properties",
developers and investors of commercial
and residential real estate
Donald C. Essich, 64 Retired in January 1995; formerly self- 1983 1998
employed farmer and President of the local
and statewide Farm Bureau
Joseph H. Beaver, Jr., 63 Retired in January 1996; formerly 1965 1999
Director President and Chief Executive Officer of
Union National (1994 to January 1996);
President and Chief Executive Officer of
UNB (1971 to January 1996)
Wesley D. Blakeslee, 49 Attorney, private practice; President 1988 1999
Director of Will Plan Corp.
David L. Brauning, Sr., 59 Insurance Agent for Nationwide Insurance; 1988 2000
Director Farmer
Robert L. Bullock, 60 Owner of Bullock's Country Meats; Farmer 1983 2000
Director
Dean H. Griffin, 62 Physician, private practice 1984 1999
Director
Bernard L. Jones, Sr., 54 Senior engineer/systems technologist for 1991 2000
Director Vitro Corporation; President of HOPE, Inc.
a local developer for low cost housing
William R. Klinger, 41 Owner and General Manager of Star Vending 1988 2000
Director Service Company (1993 to present); Sales
Manager of Mid-Atlantic Coca-Cola Company
(1991 to 1993); Vice President of Westminster
Coca-Cola Bottling Company (1984 to 1991)
Robert T. Scott, 53 Orthodontist practicing as Senior Partner 1990 1998
Director of Scott-Stetz Partnership
Ethan A. Seidel, 54 Vice President of Administration and 1995 1999
Director Finance of Western Maryland College (1993
to present); Professor of Economics at
Western Maryland College; Assistant to the
President of Western Maryland College (1990
to 1993)
Ellen L. Willis, 49 Director of Business and Industry Training 1995 1999
Director of Carroll Community College; Previously
owned and operated a small business
30
<PAGE>
Name, Age and Principal Occupations Director or Year Term as
Position with Company During Past Five Years Officer Since Director Expires
--------------------- ---------------------- ------------- ----------------
Kenneth B. Wright, 54 Owner and President of Towne 1986 1998
Director Pride Interiors
</TABLE>
There are no family relationships among any of the executive officers
or directors of Union National or UNB. Executive officers of Union National are
elected by the Board of Directors on an annual basis and serve at the discretion
of the Board of Directors.
Committees of the Board of Directors
UNB has a Management Oversight Committee, a Finance and Control
Committee, a Lending Oversight Committee, a Technology and Support Services
Committee and a Community Banking Development Committee.
The Management Oversight Committee consists of Ms. Virginia Smith, Mr.
Donald Essich, Mr. K. Wayne Lockard, Mr. Joseph Beaver, Mr. Robert Bullock, Mr.
William Klinger and Mr. Kenneth Wright. This committee oversees and evaluates
the Chief Executive Officer ("CEO"), develops new initiatives for presentation
to the Board of Directors, establishes compensation and benefits, recommends the
structure of the board and committees of the board, acts as a strategic planning
committee, and functions as a full board when the full board of directors cannot
meet and a timely response to an issue, such as loan requests, is needed. The
CEO does not vote on his or her own compensation issues. This committee meets
two times a month.
The Finance and Control Committee consists of Mr. William Klinger, Mr.
Ethan Seidel, Mr. Bernard Jones and Mr. Thomas See. This committee's primary
objective is to provide risk and control oversight of UNB's audit and internal
audit control structure, and financial management oversight. The committee
reviews and recommends policies on risk, audit, security, compliance, and
financial management. This committee meets monthly.
The Lending Oversight Committee consists of Mr. Robert Bullock, Mr.
Dean Griffin and Mr. Joseph Beaver. The primary objectives of this committee
include reviewing and making recommendations concerning UNB's credit policy, to
review each segment of the loan portfolio on a quarterly and annual basis,
review delinquent loan repayments on a monthly basis, monitor UNB's reserve for
loan losses, provide an annual strategic analysis and business plan for lending.
This committee meets monthly.
The Technology and Support Services Committee consists of Mr. Robert
Scott, Mr. David Brauning and Mr. Kenneth Wright. The primary objective of this
committee is to recommend policy and provide oversight and guidance of
management in operations, technology, alternative delivery, employee training,
management development and personnel policy. This committee meets monthly.
The Community Banking Development Committee consists of Ms. Ellen
Willis, Mr. Donald Essich, Mr. Wesley Blakeslee and Mr. Harry Colson. The
primary objectives of this committee includes recommending policy and providing
oversight and guidance in marketing, products, services, locations, service
quality, investment products and services, and oversight of UNB's CRA
activities. This committee meets monthly.
31
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Union National
and UNB for the last three fiscal years to the CEO of Union National and UNB.
There were no other officers of Union National or UNB who received compensation
in excess of $100,000 during any of those fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Other Annual All Other
Name Year Salary Bonus Compensation Compensation
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Virginia W. Smith 1996 $129,000 --- $7,830(2) $6,000 (3)
President, Chief
Executive Officer
Joseph H. Beaver Jr., (1) 1996 $6,923 --- $4,280(7) $43,758 (4)
Former President, 1995 $120,000 $1,500 $7,444(5) $20,588 (6)
Chief Executive Officer 1994 $114,174 $5,709 $1,014(7) $70,783 (8)
and Director
- -------------------------------
<FN>
(1) Mr. Beaver retired from his position as President and CEO of Union
National on January 12, 1996.
(2) Includes the allowance for use of personal automobile for business in
the amount of $6,923, and the value of unused sick pay in the amount of
$908.
(3) Director's fee.
(4) Includes Union National's contributions to 401(k) plan in the amount of
$138 and contributions made to the Senior Employee's Retirement Plan
("SERP") in the amount of $36,920. Also includes $6,700 for Director's
fees and special committee meetings.
(5) Includes the value of the use of a company automobile in the amount of
$5,136, and the value of unused sick pay in the amount of $2,308.
(6) Includes Union National's contributions to 401(k) plan in the amount of
$3,601, contributions to the SERP in the amount of $10,987, and
Director's fees in the amount of $6,000.
(7) Represents value of the use of a company automobile.
(8) Includes Union National's contributions to 401(k) plan in the amount of
$3,493, and contributions made to the SERP in the amount of $62,290.
Also includes $5,000 for Director's fees.
</FN>
</TABLE>
Compensation of Directors
Directors of Union National do not receive compensation in that
capacity. However, as directors of UNB, they receive compensation for serving on
the Board of Directors in the following amounts: (i) $1,000 per month for the
Chairman of the Board, (ii) $550 per month for the Vice-Chairman of the Board,
and (iii) $500 per month for all other directors. In addition, all directors of
UNB receive $100 for each committee meeting and special meeting of the Board of
Directors of UNB in which they are in attendance.
Compensation Committee Interlocks and Insider Participation
The Management Oversight Committee of the Board of Directors serves as
compensation committee of Union National and UNB. The members of the Management
Oversight Committee are Ms. Virginia W. Smith, Mr. Donald C. Essich, Mr. K.
Wayne Lockard, Mr. Joseph H. Beaver, Jr., Mr. Robert L. Bullock, Mr. Kenneth
Wright, and Mr. William R. Klinger. Ms. Smith is the current CEO and
32
<PAGE>
President of Union National, and Mr. Beaver is the former CEO and President of
Union National. While Ms. Smith and Mr. Beaver were specifically excluded from
any Committee discussion concerning their own compensation, they did participate
in the Committee's discussion concerning other key executives compensation.
Management Committee Compensation Report
The compensation of the CEO and other executive officers of Union
National and UNB is determined by the Management Oversight Committee of the
Board of Directors. This Committee sets compensation guidelines intended to
provide suitable rewards for individual performance and to tie such performance
to increased stockholder value. The compensation paid is designed to attract,
retain and reward executive officers who are capable of leading Union National
and UNB in achieving its business objectives in an industry characterized by
complexity, competitiveness and constant change. The compensation of Union
National's key executives is reviewed and approved by the Board of Directors
upon recommendation of Union National's Management Oversight Committee.
Total compensation for Union National's CEO and other key executive
officers consists of base salary, benefits, short and long term incentives and
perquisites.
The guidelines and factors considered by the Committee in determining
compensation include corporate profitability measured by return on assets, stock
price, asset quality, loss reserve levels, market- share, regulatory capital
strength, cost control, and regulatory examination.
Annually, at year end, the Committee reviews the base compensation and
benefit levels of the CEO and other executive officers. Each officer's
compensation is based on their individual contribution to Union National and
UNB, and their meeting of the goals and objectives as set forth in the strategic
plan of Union National and UNB. To ensure that the compensation and benefits are
reasonable and competitive, the Committee compares the compensation awarded to
Union National and UNB executive officers with those of executive officers of
similarly sized and situated banks and thrift institutions in the Mid-Atlantic
region.
MANAGEMENT OVERSIGHT COMMITTEE:
Virginia W. Smith
Donald C. Essich
K. Wayne Lockard
Joseph H. Beaver, Jr.
Robert L. Bullock
William R. Klinger
Kenneth B. Wright
Employment Contracts
Virginia W. Smith entered into an employment contract with UNB
effective August 9, 1995 ("Employment Contract") by which she was made Executive
Vice President of UNB at an annual salary of $118,000 until such time as the
then-President of UNB retired, whereupon she would be named as President of UNB
at an annual salary of $129,000. Ms. Smith became President of UNB on January
12, 1996. Under the Employment Contract, her term as President is for one year,
which term and the Employment Contract are automatically renewed each year
unless either party provides 120 days' advance
33
<PAGE>
notice to the contrary. The Employment Contract further provides that if Ms.
Smith's employment is terminated by UNB for a reason other than for cause, she
will be paid her then-current salary and benefits for 12 months thereafter
("Severance Pay"). In addition, if following a merger or other corporate
reorganization in which UNB is not the survivor Ms. Smith's duties and
authorities are diminished or her salary is decreased or she is forced to
relocate, Ms. Smith can make a claim with UNB for Severance Pay. If UNB
disagrees that Severance Pay is owing, the dispute is subject to binding
arbitration.
1997 Stock Option Plan
General
On April 15, 1997, Union National's Board of Directors approved the
Union National Bancorp, Inc. 1997 Stock Option Plan (the "Plan"). Unless
extended or earlier terminated by the Board, the Plan will continue in effect
until, and shall terminate on, April 15, 2007. The purpose of the plan is to
provide incentives and an additional means of attracting and retaining competent
personnel for the executive officers and key employees of Union National, UNB
and their subsidiaries.
The Plan provides for the reservation of 30,000 shares of common stock,
par value $.01 of Union National (the "Shares") for issuance upon the exercise
of options granted under the Plan. Unless otherwise authorized by the Board,
options to purchase no more than 10,000 Shares may be granted under the Plan in
any calendar year. The number of Shares reserved for the grant of options and
the number of Shares which are subject to outstanding options under the Plan are
subject to adjustment in the event of any stock split, stock dividend or other
relevant changes in the capitalization of Union National.
Administration of the Plan
The Plan will be administered by Board. The Board is authorized to
determine and designate from time to time those executive officers and key
employees to whom options are to be granted. Unless an earlier expiration is
specified by the Board in the option agreement containing the terms and
conditions of the option, each option granted under the Plan will expire on the
10th anniversary of the date the option was granted. In the event of termination
of employment of an optionee other than for cause, all unexercised options will
terminate unless such options are exercised by the employee within 3 months
after the termination of employment. In the event of death of an optionee or
termination of employment due to permanent or total disability, the option may
be exercised by the personal representative, administrator, or bequestee, or by
the disabled optionee, as the case may be, within 1 year after the death or
termination of employment, to purchase that number of shares that were
purchasable by the optionee at the time of his or her death or disability.
Terms of Options
The exercise price for Shares being purchased upon the exercise of
options may be paid (i) in cash or by check; (ii) with shares of Union National,
to the extent the fair market value of such shares on the date of exercise
equals the exercise price of the Shares being purchased; (iii) by surrender to
Union National of options to purchase Shares, to the extent of the difference
between the exercise price of such options and the fair market value of the
Shares subject to such options on the date of such surrender; or (iv) a
combination of (i), (ii) or (iii) above. Union National has the right, and the
optionee may require Union National, to withhold and deduct from the number of
Shares deliverable upon the exercise of any options under the Plan a number of
Shares having an aggregate fair market value equal to the amount of
34
<PAGE>
any taxes and other charges that Union National is obligated to withhold or
deduct from amounts payable to the optionee.
No option may be transferred by an optionee other than by will and the
laws of descent and distribution, or pursuant to a qualified domestic relations
order. Options are exercisable only by the optionee during his or her lifetime
and only as described in the Plan. Options may not be assigned, pledged or
hypothecated, and are not subject to execution, attachment or similar process.
Upon any attempt to transfer an option, or to assign, pledge, hypothecate or
otherwise dispose of an option in violation of the Plan, or upon the levy of any
attachment or similar process upon such option or such rights, the option
immediately becomes null and void.
Exercise Periods
Generally, 20% of the Shares subject to the option will become
exercisable on each anniversary date of the grant of the option, so that the
option shall become fully exercisable on the fifth anniversary of the date the
option was granted. However, upon the occurrence of certain "Extraordinary
Events" all options under the Plan will become fully exercisable for the full
number of Shares subject to any such option. An "Extraordinary Event" is defined
as the commencement of a tender offer (other than by Union National) for any
Shares of Union National, or a sale or transfer, in one or a series of
transactions, of assets having a fair market value of 50% or more of the fair
market value of all assets of Union National, or a merger, consolidation or
share exchange pursuant to which the Shares of Union National are or may be
exchanged for or converted into cash, property or securities of another issuer,
or the liquidation of Union National. If an optionee fails to exercise his or
her option upon an Extraordinary Event, or if there is a capital reorganization
or reclassification of the Shares, Union National must take action as may be
necessary to enable each optionee to receive upon any subsequent exercise of his
or her options, in lieu of Shares, securities or other assets as were issuable
upon the Extraordinary Event in respect of, or in exchange for, such Shares.
Pension Plan and Thrift Plan
Pension Plan. UNB sponsors a defined benefit pension plan covering
substantially all employees. Benefits are calculated based on the number of
years of service and the employee's compensation. UNB's funding policy is to
contribute the maximum amount deductible for income tax purposes. Contributions
provide not only for benefits attributed to service to date, but also for those
expected to be earned in the future. Net pension cost for 1996, 1995 and 1994
include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during the year $ 86,195 $ 71,154 $ 88,237
Interest cost on projected benefit obligation 84,964 88,382 84,508
Actual return on plan assets (103,395) (139,897) 14,630
Net amortization and deferral 54,406 76,498 (59,968)
----------- ---------- -----------
$ 122,170 $ 96,137 $ 128,407
Additional expense related to settlement
of pension obligations 155,612 -- --
------------ ---------- -----------
$ 277,782 $ 96,137 $ 128,407
============ ========== ============
</TABLE>
During 1996, UNB's pension plan made lump sum payments to plan
participants which met the criteria for a settlement of pension obligations as
defined in Statement of Financial Accounting Standards
35
<PAGE>
No. 88, "Employers Accounting for Settlements and Curtailments of Defined
Benefit Plans and for Termination Benefit." This settlement resulted in
additional pension expense of $155,612 for the year ended December 31, 1996.
The weighted-average discount rate used in determining the actuarial
present value of the project benefit obligation was 7.50% for 1996, 1995, and
1994. The expected long-term rate of return on assets was 7.50% for those years.
Employee Savings and Investment Plan. UNB has an Employee Savings and
Investment Plan in which substantially all employees are eligible to
participate. Under the terms of the plan, UNB may match employee contributions
up to 6% of compensation. UNB's contributions to this plan were $56,314 for
1996, $56,978 for 1995 and $49,743 for 1994.
During 1992 UNB entered into an agreement with members of its Board of
Directors to allow Director's Fees to be deferred until retirement. A director
may defer a portion or all of his fee until retirement. Fees deferred will be
paid over a fifteen year period at retirement. This is an insured program that
will provide full recovery of cost to UNB.
UNB has also made arrangements with certain officers to provide
additional retirement benefits under a Senior Employee Retirement Plan ("SERP").
This program is designed to, when combined with Social Security and the Defined
Pension Plan, give those officers covered approximately 60% of final salary. It
is also a cost recovery program. The SERP is unfunded so that amounts payable
represent unsecured liabilities of UNB; thereby potentially subject to claims of
secured creditors. The amount included in operating expenses was $61,561 for
1996, $52,108 for 1995 and $106,242 for 1994.
Performance Graph
Set forth below is a line graph comparing cumulative stockholder
returns as of December 31 for each of the last five years among the Common
Stock, a broad market index and either a nationally recognized industry standard
or an index of peer companies selected by Union National, assuming in each case
both an initial investment of $100 and reinvestment of dividends. Union National
has chosen the Nasdaq Market Index as the relevant broad market index. This more
closely reflects the market where Union National would be listed if it were
eligible. Additionally, Union National has selected the Nasdaq Bank Index since
it reflects a large group of banks across the country, both large and small,
against Union National's returns can be compared.
36
<PAGE>
COMPARISON OF FIVE YEAR TOTAL RE--TURN GRAPH
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Indebtedness of Management
During the past year UNB has had, and expects to have in the future,
banking transactions in the ordinary course of business with Union National and
UNB directors and executive officers and their associates. Such transactions are
made on substantially the same terms, including interest rates, collateral and
repayment terms on extensions of credit, as those prevailing at the same time
for comparable transactions with other persons. The extensions of credit by UNB
to these persons have not, and do not currently, involve more than the normal
risk of collectability or present other unfavorable features. At December 31,
1996, the outstanding principal amount of indebtedness to UNB owed by directors
and executive officers and their associates, who were indebted to UNB on that
date, aggregated $4,644,364 which represented approximately 25.9% of UNB's
equity capital accounts.
Lease Agreements
In 1986, UNB entered into a lease involving 2,400 square feet of office
space in Hampstead, Maryland, at a monthly rental of $3,150, which UNB uses as
its Hampstead branch office. The lessor of the property is K. Wayne Lockard,
Chairman of the Board, and his wife, Bonnie M. Lockard, both of whom are
stockholders of Union National. The lease was negotiated on an arm's-length
basis, and is subject to terms that are generally prevailing in the area for
comparable properties. In the opinion of the Union National Board, the terms of
the lease are at least as favorable to UNB as could have been obtained from
unaffiliated third parties and the lease is fair and reasonable to UNB.
37
<PAGE>
Certain Business Relationships
UNB has retained, among others, Wesley D. Blakeslee, P.C., the law firm
of Director Wesley D. Blakeslee, on an at-will basis to perform collection work.
Fees for collection work are assessed on an hourly basis for consumer loans and
on a percentage of the amount collected for residential mortgage and commercial
loans. UNB paid $15,570.54 in 1996 for these services. The retention of Mr.
Blakeslee's firm was negotiated on an arm's-length basis, and is subject to
terms that are within the range generally prevailing in this area for collection
work. In the opinion of the Union National Board of Directors, the terms are at
least as favorable to UNB as could have been obtained from unaffiliated third
parties and are fair and reasonable to UNB.
