December 16, 1996
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
450 5th Street, N.W.
Washington, D.C. 20549
Attention: Jessica Livingston, Mail Stop 3-11
Re: First Mariner Bancorp
Amendment No. 1 to Form SB-2
Registration No. 333-16011
Gentlemen and Mesdames:
On behalf of First Mariner Bancorp (the "Company"), we hereby
transmit for filing Amendment No. 1 to the Company's Registration Statement on
Form SB-2, together with all exhibits not previously filed. We believe that
Amendment No. 1 complies with all of the staff's comments.
We also transmit herewith letters dated December 16, 1996,
from the Company and the Underwriter requesting acceleration of effectiveness to
10:00 a.m. on Thursday, December 19, 1996. The Company and the Underwriter
intend to price the offering on that date; accordingly, it would be appreciated
if the Commission could accommodate this time schedule and accelerate the
offering to the requested date.
The following describes the manner in which we have complied
with the staff's comments. Paragraph numbers refer to the numbered paragraphs in
the staff's comment letter, and page references are to the page numbers in the
EDGAR version transmitted herewith:
Prospectus Summary; The Company
- -------------------------------
1. Complied with. See the last sentence of the last paragraph under the
above caption on page 4.
2. Complied with. See the first bullet on page 4.
<PAGE>
Securities and Exchange Commission
December 16, 1996
Page 2
Prospectus Summary; The Offering
- --------------------------------
3. Complied with. See pages 4 and 5.
Summary Consolidated Financial Data and Selected Consolidated Financial Data
- ----------------------------------------------------------------------------
4. Complied with. See pages 6 and 15.
The Company
- -----------
5. Complied with. See pages 34 through 35.
Risk Factors
- ------------
6. Complied with. See Risk Factor captioned "Dependence on Subsidiary
Bank" on pages 7 and 8.
7. Complied with. See Risk Factors captioned "Recent Operating Losses" and
"Limited Operating History of Current Management" on page 7.
8. Complied with. See pages 9 and 10.
Capitalization
- --------------
9. Complied with. See notes (2) and (3) to the Capitalization Table on
page 14.
Management's Discussion and Analysis of Financial Condition and Results of
- ------------ ---------- --- ----------- --------- --------- --------------
Operations
- ----------
10. The purchase and sale of the trading account securities both occurred
in 1996; consequently, the Company believes that the disclosure is
consistent. This has been clarified in the first paragraph under the
caption "Non-Interest Income" on page 20.
11. Complied with. See Table 6 on page 25.
12. The Company will, in future filings, separate disclosure of recoveries
by type of loan as required by IV.A of Industry Guide 3, if material.
13. Complied with. See Table 8 on page 27.
<PAGE>
Securities and Exchange Commission
December 16, 1996
Page 3
14. No revisions to Tables 9 and 10 are required since the Company has no
accruing loans which are past due by 90 days or more as to principal or
interest. Also, please note that the disclosure in the paragraph
following Table 9 has been updated to disclose that a $100,000
charge-off against two loans is being taken in December, 1996.
15. Except as disclosed, there are no other loans of this nature referred
to in this comment.
16. The Company advises that the staff's assumption set forth in this
comment is correct.
17. The Company advises that it is not aware of any current recommendations
by regulatory authorities which, if implemented, would have the effect
described in this comment.
Business:
- ---------
Market Area and Market Strategy
-------------------------------
18. Complied with. See the first paragraph under the above caption on page
36.
Growth Strategies
-----------------
19. Complied with. See the new last paragraph under this caption on page
37.
Banking Services
----------------
20. Complied with. See the additional text under the sub-caption "Retail
Banking" on pages 37 and 38.
Lending Activities
------------------
21. & 22. Complied with. See the additional text under each of
the sub-headings under this caption on pages 39 through 40.
23. Complied with. See the additional text under the sub-headings
"Residential Real Estate Mortgage Loans" and "Commercial Real Estate
Mortgage Loans" on page 40. We have included a discussion of private
mortgage insurance ("PMI") for residential mortgages; PMI is not
available for commercial mortgages.
<PAGE>
Securities and Exchange Commission
December 16, 1996
Page 4
Credit Administration
---------------------
24. Complied with. See the new last paragraph under the above caption on
page 41.
Management; Directors and Executive Officers
- --------------------------------------------
25. Complied with. See page 44.
Underwriting
- ------------
26. The Underwriter advises that all material factors to be considered in
determining the initial public offering price are listed in the subject
paragraph.
Additional Information
- ----------------------
27. Complied with. See page 65.
28. Complied with. See page 65.
Exhibits
- --------
29. Complied with.
General
- -------
1st - Complied with. See new paragraph titled "Recent Developments" on page
46.
2nd - The Company has added a sentence with respect to forward-looking
statements in the introductory paragraphs to "Prospectus Summary" on
page 3, to "Risk Factors" on page 7 and to "Management's Discussion and
Analysis of Financial Condition and Results of Operation" on page 16.
We also call the staff's attention to the fact that Amendment
No. 1 contains certain other revisions, none of which are significant or
material, to (i) correct typographical errors, (ii) adjust and update certain
numbers of shares, options or warrants, certain figures in the first sentence
below Table 5 "Loan Portfolio Composition," and certain figures in Table 12
"Rate Sensitivity Analysis," and (iii) add the paragraph titled "Audit Committee
of the Company's Board of Directors" on pages 46 and 47 to comply with a request
of the Nasdaq Stock Market, Inc. We also described the graphics on the inside
front cover for the EDGAR filing.
<PAGE>
Securities and Exchange Commission
December 16, 1996
Page 5
If you have any questions, please contact the undersigned.
Very truly yours,
/s/ Abba David Poliakoff
------------------------
Abba David Poliakoff
Enclosures
cc: Edwin F. Hale, Sr.
Joseph Cicero
Kevin Healey
Steven Shea
Melissa Allison Warren
Michael Hussey
<PAGE>
1st MARINER
BANK
December 10, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attn: Jessica Livingston
Mail Stop 3-11
Re: First Mariner Bancorp
Registration Statement on Form SB-2
Registration No. 333-16011
Dear Sir or Madam:
Pursuant to Rule 460 under the Securities Act of 1933, as
amended, First Mariner Bancorp ("Company") hereby requests acceleration of the
effective date of the above referenced Registration Statement to 10:00 A.M. on
Thursday, December 19, 1996. In the event of any change to the effective date,
Abba David Poliakoff, Esq., counsel to the Company, and/or Melissa Allison
Warren, Esq., counsel to Ferris, Baker Watts, Inc. (the "Underwriter"), are
hereby authorized to make any modified requests, orally and/or in writing, for
acceleration of the effective date.
If you have any questions, please contact the undersigned or
Abba David Poliakoff at (410) 576-4067.
Very truly yours,
/s/ Eugene F. Friedman
----------------------
Secretary and General Counsel
<PAGE>
December 16, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Mariner Bancorp
Registration No. 333-16011
Ladies and Gentlemen:
Ferris, Baker Watts, Incorporated as managing underwriter
hereby joins in the request of First Mariner Bancorp (the "Company") that the
effective date of the Company's Registration Statement be accelerated so that it
will become effective at 10 a.m. on Thursday, December 19, 1996 or as soon
thereafter as practicable. In addition, we authorize our counsel, Melissa
Allison Warren, Shapiro and Olander, and the Company's counsel, Abba David
Poliakoff, Gordon, Feinblatt, Rothman, Hoffberger and Hollander, LLC, to specify
a date after December 19, 1996, if necessary, for the Registration Statement to
become effective.
Pursuant to Rule 460 of the General Rules and Regulations of
the Commission under the Securities Act of 1933 (the "Act"), we advise you that
the preliminary Prospectus dated November 13, 1996 contained in the Company's
Registration Statement filed on November 13, 1996, was distributed during the
period from November 19, 1996 through December 13, 1996 as follows:
approximately 100 to approximately 5 dealers;
approximately 50 to approximately 3 institutions; and
approximately 9,355 to approximately 9,355 others, including
customers and prospects of the issuer and the managing
underwriter's investment banking department.
Total: 9,505
Copies of the Preliminary Prospectus were available to anyone
requesting it at our offices.
<PAGE>
Securities and Exchange Commission
December 16, 1996
Page 2
We are advised that the Corporate Financing Department of NASD
Regulation, Inc. raised no objections regarding underwriting and compensation
arrangements, as of December 9, 1996, and the staff of the Corporate Financing
Department has notified you to that effect.
We are acting as the sole underwriter of this offering, and no
Agreement Among Underwriters will be executed. We confirm that we will comply
with Rule 15c2-8. Dealers to whom shares are allotted on selling group terms
will be required to confirm to us that they have complied with Rule 15c2-8.
We confirm that the issuer has been requested to provide
sufficient certificates in such denominations as to permit prompt delivery to
each purchaser.
Very truly yours,
/s/ Steven L. Shea
Steven L. Shea
Senior Vice President
cc: First Mariner Bancorp
Abba David Poliakoff, Esq.
Melissa Allison Warren, Esq.
<PAGE>
As filed with the Securities and Exchange Commission on December 16, 1996
Registration No. 333-16011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST MARINER BANCORP
(Name of Small Business Issuer in its Charter)
Maryland 6712 52-1834860
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Code
Code Number) Number)
1801 South Clinton Street
Baltimore, Maryland 21224
(410) 342-2600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Edwin F. Hale, Sr.
Chairman of the Board and Chief Executive Officer
First Mariner Bancorp
1801 South Clinton Street, Baltimore, MD 21224; (410)
342-2600 (Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Abba David Poliakoff, Esquire Melissa Allison Warren, Esquire
Gordon, Feinblatt, Rothman, Shapiro and Olander
Hoffberger & Hollander, LLC Twentieth Floor
233 E. Redwood Street 36 S. Charles Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
(410) 576-4067 (410) 385-0202
Approximate date of commencement of the proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commissioner, acting pursuant to said Section
8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED DECEMBER 16, 1996
1,400,000 Shares
FIRST MARINER BANCORP
Common Stock
First Mariner Bancorp (the "Company"), a Maryland corporation, hereby
offers for sale 1,400,000 shares of its Common Stock, par value $.05 per share
(the "Offering"). Prior to the Offering, there has been no public market for the
Common Stock. The Company's Common Stock has been approved for quotation on the
National Association of Securities Dealers Automated Quotation National Market
("NASDAQ National Market") under the symbol "FMAR" upon completion of the
Offering. The initial public offering price is estimated to be between $10.00 to
$12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
SEE RISK FACTORS STARTING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
Underwriting Discount Proceeds to
Price to Public and Commissions(1) Company(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share.....................
- ------------------------------------------------------------------------------------------------------------------------
Total(3)......................
========================================================================================================================
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $370,000 payable
by the Company.
(3) The Company has granted the Underwriter an option, exercisable within
30 days after the date hereof, to purchase up to an additional 210,000
shares of Common Stock at the Price to Public per share, solely to
cover over-allotments, if any, on the same terms and conditions as the
shares offered hereby. If the Underwriter exercises such option in
full, the total Price to Public, Underwriting Discount and Commissions
and Proceeds to Company will be $________, $________ and $________,
respectively. See "Underwriting."
</TABLE>
The shares of Common Stock are being offered by the Underwriter subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, delivery to and acceptance by the Underwriter and certain other
conditions. It is expected that delivery of the certificates for the shares of
Common Stock will be made at the offices of Ferris, Baker Watts, Incorporated,
1720 Eye Street, N.W., Washington, D.C., or through the facilities of the
Depository Trust Company, on or about December ___, 1996.