ITEM 8. LEGAL PROCEEDINGS
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for Union National's
Shares. Accordingly, there is no comprehensive record of trades or the prices of
any such trades. The following table reflects stock prices for Union National's
Shares to the extent such information is available, and the dividends declared
with respect thereto during the preceding two years.
<TABLE>
<CAPTION>
1996 1995
------------------------------------ -----------------------------------
Price Range Price Range
----------- -----------
Low High Dividends Low High Dividends
--- ---- --------- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $28.00 $28.00 $0.14 $26.00 $27.00 $0.13
2nd Quarter 31.00 32.00 0.14 26.50 27.00 0.13
3rd Quarter 30.00 33.75 0.14 29.00 30.25 0.13
4th Quarter 32.00 35.88 0.15 30.00 30.00 0.13
</TABLE>
None of Union National's Shares (i) is subject to outstanding options
or warrants to purchase nor are there any securities convertible into Union
National's Common Stock, (ii) is subject to sale pursuant to Rule 144 under the
Securities Act nor has Union National agreed to register any Shares under the
Securities Act for sale by its stockholders, (iii) is being or is proposed to be
publicly offered by Union National.
As of March 17, 1997, the approximate number of holders of record of
Union National's Shares was 445. At such date, 834,000 Shares were outstanding.
The Union National Board of Directors reviews its dividend policy at
least annually. The amount of the dividend, while in its sole discretion of the
Board, depends in part upon the performance of UNB. Union National's ability to
pay dividends is also subject to the restrictions imposed by Maryland law.
Generally, Maryland law prohibits corporations from paying dividends if the
corporation is insolvent or if the dividend would cause a corporation to be
unable to pay indebtedness of the corporation as the indebtedness becomes due in
the usual course of business or the corporations's total assets would be less
than the sum of its total liabilities plus the amount that would be needed if
the corporation were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of shareholders
38
<PAGE>
whose preferential rights are superior to those receiving the distribution.
There can be no assurance that dividends will be declared in the future or the
rate that such dividends, if any, will be paid.
Union National is also subject to the dividend restrictions applicable
to national banks because its only source of income is from the dividends paid
by UNB to Union National. Under the National Bank Act, dividends may be paid
only out retained earnings as defined in the statute. The approval of the OCC is
required if the dividends for any year exceed the net profits, as defined, for
that year plus the retained net profits for the preceding two years. In
addition, unless a national bank's capital surplus equals or exceeds the stated
capital for its common stock, no dividends may be declared unless the bank makes
transfers from retained earnings to capital surplus. See "Supervision and
Regulation" under Item 1 of this Form 10.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
General
Union National is authorized to issue 10,000,000 Shares. As of March
17, 1997, Union National had outstanding 834,000 Shares.
Common Stock
Dividends
Holders of Union National Shares are entitled to receive dividends
when, as and if declared by its Board out of funds legally available therefor.
Since Union National is a holding company, the funds required by it to enable it
to pay dividends are derived predominantly from the dividends paid to Union
National by its subsidiary, UNB. Union National's ability to pay dividends,
therefore, is dependent upon the earnings, financial condition and ability to
pay dividends of its subsidiary. Payment of dividends by Union National's
subsidiary is subject to a number of regulatory restrictions. See "Supervision
and Regulation-Limits on Dividends and Other Payments" under Item 1 of this Form
10. UNB is presently permitted to pay dividends without prior approval under
such regulatory requirements. At December 31, 1996, an aggregate of
approximately $4,445,000 was available for the payment of quarterly dividends to
Union National for the last quarter of 1996.
Liquidation
In the event of liquidation, dissolution or winding up of Union
National, holders of Union National Shares are entitled to share ratably in all
assets remaining after payment of liabilities.
Voting
Holders of Union National Shares are entitled to one vote for each
share held by them at all meetings of the stockholders.
39
<PAGE>
Preemptive Rights
No holder of Union National Shares has any preemptive rights to
purchase any additional shares of stock.
Changes in Control
The Articles of Incorporation of Union National provide for the
division of its Board of Directors into three classes, as nearly as equal in
number as possible, with the term of three years each, and the term of office of
one class expiring each year. The Articles of Incorporation provide that the
number of directors shall be thirteen and may be increased or decreased as
provided in Union National's Bylaws, which permit the Board to increase the
number to a maximum of 25 and to decrease the number to the minimum required by
Maryland law. The Articles of Incorporation also provide that no director may be
removed except for cause and then only by the affirmative vote of at least
two-thirds of the total eligible stockholder votes. The Bylaws of Union National
require that directors retire from the Board on the date of the annual meeting
of stockholder next occurring after a director reaches the age of 70.
The Articles of Incorporation of Union National authorizes the Board of
Directors, when evaluating any offer to (i) make a tender or exchange offer for
its common stock, (ii) merge or consolidate with another institution, or (iii)
purchase or otherwise acquire all or substantial all of its assets, in
connection with the exercise of its judgment in determining the best interests
of Union National and its stockholders, to give due consideration to all
relevant factors, including without limitation the economic effects of
acceptance of such offer on (a) depositors, borrowers, employees and the
communities involved, and (b) the ability of the successor to fulfill the
objectives of an insured institution under applicable federal and state statutes
and regulations.
Business Combinations
Under the Maryland General Corporation Law, certain "business
combinations" (including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially owns
10% or more of the corporation's stock (an "Interested Stockholder") must be:
(a) recommended by the corporation's board of directors; and (b) approved by the
affirmative vote of at least (i) 80% of the corporation's outstanding shares
entitled to vote and (ii) two-thirds of the outstanding shares entitled to vote
which are not held by the Interested Stockholder with whom the business
combination is to be effected, unless, among other things, the corporation's
common stockholders receive a minimum price (as defined in the statute) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for his shares. In addition, an
Interested Stockholder or any affiliate may not engage in a "business
combination" with the corporation for a period of five years following the date
he becomes an Interested Stockholder. These provisions of Maryland law do not
apply, however, to certain business combinations that are specifically exempted
by resolution of the board of directors of a Maryland corporation prior to the
time that an Interested Stockholder becomes an Interested Stockholder. National
banking associations are required to obtain prior written approval to merge or
consolidate with any insured or non-insured bank or institution, to assume
liability to pay any deposits, or to transfer assets to any insured or
non-insured bank or institution.
40
<PAGE>
Control Shares Acquisitions
The Maryland General Corporation Law provides that "control shares" of
a Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast by stockholders, excluding shares owned by the acquiror or
by officers or directors who are employees of the corporation. "Control shares"
are voting shares which, if aggregated with all other shares previously acquired
by such person, would entitle the acquiror to vote 20% or more of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the corporation's board of directors to call a special
meeting of stockholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares, except those for which voting
rights have previously been approved, for fair value determined, without regard
to voting rights, as of the date of the last control share acquisition or of any
meeting of stockholders at which the voting rights of such shares are considered
and not approved. If voting rights for control shares are approved at a
stockholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid in the
control share acquisition, and certain limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context of
a control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or to acquisitions approved or excepted by the articles of
incorporation or bylaws of the corporation. Any change in control also triggers
certain regulatory requirements. See "Supervision and Regulation" under Item 1
of this Form 10.
Federal and State Regulations
Union National and UNB are subject to a variety of Federal statutes and
regulations applicable to national banking associations, including the National
Bank Act, all of which impact the operations of UNB. See "Supervision and
Regulation" under Item 1 of this Form 10.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Maryland law, a corporation is permitted to limit, by provision
in its Articles of Incorporation, the liability of directors and officers so
that no director or officer shall be liable to the corporation or to any
shareholder for money damages except (i) for and to the extent of actual receipt
of an improper personal benefit in money, property or services, or (ii) for
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. Union National's Articles of Incorporation
incorporated these provisions.
41
<PAGE>
Union National's Articles of Incorporation and Bylaws require Union
National to indemnify its directors and officers to the maximum extent permitted
under Maryland law. As a result, Union National is required to indemnify any
present or former director or officer against any claim or liability, including
all judgments, penalties, fines, settlements and expenses, unless it is
established that (i) his act or omission was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, Union National is required to pay or
reimburse, in advance of final disposition of a proceeding, reasonable expenses
incurred by such a person provided that Union National shall have received (i) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by Union National,
and (ii) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by Union National if it shall ultimately be determined that the
standard of conduct was not met. Union National's Articles of Incorporation and
Bylaws also require Union National to provide indemnification, payment or
reimbursement of expenses to a present or former director or officer who served
a predecessor of Union National in such capacity, and to any employee or agent
of Union National or a predecessor of Union National.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted of directors and officers of Union National
pursuant to the foregoing provisions or otherwise, Union National has been
advised that, although the validity and scope of the governing statute has not
been tested in court, in the opinion of the SEC, such indemnification is against
public policy as expressed in such Act and is, therefore, unenforceable. In
addition, indemnification may be limited by state securities laws.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the financial statements, the report thereon, the
notes thereto and supplementary data commencing at page F-1 of this Form 10,
which financial statements, report, notes and data are incorporated herein by
reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
42
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Consolidated Financial Statements
Page
Report of Independent Auditors F-1
Audited Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Exhibits
Exhibit
Number
3.1 Articles of Incorporation of Union National
3.2 Bylaws of Union National
10.1 Employment Agreement between The Union National Bank of
Westminster and Virginia W. Smith
10.2 1997 Stock Option Plan
10.3 Lease dated October 1, 1997, between Union National Bank and
K. Wayne Lockard
21.1 Subsidiary of Union National
23.2 Consent of Stegman & Company
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNION NATIONAL BANCORP, INC.
/s/ Virginia W. Smith
Virginia W. Smith
President and Chief Executive Officer
Dated: May 5, 1997
43
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Union National Bancorp, Inc.
Westminster, Maryland
We have audited the accompanying consolidated balance sheets of Union
National Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of Union National'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
misstatements. 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 consolidated financial position of
Union National Bancorp, Inc. and Subsidiary as of December 31, 1996 and 1995,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
Towson, Maryland
January 8, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
------------
1996 1995
-------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 6,910,561 $ 5,591,267
Interest bearing deposits with banks 160,821 5,000,000
Federal funds sold 8,882,550 3,050,000
Investment securities available for sale-at fair value 38,866,761 27,040,617
Investment securities held to maturity-at amortized cost -- fair value of
$17,304,150 (1996) and $25,735,869 (1995) 17,073,011 25,379,914
Loans 147,350,540 146,821,594
Less: allowance for credit losses (1,772,433) (1,769,077)
------------- -------------
Loans -- net 145,578,107 145,052,517
UNB premises and equipment 3,928,561 3,850,858
Foreclosed real estate 391,236 183,067
Accrued interest receivable 1,292,194 1,401,190
Other assets 1,951,826 2,266,677
------------- -------------
TOTAL ASSETS $225,035,628 $218,816,107
============ ============
LIABILITIES
Deposits:
Non-interest bearing deposits $ 23,694,607 $ 23,092,758
Interest bearing deposits 175,596,828 170,369,084
------------- -------------
Total deposits 199,291,435 193,461,842
Short-term borrowings 6,808,596 3,140,710
Federal Home Loan Bank Borrowing -- 5,000,000
Accrued expenses and other liabilities 882,930 673,519
------------- -------------
Total liabilities 206,982,961 202,276,071
------------- -------------
STOCKHOLDERS' EQUITY
Common stock--$.01 par; 10,000,000 shares authorized;
834,000 shares issued and outstanding 8,340 8,340
Surplus 8,342,055 8,342,055
Unrealized depreciation on securities available for sale
(net of related tax benefit) (58,586) (183,075)
Retained earnings 9,760,858 8,372,716
------------- -------------
Total stockholders' equity 18,052,667 16,540,036
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $225,035,628 $218,816,107
============ ============
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31,
--------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 13,707,367 $ 13,661,957 $ 11,937,587
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities 1,453,544 1,530,218 1,480,427
Other taxable interest and dividends 1,346,903 1,330,984 1,161,664
Nontaxable interest 361,482 394,366 455,880
Interest on deposits at other banks 61,229 20,400 --
Interest on federal funds sold 430,342 153,442 73,291
-------------- ------------- -------------
Total interest income 17,360,867 17,091,367 15,108,849
INTEREST EXPENSE
Interest on deposits:
Time certificates of deposit of $100,000 and more 1,097,504 959,967 470,670
Other deposits 6,604,581 6,232,214 5,444,471
-------------- ------------- -------------
Total interest on deposits 7,702,085 7,192,181 5,915,141
Interest on short-term borrowings 370,144 513,642 373,725
Interest on Federal Home Loan Bank borrowings 26,300 386,281 --
------------- ------------- -------------
Total Interest Expense 8,098,529 8,092,104 6,288,866
-------------- ------------- -------------
Net interest income 9,262,338 8,999,263 8,819,983
Provision for credit losses 329,000 212,000 342,000
-------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 8,933,338 8,787,263 8,477,983
-------------- ------------- -------------
NON-INTEREST INCOME
Service charges on deposit accounts 796,490 723,021 1,190,579
Other service charges 152,765 158,346 127,753
Gains on sales of loans 19,791 4,300 39,453
Loss on securities -- (1,065) (90,705)
Other income 116,754 92,948 48,252
-------------- ------------- -------------
Total other operating income 1,085,800 977,550 1,315,332
-------------- ------------- -------------
NON-INTEREST EXPENSES
Salaries and employee benefits 3,879,323 3,721,430 3,393,285
Occupancy expense of bank premises 802,443 666,070 611,226
Equipment expenses 335,136 341,731 330,080
Computer service fees 598,147 597,656 590,971
FDIC assessment 2,000 208,912 388,618
Legal and professional 199,965 290,716 207,290
Check clearing fees 40,784 103,913 229,039
Expenses related to terminated merger activities 287,824 -- --
Other expenses 1,054,788 1,128,209 1,049,025
-------------- ------------- -------------
Total other operating expenses 7,200,410 7,058,637 6,799,534
-------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,818,728 2,706,176 2,993,781
APPLICABLE INCOME TAXES 955,206 911,948 989,944
-------------- ------------- -------------
NET INCOME $ 1,863,522 $ 1,794,228 $ 2,003,837
============== ============= =============
EARNINGS PER COMMON SHARE $ 2.23 $ 2.15 $ 2.40
============== ============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994
Unrealized
Appreciation
(Depreciation)
on
Securities
Common Available Undivided
Stock Surplus For Sale Profits Total
----- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,1994 $ 8,340 $ 8,342,055 $ 285,166 $ 5,425,332 $ 14,060,893
Net income -- -- -- 2,003,837 2,003,837
Cash dividends ($.50 per share) -- -- -- (417,000) (417,000)
Unrealized depreciation on securities
available for sale (net of tax) -- -- (1,699,288) -- (1,699,288)
--------- ----------- ----------- --------- --------------
BALANCE AT DECEMBER 31, 1994 8,340 8,342,055 (1,414,122) 7,012,169 13,948,442
Net income -- -- -- 1,794,228 1,794,228
Cash dividends ($.52 per share) -- -- -- (433,681) (433,681)
Unrealized appreciation on securities
available for sale (net of tax) -- -- 1,231,047 -- 1,231,047
--------- ----------- ---------- ---------- --------------
BALANCE AT DECEMBER 31, 1995 $ 8,340 $ 8,342,055 $ (183,075) $ 8,372,716 $ 16,540,036
Net income -- -- -- 1,863,522 1,863,522
Cash dividends ($.57 per share) -- -- -- (475,380) (475,380)
Unrealized appreciation on securities
available for sale (net of tax) -- -- 124,489 -- 124,489
--------- ----------- ---------- --------- ------------
BALANCE AT DECEMBER 31, 1996 $ 8,340 $ 8,342,055 $ (58,586) $ 9,760,858 $ 18,052,667
========== ============ ========== ============ ==============
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,863,522 $ 1,794,228 $ 2,003,837
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 329,000 212,000 342,000
Depreciation and amortization 565,016 470,925 448,751
Net losses on available for sale securities -- 1,065 90,706
Gain on sales of other real estate and other assets (50,227) (39,507) (31,808)
Deferred income taxes (8,359) (83,152) (97,085)
Net decrease (increase) in accrued interest receivable 108,996 (52,032) (179,584)
Net increase (decrease) in accrued expenses and
other liabilities 209,411 (193,906) 455,782
Other -- net 201,992 507,482 378,376
------------ ------------ ------------
Net cash provided by operating activities 3,219,351 2,617,103 3,410,975
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (18,009,500) (6,373,418) (16,984,532)
Proceeds from sale of available for sale securities -- 2,856,390 4,152,742
Proceeds from maturities of available for sale securities 6,176,022 4,119,062 5,799,107
Purchase of held to maturity securities (650,000) (3,492,632) (4,584,791)
Proceeds from maturities of held to maturity securities 9,272,045 6,854,751 2,431,063
Proceeds from sale of other real estate and other assets 351,413 265,940 57,115
Net increase in loans (1,301,595) (7,410,114) (11,652,288)
UNB premises and equipment acquired (642,719) (1,040,722) (374,830)
Foreclosed real estate acquired (124,451) (111,540) (184,016)
------------ ------------ ------------
Net cash used in investing activities (4,928,785) (4,332,283) (21,340,430)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,829,593 10,928,790 9,716,626
Net increase (decrease) in short-term borrowings 3,667,886 (6,736,602) 4,932,805
Proceeds from Federal Home Loan Bank borrowings -- 18,000,000
Repayments of Federal Home Loan Bank borrowings (5,000,000) (13,000,000)
Cash dividends paid (475,380) (433,681) (417,000)
------------ ------------ ------------
Net cash provided by financing activities 4,022,099 8,758,507 14,232,431
Net increase (decrease) in cash and cash equivalents 2,312,665 7,043,327 (3,697,024)
Cash and cash equivalents at beginning of year 13,641,267 6,597,940 10,294,964
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $15,953,932 $13,641,267 $ 6,597,940
=========== =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 8,112,787 $ 8,291,567 $ 6,003,450
============ ============ ============
Income taxes paid $ 922,000 $ 1,076,040 $ 1,005,500
Non-cash investing activities
Transfer from loans to foreclosed real estate $ 384,904 $ -- $ --
Transfer from available for sale securities to held to maturity
securities $ -- $ 6,300,000 $10,000,000
============ ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Union National Bancorp, Inc.
and subsidiary conform to generally accepted accounting principles and to
general practices in the banking industry. Certain reclassifications have been
made to amounts previously reported to conform with the classifications made in
1996.
Principles of Consolidation
The consolidated financial statements include the accounts of Union
National Bancorp, Inc. (Union National) and its wholly owned subsidiary, Union
National Bank (the Bank). All significant intercompany transactions and balances
have been eliminated in consolidation. The financial statements of Union
National Bancorp, Inc. (parent only) include the Bank under the equity method of
accounting.
Nature of Operations
UNB provides a full range of banking services to individuals and
businesses through its main office and seven branches in Carroll County,
Maryland. Its primary deposit products are certificates of deposit and demand,
savings, NOW and money market accounts. Its primary lending products are
commercial and consumer loans and real estate mortgages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for credit losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
credit losses and foreclosed real estate, management obtains independent
appraisals for significant properties.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
UNB's allowances for credit losses and foreclosed real estate. Such agencies may
require UNB to recognize additions to the allowances based on their judgments
about information available to them at the time of their examination.