Ferris, Baker Watts
Incorporated
The date of this Prospectus is , 1996
<PAGE>
1ST MARINER BANK
[LOGO]
MAP #1 INSET - State of Maryland, highlighting Baltimore City, Baltimore
County, Harford County and Anne Arundel County, Maryland.
MAP #2 INSET - Showing only Baltimore City, Baltimore County, Harford
County and Anne Arundel County, Maryland, and location of each of the branches.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. In addition to the historical information contained herein,
the discussion in this Prospectus contains certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" below.
The Company
First Mariner Bancorp (the "Company"), a bank holding company formed in
Maryland in 1994, conducts its business through its wholly-owned bank
subsidiary, First Mariner Bank (the "Bank"). The Bank, which is headquartered in
Baltimore City, serves the central region of the State of Maryland through 12
full-service branches and 19 Automated Teller Machines ("ATMs"). At September
30, 1996, the Company had total assets of $94,961,351.
As an independent Maryland-based community bank, the Bank is engaged in
the general commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized businesses. The Bank emphasizes personal
attention and professional service to its customers while delivering a range of
traditional and contemporary financial products and performing many of the
essential banking services offered by its larger competitors. The Bank offers
its customers access to local bank officers who are empowered to act with
flexibility to meet customers' needs in order to foster and develop long-term
loan and deposit relationships. The Company believes that individuals and
businesses in its market area are dissatisfied with the large out-of-state
banking institutions which have acquired local banks. Management believes that
the Bank has a window of opportunity to establish business ties with customers
who have been displaced by the consolidations and who are anxious to forge
banking relationships with locally-owned and managed institutions. These
consolidations also benefit the Bank by making available experienced and
entrepreneurial managers and acquisition opportunities from the remaining small
independent banks in the Company's market area.
In May, 1995, Edwin F. Hale, Sr. acquired approximately 30% of the
outstanding stock of the Company for $3,000,000 and was elected as its Chairman
of the Board and Chief Executive Officer. Mr. Hale is a successful owner and
operator of national trucking and shipping companies headquartered in Baltimore,
Maryland. Mr. Hale was previously Chairman and Chief Executive Officer of
Baltimore Bancorp, a position to which he was appointed in 1991. As a result of
Baltimore Bancorp's weakened financial condition, it was then operating under a
Cease and Desist Order issued by the Federal Deposit Insurance Corporation
("FDIC") and the Maryland Bank Commissioner. Mr. Hale assembled an experienced
management team and developed strategies to sharply reduce nonperforming assets,
restore profitability and attract additional equity capital. In 1994, Mr. Hale
negotiated the sale of Baltimore Bancorp to First Fidelity Bancorp (now First
Union Bancorp) for an aggregate price of approximately $346 million,
representing a value equal to approximately 2.1 times book value.
Following Mr. Hale's election as Chairman and Chief Executive Officer
of First Mariner Bancorp, he assembled a Board of Directors of well-known
business and civic leaders who have strong ties to the Company's market area and
are committed to the growth and success of the Company. Mr. Hale also recruited
members of management from other successful local financial institutions with
knowledge of the local market and experience in extending credit to small to
mid-sized businesses, including several
3
<PAGE>
individuals who were critical to the turnaround and ultimate success of
Baltimore Bancorp. The Company then embarked upon a business strategy and
capitalization plan that provides management with the tools necessary to
optimize the market opportunities created as a result of the consolidation of
the banking industry. Although the Company has sustained operating losses for
the past sixteen months as it established its loan production infrastructure and
increased its branch network from four to twelve, the Company anticipates that
this investment ultimately will be substantially less than the market premiums
that initially would have been required to purchase and improve existing bank
franchises. From December 31, 1994 to September 30, 1996, the Bank's net loans
have grown from $19,930,101 to $80,981,616 and deposits have grown from
$20,882,530 to $78,857,010.
The Company's strategies to further enhance its banking franchise are
to:
o Prudently expand the Bank's branch network in an effort to
increase the Bank's deposit base in order to support and fund
its lending activities and lower its overall cost of capital;
o Strategically acquire small institutions or branches which
present synergistic opportunities to its existing franchise;
o Creatively develop non-traditional business alliances with
grocery markets and other retail outlets with high traffic
patterns as a means of developing cost-effective access to
retail banking customers; and
o Offer new products and technology which provide customers the
services of a large bank while maintaining the service and
personal attention of a community oriented institution.
No assurance can be given that the Company will be successful in the
implementation of its strategies.
The Offering
<TABLE>
<S> <C> <C>
Common Stock Offered.................................... 1,400,000 shares of Common Stock, $.05 par value
Common Stock Outstanding After the Offering(1).......... 2,627,263 shares
Estimated Net Proceeds to the Company(2)................ $13,952,000
Proposed Use of Proceeds................................ The Company intends to use the net proceeds of this
Offering for future expansion and acquisitions,
including possible future acquisitions of other finan-
cial institutions, working capital, loan originations
(which will reflect an increase in the Bank's legal
lending limit as a result of the Offering), and general
corporate purposes. See "Use of Proceeds."
Risk Factors............................................ Prospective investors in the Common Stock should carefully
consider the factors set forth on page 7 under "Risk Factors
--Risk of Expansion Strategies," "--Recent Operating Losses,"
"--Limited Operating History of Current Management", "--Dependence
on Subsidiary Bank," "--Dependence on Key Personnel,"
"--Concentrations in Real Estate
4
<PAGE>
Lending and Related Risks," "--Risk of Loan Losses," "--Impact
of Economic Conditions and Monetary Policy on Operating Results,"
"--Impact of Government Regulation on Operating Results," "--Highly
Competitive Market," "Determination of Initial Public Offering
Price Not Based on Actual Trading Market," "--Lack of Trading
Market," "--Limitations on Payment of Dividends," "--Broad Discretion
as to Use of Proceeds," "--Control by Management," "--Supermajority
Voting Requirements; Anti-Takeover Measures," "--Shares Eligible for
Future Sale."
NASDAQ National Market Symbol........................... FMAR
- -------------------
<FN>
(1) Excludes approximately 993,923 shares of Common Stock issuable upon
exercise of outstanding options and warrants at an exercise price of
$10.00 per share.
(2) Based upon an estimated initial public offering price of $11.00 per
share, and after deducting expenses of the Offering payable by the
Company estimated to be $370,000.
</FN>
</TABLE>
5
<PAGE>
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
--------------------------------- ----------------------------
1996 1995 1995 1994
-------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Interest income................................ $ 4,316,423 $1,659,489 $2,561,439 $1,209,141
Interest expense............................... 1,978,451 878,037 1,269,620 503,828
Net interest income............................ 2,337,972 781,452 1,291,819 705,313
Provision for loan losses 674,828 - 190,051 59,078
Non-interest income............................ 811,937 90,668 197,014 75,364
Non-interest expense........................... 4,000,513 1,361,886 2,581,411 979,989
Loss before income taxes....................... (1,525,432) (489,766) (1,282,629) (258,390)
Income tax provision (benefit) - - - (17,434)
Net Loss........................................... $(1,525,432) $ (489,766) $(1,282,629) $ (240,956)
=========== =========== =========== ===========
Consolidated Statements of Financial
Condition Data, at Period End:
Total assets................................... $94,961,351 $41,715,010 $52,798,345 $26,303,452
Total loans, net............................... 80,981,616 24,475,535 29,760,313 19,930,101
Total deposits................................. 78,857,010 30,072,493 41,363,630 20,882,530
Total stockholders' equity..................... 9,182,554 10,887,886 10,701,986 1,976,615
Per Common Share Data:
Net loss(1).................................... $ (1.24) $ (.97) $ (1.88) $ (2.07)
Book value..................................... 7.48 9.31 8.72 8.75
Tangible book value............................ 7.24 9.02 8.41 7.22
Number of shares of common stock
outstanding, at period end................. 1,227,213 1,169,141 1,226,613 225,813
Performance Ratios(2):
Return on average assets....................... (2.84)% (1.93)% (3.45)% (1.42)%
Return on average stockholders' equity......... (20.37)% (13.08)% (19.63)% (22.72)%
Net interest margin............................ 4.87% 3.50% 3.99% 4.60%
Average stockholders' equity to average assets. 13.93% 14.76% 17.56% 6.23%
Capital Ratios:
Capital to risk-weighted assets, at period end:
Tier 1 capital ratio....................... 10.33% 44.94% 33.87% 11.76%
Total capital ratio........................ 11.44% 45.99% 35.10% 13.01%
Tier 1 leverage ratio...................... 12.39% 31.04% 27.83% 9.57%
Asset Quality Ratios:
Allowance for loan losses, at period end, to:
Loans...................................... 1.17% .99% 1.25% 1.21%
Non-performing assets...................... 205.05% 24.57% 59.47% 35.38%
Net charge-offs to average total loans(2) .22% -- .26% .16%
Non-performing assets to total assets,
at period end.............................. .49% 2.39% 1.20% 2.63%
- ----------
<FN>
(1) Net loss per share is based on the weighted average number of shares
outstanding during the period.
(2) Annualized for the nine months ended September 30, 1996 and 1995.
</FN>
</TABLE>
6
<PAGE>
RISK FACTORS
In addition to the historical information contained herein, the
discussion in this Prospectus contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein. The following risk factors should be considered
carefully in addition to the other information in this Prospectus before
purchasing the shares of Common Stock offered hereby.
Risks of Expansion Strategies
Since May, 1995, it has been the strategy of the Company to rapidly
increase the number of Bank branches prior to the time that the volume of
business was sufficient to generate profits from branch operations. This
strategy was implemented in order to have a branch network in place to take
advantage of business opportunities as they arose. This strategy anticipates
losses from branch operations until such time as branch deposits and the volume
of other banking business reach the levels necessary to support profitable
branch operations. As a result of this strategy, the Company has sustained
losses to date. The success of the Company's strategy will be dependent on
management's ability to generate business and increase deposits at levels
necessary to support profitable branch operations. See "Business."
It is the intention of management to continue to expand the business of
the Company through the opening of additional branches and the acquisition of
existing banks in the Company's market area. The success of the Company's
expansion strategy will be dependent upon its ability to manage the growth, to
improve its operational financial systems, to attract and train qualified
employees, and, to a certain extent, on the availability of potential
acquisitions meeting the Company's investment criteria, management's ability to
successfully operate and integrate the acquired business with and into the
business of the Company, and the Bank's ability to obtain required regulatory
approval. See "Business."
There can be no assurance that the Company will be successful in
implementing these strategies and managing its anticipated growth.
Recent Operating Losses
The Company has reported losses from operations since its inception in
1994. Many factors could adversely affect the Company's performance in the
future, including unfavorable economic conditions, increased competition, loss
of key personnel and government regulation. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Limited Operating History of Current Management
The Company's and the Bank's current chairman and chief executive
officer assumed control in May, 1995. Therefore, there is limited historical
data available which reflects the results of operations and financial condition
of the Company under his management. See "The Company."
Dependence on Subsidiary Bank
The Company's sole business activity for the foreseeable future will be
to act as the holding company of the Bank; therefore, the profitability of the
Company will be dependent on the results of
7
<PAGE>
operations of the Bank. Adverse results or events at the Bank would have a
significant impact on the Company's results of operations and financial
condition.