Investment Securities Available for Sale
Investment securities designated as available for sale are stated at
fair value based on quoted market prices. Securities available for sale
represent those securities which management may sell as part of its
asset/liability strategy or that may be sold in response to changing interest
rates or liquidity needs. Unrealized gains and losses are recognized as direct
increases or decreases, net of related income tax, to stockholders' equity. The
cost of securities sold is recognized using the specific identification method.
F-6
<PAGE>
Investment Securities Held to Maturity
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts. UNB has the ability and
intent to hold these securities until maturity.
Interest on Loans
Loans are stated at their current unpaid balance. Interest income on
loans is accrued at the contractual rate on the principal amount outstanding.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amount amortized over the contractual life of the
loan as an adjustment of the loan's yield.
Loans are placed on nonaccrual when a loan is specifically determined
to be impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
Loans are considered impaired when, based on current information, it is
probable that UNB will not collect all principal and interest payments according
to the loans' contractual terms. Generally, loans are considered impaired once
principal or interest payments become 90 days or more past due and they are
placed on nonaccrual. Management also considers the financial condition of the
borrower, cash flows of the loan and the value of the related collateral.
Impaired loans do not include large groups of smaller balance homogeneous loans
such as residential real estate and consumer installment loans which are
evaluated collectively for impairment. Loans specifically reviewed for
impairment are not considered impaired during periods of "minimum delay" in
payment (90 days or less) provided eventual collection of all amounts due is
expected. The impairment of the loan is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
the fair value of the collateral if repayment is expected to be provided by the
collateral. The majority of UNB's impaired loans are measured by reference to
the fair value of the collateral. Interest income on impaired loans is
recognized on the cash basis.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectability of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for credit losses, which is
charged to expense, and reduced by charge-offs, net of recoveries.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of physical
properties are computed using the straight-line method over the estimated useful
lives of the properties. Expenditures for maintenance, repairs and minor
renewals are charged to operations; expenditures for betterment's are charged to
the property accounts. Upon retirement
F-7
<PAGE>
or other disposition of properties, the carrying value and the related
accumulated depreciation are removed from the accounts.
Foreclosed Real Estate
Real estate acquired through foreclosure of loans is carried at cost or
fair market value minus estimated cost of disposal, whichever is lower. Fair
market value is based on independent appraisals and other relevant factors. At
the time of acquisition, any excess of the loan balance over fair market value
is charged to the allowance for credit losses. Gains and losses on sales of
foreclosed real estate are included in other operating income.
Income Taxes
Deferred income taxes are provided for differences between financial
statement and tax bases of assets and liabilities and are measured at current
tax rates. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Earnings Per Common Share
Earnings per common share are based on the weighted average number of
shares outstanding of 834,000 for 1996, 1995 and 1994.
Cash Flows
Union National has defined cash and cash equivalents as those amounts
included in the balance sheet captions "Cash and due from banks", "Interest
bearing deposits with banks" and "Federal funds sold".
2. FORMATION OF HOLDING COMPANY
Union National Bancorp, Inc., a one-bank holding company, began
operations on June 30, 1994 pursuant to an Agreement and Plan of Consolidation
proposed by management and approved by the shareholders of UNB on April 19,
1994. UNB continues its banking business under the same name as a wholly owned
subsidiary of the holding company. Under the Plan of Consolidation, each
outstanding share of Bank common stock was exchanged for two shares of Union
National's common stock.
3. ACCOUNTING CHANGES
Impaired Loans
Effective January 1, 1995 Union National adopted Statement of Financial
Accounting Standards ("SFAS") Nos. 114 and 118 "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures", respectively. These statements define
a loan as impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of a loan. If the value of the impaired loan is less than the
recorded investment in the loan, the creditor shall recognize the impairment by
creating a valuation allowance for the difference. See Note 6 for a discussion
of Union National's impaired loans at December 31,1996 and 1995, respectively.
F-8
<PAGE>
Long-Lived Assets
Effective January 1, 1996 Union National adopted SFAS No. 121
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This standard requires that long-lived assets be evaluated
regularly for other-than-temporary impairment. If circumstances suggest that
their value may be impaired, an assessment of recoverability is performed prior
to any write-down of the asset. Implementation of this standard did not have a
significant impact on Union National's financial condition or results of
operations.
Financial Assets and Liabilities
On January 1, 1997 Union National adopted the provisions of SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The adoption of this statement is not expected to
have a material impact on Union National's financial position or results of
operations.
4. CASH AND DUE FROM BANKS
The Federal Reserve requires banks to maintain certain minimum cash
balances consisting of vault cash and deposits in the Federal Reserve Bank or in
other commercial banks. The amounts of such reserves are based on percentages of
certain deposit types and totaled $1,035,000 and $755,000 at December 31, 1996
and 1995, respectively. The average daily reserve balance maintained during 1996
and 1995 was $1,769,656 and $1,653,911 respectively.
F-9
<PAGE>
5. INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated
statement of financial condition according to management's intent. The carrying
amount of securities and their approximate fair values at December 31 were as
follows:
<TABLE>
<CAPTION>
Available For Sale: 1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies $ 23,498,767 $ 104,588 $ 38,405 $ 23,564,950
Obligations of states and political subdivisions 496,150 106,350 -- 602,500
Mortgage-backed securities 13,570,900 75,132 151,902 13,494,132
------------------ ------------- ---------- ------------
Total debt securities 37,565,817 286,070 190,307 37,661,582
Equity securities 1,093,227 111,952 -- 1,205,179
------------------ ------------ --------- ------------
Total securities available for sale $ 38,659,044 $ 398,022 $ 190,307 $ 38,866,761
================== ============= ========= ============
</TABLE>
<TABLE>
<CAPTION>
1995
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies $ 9,001,294 $ 35,198 $ 30,471 $ 9,006,021
Obligations of states and political subdivisions 453,105 146,895 -- 600,000
Mortgage-backed securities 16,294,444 114,917 158,277 16,251,084
------------------ ------------- --------- ------------
Total debt securities 25,748,843 297,010 188,748 25,857,105
Equity securities 1,094,600 88,912 -- 1,183,512
------------------ ------------- --------- ------------
Total securities available for sale $ 26,843,443 $ 385,922 $ 188,748 $ 27,040,617
================== ============ ========= ============
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Held To Maturity: 1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies $ 2,550,750 $ 4,908 $ 5,770 $ 2,549,888
Obligations of states and political subdivisions 5,648,234 46,370 2,455 5,692,149
Mortgage-backed securities 8,874,027 188,086 -- 9,062,113
----------------- ------------- ---------- ----------------
Total securities held to maturity $ 17,073,011 $ 239,364 $ 8,225 $ 17,304,150
================== ============= ========== ================
</TABLE>
<TABLE>
<CAPTION>
1996
----
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government agencies $ 9,076,189 482 $ 34,666 $ 9,042,005
Obligations of states and political subdivisions 6,762,851 52,319 996 6,814,174
Mortgage-backed securities 9,540,874 338,816 -- 9,879,690
----------------- ------------- ---------- ----------------
Total securities held to maturity $ 25,379,914 $ 391,617 $ 35,662 $ 25,735,869
================== ============= ========== ================
</TABLE>
Gross realized gains and gross realized losses on sales of available
for sale were:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross realized gains:
U.S. Government and agency securities $ -- $ 10,041 $ --
State and municipal securities -- 2,000 --
Mortgage-backed securities -- 11,899 --
---------- ------------- ---------
$ -- $ 23,940 $ --
========== ============= =========
Gross realized losses:
U.S. Government and agency securities $ -- $ 10,554 $ 12,771
State and municipal securities -- -- --
Mortgage-backed securities -- 14,451 77,934
---------- ------------- ----------
$ -- $ 25,005 $ 90,705
========== ============= ==========
</TABLE>
The scheduled maturities of securities held to maturity and securities
available for sale at December 31,1996, were as follows:
<TABLE>
<CAPTION>
Held to maturity securities Available for sale securities
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 2,648,096 $ 2,653,065 $ 2,502,992 $ 2,505,450
Due from one year to five year 3,103,175 3,112,200 20,974,517 21,012,337
Due from five to ten years 6,792,722 6,895,788 5,319,779 5,403,535
Due after ten years 4,529,018 4,643,097 8,768,529 8,740,260
--------------- --------------- ----------------- --------------
Total debt securities $ 17,073,011 $ 17,304,150 $ 37,565,817 $ 37,661,582
=============== =============== ================= ==============
</TABLE>
For the purposes of the maturity table, mortgage-backed securities,
which are not due at a single maturity date, have been allocated over maturity
groupings based on the weighted average contractual maturities of underlying
collateral. The mortgage-backed securities may mature earlier than their
weighted average contractual maturities because of principal prepayments.
F-11
<PAGE>
Securities with a book value of $22,241,003 at December 31, 1996 and
$21,010,118 at December 31, 1995 were pledged as collateral for certain deposits
and repurchase agreements as required or permitted by law.
There were no state, county and municipal securities whose book value,
as to any issuer, exceeded ten percent of stockholders' equity at December 31,
1996 or 1995.
6. LOANS AND ALLOWANCE FOR CREDIT LOSSES
At December 31 loans were as follows:
1996 1995
------------- -----------
Real estate:
Construction $ 1,842,538 $ 2,494,150
Conventional 91,262,210 89,709,340
Loans to farmers 1,638,900 1,506,172
Commercial and industrial loans 22,551,859 26,247,024
Loans to individuals 27,111,321 26,191,418
Tax exempt loans to political subdivisions 3,372,488 1,175,969
All other loans 108,459 177,314
------------- -------------
Gross loans 147,887,775 147,501,387
Net deferred loan fees and costs (537,23) (679,793)
------------- -------------
Total loans $ 147,350,540 $ 146,821,594
============= =============
Changes in the allowance for credit losses were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $ 1,769,077 $ 1,670,940 $ 1,503,371
Provision charged to operating expenses 329,000 212,000 342,000
Recoveries 61,088 93,024 61,904
Loans charged off (386,732) (206,887) (236,335)
----------- ------------ -------------
Balance at December 31 $ 1,772,433 $ 1,769,077 $1,670,940
============ =========== =============
</TABLE>
Information regarding impaired loans for the years ending December 31, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Impaired loans with a valuation allowance $ 109,495 $ 73,043
Impaired loans without a valuation allowance 1,150,063 475,535
------------- ------------
Total Impaired Loans $ 1,259,558 $ 548,578
============= ============
Allowance for credit losses related to impaired loans $ 96,314 $ 52,748
Allowance for credit losses related to other than impaired loans 1,696,119 1,716,329
------------- ------------
Total allowance for credit losses $ 1,772,433 $ 1,769,077
============= ============
Average impaired loans for the year $ 965,871 $ 437,223
============= ============
Interest income on impaired loans recognized on a cash basis $ -- $ 24,774
============= ============
</TABLE>
UNB's loans are widely dispersed among individuals and industries. On
December 31, 1996, there was no concentration of loans in any single industry
that exceeded 5% of total loans.
F-12
<PAGE>
UNB is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit.
UNB's exposure to credit loss in the event of nonperformance by the
other party to these financial instruments is represented by the contractual
amount of the instruments. UNB uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
UNB generally requires collateral or other security to support
financial instruments with credit risk. The amount of collateral or other
security is determined based on management's credit evaluation of the
counterparty.
Contract amount of financial instruments which represent credit risk at
December 31, 1996 and 1995:
1996 1995
------------- --------------
Commitments to extend credit $17,438,032 $16,947,043
Standby letters of credit 2,308,082 1,687,540
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. UNB evaluates each customer's
creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by UNB 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.
7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at December 31,
1996 and 1995:
1996 1995
------------ --------------
Land $ 204,756 $ 204,755
Buildings and leasehold improvements 4,827,439 4,607,811
Equipment 2,605,618 2,922,375
------------- --------------
7,637,813 7,734,941
Accumulated depreciation and amortization 3,709,252 3,884,083
------------- --------------
$ 3,928,561 $ 3,850,858
============= ==============
8. DEPOSITS
Included in time deposits are certificates of deposit issued in
denominations of $100,000 or more which totaled $23,406,549 and $21,776,513 at
December 31,1996 and 1995 respectively.
F-13
<PAGE>
At December 31,1996, the amount outstanding and maturity distribution
of time certificates of deposit issued in amounts of $100,000 or more are in the
following table: (in thousands)
<TABLE>
<CAPTION>
Maturing
Over 3 Over 6
3 months through through Over 12
Total or less 6 months 12 months months
-------- ---------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Time certificates of deposit $100,000 or more $23,407 $3,176 $4,983 $11,195 $4,053
======= ====== ====== ======= ======
</TABLE>
Interest on deposits for the years ended December 31, 1996, 1995 and
1994 consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Saving deposits $1,873,911 $ 2,136,685 $2,563,748
Certificates of deposit ($100,000 or more) 626,639 484,109 320,407
Other time deposits 5,201,535 4,571,387 3,030,986
------------ ------------- -------------
Total at December 31 $7,702,085 $ 7,192,181 $5,915,141
============ ============= =============
</TABLE>
9. SHORT-TERM BORROWINGS
Short-term borrowings which consist primarily of federal funds
purchased and securities sold under agreements to repurchase borrowings were as
follows:
1996 1995
------------- -------------
Average amount outstanding during year $ 8,555,503 $ 9,827,234
Weighted average interest rate during year 4.3% 6.3%
Amount outstanding at year end $ 6,808,596 $ 3,140,710
Weighted average interest rate at year-end 4.5% 5.2%
Highest amount during year $ 17,802,839 $ 17,721,803
The bank has obtained two 10,000,000 lines of credit from correspondent
banks to be used for securities repurchase agreements.
10. FEDERAL HOME LOAN BANK BORROWINGS
At December 31,1995, UNB had received an advance from the Federal Home
Loan Bank in the amount of $5,000,000 which was due and paid January 31,1996
with interest at 5.7%. UNB has pledged $23,000,000 of mortgage loans as
collateral on advances from this source.
F-14
<PAGE>
11. PENSION PLAN AND THRIFT PLAN
UNB sponsors a defined benefit pension plan covering substantially all
employees. Benefits are based on years of service and the employee's
compensation. UNB's funding policy is to contribute the maximum amount
deductible for income tax purposes. Contributions provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. Net pension cost for 1996, 1995 and 1994 includes the following
components:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the year $ 86,195 $ 71,154 $ 88,237
Interest cost on projected benefit obligation 84,964 88,382 84,508
Actual return on plan assets (103,39) (139,897) 14,630
Net amortization and deferral 54,406 76,498 (58,968)
--------- ---------- ---------
$ 122,170 $ 96,137 $ 128,407
Additional expense related to settlement of person obligations 155,612 -- --
--------- ---------- ---------
$ 277,782 $ 96,137 $ 128,407
========== ========== =========
</TABLE>
During 1996, UNB's defined benefit pension plan made lump sum payments
to plan participants which met the criteria for a settlement of pension
obligations as defined in SFAS No. 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination Benefits". This
settlement resulted in additional pension expense of $155,612 for the year ended
December 31,1996.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.50% for 1996 , 1995 and
1994.
The expected long-term rate of return on assets was 7.50% for 1996,
1995 and 1994.
The following table sets forth the plan's funded status and amounts
recognized in UNB's financial position at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $779,681
in 1996 and $1,044,891 in 1995 $ 786,243 $ 1,051,633
------------ ------------
Plan assets at fair value, primarily in debt and equity securities 832,418 1,201,196
Projected benefit obligation for service rendered to date (1,160,553) (1,402,453)
------------ ------------
Projected benefit obligation in excess of plan assets (328,135) (201,257)
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions 252,538 327,953
Prior service cost not yet recognized in net periodic pension cost (616) (954)
Unrecognized net obligation at December 15, 1988 being recognized
over 15 years 29,136 34,963
------------ ------------
Accrued (prepaid) pension liability $ (47,077) $ 160,705
============ ============
</TABLE>
UNB has an Employee Savings and Investment Plan in which substantially
all employees are eligible to participate. Under the terms of the Plan, UNB will
match 50% of the employee contributions
F-15
<PAGE>
up to 6% of compensation. UNB's contributions to the Plan were $56,314 for 1996,
$56,978 for 1995, and $49,743 for 1994.
UNB has entered into agreements with certain executive officers and
members of its Board of Directors to provide retirement benefits. The present
value of the benefits to be paid by UNB upon retirement is being accrued over
the number of years remaining to the retirement date of these individuals. The
amount included in operating expenses was $61,561 for 1996, $52,108 for 1995,
and $106,242 for 1994.
12. INCOME TAXES
Applicable income taxes for 1996, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------- ------------------------------ -----------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Current $788,837 $174,728 $963,565 $788,575 $206,525 $995,100 $857,790 $229,239 $1,087,029
Deferred (6,844) (1,515) (8,359) (68,080) (15,072) (83,152) (79,479) (17,606) (97,085)
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Total $781,993 $173,213 $955,206 $720,495 $191,453 $911,948 $778,311 $211,633 $ 989,944
======== ======== ======== ======== ======== ======== ======== ======== ==========
</TABLE>
Deferred tax expense resulting from timing differences in the tax bases
of assets and liabilities for tax and financial statement purposes is
attributable to:
1996 1995 1994
----------- ----------- ---------
Provision for credit losses $ 5,647 $ (37,880) $ (64,681)
Deferred loan fees 89,941 25,480 21,888
Depreciation and amortization (49,801) (30,550) (26,463)
Pension expense (22,933) (4,704) 10,011
Deferred compensation (19,074) (20,113) (41,010)
Loan income (23,905) (16,008) 3,345
Health insurance 23,638 -- (386)
Other (11,872) 623 211
---------- ---------- -----------
Total deferred income tax (benefit) $ (8,359) $ (83,152) $ (97,085)
========== ========== ===========
Accumulated deferred income tax benefits of $1,138,810 at December 31,
1996 and $1,213,644 at December 31, 1995 are included in other assets and
consist of the following:
1996 1995
------------- -----------
Provision for credit losses $ 541,189 $ 539,893
Deferred loan fees 177,532 267,426
Unrealized depreciation of investment securities 36,924 115,191
Depreciation and amortization 205,602 155,364
Deferred compensation 148,558 130,124
Pension expense (16,699) (39,621)
Loan income 45,880 21,987
Health insurance -- 23,628
Other (176) (328)
------------ -----------
Net deferred tax asset $ 1,138,810 $1,213,664
============ ===========
F-16
<PAGE>
Income tax expense of $955,206, $911,948 and $989,944 for 1996, 1995
and 1994 was 33.9%, 33.7% and 33.1%, respectively, of income before taxes and
cumulative effect of accounting change as compared to the maximum statutory rate
for federal income taxes, reconciled as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- -----------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory rate $ 958,368 34.0% $ 920,100 34.0% $1,017,886 34.0%
Increases (decreases) in taxes resulting from:
Tax exempt interest income (159,792) (5.7) (163,881) (6.1) (183,516) (6.1)
State income taxes, net of federal income
tax benefit 114,321 4.1 126,359 4.7 139,678 4.7
Nondeductible interest expense 26,271 .9 22,919 .8 19,901 .7
Officers and directors life insurance 7,306 .3 1,452 -- 3,605 .1
Other 8,732 .3 4,999 .3 (7,610) (.3)
--------- ---- --------- ---- ----------- ---
$ 955,206 33.9% $ 911,948 33.7% $ 989,944 33.1%
========= ==== ========= ==== =========== ====
</TABLE>
13. LEASES
UNB is obligated under noncancelable lease agreements for certain bank
premises. The leases generally contain renewal options and provide that UNB pay
property taxes, insurance and maintenance costs.
Future minimum lease payments under leases having initial or remaining
noncancelable lease terms in excess of one year are as follows:
Operating
Leases
1997 $ 249,850
1998 202,276
1999 192,758
2000 159,331
2001 91,882
Thereafter 250,738
UNB has entered into an agreement to lease a branch banking facility
from a director through 2001 at a minimum annual rental of $37,800. The lease
also contains one five-year renewal option. UNB also has an agreement with an
advisory board member to lease a branch facility through November, 2002 at
minimum annual rental of $21,532.
14. RESTRICTION ON SURPLUS AND UNDIVIDED PROFITS
Under the provisions of the National Bank Act, the approval of the
Comptroller of the Currency is required if dividends declared by UNB in any year
exceed the total of its net profits (as defined) of that year combined with its
retained net profits for the preceding two years. Additionally, when surplus is
less than the par value of common stock, an amount of not less than 10% of net
profits of the preceding half-year period must be transferred from undivided
profits to surplus before a dividend may be declared.
F-17
<PAGE>
15. REGULATORY MATTERS
Union National and UNB 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 Union National's and UNB's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, UNB must meet specific capital guidelines that involve
quantitative measures of UNB's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Union National and UNB to maintain amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31 1996, that Union
National and UNB meet all capital adequacy requirements to which they are
subject.
As of December 31, 1996, the most recent notification from the Office
of the Comptroller of the Currency categorized UNB as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, UNB must maintain minimum total risk-based, Tier 1 risk-based, and
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed UNB's
category.
Union National's and UNB's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31,1996:
Total Capital (to risk weighted assets)
Consolidated $19,883,686 12.9% $12,362,572 8.0% $15,453,214 10.0%
Union National Bank $19,743,016 12.8% $12,352,038 8.0% $15,440,048 10.0%
Tier 1 Capital (to risk weighted assets)
Consolidated $18,111,253 11.7% $ 6,181,286 4.0% $ 9,271,929 6.0%
Union National Bank $17,970,583 11.6% $ 6,176,019 4.0% $ 9,264,029 6.0%
Tier 1 Capital (average assets)
Consolidated $18,111,253 8.2% $ 8,845,453 4.0% $11,056,816 5.0%
Union National Bank $17,970,583 8.1% $ 8,839,453 4.0% $11,049,316 5.0%
As of December 31,1995:
Total Capital (to risk weighted assets)
Consolidated $18,492,189 12.1% $12,228,140 8.0% $15,285,175 10.0%
Union National Bank $18,346,554 12.0% $12,217,311 8.0% $15,271,638 10.0%
Tier 1 Capital (to risk weighted assets)
Consolidated $16,723,112 10.9% $ 6,114,070 4.0% $ 9,171,105 6.0%
Union National Bank $16,577,477 10.9% $ 6,108,655 4.0% $ 9,162,983 6.0%
Tier 1 Capital (average assets)
Consolidated $16,723,112 7.8% $ 8,584,363 4.0% $10,730,454 5.0%
Union National Bank $16,577,477 7.7% $ 8,578,363 4.0% $10,722,954 5.0%
</TABLE>
F-18
<PAGE>
16. RELATED PARTY TRANSACTIONS
Certain members of the Board of Directors and senior officers had loan
transactions with UNB. Such loans were made in the ordinary course of business
on substantially the same terms as those prevailing at the time for comparable
transactions with outsiders. Loans outstanding to directors and senior officers
totaled $4,644,364 at December 31, 1996 and $2,979,920 at December 31, 1995.
The following schedule summarizes changes in amounts of loans
outstanding, both direct and indirect, to these persons during 1996.
Balance at January 1, 1996 $2,979,920
Additions 2,150,592
Repayments (486,148)
------------
Balance at December 31,1996 $4,644,364
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial condition. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. This standard excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amount presented does not
represent the underlying value of Union National.
Cash and due from banks: The carrying amounts reported in the balance
sheet for cash and due from banks approximate those assets' fair values.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Off-balance sheet instruments: Fair values for UNB's off-balance sheet
instruments consisting entirely of lending commitments is based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash
F-19
<PAGE>
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
Short-tern borrowings: The carrying amounts of short-term borrowings
approximate their fair values.
The estimated fair value of UNB's financial instruments were as follows
at:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------------- -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks, interest-bearing
deposits with banks, and federal funds sold $ 15,953,932 $ 15,953,932 $ 13,641,267 $ 13,641,267
Investment securities available for sale 38,866,761 38,866,761 27,040,617 27,040,617
Investment securities held to maturity 17,073,011 17,304,150 25,379,914 25,735,869
Loans receivable 147,350,540 145,814,000 146,821,594 147,433,000
Accrued interest receivable 1,292,194 1,292,194 1,401,190 1,401,190
Financial Liabilities
Deposit liabilities 199,291,435 199,964,000 193,461,842 194,508,000
Short-term borrowings 6,808,596 6,808,596 3,140,710 3,140,710
Federal Home Loan Bank borrowing -- -- 5,000,000 5,000,000
</TABLE>
18. PARENT COMPANY FINANCIAL INFORMATION
The Condensed financial statement for Union National Bancorp, Inc. (Parent
Only) pertaining to the periods covered by Union National's consolidated
financial statement are presented below
<TABLE>
<CAPTION>
Balance Sheets, December 31, 1996 1995
- ---------------------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 9,007 $ 10,265
Investment in subsidiary 17,911,997 16,394,401
Other assets 23,220 124,787
Due from Union National Bank 108,443 10,583
------------ ------------
Total Assets $18,052,667 $16,540,036
=========== ===========
LIABILITIES $ -- $ --
STOCKHOLDERS' EQUITY
Common stock 8,340 8,340
Surplus 8,342,055 8,342,055
Unrealized depreciation on investment securities available for sale (58,586) (183,075)
Retained earnings 9,760,858 8,372,716
------------ ------------
Total Stockholders' Equity 18,052,667 16,540,036
------------ ------------
Total Liabilities and Stockholders' Equity $18,052,667 $16,540,036
=========== ===========
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Statements of Income, Years Ended December 31, 1996 1995
---- ----
<S> <C> <C> <C> <C> <C> <C>
Income
Cash dividend from subsidiary $ 660,380 $ 525,260
Interest and other expenses 287,824 13,420
------- ------
Income before income taxes and equity in undistributed income
of subsidiary 372,556 511,840
Income tax expense (benefit) (97,860) (4,563)
Income before equity in undistributed income of subsidiary 470,416 516,403
Equity in undistributed income of subsidiary 1,393,106 1,277,825
--------- ---------
NET INCOME $ 1,863,522 $ 1,794,228
============ ============
Statement of Cash Flows, Year Ended December 31, 1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 1,863,522 $ 1,794,228
Equity in undistributed income of subsidiary (1,393,106) (1,277,825)
Amortization of organization cost 13,181 10,420
Increase in amount due from Union National Bank (97,860) --
Decrease in other assets 88,385 --
------
Net cash provided by operating activities 474,122 526,823
------- -------
Cash Flows from Investing Activities:
Expenditures related to proposed acquisition -- (92,878)
------- -------
Net cash used by investing activities -- (92,878)
------- -------
Cash Flows from Financing Activities:
Dividends paid (475,380) (433,680)
------- -------
Net cash used by financing activities (475,380) (433,680)
------- -------
Net (decrease) increase in cash and cash equivalents (1,258) 265
Cash and Cash Equivalents at Beginning of Year 10,265 10,000
------- -------
Cash and Cash Equivalents at End Of Year $ 9,007 $ 10,265
============ ============
</TABLE>
9. TERMINATION OF PROPOSED ACQUISITION
On October 25, 1995, Union National entered into a definitive agreement
to acquire Maryland Permanent Bank & Trust Company ("Maryland Permanent") of
Owings Mills, Maryland. On July 26, 1996, prior to the consummation of the
merger Union National, as provided in the definitive agreement, terminated
negotiations with Maryland Permanent. Costs associated with the proposed
affiliation, consisting primarily of professional fees of $287,824, were
expensed in 1996.
F-21
<PAGE>
EXHIBIT LIST
Number
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
3.1 Articles of Incorporation of Union National
3.2 Bylaws of Union National
10.1 Employment Agreement between The Union National Bank of Westminster and Virginia
W. Smith
10.2 1997 Stock Option Plan
10.3 Lease dated October 1, 1997 between Union National Bank and K. Wayne Lockard
21.1 Subsidiary of Union National
23.2 Consent of Stegman & Company
</TABLE>
<PAGE>
EXHIBIT 3.1
Articles of Incorporation of Union National
<PAGE>
ARTICLES OF INCORPORATION
OF
UNION NATIONAL BANCORP, INC.
----------------------------
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, John Dougherty, whose address is 100 South Charles
Street, Baltimore, Maryland 21201, being at least eighteen (18) years of age,
does hereby form a corporation under the general laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is:
Union National Bancorp, Inc.
THIRD: The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized under the
general laws of the State of Maryland as now or hereafter in effect.
FOURTH: The address of the principal office of the Corporation in this
State is 117 East Main Street, Westminster, Maryland 21157.
FIFTH: The resident agent of the Corporation is Joseph H. Beaver, Jr.,
whose address is 117 East Main Street, Westminster, Maryland 21157. The resident
agent is a citizen of and resides in the State of Maryland.
SIXTH: (a) The total number of shares of stock which the Corporation has
authority to issue is ten million (10,000,000) shares, $.01 par value per share,
all of one class. The aggregate par value of all authorized shares having a par
value is One Hundred Thousand Dollars ($100,000.00). All of such shares are
initially classified as "Common Stock". The Board of Directors may classify and
reclassify any unissued shares of capital stock by setting or changing in any
one or more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions and dividends, qualifications or
terms or conditions of redemption of such shares of stock.
(b) The following is a description of the preferences, conversion
and other rights, voting powers, restrictions, limitations as to distributions
and dividends, qualifications and terms and conditions of redemption of the
Common Stock of the Corporation:
(1) Each share of Common Stock shall have one vote, and, except
as otherwise provided in respect of any class of stock hereafter classified or
reclassified, the exclusive voting power for all purposes shall be vested in the
holders of the Common Stock.
(2) Subject to the provisions of law and any preferences of any
class of stock hereafter classified or reclassified, distributions and
dividends, including dividends payable in shares of one class of the
Corporation's stock to the holders of shares of another class of stock, may be
paid on the Common Stock of the Corporation at such time and in such amounts as
the Board of Directors may deem advisable.
1
<PAGE>
(3) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, after payment or provision for payment of the debts and
other liabilities of the Corporation and the amount to which the holders of any
class of stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the Corporation
shall be entitled, together with the holders of any other class of stock
hereafter classified or reclassified not having a preference on distributions in
the liquidation, dissolution or winding up of the Corporation, to share ratably
in the remaining net assets of the Corporation.
(c) The power of the Board of Directors to classify and reclassify
any of the shares of capital stock shall include, without limitation, subject to
the provisions of the charter, authority to classify or reclassify any unissued
shares of such stock into a class or classes of preferred stock, preference
stock, special stock or other stock, and to divide and classify shares of any
class into one or more series of such class, by determining, fixing, or altering
the distinctive designation of such class or series and the number of shares to
constitute such class or series; provided that, unless otherwise prohibited by
the terms of such or any other class or series, the number of shares of any
class or series may be decreased by the Board of Directors in connection with
any classification or reclassification of unissued shares and the number of
shares of such class or series may be increased by the Board of Directors in
connection with any such classification or reclassification, and any shares of
any class or series which have been redeemed, purchased, otherwise acquired or
converted into shares of Common Stock or any other class or series shall become
part of the authorized capital stock and be subject to classification and
reclassification as provided in this Paragraph.
SEVENTH: (a) The Corporation shall have a board of thirteen (13) directors
unless the number is increased or decreased in accordance with the bylaws of the
Corporation. However, the number of directors shall never be less than the
minimum number required by the Maryland General Corporation Law. The initial
directors are:
Harvey B. Bair
Joseph H. Beaver, Jr.
Wesley D. Blakeslee
David L. Brauning
Robert L. Bullock
Donald C. Essich
Dean H. Griffin
Bernard L. Jones, Sr.
William R. Klinger
K. Wayne Lockard
Robert T. Scott
Donna M. Sellman
Kenneth B. Wright
(b) The directors shall be divided into three classes, as nearly
equal in number as possible, with a term of three years each, and the term of
office of one class shall expire each year. One class shall hold office
initially for a term expiring at the annual meeting of stockholders in 1995,
another class shall hold office initially for a term expiring at the annual
meeting of stockholders in 1996 and another class shall hold office initially
for a term expiring at the annual meeting of stockholders in 1997. Beginning
with the annual meeting of stockholders in 1995 and at each succeeding annual
meeting of stockholders, the directors of the class of directors whose term
expires will be elected to hold office for a term expiring
2
<PAGE>
at the third succeeding annual meeting. Each director will hold office for the
term for which he or she is elected and until his or her successor is duly
elected and qualifies. The bylaws may provide for the mandatory retirement of
directors on the date of the annual meeting of stockholders next occurring after
a director has reached the age of 65.
(c) No director may be removed except for cause and then only by an
affirmative vote of at least two-thirds of the total votes eligible to be voted
by stockholders at a duly constituted meeting of stockholders called for such
purpose.
EIGHTH: (a) The Corporation reserves the right to make any amendment of the
charter, now or hereafter authorized by law, including any amendment which
alters the contract rights, as expressly set forth in the charter, of any shares
of outstanding stock. No amendment to any provision of this charter shall be
made unless the amendment has been first proposed by the board of directors of
the Corporation and thereafter approved by the stockholders of the Corporation
by the affirmative vote of the holders of at least two-thirds of the shares
entitled to vote thereon.
(b)The board of directors of the Corporation may authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class, whether now or hereafter authorized, for such consideration as the board
of directors may deem advisable, subject to such restrictions or limitations, if
any, as may be set forth in the bylaws of the Corporation.
NINTH: No holder of shares of stock of any class shall have any preemptive
right to subscribe to or purchase any additional shares of any class, or any
bonds or convertible securities of any nature; provided, however, that the board
of directors may, in authorizing the issuance of shares of stock of any class,
confer any preemptive right that the board of directors may deem advisable in
connection with such issuance.
TENTH: (a) To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers, no director
or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this Article
TENTH, nor the adoption or amendment of any other provision of the charter or
bylaws of the Corporation inconsistent with this Article Tenth, shall apply to
or affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.
(b) The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to
indemnify, and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to, (i) any individual who is a present or former
director or officer of the Corporation or (ii) any individual who, while a
director of the Corporation and at the request of the Corporation, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The Corporation shall have the power, with the approval of its Board
of Directors, to provide such indemnification and advancement of expenses to a
person who served a predecessor of the Corporation in any of the capacities
described in (i) or (ii) above and to any employee or agent of the Corporation
or a predecessor of the Corporation.
ELEVENTTH: The board of directors of the Corporation, when evaluating any
offer to (i) make a tender or exchange offer for the common stock of the
Corporation, (ii) merge or consolidate the
3
<PAGE>
Corporation with another institution, or (iii) purchase or otherwise acquire all
or substantially all of the properties and assets of the Corporation, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation and its stockholders, give due consideration to all
relevant factors, including without limitation the economic effects of
acceptance of such offer on (a) depositors, borrowers and employees of the
insured bank or institution subsidiary or subsidiaries of the Corporation, and
on the communities in which such subsidiary or subsidiaries operate or are
located and (b) the ability of such subsidiary or subsidiaries to fulfill the
objectives of an insured institution under applicable federal and state statutes
and regulations.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 19th day of January, 1994.
John Dougherty
4
<PAGE>
EXHIBIT 3.2
Bylaws of Union National
<PAGE>
UNION NATIONAL BANCORP, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the corporation in
the State of Maryland shall be located at such place or places as the board of
directors may designate.
Section 2. ADDITIONAL OFFICES. The corporation may have additional
offices at such places as the board of directors may from time to time determine
or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the corporation shall be held during the month of April in each year on a
date and at the time set by the board of directors, beginning with the year
1995.
Section 3. SPECIAL MEETINGS. The president or board of directors may
call special meetings of the stockholders. Special meetings of stockholders
shall also be called by the secretary upon the written request of the holders of
shares entitled to cast not less than 25% of all the votes entitled to be cast
at such meeting. Such request shall state the purpose of such meeting and the
matters proposed to be acted on at such meeting. The secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing notice of
the meeting and, upon payment to the corporation of such costs, the secretary
shall give notice to each stockholder entitled to notice of the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any regular or
special meeting of the stockholders held during the preceding twelve months.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting, written or printed notice stating the time
and place of the meeting and, in the case of a special meeting or as otherwise
may be required by statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
corporation, with postage thereon prepaid.
1
<PAGE>
Section 5. SCOPE OF NOTICE. No business shall be transacted at a
special meeting of stockholders except that specifically designated in the
notice. Any business of the corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business as is
required by statute to be stated in such notice.
Section 6. QUORUM. At any 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 such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter for the vote
necessary for the adoption of any measure. If, however, such quorum shall not be
present at any meeting of the stockholders, the stockholders entitled to vote at
such meeting, present in person or by proxy, shall have power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting until such
quorum shall be present. At 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.
Section 7. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. 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 majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required by statute or by the charter. Unless otherwise
provided in the charter, each outstanding share of stock, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 8. PROXIES. A stockholder may vote the shares of stock owned of
record by him, either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise Provided in the proxy.
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in
the name of-another corporation, if entitled to be voted, may be voted by the
president, a vice president or a proxy appointed by the president or a vice
president of such other corporation, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the board
of directors of such other corporation presents a certified copy of such bylaw
or resolution, in which case such person may vote such shares. Any fiduciary may
vote shares registered in his name as such fiduciary, either in person or by
proxy.
Shares of its own stock indirectly owned by this corporation shall not
be voted at any meeting and shall not be counted in determining the total number
of outstanding shares entitled to be voted at any given time, unless they are
held by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The board of directors may adopt by resolution a procedure by which a
stockholder 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 make the certification, 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
2
<PAGE>
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 such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima;facie evidence thereof.
Section 11. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
stockholder entitled to vote on the matter and any other stockholder entitled to
notice of a meeting of stockholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the stockholders.