Dependence on Key Personnel
The Company is dependent on the continued services of certain key
management personnel, including Edwin F. Hale, Sr., Chairman of the Board and
Chief Executive Officer of the Company and Chairman of the Board of the Bank,
and George H. Mantakos, President of the Company and President and Chief
Executive Officer of the Bank. The Bank has a key man life insurance policy in
the amount of $10 million on Mr. Hale, and has entered into a two year
employment agreement with Mr. Mantakos effective May 1, 1995. The Company's
continued growth and profitability will depend upon its ability to attract and
retain skilled managerial, marketing and technical personnel. Competition for
qualified personnel in the banking industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. See "Management."
Concentrations in Real Estate Lending and Related Risks
The Bank is currently dependent on real estate lending activities,
which on September 30, 1996 had produced real estate loans totaling
approximately 84% of the Company's loan portfolio. Real estate loan origination
activity, including refinancings, generally is greater during periods of
declining interest rates and favorable economic conditions, and has been
favorably affected by relatively lower market interest rates during the past
several years. There is no assurance such favorable conditions will continue.
Real estate loans are subject to the risk that real estate values in a
geographical area or for a particular type of real estate will decrease, and to
the risk that borrowers will be unable to meet their loan obligations. Real
estate development and construction loans, which have higher average balances
and greater sensitivity to market conditions, constitute 30% of the Bank's loan
portfolio. The Company attempts to minimize these risks by making real estate
loans that are secured by a variety of different types of real estate, limiting
real estate loans to 80% of the appraised value of the real estate, generally
lending in its market area, using conservative loan-to-value ratios, and,
regardless of collateral, reviewing the potential borrower's ability to meet
debt service obligations. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Composition of Loan
Portfolio."
Risk of Loan Losses
The risk of credit losses on loans varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value and marketability of the collateral for the loan. Management maintains
an allowance for loan losses based upon, among other things, historical
experience, an evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors, management
makes various assumptions and judgments about the ultimate collectability of the
loan portfolio and provides an allowance for loan losses based upon a percentage
of the outstanding balances and for specific loans when their ultimate
collectability is considered questionable. If management's assumptions and
judgments prove to be incorrect and the allowance for loan losses is inadequate
to absorb future losses, or if the bank regulatory authorities require the Bank
to increase the allowance for loan losses as a part of their examination
process, the Bank's earnings could be significantly and adversely affected.
Although the Bank's loans are typically secured, certain lending activities may
involve greater risks and the percentage applied to specific loan types may
vary.
As of September 30, 1996, the allowance for loan losses was $958,812,
which represented 1.17% of outstanding loans, net of unearned income. At such
date, the Company had non-accrual loans totalling approximately $468,000. The
Bank actively manages its non-performing loans in an effort to minimize
8
<PAGE>
credit losses and monitor its asset quality to maintain an adequate allowance
for credit losses. Although management believes that its allowance for loan
losses is adequate, there can be no assurance that the allowance will prove
sufficient to cover future loan losses. Further, although management uses the
best information available to make determinations with respect to the allowance
for loan losses, future adjustments may be necessary if economic conditions
differ substantially from the assumptions used or adverse developments arise
with respect to the Bank's non-performing or performing loans. Material
additions to the Bank's allowance for loan losses would result in a decrease in
the Bank's net income and capital, and could have a material adverse effect on
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Loan Quality."
Impact of Economic Conditions and Monetary Policy on Operating Results
The operating results of the Company will depend to a great extent upon
the rate differentials which result from the difference between the income its
receives from its loans, securities and other earning assets and the interest
expense it pays on its deposits and other interest-bearing liabilities. These
rate differentials are highly sensitive to many factors beyond the control of
the Company, including general economic conditions and the policies of various
governmental and regulatory authorities, in particular the Board of Governors of
the Federal Reserve System (the "FRB"). Also, adverse changes in general
economic conditions could impair borrowers' ability to repay loans as they
mature, thus reducing the income the Company receives from loans and reducing
the amount of rate differentials.
Like other depository institutions, the Company is affected by the
monetary policies implemented by the FRB and other federal instrumentalities. A
primary instrument of monetary policy employed by the FRB is the restriction or
expansion of the money supply through open market operations including the
purchase and sale of government securities and the adjustment of reserve
requirements. These actions may at times result in significant fluctuations in
interest rates, which could have adverse effects on the operations of the
Company. In particular, the Company's ability to make loans and attract
deposits, as well as public demand for loans, could be adversely affected. See
"Supervision and Regulation--Monetary Policy."
Impact of Government Regulation on Operating Results
The operations of the Company and the Bank are and will be affected by
current and future legislation and by the policies established from time to time
by various federal and state regulatory authorities. The Bank is subject to
supervision and periodic examination by the FDIC and the Maryland Commissioner
of Financial Regulation ("Commissioner"). The Company is also subject to
supervision by the FRB. Banking regulations, designed primarily for the safety
of depositors, may limit a financial institution's growth and the return to its
investors by restricting such activities as the payment of dividends, mergers
with or acquisitions by other institutions, investments, loans and interest
rates, interest rates paid on deposits, expansion of branch offices, and the
provision of securities or trust services. The Bank also is subject to
capitalization guidelines set forth in federal legislation, and could be subject
to enforcement actions to the extent that the Bank is found by regulatory
examiners to be undercapitalized. It is not possible to predict what changes, if
any, will be made to existing federal and state legislation and regulations or
the effect that such changes may have on the future business and earnings
prospects of the Company and the Bank. The cost of compliance with regulatory
requirements may adversely affect the Company's ability to operate
profitability. See "Supervision and Regulation."