Section 12. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed under the direction of its board of directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be not less than the minimum number required by the
applicable provisions of the Maryland General Corporation Law and shall not be
more than 25. At any regular meeting or at any special meeting called for that
purpose, a majority of the entire board of directors may establish, increase or
decrease the number of directors, provided that the number thereof shall never
be less than the minimum number required by the Maryland General Corporation
Law, nor more than 25, and further provided that the tenure of office of a
director shall not be affected by any decrease in the number of directors.
The directors shall be divided into three classes, as nearly equal in
number as possible, with a term of three years each, and the term of office of
one class shall expire each year. One class shall hold office initially for a
term expiring at the annual meeting of stockholders in 1995, another class shall
hold office initially for a term expiring at the annual meeting of stockholders
in 1996 and another class shall hold
3
<PAGE>
office initially for a term expiring at the annual meeting of stockholders in
1997. Beginning with the annual meeting of stockholders in 1995 and at each
succeeding annual meeting of stockholders, the directors of the class of
directors whose term expires will be elected to hold office for a term expiring
at the third succeeding annual meeting.
Each director will hold office for the term for which he or she is
elected and until his or her successor is duly elected and qualifies. Every
director shall be required to retire from the board on the date of the annual
meeting of stockholders next occurring after a director has reached the age of
70.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the board
of directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this bylaw being necessary. The
board of directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
board of directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or by a majority of the
directors then in office. The person or persons authorized to call special
meetings of the board of directors may fix any place, either within or without
the State of Maryland, as the place for holding any special meeting of the board
of directors called by them.
Section 5. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each director at
his business or residence address. Personally delivered or telegraphed notices
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. If given by telegram, such notice shall be deemed
to be given when the telegram is delivered to the telegraph company. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the board of directors need be stated in the notice, unless
specifically required by statute or these bylaws.
Section 6. QUORUM. A majority of the entire board of directors shall
constitute a quorum for transaction of business at any meeting of the board of
directors, provided that, if less than a majority of such number of directors
are present at said meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present
at a meeting at which a quorum is present shall be the action of the board of
directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. 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 shall
constitute presence in person at the meeting.
4
<PAGE>
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the board of directors.
Section 10. VACANCIES. Any vacancy on the board of directors for any
cause other than an increase in the number of directors may be filled by a
majority of the remaining directors, although such majority is less than a
quorum. Any vacancy on the board of directors by reason of an increase in the
number of directors may be filled by a majority vote of the entire board of
directors. A director elected by the board of directors to fill a vacancy shall
serve until the next annual meeting of stockholders and until his successor is
elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the board of directors, a
fixed sum and expenses of attendance, if any, may be allowed to directors for
attendance at each annual, regular or special meeting of the board of directors
or of any committee thereof and may be paid quarterly, monthly or at such time
or times as the Board may by resolution specify; but nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The board of directors
may appoint from among its members an Executive Committee and other committees,
composed of two or more directors, to serve at the pleasure of the board of
directors.
Section 2. POWERS. The board of directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the board of
directors, except as prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a director to act in the place of such absent
member.
Section 4. TELEPHONE MEETINGS. Members of a committee 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
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the board of directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
5
<PAGE>
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the corporation may
consist of a chairman of the board, a vice chairman of the board, a president,
one or more vice presidents, a treasurer, one or more assistant treasurers, a
secretary, one or more assistant secretaries and such other officers as may be
elected in accordance with this Article. The officers of the corporation shall
be elected annually by the board of directors at the first meeting of the board
of directors held after each annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the board of
directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
corporation may be removed by the board of directors if in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the corporation may resign at any time by giving written notice of
his resignation to the board of directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
board of directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The board of directors may
designate a chief executive officer from among the elected officers. The chief
executive officer shall have responsibility for implementation of the policies
of the corporation, as determined by the board of directors, and for the
administration of the business affairs of the corporation.
Section 5. CHIEF OPERATING OFFICER. The board of directors may
designate a chief operating officer from among the elected officers. Said
officer will have the responsibility and duties as set forth by the board of
directors or the chief executive officer.
Section 6. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
board shall preside over the meetings of the board of directors and of the
stockholders at which he shall be present. In the absence of the chairman of the
board, the vice chairman of the board shall preside at such meetings at which he
shall be present. The chairman of the board and the vice chairman of the board
shall, respectively, perform such other duties as may be assigned to him or them
by the board of directors.
Section 7. PRESIDENT. The president shall in general supervise and
control all of the business and affairs of the corporation. Unless the president
is not a member of the board of directors, in the absence of both the chairman
and vice chairman of the board, he shall preside at all meetings of the board of
directors and of the stockholders at which he shall be present. In the absence
of a designation of a chief executive officer by the board of directors, the
president shall be the chief executive officer and shall
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be ex officio a member of all committees that may, from time to time, be
constituted by the board of directors. He may execute any deed, mortgage, bond,
contract or other instrument which the board of directors has authorized to be
executed, except in cases where the execution thereof shall be expressly
delegated by the board of directors or by these bylaws to some other officer or
agent of the corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the board of directors from time to
time.
Section 8. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the board of directors. The board of
directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 9. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the board of directors and committees of the
board of directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the stock transfer books of the corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the president or by the board of directors.
Section 10. TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
He shall disburse the funds of the corporation as may be ordered by the
board of directors, taking proper vouchers for such disbursements, and shall
render to the president and board of directors, at the regular meetings of the
board of directors or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the corporation.
If required by the board of directors, he shall give the corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, all books, papers, vouchers, moneys and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the board of directors. The assistant treasurers shall,
if required by the board of directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the board of directors.
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Section 12. ANNUAL REPORT. The president or other executive officer of
the corporation shall prepare or cause to be prepared annually a full and
correct statement of the affairs of the corporation, including a balance sheet
and a statement of the results of operations for the preceding fiscal year,
which shall be submitted at the annual meeting of the stockholders and filed
within 20 days thereafter at the principal office of the corporation in the
State of Maryland.
Section 13. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The board of directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the corporation and such authority may be general
or confined to specific instances.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by the board of directors.
Section 3. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may designate.
ARTICLE VII
SHARES OF STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the corporation. Each certificate
shall be signed by the president or a vice president and countersigned by the
secretary or an assistant secretary or the treasurer or an assistant treasurer
and may be sealed with the corporate seal. The signatures may be either manual
or facsimile. Certificates shall be consecutively numbered; and if the
corporation shall, from time to time, issue several classes of stock, each class
may have its own number series. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer when it is issued. Each
certificate representing stock which is restricted as to its transferability or
voting powers, which is preferred or limited as to its dividends or as to its
share of the assets upon liquidation or which is redeemable at the option of the
corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. In lieu of such statement or summary, the corporation may set forth
upon the face or back of the certificate a statement that the corporation will
furnish to any stockholder, upon request and without charge, a full statement of
such information.
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Section 2. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Section 3. LOST CERTIFICATE. The board of directors may direct a new
certificate to be issued in place of any certificate previously issued by the
corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing the issuance of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to the corporation
to indemnify it against any loss or claim which may arise as a result of the
issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
board of directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days, and in the case of a meeting of stockholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders is to be held or taken.
In lieu of fixing a record date, the board of directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the board of
directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.
Section 5. STOCK LEDGER. The corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate stock ledger containing the
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name and address of each stockholder and the number of shares of stock of each
class held bs such stockholder.
ARTICLE VIII
ACCOUNTING YEAR
The board of directors shall have the power, from time to time, to fix
the accounting year of the corporation by a duly adopted resolution.
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION. Dividends upon the shares of stock of the
corporation may be declared by the board of directors, subject to the provisions
of law and the charter. Dividends may be paid in cash, property or shares of the
corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the board of directors may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for repairing or
maintaining any property of the corporation or for such other purpose as the
board of directors shall determine to be in the best interest of the
corporation, and the board of directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE X
SEAL
Section 1. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Incorporated Maryland." The board of directors may authorize one or more
duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the corporation is required to place
its corporate seal to a document, it shall be sufficient to meet the
requirements 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
execute the document on behalf of the corporation.
ARTICLE XI
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time to
time, the corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
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to (i) any individual who is a present or former director or officer of the
corporation or (ii) any individual who~ while a director of the corporation and
at the request of the corporation, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The corporation
may, with the approval of its board of directors, provide such indemnification
and advancement of expenses to a person who served a predecessor of the
corporation in any of the capacities described in (i) or (ii) above and to any
employee or agent of the corporation or a predecessor of the corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the bylaws or charter of the corporation
inconsistent with this Section, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter or
bylaws of the corporation or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
The board of directors shall have the exclusive power to adopt, alter
or repeal;any bylaws of the corporation and to make new bylaws.
The foregoing are certified as the bylaws of the corporation adopted by
the board of directors on February 15, 1994.
---------------------------
Denise L. Owings, Secretary
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EXHIBIT 10.1
Employment Agreement between The Union National Bank of Westminster
and Virginia W. Smith
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement, by and between The Union National Bank of
Westminster (hereinafter the "Bank") and Virginia W. Smith (hereinafter "the
Executive"), is entered into this 9th day of August, 1995, and recites as
follows:
WHEREAS, the Bank desires to appoint the Executive to the position Of
Executive Vice-President for a period of not less than six (6) months commencing
on August 21, 1995, or until the retirement of the Bank's current President,
which shall occur no later than the Stockholder's Meeting scheduled for April of
1996; and
WHEREAS, the Bank has agreed to appoint the Executive to the position
of President upon the retirement of its current President; and
WHEREAS, the Executive has accepted the appointment to the position of
Executive Vice-President and has agreed to perform the duties of Executive vice
President in accordance with the terms and conditions of this Employment
Agreement, and the Executive has further agreed to accept the appointment to the
position of President, upon the retirement of the Bank's current President, and
to perform the duties of President in accordance with the terms and conditions
of this Employment Agreement; and
WHEREAS, the Bank and the Executive believe that a written Employment
Agreement is necessary to describe the relationship and the terms and conditions
of employment;
NOW, THEREFORE, the Bank and the Executive, for the consideration
herein specified, agree as follows:
1. Term of Employment.
The Bank hereby employs the Executive, and the Executive
hereby accepts employment, as Executive Vice-President of the Bank, commencing
on August 21, 1995, for a term of not less than six (6) months or until the
retirement of the Bank's current President, which retirement shall take place no
later than the Stockholder's Meeting scheduled for April of 1996. Upon
retirement of the Bank's current President, the Executive shall assume the
position of President for a term of one (1) year. The term of this Employment
Agreement shall automatically renew unless either party gives one hundred twenty
(120) days notice of that party's intention to not renew this Employment
Agreement.
2. Duties.
It is agreed that the Executive, as Executive Vice-President,
shall devote all necessary time, skill, labor, and attention to such duties as
are, from time to time, established by the Bank's President and/or Board of
Directors. Upon assuming the position of President, the Executive shall devote
all necessary time, skill, labor, and attention to such duties as are, from time
to time, established by the Bank's Board of Directors.
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3. Termination of Employment.
A. By the Executive.
The Executive may terminate employment with the Bank
upon one hundred twenty (120) days written notice to the Bank's President and
Board of Directors of such termination. In the event the Executive terminates
employment with the Bank prior to the expiration at the term of employment
provided for in Paragraph 1 of this Employment Agreement, the Executive hereby
waives any and all rights and unaccrued benefits provided for herein.
B. Termination for cause.
The Bank may terminate the Executive's employment
prior to the expiration of the term of employment provided for in Paragraph 1 of
this Employment Agreement for any of the reasons set forth below:
(1) failure to follow the directions of the Bank's
President and/or Board of Directors;
(2) failure to substantially perform those duties
which the Bank's President and/or Board of Directors have designated;
(3) execution of any act that is, in any way,
contrary to the best interests of the Bank;
(4) conviction of a felony; the entry of a guilty
plea, an "Alford" plea, or a plea of nolo contendere to any felony charge; or
the acceptance of a probation before judgment or a "stet" on any felony charge;
(5) conviction of any misdemeanor charge of a
financial nature; the entry of a guilty plea, an "Alford" plea, or a plea of
nolo contendere to any misdemeanor charge of a financial nature; or the
acceptance of a probation before judgment or "stet" on any misdemeanor charge of
a financial nature;
(6) any improper use of property belonging to the
Bank or the Bank's customers;
(7) upon written request by the Federal Deposit
Insurance Corporation, the Maryland State Banking Commission, or other
regulatory agency for termination; or
(8) for any violation of policies that may now, or
hereafter, be established by the Bank.
In the event of a Termination For Cause, the
Executive shall forfeit any and all rights and unaccrued benefits provided for
herein.
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C. Termination as a result of disability.
The Executive shall be entitled to such medical leave
as provided for in the Bank's Employee Handbook. It is understood that the
Executive is a "key employee", as that term is defined in the Family and Medical
Leave Act and accompanying Federal regulations, and if leave under the Family
and Medical Leave Act is taken, it may result in the denial of reinstatement if
the Bank (1) determines that reinstatement will result in substantial and
grievous economic harm, (2) provides written notice to this effect, and (3)
gives a reasonable period of time in which to return to the position the
Executive held immediately prior to the taking of Family and Medical Leave.
D. Termination as a result of death.
In the event the Executive dies prior to the
completion of the term of this Employment Agreement as set forth in paragraph 1,
this Employment Agreement shall terminate. In the event salary payments are due
and owing to the Executive prior to death, such payments will be made to such
beneficiary as the Executive may have designated in writing or to the personal
representative of the Executive's estate. Such payments shall be in addition to
any other death benefits under any life insurance policy provided by the Bank
and in full settlement and satisfaction of all payments provided for in this
Employment Agreement.
E. Premature Termination.
In the event the Bank's Board of Directors elects to
terminate the Executive's employment for any reason other than those specified
in paragraphs 3 A, B, C, or D of this Employment Agreement, the Bank shall, for
a period of twelve (12) months, pay to the Executive the regular annual salary
then payable to the Executive, in accordance with the same payroll payment
schedule set forth in paragraph 5 of this Employment Agreement and shall
continue to make all applicable contributions to any and all retirement or
benefit plans then existing for the benefit of the Executive and shall continue
to provide coverage for the Executive under the health, life, and disability
insurance programs maintained by the Bank.
F. Constructive Discharge in the Event of Sale,
Dissolution, or Merger of the Bank.
In the event of a sale of the Bank, a dissolution of
the Bank, or a merger, consolidation, or share exchange whereby the Bank is not
the surviving or successor corporation, the Executive may, within eighteen (18)
months after such sale, dissolution, merger, consolidation, or share exchange,
give notice to the Bank that such event constitutes a constructive discharge
provided, however, in such notice the Executive indicates that the sale,
dissolution, merger, consolidation, or share exchange has resulted in (1) a
material reduction in the Executive's authority, responsibilities, duties, or
scope of the Executive's position from those that existed prior to the sale,
dissolution, merger, consolidation, or share exchange, (2) a reduction in the
Executive's salary, or (3) a requirement that the Executive relocate to an
office that is more than twenty-five (25) miles from the Bank's headquarters
located at 117 East Main Street, Westminster, Maryland. The Bank shall have
thirty (30) days from the date it receives the notice of constructive discharge
to accept or reject the Executive's stated reasons of why a constructive
discharge has occurred. In the event the Bank accepts the Executive's stated
reasons of why a constructive discharge has occurred, it shall, for a period of
twelve (12) months, pay to the Executive the regular annual salary then payable
to the Executive, in accordance with the same payroll payment schedule as
provided for in paragraph 5 of this Employment Agreement, and shall continue to
make all applicable
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<PAGE>
contributions to any and all retirement or benefit plans then existing for the
benefit of the Executive and shall continue to provide coverage for the
Executive under the health, life, and disability insurance programs maintained
by the Bank. In the event the Bank denies that a constructive discharge has
occurred, the Bank and the Executive shall submit the dispute to arbitration in
accordance with paragraph 10 C of this Employment Agreement.
4. Organizational Authority.
ALL employees of the Bank are responsible to, and are under
the authority of, the President and the Board of Directors. In addition, the
Bank is subject to oversight and regulation by various Federal and state
regulatory agencies, and the Executive shall comply with any and all regulations
promulgated by such agencies as well as any and all legally issued directives
thereof.
5. Compensation.
Effective August 21, 1995, the salary paid to the
Executive~for the position of Executive vice-President will be One Hundred
Eighteen Thousand Dollars ($118,000.00) per year, payable on the same payroll
payment schedule as that presently used by the Bank for its other officers and
administrative personnel. After the appointment of the Executive to the position
of President by the Bank's Board of Directors, the annual salary will increase
to One Hundred Thirty-five Thousand Dollars ($135,000,00) commencing upon the
Executive's assumption of the position of President.
The Bank shall be entitled to withhold from amounts payable to
the Executive, in accordance with the terms of this Employment Agreement, any
federal, state or local withholding or other taxes or charges which the Bank is,
from time to time, required by law to withhold, The Bank shall be entitled to
rely upon the opinion of its legal counsel with regard to any question
concerning the amount or requirement of any such withholding.
6. Benefits.
In addition to those benefits outlined in the Bank's Employee
Handbook, the Executive shall receive the following benefits:
A. Reimbursement of Expenses.
The Executive shall be reimbursed, upon submission of
appropriate vouchers and supporting documentation, for all travel, entertainment
and other out-of-pocket expenses reasonably and necessarily incurred by the
Executive in the performance of all duties as provided for in paragraph 2 of
this Employment Agreement, The Executive shall also be entitled to attend
seminars, conferences, and meetings relating to the Bank's business and
interests, and the Sank shall reimburse the Executive for the reasonable costs
for attendance at same, including travel, meals, and lodging, consistent with
the Bank's then pertaining policies in that regard.
B. Other Benefits.
The Executive shall be entitled to all benefits
specifically established for the Executive, and when and to the extent the
Executive is eligible therefor, to participate ln all plans and benefits
generally accorded to senior officers of the Bank, including, but not limited to
such pension, profit-sharing, supplemental retirement, incentive compensation,
disability income, group life, medical and
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<PAGE>
hospitalization insurance, and similar and comparable plans then in effect, and
also to perquisites extended to similarly situated senior officers, provided,
however, that such plans, benefits and perquisites shall be no less than those
made available to all other employees of the Bank.
C. Vacations.
The Executive shall be entitled to an annual vacation
of four (4) weeks per year, which vacation shall be taken at a time or times
mutually agreeable to the Bank '8 current President or, upon his retirement, the
Bank' 8 Board of Directors.
D. Automobile.
The Bank shall provide the Executive with an
automobile for use by the Executive and shall pay all expenses for maintenance,
fuel, repairs, and insurance relating to that automobile. The Bank shall provide
the Executive with a credit card for all such purchases related to the Bank's
business, The make and model of the automobile provided to the Executive shall
be of the Executive's choosing within an allowance of ____________ thousand
dollars ($_________). The Executive shall report all personal use of the
automobile in conformity with Bank policies and/or Internal Revenue Service
regulations regarding such use and shall be reported annually on the Executive~s
W-2 as additional compensation for income tax purposes. In the event the
Executive's employment with the Bank ceases for whatever reason, the Executive
may purchase the automobile for its book value, as determined by the Bank
through the accounting policies of the Bank's accountants, as of the date the
Executive's employment with the Bank ceases to exist. Any additional
compensation to the Executive resulting from such purchase shall be reflected on
the Executive's W-2. In the event the Executive decides to not purchase the
automobile, it shall be returned to the Bank immediately along with all keys.
In lieu of the Bank providing an automobile, the
Executive may elect to receive a monthly automobile allowance of Six hundred
dollars ($600.00) to cover all expenses related to the use, maintenance,
insurance or purchase of an automobile owned by the Executive In the event the
Executive elects to receive the monthly allowance for the use of a personal
automobile, then the Bank shall also reimburse the executive for all business
mileage at the then current Internal Revenue Service rate.
7. Covenant not to Compete and to Maintain Confidentiality
A. Restrictive Covenant.
The Executive and the Bank agree that in performing
the duties prescribed to the Executive in accordance with paragraph 2 of this
Employment Agreement, the Executive will, of necessity, be privy to confidential
information with respect to the Bank's business, including but not limited to,
its operations, plans, strategies for success, employees, and customers. The
Executive recognizes the need to keep such information confidential during the
term of this Employment Agreement and subsequent thereto. The Bank and the
Executive have further agreed that the Bank's primary service area extends to an
area encompassing a radius of twenty-five (25) miles from the Bank's
headquarters located at 117 East Main Street, Westminster, Maryland (the
"service area").
Therefore, as an essential element of this Employment
Agreement, and for the consideration of all of the provisions of this Employment
Agreement including, but not limited to, the compensation provided for therein,
the Executive hereby agrees that, except with the express written prior
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<PAGE>
consent of the Bank's Board of Directors or its successors, for a period of one
(1) year after the cessation of the Executive's employment with the Bank for
whatever reason (the "restrictive period"), the Executive will not directly or
indirectly compete with the Bank in the service area, including, but not limited
to, engaging in the following activity: owning, managing, operating,
controlling, financing, or directly or indirectly serving as an employee,
officer, director, or consultant to any person, firm, partnership, corporation,
trust, association, or other entity which owns or operates; a bank, savings and
loan, credit union or similar financial institution (hereinafter referred to
collectively as a "financial institution"), or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of the Bank to terminate
employment with the Bank and become employed with any finAncial institution
within the service area. Tn addition, the Executive agrees that information
concerning the Bank's operations, strategies, plans for success, employees, and
customers are confidential in nature and may not be divulged at any time,
notwithstanding the conclusion of the restrictive period. Notwithstanding the
provisions of this restrictive covenant, the Executive shall be entitled to
purchase and own, directly or indirectly, such capital stock or other securities
which are listed on a securities exchange or are quoted on the National
Association of Securities Dealers Automated Quotation System which do not
represent more than one percent (1%) of the outstanding capital stock of any
financial institution.
B. Remedies for Breach.
The Executive acknowledges that the restrictions
provided for in this paragraph 7 of this Employment Agreement are reasonable and
necessary for the protection of the Bank's legitimate business interests and
that any violation of these restrictions would cause substantial injury to the
hank, The Executive further acknowledges that the Bank would not have entered
into this Employment Agreement with the Executive without the additional
consideration provided by the Executive in agreeing to be bound to these
restrictions and that such restrictions were a material inducement to the BaSk
in entering into this Employment Agreement. In the event of any violation of, or
threatened violation of, these restrictions, the Bank shall be entitled to, in
addition to and not in limitation of any other remedies or damages available at
law or in equity, the entry of ex parte, interlocutory, and permanent injunctive
relief in the Circuit Court for Carroll County, or such other Circuit Court in
the State of Maryland having jurisdiction and venue, to prevent or restrain any
such violation of the provisions of the covenant not to compete set forth in
this paragraph 7 of this Employment Agreement. It is agreed that in the event
the Bank seeks injunctive relief to enforce the restrictions provided for in
this paragraph 7, such will not constitute a waiver of the Arbitration Clause
provided in paragraph 10 of this Employment Agreement.
8. Indemnification.
The Bank shall provide the Executive (including the
Executive's heirs, personal representatives, executors, and administrators), for
the term of this Employment Agreement, with coverage under a standard directors'
and officers' liability insurance policy at the Bank's expense. In addition to
the insurance coverage provided for herein, the Bank shall indemnify and hold
harmless the Executive (including the Executive's heirs, personal
representatives, executors, and administrators) to the fullest extent permitted
under Maryland law against all expenses and liabilities reasonably incurred in
connection with, or arising out of, any action, suit, or proceeding in which the
Executive may be involved by reason of the Executive's employment at the Bank
(regardless of whether the Executive continues to be an employee of the Bank at
the time such expenses or liabilities are incurred), such expenses and
liabilities to include, but not be limited to judgments, court costs and
attorneys' fees, and the Cost of reasonable settlements.
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<PAGE>
In the event the Executive becomes a party, or a threat is
made to include the Executive as a party, to any action, suit, or proceeding for
which the Bank ha-q agreed to provide insurance coverage or indemnification
under this paragraph 8 of this Employment Agreement, the Bank shall, to the full
extent permitted under Maryland law, advance all expenses (including reasonable
attorneys' fees), judgments, fines, and amounts paid in settlement (collectively
"expenses") incurred by the Executive in connection with the investigation,
defense, settlement, or appeal o(pound) any pending, threatened, or completed
action, suit, or proceeding, subject to receipt by the Bank of a written
guaranty by the Executive to (a) reimburse the Bank for all expenses actually
paid by the Bank to or on behalf of the Executive in the event it shall be
ultimately determined that the Executive is not entitled to indemnification by
the Bank for such expenses and (b) to assign to the Bank all rights of the
Executive to indemnification, under any policy of directors' and officers'
liability insurance or otherwise, to the extent or amount of expenses actually
paid by the Bank to, or on behalf Or, the Executive
Notwithstanding the provisions of this paragraph 8 of this
Employment Agreement, the Bank shall have no obligation to indemnify, defend, or
hold harmless the Executive (including the Executive's heirs, personal
representatives, executors, and administrators) or to advance expenses in any
pending, threatened, or completed action, suit, or proceeding wherein the Bank
and the Executive are opposing parties, or in any pending, threatened, or
completed action. suit, or proceeding wherein the Bank's Board of Directors
determines that the Executive's conduct giving rise to the pending, threatened,
or completed action, suit, or proceeding was outside the scope of the Executives
duties to the Bank or constituted gross negligence or malice as defined by
Maryland law.
9. Approval by Board of Directors.
This Employment Agreement shall not become effective until
such time as it is approved by resolution of the Bank's Board of Directors.
10. Miscellaneous.
A. This Employment Agreement shall be binding upon and inure
to the benefit of the Executive, the Bank, and their respective personal
representatives, successors and assigns, and any successor or assign of the Bank
as a result of sale, dissolution, regulatory takeover, merger, consolidation, or
share exchange whereby the Bank is not the surviving or successor corporation,
shall be bound to the terms of this Employment Agreement, and the Bank shall
require any such successor or assign to agree in writing to be bound thereby
subject, however, to the provisions of paragraph 3 E of this Employment
Agreement.
B. This Agreement is being executed in the State of Maryland,
and shall be governed by the laws of the State of Maryland.
C. In the event of any claim, dispute} or other matter in
controversy among the parties hereto arising out of or relating to this
Employment Agreement or the breach thereof, such claim, dispute, or other matter
in controversy shall be submitted to arbitration in Westminster, Maryland in
accordance with the rules then obtaining of the American Arbitration
Association, unless, however, the parties mutually agree otherwise. The award of
the arbitrator shall be final, and judgment may be entered upon it in accordance
with applicable law in any court which shall have jurisdiction thereof. The cost
of any arbitration shall be shared equally by the parties thereto, with each
party responsible for his or its own attorney's and expert witness fees.
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<PAGE>
D. This Employment Agreement constitutes the complete and
entire agreement between the parties hereto and may be modified or amended only
by an agreement in writing signed by all of the parties hereto.
E. This Employment Agreement was drafted jointly, and any
ambiguities that may be found herein are not to be construed against either
party.
F. In the event that one or more of the provisions of this
Employment Agreement Shall be invalid, illegal, or unenforceable in any respect,
the validity, legality, or enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
G. Any notices required by the terms of this Employment
Agreement shall be in writing and deemed given when received, and, if mailed,
shall be mailed by United states registered or certified mail, return receipt
requested, postage prepaid. Notices to the Bank shall be sent to the current
Secretary of the Bank's Board of Directors at 117 East Main Street, Westminster,
Maryland 21157. Notices to the Executive shall be sent to 1810 Greenspring
Valley Rd., Stevenson, Md. 21153 or to such other place as the Executive may
designate in writing and provide to the Bank.
IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Employment Agreement as of the day and year first above written.
ATTEST: THE UNION NATIONAL BANK OF WESTMINSTER
______________________ By: _________________________(SEAL)
Secretary Joseph H. Beaver, Jr., President
WITNESS:
______________________ __________________________________(SEAL)
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<PAGE>
EXHIBIT 10.2
1997 Stock Option Plan
<PAGE>
UNION NATIONAL BANCORP, INC.
1997 STOCK OPTION PLAN
1. Purpose. The purpose of this 1997 STOCK OPTION PLAN ("Plan") is to
further the interests of UNION NATIONAL BANCORP, INC. and its subsidiaries
(collectively referred to as the "Company") by providing incentives for
executive officers and key employees of the Company who may be designated for
participation therein, and to provide additional means of attracting and
retaining competent personnel.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). Subject to the provisions of the Plan
and applicable law, the Board is authorized to interpret the Plan and to
prescribe, amend and rescind rules and regulations relating to the Plan and to
any options granted thereunder, and to make all other determinations necessary
or advisable for the administration of the Plan. No member of the Board shall
vote upon or decide any matter relating to himself or a member of his immediate
family or to any of his rights or benefits (or rights or benefits of a member of
his immediate family) under the Plan.
3. Limitation on Aggregate Shares; Adjustments. The Company has reserved
30,000 shares of common stock, par value $.01 per share (the "Shares"), for
issuance upon the exercise of options granted under the Plan. Unless otherwise
authorized by the Board, options to purchase no more than 10,000 shares may be
granted under the Plan in any calendar year. If any option granted under the
Plan shall terminate, be forfeited or expire unexercised, in whole or in part,
the Shares so released from option may be made the subject of additional options
granted under the Plan. The Company shall reserve and keep available such number
of Shares as will satisfy the requirements of all outstanding options granted
under the Plan. Appropriate adjustment shall be made to the number of Shares
available for the grant of options and the number of Shares which are subject to
outstanding options granted under the Plan to give effect to any stock splits,
stock dividends, or other relevant changes in the capitalization of the Company
occurring after the adoption of the Plan by the Board. The decision of the Board
as to the amount and timing of any such adjustment shall be conclusive.
4. Accelerated Exercise.
(a) Anything in the Plan or in any Option Agreement or any option
granted hereunder to the contrary notwithstanding, in the event of the
commencement of a tender offer (other than by the Company) for any Shares of the
Company, or a sale or transfer, in one or a series of transactions, of assets
having a fair market value of 50% or more of the fair market value of all assets
of the Company, or a merger, consolidation or share exchange pursuant to which
the Shares of the Company are or may be exchanged for or converted into cash,
property or securities of another issuer, or the liquidation of the Company (an
"Extraordinary Event"), then regardless of whether any option granted pursuant
to the Plan has vested or become fully exercisable, all options granted pursuant
to the Plan shall immediately vest and become fully exercisable for the full
number of Shares subject to any such option.
(b) The accelerated exercise right pursuant to subsection (a) shall be
effective on and at all times after the "Event Date" of the Extraordinary Event.
The "Event Date" is the date of the commencement of a tender offer, if the
Extraordinary Event is a tender offer, and in the case of any other
Extraordinary Event, the day preceding the record date in respect of such
Extraordinary Event, or if no record date is fixed, the day preceding the date
as of which shareholders of record become entitled to the consideration payable
in respect of such Extraordinary Event.
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(c) If in the case of an Extraordinary Event other than a tender
offer, notice that is given by an optionee of the exercise of an option pursuant
to this Section 4 prior to the Event Date shall be effective on and as of the
Event Date. Upon the exercise of an option after the occurrence of an
Extraordinary Event, the Company shall issue, on and as of the effective date of
such exercise, all Shares with respect to which the option shall have been
exercised.
(d) If an optionee fails to exercise his or her option, in whole or in
part, pursuant to this Section upon an Extraordinary Event, or if there shall be
any capital reorganization or reclassification of the Shares, the Company shall
take such action as may be necessary to enable each optionee to receive upon any
subsequent exercise of his or her options, in whole or in part, in lieu of
Shares, securities or other assets as were issuable or payable upon such
Extraordinary Event in respect of, or in exchange for, such Shares.
5. Participants; Grant of Options.
(a) The Board shall determine and designate from time to time those
executive officers and key employees of the Company to whom options are to be
granted and who thereby become participants in the Plan. The Board may grant to
such executive officers and key employees options to purchase Shares in such
amounts as the Board shall from time to time determine. Participation in the
Plan shall not confer any right of continuation of service as an employee of the
Company.
(b) The granting of an option shall take place only when an appropriate
written Option Agreement substantially in the form of Exhibit A or Exhibit B
attached hereto is executed by the Company and the optionee and delivered to the
optionee. All options under the Plan shall be evidenced by such written Option
Agreement between the Company and the optionee. Such Option Agreement shall
contain such further terms and conditions, not inconsistent with the Plan,
related to the grant or the time or times of exercise of options as the Board
shall prescribe.
(c) An option granted under the Plan may be a non-qualified stock
option or an "incentive stock option" ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and, if not otherwise specified, shall be deemed to be an Incentive
Stock Option unless it does not meet the requirements of the Code.
(d) An Incentive Stock Option shall not result in income upon the
receipt of the option to the extent that (i) the aggregate fair market value
(determined at the time the option is granted) of the Shares that may be
purchased by the optionee during any calendar year (under the Plan and all other
plans of the Company) does not exceed $100,000; and (ii) the optionee (other
than the optionee's estate where the optionee is deceased) does not dispose of
the Shares until the later of (A) two years from and after the date the option
is granted, and (B) one year after the date the Shares are issued to the
optionee. In the event of a disposition of Shares received upon exercise of an
Incentive Stock Option where the disposition occurs within two years from the
date the option is granted or one year from the receipt of the shares, the
optionee shall notify the Secretary of the Company in writing promptly as to the
date of such disposition, the sale price (if any), and the number of Shares
involved.
6. Option Price; Fair Market Value.
(a) The price at which Shares may be purchased upon exercise of an
Option shall be equal to the "Fair Market Value" (as hereinafter defined) on the
date the option is granted; provided, however, that in the case of Incentive
Stock Options, if at the time the option is granted the
2
<PAGE>
participant owns Shares possessing more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Shareholder"), then the
option price shall be not less than 110% of the Fair Market Value of the Shares
on the date the option is granted.
(b) The "Fair Market Value" per Share as of any particular date shall
be the closing market price per Share on the trading day immediately preceding
such date, as reported on the principal securities exchange or market on which
the Shares are then listed or admitted to trading, or if not so reported, the
average of the bid and asked prices on the trading date immediately preceding
such date as reported by Nasdaq, or if not so reported, as determined by the
Board in good faith.
7. Exercise Period. Except as otherwise specified by the Board in the
Option Agreement, each option granted under the Plan will expire on the tenth
anniversary of the date the option was granted; provided, however, that an
Incentive Stock Option granted to a 10% Shareholder shall in no event be
exercisable after the expiration of five years from the date it is granted.
8. Exercise of Options. Unless otherwise provided by the Board and
specified in the Option Agreement (and except as otherwise stated in Section 4
hereof), any option granted hereunder will become exercisable with respect to
20% of the Shares subject to such option on each anniversary date of the grant
of the option, plus in each case the number of Shares that previously became
eligible for purchase thereunder, so that the option shall become fully
exercisable on the fifth anniversary of the date the option was granted.
9. Limitation Upon Transfer of Options. No option shall be transferable
by an optionee otherwise than by will and the laws of descent and distribution,
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, as amended (ERISA), and
the rules and regulations thereunder. Options shall be exercisable only by the
optionee during his or her lifetime and only in the manner set forth herein.
Options may not be assigned, pledged or hypothecated, and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer an
option, or to assign, pledge, hypothecate or otherwise dispose of an option in
violation of this provision, or upon the levy of any attachment or similar
process upon such option or such rights, the option shall immediately lapse and
become null and void.
10. Termination and Forfeiture of Options. In the event of termination of
an optionee of employment for cause, all unexercised options of the optionee
shall immediately terminate. In the event of the termination of employment of an
optionee for any other reason, except the death or disability of the optionee,
all unexercised options of the optionee will terminate, be forfeited and will
lapse, provided that the optionee, within three months after the optionee's
termination of employment with the Company, may exercise the option to purchase
that number of Shares that were purchasable by the optionee at the time of his
or her termination of employment.
11. Death or Disability of Optionee. In the event of the death of an
optionee, or if an optionee's employment is terminated because of permanent and
total disability, the option may be exercised by the personal representative,
administrator or a person who acquired the right to exercise any such option by
bequest, inheritance or death of the optionee, or by the disabled optionee, as
the case may be, within one year after the death of the optionee or termination
of his or her employment, as the case may be, to purchase that number of Shares
that were purchasable by the optionee at the time of his or her death or
disability.
3
<PAGE>
12. Leaves of Absences. The Board shall be entitled to make such rules,
regulations, and determinations as it deems appropriate with respect to leaves
of absences taken by any optionee. Without limiting the generality of the
foregoing, the Board shall be entitled to determine: (i) whether any such leave
of absence shall constitute a termination of employment for purposes of the
Plan; and (ii) the impact, if any, of any such leave of absence on options under
the Plan granted to any optionee who takes such leave of absence.
13. Method of Exercise. To exercise an option, the optionee (or his or
her successor) shall give written notice to the Company's Secretary at the
Company's principal place of business accompanied by full payment for the Shares
being purchased and a written statement that the Shares are purchased for
investment and not with a view toward distribution; however, this statement will
not be required in the event the Shares subject to the option are registered
under the Securities Act of 1933, as amended. If the option is exercised by the
successor of an optionee following his or her death, proof shall be submitted,
satisfactory to the Board, of the right of the successor to exercise such
deceased optionee's option.
14. Manner of Payment. An optionee may pay the exercise price for the
Shares being purchased either (i) in cash or by check made payable to the order
of the Company, (ii) with Shares of the Company, to the extent the Fair Market
Value of such Shares on the date of exercise equals the exercise price for the
Shares being purchased, (iii) by surrender to the Company of options to purchase
Shares, to the extent of the difference between the exercise price of such
options and the Fair Market Value of the Shares subject to such options (the
"spread"), or (iv) a combination of (i), (ii) and (iii) above. The Company shall
have the right, and the optionee may require the Company, to withhold and deduct
from the number of Shares deliverable upon the exercise of any options hereunder
a number of Shares having an aggregate Fair Market Value equal to the amount of
any taxes and other charges that the Company is obligated to withhold or deduct
from amounts payable to the participant.