Highly Competitive Market
The Company and the Bank operate in a competitive environment,
competing for deposits and loans with commercial banks, thrift and other
financial entities. Numerous mergers and consolidations involving banks in the
market in which the Bank operates have occurred recently, resulting in an
9
<PAGE>
intensification of competition in the banking industry in the Company's
geographical market. Competition for deposits comes primarily from other
commercial banks, savings associations, credit unions, money market and mutual
funds and other investment alternatives. Competition for loans comes primarily
from other commercial banks, savings associations, mortgage banking firms,
credit unions and other financial intermediaries. Many of the financial
intermediaries operating in the Company's market area offer certain services,
such as trust, investment and international banking services, which the Company
does not offer. In addition, banks with a larger capitalization and financial
intermediaries not subject to bank regulatory restrictions have larger lending
limits and are thereby able to serve the needs of larger customers.
Recent changes in federal banking laws facilitate interstate branching
and merger activity among banks. Since September, 1995, certain bank holding
companies are authorized to acquire banks throughout the United States. In
addition, on and after June 1, 1997, certain banks will be permitted to merge
with banks organized under the laws of different states. Such changes may result
in an even greater degree of competition in the banking industry and the Company
may be brought into competition with institutions with which it does not
presently compete. There can be no assurance that the profitability of the
Company will not be adversely affected by the increased competition which may
characterize the banking industry in the future. See "Business--Competition" and
"Supervision and Regulation--Interstate Banking Legislation."
Determination of Initial Public Offering Price Not Based on Actual Trading
Market
The initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter based on
certain factors, in addition to prevailing market conditions, including the
history of and prospects for the industry in which the Company competes, an
assessment of the Company's management, the prospects of the Company, an
evaluation of the Company's assets, comparisons of the relationships between
market prices and book values of other financial institutions of a similar size
and asset quality, and other factors that were deemed relevant. Such decision
has not been based upon an actual trading market for the Common Stock;
accordingly, there can be no assurance that the Common Stock may be resold at or
above the offering price. See "Underwriting," "Dilution" and "Description of
Securities--Options and Warrants."
Lack of Trading Market
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Although the Common Stock has been approved for quotation
on the NASDAQ National Market upon completion of the Offering, there can be no
assurance that an active trading market will develop, or, if developed, will be
sustained following the Offering.
Limitations on Payment of Dividends
The Company has not paid cash dividends on its Common Stock and
dividends are not contemplated for the foreseeable future. There can be no
assurances as to whether or when the Company may commence the payment of cash
dividends. In addition, because the Company's principal business operations are
conducted through the Bank, cash available to pay dividends would be derived
from dividends paid to it by the Bank. The Bank's ability to pay dividends to
the Company and the Company's ability to pay dividends to shareholders on the
Common Stock are also subject to and limited by certain legal and regulatory
restrictions. See "Dividend Policy" and "Supervision and Regulation--Limits on
Dividends and Other Payments."
10
<PAGE>
Broad Discretion as to Use of Proceeds
The net proceeds of this Offering have been allocated for working
capital, acquisitions, increased loan capacity and other general corporate
purposes, and will be used for such specific purposes as management of the
Company may determine. Accordingly, management will have broad discretion with
respect to the expenditure of the net proceeds of the Offering. Purchasers of
the Common Stock will necessarily depend upon the judgment of management. See
"Use of Proceeds."
Control by Management
A total of 581,700 shares of Common Stock is beneficially owned by the
directors and executive officers of the Company, representing 47.4% of the
Common Stock outstanding before the Offering. In addition, options and warrants
to purchase an aggregate of 630,268 shares of Common Stock are beneficially
owned by directors and executive officers. Assuming the directors and executive
officers exercise all their stock options and warrants, the directors and
executive officers would beneficially own approximately 65.2% of the Common
Stock outstanding before the Offering, and 37.2% of the outstanding Common Stock
following the Offering (assuming no exercise of the Underwriter's over-allotment
option). Edwin F. Hale, Sr., who is the largest stockholder of the Company,
beneficially owns 381,687 shares of Common Stock and options and warrants to
purchase 491,672 shares, representing 50.8%, of the Common Stock outstanding
before the Offering and 28.0% following the Offering (assuming exercise of all
his options and warrants). See "Beneficial Ownership of Shares."
Supermajority Voting Requirements; Anti-Takeover Measures
The Amended and Restated Articles of Incorporation ("Articles") and
Bylaws of the Company contain certain provisions designed to enhance the ability
of the Board of Directors to deal with attempts to acquire control of the
Company. These provisions provide for the classification of the Company's Board
of Directors into three classes; after an initial transition period, directors
of each class will serve for staggered three year periods. The Articles also
provide for supermajority voting provisions for the approval of certain business
combinations. Although these provisions do not preclude a takeover, they may
have the effect of discouraging a future takeover attempt which would not be
approved by the Company's Board of Directors, but pursuant to which stockholders
might receive a substantial premium for their shares over then-current market
prices. As a result, stockholders who might desire to participate in such a
transaction might not have the opportunity to do so. Such provisions will also
render the removal of the Company's Board of Directors and of management more
difficult, and therefore, may serve to perpetuate current management. Further,
such provisions could potentially adversely affect the market price of the
Common Stock.
The Company, however, has concluded that the potential benefits of
these provisions outweigh the possible disadvantages. The Company believes that
such provisions encourage potential acquirors to negotiate directly with the
Board of Directors, and that the Board is in the best position to act on behalf
of all stockholders. Further, provided that the acquisition is approved in
advance by a majority of the disinterested Board of Directors, the affirmative
vote of only a majority of the outstanding shares would be required to approve
the acquisition. See "Description of Securities--Supermajority Voting
Requirements--Anti-Takeover Measures, --Control Share Acquisitions and
- --Business Combinations."