15. Share Certificates. Certificates representing Shares issued pursuant
to the Plan which have not been registered under the Securities Act of 1933
shall bear a legend to the following effect:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and any state securities laws, and may
not be assigned, transferred, pledged or otherwise disposed of without
registration except upon presentation of evidence satisfactory to the
Company that an exemption from registration is available."
The Company shall not be required to transfer or deliver any certificate
or certificates for Shares purchased upon any exercise of an option: (i) until
after compliance with all then applicable requirements of law; and (ii) prior to
admission of such Shares to listing on any stock exchange on which the Company's
outstanding Shares may then be listed. In no event shall the Company be required
to issue fractional Shares to an optionee.
16. Registration. If the Company shall be advised by its counsel that
Shares deliverable upon any exercise of an option are required to be registered
under the Securities Act of 1933, or that the consent of any other authority is
required for their issuance, the Company may effect such registration or obtain
such consent, and delivery of the Shares by the Company may be deferred until
registration is effected or consent obtained.
4
<PAGE>
17. Issuance of Shares. No Shares will be issued until full payment for
such Shares has been made. An optionee shall have no rights as a shareholder
with respect to optioned Shares until the date the option shall have been
properly exercised and all conditions to the exercise of the option and purchase
of Shares shall have been complied with in all respects to the satisfaction of
the Company. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such option is
exercised, except as otherwise provided herein.
18. Amendments and Termination. The Board may amend, suspend, discontinue
or terminate the Plan, but no such action may, without the consent of the holder
of any option granted hereunder, alter or impair such option.
19. Period of Plan. The Plan has been adopted by the Board of the Company
on March 11, 1997 subject to approval of the Plan by the stockholders of the
Company within 12 months of the date the Plan was adopted. The stockholders of
the Company approved the Plan on, and the effective date of the Plan is, April
15, 1997. No option shall be granted on or after the tenth anniversary of the
date of adoption of the Plan by the Board of the Company.
5
<PAGE>
EXHIBIT A
INCENTIVE STOCK OPTION AGREEMENT
under the
UNION NATIONAL BANCORP, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT is made this ____________________, 199__, by and between
UNION NATIONAL BANCORP, INC., a Maryland corporation (the "Company"), and
_____________________________ (the "Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") considers
it desirable and in the Company's interest that the Optionee be given an
opportunity to purchase its shares of common stock, par value $.01 per share
("Shares"), pursuant to the terms and conditions of the Company's 1997 Stock
Option Plan (the "Plan"), to provide an incentive for the Optionee and to
promote the interests of the Company.
NOW, THEREFORE, it is agreed as follows:
1. Grant of Option. The Company hereby grants to the Optionee an option
to purchase from the Company ________________ Shares ("Option Shares") at the
exercise price per Share set forth below. Subject to earlier expiration or
termination of the option granted hereunder, this option shall expire on the
10th anniversary of the date hereof.
2. Period of Exercise of Option. The Optionee shall be entitled to
exercise the option granted hereunder to purchase Option Shares as follows:
Exercise
Exercise Date No. of Shares Price Per Share
First Anniversary of Grant Date ___________ __________
Second Anniversary of Grant Date ___________ __________
Third Anniversary of Grant Date ___________ __________
Fourth Anniversary of Grant Date ___________ __________
Fifth Anniversary of Grant Date ___________ __________
in each case, together with the number of Option Shares which the Optionee was
theretofore entitled to purchase. Appropriate adjustment shall be made to the
number of Shares available for the grant of options and the number of Shares
which are subject to outstanding options granted under the Plan to give effect
to any stock splits, stock dividends, or other relevant changes in the
capitalization of the Company occurring after the adoption of the Plan by the
Board. The decision of the Board as to the amount and timing of any such
adjustment shall be conclusive.
3. Accelerated Exercise. In the event of an Extraordinary Event (as
defined in the Plan) involving the Company, then regardless of whether any
option granted pursuant to the Plan has vested or become fully exercisable, all
Option Shares granted hereunder shall immediately vest and become fully
1
<PAGE>
exercisable for the full number of Shares subject to such option on and at all
times after the "Event Date" (as defined in the Plan) of the Extraordinary
Event, in accordance with the terms and conditions described in the Plan.
4. Exercise Periods. In the event of termination of employment of the
Optionee for cause, all unexercised options shall immediately lapse and be
forfeited. In the event of the death or disability of the Optionee, or in the
event of termination of his or her employment other than for cause, the Plan
permits certain extended exercise periods.
5. Method of Exercise. In order to exercise the Option Shares granted
hereunder, the Optionee must give written notice to the Secretary of the Company
at the Company's principal place of business, substantially in the form of
Exhibit 1 hereto, accompanied by full payment of the exercise price for the
Option Shares being purchased, in accordance with the terms and provisions of
the Plan.
6. Manner of Payment. An Optionee may pay the exercise price for Option
Shares purchased hereunder either (i) in cash or by check payable to the order
of the Company, (ii) with Shares of the Company, to the extent the Fair Market
Value of such Shares on the date of exercise equals the exercise price for the
Option Shares purchased, (iii) by surrender to the Company of Options to
purchase Shares, to the extent of the difference between the exercise price of
such Options and the Fair Market Value of the Shares subject to such options
(the "spread"), or (iv) a combination of (i), (ii) and (iii) above. The Company
shall have the right, and the Optionee may require the Company, to withhold and
deduct from the number of Option Shares deliverable upon the exercise hereof a
number of Option Shares having an aggregate Fair Market Value equal to the
amount of taxes and other charges that the Company is obligated to withhold or
deduct from amounts payable to the participant.
7. Limitation upon Transfer. This option may not be transferred by the
Optionee other than by will and the laws of descent and distribution, may not be
assigned, pledged or hypothecated, and shall not be subject to execution,
attachment or similar process. This option is exercisable only by the Optionee
during his or her lifetime, and only in the manner set forth herein. Upon any
attempt to transfer this option, or to assign, pledge, hypothecate or otherwise
dispose of this option in violation of this provision, or upon the levy of any
attachment or similar process upon this option or any rights hereunder, this
option shall immediately lapse and become null and void.
8. Incentive Stock Option. This option is intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Disposition of Shares. In the event of a disposition of the Option
Shares received hereunder where the disposition occurs within two years after
the date hereof or one year after the receipt of the shares, the Optionee shall
notify the Secretary of the Company in writing promptly as to the date of such
disposition, the sale price (if any), and the number of Shares involved.
10. Plan; Applicable Law. This Agreement is subject in all respects to
the provisions of the Plan, a copy of which has been provided to the Optionee.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland, excluding its provisions relating to conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal, intending this to be a sealed instrument, as of the date
first above written.
ATTEST: UNION NATIONAL BANCORP, INC.
______________________________ By:_____________________________(SEAL)
WITNESS: OPTIONEE:
______________________________ ________________________________(SEAL)
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<PAGE>
EXHIBIT 1
Date:_____________________
Secretary
UNION NATIONAL BANCORP, INC.
To the Secretary:
I hereby exercise my option to purchase ______________ shares of common
stock, par value $.01 per share ("Shares"), of Union National Bancorp, Inc. (the
"Company") in accordance with the terms set forth in the Incentive Stock Option
Agreement under the Union National Bancorp, Inc. 1997 Stock Option Plan.
In full payment for such exercise, please find enclosed
|_| Check in the amount of $____________
|_| Shares having a Fair Market Value of $__________
|_| Options having an exercise price of $__________, to purchase ______
Shares having a Fair Market Value of $_________, resulting in
a "spread" of $-----------.
I authorize the Company/|_| direct the Company to withhold a number of Shares
equal to any withholding obligation applicable to me.
Very truly yours,
-----------------------------------
-----------------------------------
Print Name
<PAGE>
EXHIBIT B
AGREEMENT FOR NON-QUALIFIED STOCK OPTION
under the
UNION NATIONAL BANCORP, INC.
1997 STOCK OPTION PLAN
THIS AGREEMENT is made this ____________________, 199__, by and between
UNION NATIONAL BANCORP, INC., a Maryland corporation (the "Company"), and
_____________________________ (the "Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") considers
it desirable and in the Company's interest that the Optionee be given an
opportunity to purchase its shares of common stock, par value $.01 per share
("Shares"), pursuant to the terms and conditions of the Company's 1997 Stock
Option Plan (the "Plan"), to provide an incentive for the Optionee and to
promote the interests of the Company.
NOW, THEREFORE, it is agreed as follows:
1. Grant of Option. The Company hereby grants to the Optionee an option
to purchase from the Company ________________ Shares ("Option Shares") at the
exercise price per Share set forth below. Subject to earlier expiration or
termination of the option granted hereunder, this option shall expire on the
10th anniversary of the date hereof.
2. Period of Exercise of Option. The Optionee shall be entitled to
exercise the option granted hereunder to purchase Option Shares as follows:
Exercise
Exercise Date No. of Shares Price Per Share
First Anniversary of Grant Date __________ __________
Second Anniversary of Grant Date __________ __________
Third Anniversary of Grant Date __________ __________
Fourth Anniversary of Grant Date __________ __________
Fifth Anniversary of Grant Date __________ __________
in each case, together with the number of Option Shares which the Optionee was
theretofore entitled to purchase. Appropriate adjustment shall be made to the
number of Shares available for the grant of options and the number of Shares
which are subject to outstanding options granted under the Plan to give effect
to any stock splits, stock dividends, or other relevant changes in the
capitalization of the Company occurring after the adoption of the Plan by the
Board. The decision of the Board as to the amount and timing of any such
adjustment shall be conclusive.
3. Accelerated Exercise. In the event of an Extraordinary Event (as
defined in the Plan) involving the Company, then regardless of whether any
option granted pursuant to the Plan has vested or become fully exercisable, all
Option Shares granted hereunder shall immediately vest and become fully
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exercisable for the full number of Shares subject to any such option on and at
all times after the "Event Date" (as defined in the Plan) of the Extraordinary
Event, in accordance with the terms and conditions described in the Plan.
4. Exercise Periods. In the event of termination of employment of the
Optionee for cause, all unexercised options shall immediately lapse and be
forfeited. In the event of the death or disability of the Optionee, or in the
event of termination of his or her employment other than for cause, the Plan
permits certain extended exercise periods.
5. Method of Exercise. In order to exercise the Option Shares granted
hereunder, the Optionee must give written notice to the Secretary of the Company
at the Company's principal place of business, substantially in the form of
Exhibit 1 hereto, accompanied by full payment of the exercise price for the
Option Shares being purchased, in accordance with the terms and provisions of
the Plan.
6. Manner of Payment. An Optionee may pay the exercise price for Shares
purchased hereunder either (i) in cash or by check payable to the order of the
Company, (ii) with Shares of the Company, to the extent the Fair Market Value of
such Shares on the date of exercise equals the exercise price for the Option
Shares purchased, (iii) by surrender to the Company of options to purchase
Shares, to the extent of the difference between the exercise price of such
options and the Fair Market Value of the Shares subject to such options (the
"spread"), or (iv) a combination of (i), (ii) and (iii) above. The Company shall
have the right, and the Optionee may require the Company, to withhold and deduct
from the number of Option Shares deliverable upon the exercise hereof a number
of Option Shares having an aggregate Fair Market Value equal to the amount of
taxes and other charges that the Company is obligated to withhold or deduct from
amounts payable to the participant.
7. Limitation upon Transfer. The Option Shares may not be transferred
by the Optionee other than by will and the laws of descent and distribution, may
not be assigned, pledged or hypothecated, and shall not be subject to execution,
attachment or similar process. This option is exercisable only by the Optionee
during his or her lifetime, and only in the manner set forth herein. Upon any
attempt to transfer any Option Share, or to assign, pledge, hypothecate or
otherwise dispose of this option in violation of this provision, or upon the
levy of any attachment or similar process upon this option or any rights
hereunder, this option shall immediately lapse and become null and void.
8. Plan; Applicable Law. This Agreement is subject in all respects to
the provisions of the Plan, a copy of which has been provided to the Optionee.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland, excluding its provisions relating to conflicts of laws.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal, intending this to be a sealed instrument, as of the date
first above written.
ATTEST: UNION NATIONAL BANCORP, INC.
______________________________ By:_____________________________(SEAL)
WITNESS: OPTIONEE:
______________________________ ________________________________(SEAL)
2
<PAGE>
EXHIBIT 1
Date:_____________________
Secretary
UNION NATIONAL BANCORP, INC.
To the Secretary:
I hereby exercise my option to purchase ______________ shares of common
stock, par value $.01 per share ("Shares"), of Union National Bancorp, Inc. (the
"Company") in accordance with the terms set forth in the Agreement for
Non-Qualified Stock Option under the Union National Bancorp, Inc. 1997 Stock
Option Plan.
In full payment for such exercise, please find enclosed
|_| Check in the amount of $____________
|_| Shares having a Fair Market Value of $__________
|_| Options having an exercise price of $__________, to purchase ______
Shares having a Fair Market Value of $_________, resulting in
a "spread" of $-----------.
I authorize the Company/|_| direct the Company to withhold a number of Shares
equal to any withholding obligation applicable to me.
Very truly yours,
-----------------------------------
-----------------------------------
Print Name
<PAGE>
EXHIBIT 10.3
Lease dated October 1, 1997 between Union National Bank and K. Wayne Lockard
<PAGE>
REAL ESTATE LEASE
THIS LEASE AGREEMENT (this "Lease") is made effective as of October 1,
1996, by and between K. Wayne Lockard & Bonnie M. Lockard, ("Landlord"), and The
Union National Bank of Westminster. ("Tenant"). The parties agree as follows:
PREMISES: Landlord, in consideration of the lease payments provided in
this Lease, leases to Tenant Unit # 6 "Hampstead Square" as outlined in red on
"Exhibit B" (the "Premises") located at 1631 North Main Street,, Hampstead,,
Maryland 21074.
TERM: The lease term will begin on October I, 1996 and will terminate
on September 30, 2001.
LEASE PAYMENTS: Tenant shall pay to Landlord the monthly rent of
$3150.00 for each and every month of this Lease Agreement. In the event the
Tenant is obligated to pay any "additional rent", as may hereinafter be defined,
such "additional rent" shall be in addition to the fixed monthly rent
hereinbefore stated. Lease payments shall be made to the Landlord at 1212
Weymouth Street, Westminster,, Maryland 21158, or to such other address as may
be changed from time to time by Landlord.
SECURITY DEPOSIT: Upon execution of a lease agreement dated June 10,
1986, Tenant deposited with Landlord the sum of Twenty-six Hundred Dollars
($2,600.00), as a security deposit for the demised premises. The deposit monies
to be returned to Tenant within forty-five (45) days subsequent to the
termination of this Agreement or any extension thereof, provided that Tenant has
not damaged the premises (normal wear and tear excepted), is not in arrears for
any rental payments or reimbursements due Landlord and that Tenant has left the
premises as agreed upon herein.
LATE PAYMENTS: The aforesaid rent shall be due and payable on the first
day of each and every month during the term of this lease. Monthly rent and any
additional rent as hereinafter described, not received by Landlord by the fifth
(5th) day of the month shall be deemed to be delinquent and subject to a late
charge. The term "received" shall mean hand delivered to Lessor or if conveyed
by mail to have been postmarked by U. S. Postal Service (not a private postage
machine) no later than the fourth (4th) day of the month. Each payment of rent
and additional rent shall be made promptly when due, failing which the Tenant
shall pay to the Landlord as additional rent for each five (5) day period beyond
the 5th day of the month a late charge of $100.00 . Said late charge shall be
considered to be additional rent. If the Delinquent Rent and Additional Rent are
not paid within seven (7) days from the date Tenant receives by registered mail
a notice of delinquency, Tenant shall be considered to be in default and subject
to the default provisions of this lease as hereinafter provided. If a check is
accepted by Landlord from Tenant for rent, it is purely as an accommodation to
Tenant.
NON-SUFFICIENT FUNDS: Tenant shall be charged $35.00 for each check
that is returned to Landlord for lack of sufficient funds.
ADDITIONAL RENT ADJUSTMENTS: Landlord may adjust Tenants rent on
September 1st of each year, in an amount equal to the increase in real property
taxes and insurance premiums associated with the demised premises, over the
amount of such costs for the previous tax year of July I to June 30
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and the last policy year for insurance, or the last preceding year in which
adjustments were made. These additional costs shall be prorated to each Tenant
according to the square footage demised to each Tenant.
RENEWAL: Tenant shall have the option to renew this lease for the
further term of five (5) years. The terms(s) of the renewed lease shall be
substantially the same as the terms of this lease except the rent for the
renewal period shall be $3150.00 per month times an increase factor as
determined by application of the Consumer Price Index as published by the U. S.
Labor Dept. from the inception of this lease to the renewal date. However in no
case shall the base rent be less than $3150.00 per month plus any "additional
rent" as herein provided. If Tenant desires to renew this lease, Tenant shall
give Landlord preliminary notice to that effect before one hundred eighty (180)
days prior to the expiration of this lease term. Landlord shall, within sixty
(60) days following receipt of such notice, deliver to Tenant a statement
setting forth the annual amount of rent for the renewal period. Tenant shall
have thirty (30) days following receipt of Landlord's notice to give Landlord
its final notice as to whether it desires to renew this lease at the rental set
forth in Landlord's statement.
NON-RENEWAL: If Tenant does not desire to renew this lease, Tenant
shall provide Landlord with written notice of same prior to one hundred eighty
(180) days before the expiration of said lease. In any event, Tenant shall be
responsible for and obligated to pay Landlord a minimum of one hundred eighty
(180) days rent after giving said notice of Tenant's intention to not renew this
lease or one hundred eighty (180) days from the expiration of said lease in the
event Tenant fails to give landlord written notice.
HOLDOVER: If Tenant maintains possession of the Premises for any period
after the termination of this Lease ("Holdover Period"), Tenant shall pay to
Landlord a lease payment for the Holdover Period based on terms determined
solely by Landlord.. Such holdover shall constitute a month to month extension
of this Lease.
POSSESSION: Tenant shall be entitled to possession on the first day of
the term of this Lease, and shall yield possession to Landlord on the last day
of the term of this Lease, unless otherwise agreed by both parties in writing.
USE OF PREMISES: Tenant may use the Premises only as a Commercial Bank
(and related services and products). The Premises may be used for any other
purpose only with the prior written consent of Landlord, which shall not be
unreasonably withheld. Tenant shall not use, or permit said premises, or any
part thereof, to be used, for any purpose or purposes other than the purpose or
purposes for which said premises are hereby leased and no use shall be made or
permitted to be made of said premises, nor acts done, which will increase the
existing premium rate of insurance on the building in which said premises are
located, or cause a cancellation of any insurance policy covering said building,
or any part thereof, nor shall Tenant sell, or permit to be kept, used, or sold,
in or about said premises, any article which may be prohibited by standard form
of fire insurance underwriting and policies. Tenant shall, at his cost, comply
with any and all requirements, pertaining to the use of said premises, of any
insurance organization or company, necessary for maintenance of ordinary fire
and public liability insurance, covering said building and appurtenances. Tenant
agrees to promptly pay as additional rent the additional charges to Landlord's
insurance costs resulting from Tenant's use and occupancy of the demised
premises. Said additional rent to be added to the monthly rent of Tenant.
2
<PAGE>
Tenant shall, at his sole cost, comply with all of the requirements of
all County, State, and Federal authorities now in force, or which may hereafter
be in force, pertaining to the use of said premises, and shall faithfully
observe in said use all County ordinances and State and Federal statutes and
regulations now in force or which may hereafter be in force. The judgement of
any court of competent jurisdiction, or the admission of Tenant in any action or
proceeding against Tenant, whether Tenant be a party thereto or not, that Tenant
has violated any such ordinance or statute or regulation in said use, shall be
conclusive of the fact as between Landlord and Tenant.
Tenant shall not commit, nor suffer to be committed, any waste upon
said premises, or any nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in the building or center in which the
demised premises may be located. Tenant shall not conduct nor permit to be
conducted any sale by auction on said premises.
REMODELING OR STRUCTURAL IMPROVEMENTS: Tenant will not make any
alteration to the leased premises, or any part hereof, without first obtaining
Landlord's written approval of such alteration; and Tenant agrees that any
improvements made by it and attached to the real estate shall immediately become
the property of Landlord and shall remain upon the leased premises. Upon
termination of this agreement, Landlord may require at Landlord's option, Tenant
to remove a portion or all of any improvements made by Tenant, and Tenant shall
restore the premises to its condition prior to said improvements. Tenant will
not cut or drill into or secure any fixtures, apparatus, or equipment of any
kind to any part of the leased premises without first obtaining Landlord's
written consent.
MAINTENANCE:
Tenant's obligation for maintenance shall include:
-the electrical wiring
-the H.V.A.C. system, including periodic (not less than
semi-annually) cleaning and servicing by a certified
mechanical contractor. -interior plumbing (water & sewer)
-windows and doors (including glass and/or screens where
applicable) -all other items of maintenance not specifically
delegated to Landlord under this Lease.
Landlord's obligation for maintenance shall include:
-the roof, outside walls, and other structural parts of the
building -the parking lot, driveways, and sidewalks including
snow and ice removal -provide a trash receptacle and arrange
for the removal of the trash -provide public water & sewer
services to the site
Landlord and Tenant agree that in the event a major component of the
H.V.A.C. system requires replacement, the Landlord shall bear the cost to
replace the component provided the Tenant has followed a routine maintenance
schedule as required herein and provided the replacement is not required due to
negligence or abuse on the part of the Tenant his agents, employees and/or
invitees. Should Tenant not follow the routine maintenance schedule or in the
event Tenant is negligent causing the component to be replaced, Tenant shall
assume all costs associated therewith.
3
<PAGE>
Landlord shall, under no circumstances, be liable to Tenant in damages
or otherwise for any interruption, failure and/or malfunction in water, sewer,
electrical and any other utility services and any consequential damages
resulting therefrom to the leased premises and Tenants contents therein. All
costs for snow and ice removal exceeding $3,000.00 per winter season will be
divided among the Tenants occupying the Landlord's property based upon their
portion of the total leasable space and billed at the end of the winter season
in which the excess occurred. Tenant shall pay the Landlord the amount billed.
as additional rent, within thirty (30) days from receipt of said bill.
Landlord shall not be liable to Tenant, its agents, employees,
contractors, customers, or other visitors for any injury or damage to person or
property resulting from water, snow, ice or dampness which may leak or issue
from or through any part of the premises other than that caused by failure of
Landlord to exercise a reasonable concerted effort to have necessary repairs
made which it is required to make hereunder following receipt of written notice
from Tenant of the need for such repairs and after having a reasonable
opportunity in which to make same. Likewise, Landlord shall not be liable for
injury or damage to person or property resulting from any other conditions in
and around said premises, including icy, snowy conditions when Landlord has
exercised a reasonable prudent effort in a reasonable time period to remedy said
conditions.
SIGNS & DECORATIONS: Tenant shall not place nor permit to be placed any
sign, advertisement, notice or other material on exterior of the building or in
the windows or doors of the leased premises without the written consent of
Landlord. Tenant, upon request of Landlord, shall immediately remove any sign,
decoration or other material which Tenant has placed or permitted to be placed,
visible to the exterior which, in the opinion of Landlord, is objectionable or
offensive, and if Tenant fails to do so, Landlord may enter said premises and
remove same. Landlord reserves the exclusive rights to the exterior walls and
roof of said premises, and Tenant shall not place anything there upon without
the written consent of the Landlord. Tenant shall not place any freestanding
signs or advertisements on Landlord's property as doing such may be in violation
of the Carroll County Zoning Ordinance.
ACCESS BY LANDLORD TO PREMISES: Subject to Tenant's consent (which
shall not be unreasonably withheld), Landlord shall have the right to enter the
Premises to make inspections, provide necessary services, or show the unit to
prospective buyers, mortgagees, tenants or workers. ks provided by law, in the
case of an emergency, Landlord may enter the Premises without Tenant's consent.
TENANT ABANDONMENT: Tenant shall not vacate or abandon the premises at
any time during the term of this lease agreement; and if Tenant shall abandon,
vacate, or surrender said premises or be dispossessed by process of law, or
otherwise, any personal property and/or business property, fixtures and
equipment belonging to Tenant and left on the premises shall be deemed abandoned
and become the property of the Landlord at the option of Landlord. Landlord
shall exercise due diligence in securing another Tenant to occupy Tenant's
premises to abate Tenant's rent obligation, but Landlord reserves the right to
determine if such Tenant is qualified as a Tenant and will not interfere with
the rights or practices of other Tenants in the building or center. Any
diminishment in rent resulting from the reletting of said premises, and all
costs associated with this reletting shall be borne solely by Tenant.
PROPERTY INSURANCE: Landlord and Tenant shall each be responsible to
maintain appropriate insurance for their respective interests in the Premises
and property located on the Premises.
4
<PAGE>
LIABILITY INSURANCE: Tenant shall maintain liability insurance with
personal injury limits of at least $ 300,000.00 for injury to one person, and
$500,000.00 for any one accident, and a limit of at least $100,000.00 for damage
to property. The policy shall contain a clause that the insurer will not cancel
or change the insurance without first giving Landlord ten (10) days prior
written notice. The policy shall include the Landlord as "additional insured, as
their interest may appear" and shall be issued by an insurance company rated "A"
or better by The Best Company Insurance rating guide, and a certificate of
insurance shall be delivered to Landlord at the inception of each policy and
renewal thereof.
INDEMNITY REGARDING USE OF PREMISES: Tenant agrees to indemnify, hold
harmless, and defend Landlord from and against any and all losses, claims,
liabilities, and expenses, including reasonable attorney fees, if any, which
Landlord may suffer or incur in connection with Tenant's use ar misuse of the
Premises
DANGEROUS MATERIALS: Tenant shall not keep or have on the Premises any
article or thing of a dangerous, inflammable, or explosive character that might
substantially increase the danger of fire on the Premises, or that might be
considered hazardous by a responsible insurance company, unless the prior
written consent of Landlord is obtained and proof of adequate insurance
protection is provided by Tenant to Landlord.
TAXES: Taxes attributable to the Premises or the use of the Premises
shall be allocated as follows:
Real Estate Taxes. Landlord shall pay all real estate taxes and
assessments for the Premises.
Personal Taxes. Tenant shall pay all personal taxes and any other
charges which may be levied against the Premises and which are attributable to
Tenant's use of the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES: If, for any reason other than
Tenant's act, use, or occupancy, one or both of the following occur (a) a
partial destruction of said premises or the building containing same during said
term which requires repairs to either said premises or building, or (b) said
premises or said building being declared unsafe or unfit for occupancy by any
authorized public authority, which declaration requires repairs either to said
premises or said building, Landlord shall forthwith make such repairs, provided
such repairs can be made within sixty (60) days under the laws and regulations
of authorized public authorities, bust such partial destruction (including any
destruction necessary in order to make repairs required by any such declaration)
shall in no wise annul or void this lease, except that Tenant shall be entitled
to a proportionate deduction of rent while such repairs are being made, such
proportionate deduction to be based upon the extent to which the making of such
repairs will interfere with the business carried on by Tenant in said premises.
If such repairs cannot be made within sixty (60) days, Landlord may, at his
option, make same within a reasonable time, this lease continuing in full force
and effect and the rent to be proportionately abated, as in this paragraph
provided. In the event that Landlord does not so elect to make such repairs
which cannot be made under such laws and regulations, this lease may be
terminated at the option of either party. In respect to any partial destruction
(including any destruction necessary in order to make repairs required by any
such declaration) which Landlord is obligated to repair or may elect to repair
under the terms of this paragraph, this lease shall continue in full force and
effect. A-total destruction (including any destruction required by any
authorized public authority) of either said premises or said building shall
terminate this lease. In the event of any dispute between Landlord and Tenant
relative to the provisions of this paragraph, they shall each select
5
<PAGE>
an arbitrator, the two arbitrators so selected shall select a third arbitrator,
and the three arbitrators so selected shall hear and determine the controversy,
and their decisions thereof shall be final and finding on both Landlord and
Tenant who shall bear the cost of such arbitration equally between them.
If the whole or any part of the leased premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, then
and in that event if Landlord deems necessary, the term of the lease shall cease
and terminate from the date of title vesting in such proceeding and Tenant shall
have no claim against Landlord or against the total award for the value of any
unexpired portion of the lease term or otherwise, and Tenant shall not be
entitled to any part of the award that may be made for such taking, nor to any
damages therefor, except that the rent shall be adjusted as of the date of such
termination of this lease. This provision shall only apply if Tenant's premises
are effected by the acquisition or condemnation by eminent domain; if
unaffected, the lease shall continue in full force and effect.
MECHANICS LIENS: Neither the Tenant nor anyone claiming through the
Tenant shall have the right to file mechanics liens or any other kind of lien on
the Premises and the filing of this Lease constitutes notice that such liens are
invalid. Further, Tenant agrees to (I) give actual advance notice to any
contractors, subcontractors or suppliers of goods, labor, or services that such
liens will not be valid, and (2) take whatever additional steps that are
necessary in order to keep the premises free of all liens resulting from
constructions done by or for the Tenant.
RECEIVERSHIP OR BANKRUPTCY: Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Tenant, or (b) a
general assignment by Tenant for the benefit of creditors, or O any action taken
or suffered by Tenant under any insolvency or bankruptcy act shall constitute a
breach of this lease by Tenant, and shall, at the option of Landlord, terminate
this lease.
DEFAULTS: Tenant shall be in default of this Lease, if Tenant fails to
fulfill any lease obligation or term by which Tenant is bound. Subject to any
governing provisions of law to the contrary, if Tenant fails to cure any
financial obligation within twenty (20) days (or any other obligation within
twenty (20) days) after written notice of such default is provided by Landlord
to Tenant, Landlord may take possession of the Premises without further notice,
and without prejudicing Landlord's rights to damages. In the alternative,
Landlord may elect to cure any default and the cost of such action shall be
added to Tenant's financial obligations under this Lease. Tenant shall pay all
costs, damages, and expenses suffered by Landlord by reason of Tenant's
defaults. All sums of money or charges required to be paid by Tenant under this
Lease shall be additional rent, whether or not such sums or charges are
designated as "additional rent".
In the event Tenant breaches the lease and/or abandons the property
before the end of the term or if his right to possession is terminated by
Landlord because of a default or breach of this lease, this lease shall
thereupon terminate. Upon such termination, Landlord shall recover from Tenant:
(a) the worth at the time of award of judgement of the unpaid rent which has
been earned at the time of termination, together with interest thereon at the
rate of three (3) percent above the published New York Prime rate, at the time
of termination, per annum simple interest; and (b) the worth at the time of the
award of judgement by which the unpaid rent would have earned after termination
until the time of judgement exceeds the amount of such rental loss that the
Tenant proves could have been reasonably avoided, together with interest thereon
at the rate of three (3) percent above the published New York Prime rate, at the
time of termination, per annum simple interest; and o the worth at the-time of
award of judgement
6
<PAGE>
of the amount by which the unpaid rent for the balance of the term after the
award of judgement exceeds the amount of such rental loss that the Tenant proves
could be reasonably avoided discounted by the discount rate of the Federal
Reserve Bank of Richmond at the time of the award of judgement plus two percent
(2%), and (d) any other amount necessary to compensate Landlord for all of the
detriment proximately caused by Tenant's failure to perform his obligation under
the lease or which in the ordinary course of things would be likely to result
therefrom, together with the costs of suit and reasonable attorney's fees.
Nothing in this paragraph shall be construed to prevent Landlord from normal
distraint.
ASSIGNABILITY/SUBLETTING: Tenant may not assign or sublease any
interest in the Premises, nor effect a change in the majority ownership of the
Tenant (from the ownership existing at the inception of this lease), without the
prior written consent of Landlord, which shall not be unreasonably withheld. A
consent by Landlord to one assignment, subletting, or use by any other person,
whether by operation of law or otherwise, shall not be deemed to be a consent to
any other person. Any such assignment, subletting of use, whether by operation
of law or otherwise, without such written consent first had and obtained shall
be void and shall, at the option of Landlord, terminate this lease. If an
assignment is allowed by Landlord on terms acceptable to Landlord, then Tenant
shall continue to retain ultimate and full responsibility for all the terms and
conditions contained in the original lease.
NOTICE: Notices under this Lease shall not be deemed valid unless given
or served in writing and forwarded by mail, postage prepaid, addressed as
follows:
LANDLORD:
Name: K. Wayne Lockard & Bonnie M. Lockard
Address: 1212 Weymouth Street
Westminster, Maryland
21158
TENANT:
Name: The Union National Bank of Westminster
Address: P.O. Box 189
Westminster, Maryland 21158
21784
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
HEIRS & ASSIGNS: The covenants, conditions, and agreements contained in
this lease shall bind and inure to the benefit of Landlord and Tenant, and their
respective heirs, distributees, executors, administrators, successors, personal
representatives, and except as otherwise provided in this lease, their assigns.
ENTIRE AGREEMENT/AMENDMENT: This writing is intended by the parties as
a final expression of their agreement and as a complete and exclusive statement
of the terms thereof, all negotiations, considerations, and representations
between the parties having been incorporated herein. No course of prior dealings
between the parties or their affiliates or representatives shall be relevant or
admissible to supplement, explain or vary any of the terms of this lease.
Acceptance of, or acquiescence in, a course of performance rendered under this
or any prior agreement between the parties or their affiliates or
representatives shall not be relevant or admissible to determine the meaning of
any of the
7
<PAGE>
terms of this lease. No representations, understandings, or agreements have been
made or relied upon in the making of this lease other than those specifically
set forth herein. The lease can only be modified by a writing, signed by all of
the parties hereto or their duly authorized agents. The submission of this lease
for examination does not constitute a reservation of any option for the leased
premises, and this lease becomes effective as a lease only upon the execution
and delivery thereof by Landlord and Tenant.
SEVERABILITY: If any portion of this Lease shall be held to be invalid
or unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
WAIVER: The failure of either party to enforce any provisions of this
Lease shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
CUMULATIVE RIGHTS: The rights of the parties under this Lease are
cumulative, and shall not be construed as exclusive unless otherwise required by
law.
GOVERNING LAW: This Lease shall be construed in accordance with the
laws of the State of Maryland.
RULES & REGULATIONS: Tenant agrees to be bound by the rules and
regulations set forth on the schedule attached hereto as "Exhibit A" and made a
part hereof. Landlord shall have the right, from time to time, to issue
additional or amended rules or regulations regarding the use of the premises.
When so issued, the same shall be considered a part of this lease and Tenant
covenants that said additional or amended rules or regulations shall likewise be
faithfully observed by Tenant, the employees of Tenant, and all other persons
invited by Tenant into the building or on the property, provided that said
additional or amended rules or regulations are made applicable to a majority (on
a square foot basis) of all tenants in the building. Landlord shall not be
liable to Tenant for the violation of any of the said rules and regulations, or
the breach of any covenant in any lease, by any other Tenant in the building or
center.
SUBORDINATION OF LEASE: This Lease is subordinate to any mortgage that
now exists, or may be given later by Landlord, with respect to the Premises.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this lease
agreement on this the ____day of _________, 1996.
LANDLORD:
K. Wayne Lockard & Bonnie M. Lockard
- --------------------- -------------------------------------
Witness K. Wayne Lockard
- --------------------- -------------------------------------
Witness Bonnie M. Lockard
TENANT:
The Union National Bank of Westminster
- --------------------- -------------------------------------
Witness By: Virginia W. Smith, President
9
<PAGE>
"EXHIBIT A"
RULES AND REGULATIONS:
1. The sidewalks, roadways and parking areas about the building shall not be
obstructed by the Tenant or his employees or agents, or used for any other
purpose than ingress, egress and parking. All commercial loading and
unloading shall be restricted to the rear of the building and shall not
impede vehicular traffic using the Bank drive-in facilities.
2. The water closets and other waste water apparatus in the building shall not
be used for any other purposes other than those for which they were
constructed; and no sweepings, rubbish, rags, chemicals or other substances
shall be thrown or dumped therein. The expense of repairing any damage
resulting from a violation of this rule shall be borne by the Tenant by
whom or by whose agents, employees or other visitors the damage was caused.
3. No draperies, curtains, screens or blinds of any kind shall be installed in
the windows of the premises by the Tenant except those approved, in writing
by Landlord. Window and door grids, existing shall be maintained in place
by Tenant.
4. Each Tenant, upon the termination of the lease, must then surrender the
keys to the leased premises, and to any other part of the building accessed
by Tenant, to the Landlord.
5. The Tenant shall not be permitted to use or keep in the building any
explosives, kerosene, cleaning fluid or other illuminating or explosive
material or substance of any kind.
6. Tenant shall place all trash, garbage and debris generated from Tenant's
occupancy of subject premises, into, not next to, a receptacle provided for
such materials and shall refrain from storage of these and any other waste
materials in any other manner whatsoever without the written consent of the
Landlord. Large items such as cardboard boxes shall be disassembled or
compacted before placement into the receptacle. The receptacle lid shall be
kept closed and the gate screening the receptacle shall be kept latched.
Tenant shall dispose of only that trash generated from Tenant's occupancy
and from no other source, such as personal.
7. Lessee and employees shall park their vehicles on portions of the parking
lot not typically used by the customers and clients of occupants of the
building or center.
<PAGE>
EXHIBIT 21.1
Subsidiary of Union National
<PAGE>
Subsidiary of Union National Bancorp, Inc.
The Union National Bank of Westminster, a federally-chartered, national bank
<PAGE>
EXHIBIT 23.2
Consent of Stegman & Company
<PAGE>
STEGMAN & COMPANY
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Form 10 of
Union National Bancorp, Inc. of our report dated January 8, 1997 relating to the
consolidated balance sheets as of December 31, 1996 and 1995 and consolidated
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1996, 1995, and 1994.
/s/ Stegman & Company
Stegman & Company
Towson, Maryland
April 30, 1997
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