Shares Eligible for Future Sale
As of October 31, 1996, there were 1,227,263 shares of the Company's
Common Stock outstanding, of which approximately 200,000 shares will be eligible
for sale 90 days after the date of this Prospectus pursuant to Rule 144 under
the Securities Act, subject to volume, notice and manner of sale limitations in
that rule. An aggregate of 581,700 shares of Common Stock are beneficially owned
by the
11
<PAGE>
Company's executive officers and directors. All of the Company's executive
officers and directors have agreed that for a period of 180 days from the date
of this Prospectus, they will not sell, offer for sale or take any action that
may constitute a transfer of shares of Common Stock. There are also 993,923
shares subject to outstanding options and warrants. Although the sale of the
shares issuable upon exercise of such options and warrants will be restricted
under Rule 144, the sale of any number of shares of Common Stock in the public
market following the Offering could have an adverse impact on the then
prevailing market price of the shares. See "Shares Eligible for Future Sale."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value (stockholders' equity less intangible
assets) per share from the initial public offering price. "Net tangible book
value per share" is determined by dividing the difference between the total
amount of tangible assets and the total amount of liabilities by the number of
shares of Common Stock outstanding. At September 30, 1996, the net tangible book
value of the Common Stock on a fully diluted basis was $7.24 per share. After
giving effect to the sale of 1,400,000 shares of Common Stock at an estimated
initial public offering price of $11.00 per share (the median of the estimated
initial offering price range) and to the payment of estimated Offering expenses,
the pro forma tangible book value per share at September 30, 1996 would have
been $8.69. This would represent an immediate increase in tangible book value of
$1.45 per share to existing shareholders and an immediate dilution to new
investors of $2.31 per share.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,400,000 shares of
Common Stock offered by the Company hereby (after deducting the underwriting
discount and commissions and estimated expenses of the Offering) are estimated
to be approximately $13,952,000 ($16,100,300 if the Underwriter's over-allotment
option is exercised in full), based upon an estimated initial offering price of
$11.00 per share. The Company intends to use the net proceeds of this Offering
for future expansion and acquisitions, loan originations (as a result of an
increase in the Bank's legal lending limit), working capital and general
corporate purposes.
With respect to future acquisitions, the Company is regularly reviewing
potential acquisitions, although it has no such current agreements,
understandings or commitments.
The foregoing represents the Company's anticipated use of the net
proceeds of this Offering based upon the current status of its business
operations, its current plans and current economic conditions. A change in the
use of proceeds or timing of such use will be at the Company's discretion.
Pending their longer-term use, the net proceeds from this Offering are expected
to be used to make short-term loans or invested in short-term, investment-grade
interest bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all of its
earnings, if any, to finance the operation and expansion of its business, and
therefore does not intend to pay dividends on its Common Stock in the
foreseeable future. The payment of dividends by the Company depends largely upon
the ability of the Bank to declare and pay dividends to the Company because the
principal source of the Company's revenue will be dividends paid by the Bank. In
considering the payment of dividends, the Board of Directors will
12
<PAGE>
take into account the Company's financial condition, results of operations, tax
considerations, costs of expansion, industry standards, economic conditions and
need for funds, as well as governmental policies and regulations applicable to
the Company and the Bank. No assurance can be given that the Bank's earnings
will enable the Bank (and therefore the Company) to pay cash dividends.
As a depository institution whose deposits are insured by the FDIC, the
Bank may not pay dividends or distribute any of its capital assets while it
remains in default on any assessment due the FDIC. The Bank currently is not in
default of any of its obligations to the FDIC. In addition, FDIC regulations
also impose certain minimum capital requirements which affect the amount of cash
available for the payment of dividends by a regulated banking institution such
as the Bank. As a commercial bank under the Maryland Financial Institutions Law,
the Bank may declare cash dividends from undivided profits or, with the prior
approval of the Commissioner, out of surplus in excess of 100% of its required
capital stock, and (in either case) after providing for due or accrued expenses,
losses, interest and taxes. See "Supervision and Regulation."
Distributions paid by the Company to stockholders will be taxable to
the stockholders as dividends, to the extent of the Company's accumulated or
current earnings and profits. There can be no assurance that the Company will
declare or pay cash dividends at any particular time.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted to give effect to the sale of 1,400,000
shares of Common Stock offered hereby at the estimated initial public offering
price of $11.00 per share (the median of the estimated initial public offering
price range), less the underwriting discount and commissions and estimated
expenses. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1996
----------------------------
Actual As Adjusted(1)
------ -----------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity:
Common Stock, $.05 par value;
20,000,000 shares authorized;
1,227,213 shares outstanding;
2,627,213 shares outstanding as adjusted.. $ 61,361 $ 131,361
Additional paid-in capital.................... 12,170,210 26,052,210
Accumulated deficit........................... (3,049,017) (3,049,017)
----------- ------------
Total stockholders' equity.................... $ 9,182,554 $ 23,134,554(2)
=========== ============
Net tangible book value per share............. $ 7.24(3) $ 8.69(3)
- --------------------
<FN>
(1) If the Underwriter's over-allotment option is exercised in full, Common
Stock, additional paid-in capital and total stockholders' equity would be $
141,500, $ 28,351,500 and $ 25,443,983, respectively. This table excludes
approximately 993,923 shares of Common Stock issuable upon exercise of
outstanding options and warrants at an exercise price of $10.00 per share.
(2) Total stockholders' equity, as adjusted, reflects an assumed increase from
actual stockholders' equity of $13,952,000, which is the estimated amount of
net proceeds of the Offering, assuming an initial public offering price of
$11.00 per share, an underwriting discount of $1,078,000, and offering
expenses of $370,000.
(3) Actual net tangible book value per share equals total
stockholders' equity of $9,182,554 less intangible assets of $303,657,
divided by 1,227,213 shares issued and outstanding. Net tangible book value
per share as adjusted equals total stockholders' equity of $23,134,554
(assuming net proceeds of the Offering of $13,952,000) less intangible
assets of $303,657, divided by 2,627,213 shares (assuming issuance and sale
of 1,400,000 shares).
</FN>
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for, and as of the
end of, each of the years in the two year period ended December 31, 1995 are
derived from the audited consolidated financial statements of the Company. The
following selected interim consolidated data for, and as of the end of, the nine
month periods ended September 30, 1996 and 1995 have been derived from unaudited
financial statements of the Company, which, in the opinion of management, have
been prepared on the same basis as the audited Consolidated Financial Statements
included herein, and reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of such data. The results of the
interim periods are not necessarily indicative of the results of a full year.
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified by reference to, the Consolidated Financial
Statements of the Company and the Notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------------------------- ---------------------------------
1996 1995 1995 1994
---------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Interest income............................ $ 4,316,423 $1,659,489 $2,561,439 $1,209,141
Interest expense........................... 1,978,451 878,037 1,269,620 503,828
Net interest income........................ 2,337,972 781,452 1,291,819 705,313
Provision for loan losses.................. 674,828 - 190,051 59,078
Non-interest income........................ 811,937 90,668 197,014 75,364
Non-interest expense....................... 4,000,513 1,361,886 2,581,411 979,989
Loss before income taxes................... (1,525,432) (489,766) (1,282,629) (258,390)
Income tax provision (benefit)............. - - - (17,434)
Net Loss....................................... $(1,525,432) $ (489,766) $(1,282,629) $ (240,956)
=========== =========== =========== ===========
Consolidated Statements of Financial
Condition Data, at Period End:
Total assets............................... $94,961,351 $41,715,010 $52,798,345 $26,303,452
Total loans, net........................... 80,981,616 24,475,535 29,760,313 19,930,101
Total deposits............................. 78,857,010 30,072,493 41,363,630 20,882,530
Total stockholders' equity................. 9,182,554 10,887,886 10,701,986 1,976,615
Per Common Share Data:
Net loss(1)................................ $ (1.24) $ (.97) $ (1.88) $ (2.07)
Book value................................. 7.48 9.31 8.72 8.75
Tangible book value........................ 7.24 9.02 8.41 7.22
Number of shares of common stock
outstanding, at period end............. 1,227,213 1,169,141 1,226,613 225,813
Performance Ratios(2):
Return on average assets................... (2.84)% (1.93)% (3.45)% (1.42)%
Return on average stockholders' equity..... (20.37)% (13.08)% (19.63)% (22.72)%
Net interest margin........................ 4.87% 3.50% 3.99% 4.60%
Average stockholders' equity to average
assets................................. 13.93% 14.76% 17.56% 6.23%
Capital Ratios:
Capital to risk-weighted assets, at period end:
Tier 1 capital ratio................... 10.33% 44.94% 33.87% 11.76%
Total capital ratio.................... 11.44% 45.99% 35.10% 13.01%
Tier 1 leverage ratio.................. 12.39% 31.04% 27.83% 9.57%
Asset Quality Ratios:
Allowance for loan losses, at period end, to:
Loans.................................. 1.17% .99% 1.25% 1.21%
Non-performing assets.................. 205.05% 24.57% 59.47% 35.38%
Net charge-offs to average total loans(2).. .22% __ .26% .16%
Non-performing assets to total assets,
at period end.......................... .49% 2.39% 1.20% 2.63%
- -----------
<FN>
(1) Net loss per share is based on the weighted average number of shares
outstanding during the period.
(2) Annualized for the nine months ended September 30, 1996 and 1995.
</FN>
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by the more
detailed information and the financial statements and notes thereto appearing
elsewhere in this Prospectus. In addition to the historical information
contained herein, the discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and in "Risk
Factors."
Overview
Since assuming control of the Company in May, 1995, management
implemented a strategy of building a branch network in its core market area.
This strategy is intended to position the Bank to optimize the opportunities
that management believes have been created by dislocations caused by the
widespread consolidations among local banks with large out-of-state acquirors.
Although this strategy has resulted in losses for the past sixteen months, the
Company anticipates that this investment will ultimately be substantially less
than the market premiums required to purchase and improve existing bank or
thrift franchises.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's financial
statements and related notes and other statistical information included
elsewhere herein. Results reflect the operations of the Company and the Bank for
the nine month periods ended September 30, 1996 and 1995, and during the years
ended December 31, 1995 and 1994.
Results of Operations
The Company incurred a net loss for the nine months ended September 30,
1996 of $1,525,432 compared to a net loss of $489,766 for the nine months ended
September 30, 1995. These results reflect the costs of the Company's continuing
expansion and growth, including substantially increased compensation, occupancy
and promotional expenses. Net loss per share for the nine months ended September
30, 1996 was $1.24 per share compared to $.97 per share for the same period in
1995. Return on average assets was (2.84)% for the nine months ended September
30, 1996 as compared to (1.93)% for the same period in 1995.
The Company's net loss for the year ended December 31, 1995 was
$1,282,629 compared to a net loss of $240,956 for the year ended December 31,
1994. The amount of net loss for 1995 was in line with management's expectation.
The primary reasons for the increase in net loss were costs associated with the
development of a substantial branching network, the marketing of deposit and
loan products and additional staffing necessary to effectively serve the
expanding customer base. The 1995 net loss represents a return on average assets
of (3.45)% compared to the 1994 return of (1.42)%. The return on average equity
was (19.63)% for 1995 and (22.72)% for 1994. The net interest margin increased
to $1,291,819 for the year ended December 31, 1995, an increase of $586,506 or
83% from the 1994 amount of $705,313.
16
<PAGE>
Net Interest Income/Margins
The primary source of earnings for the Company is net interest income,
which is the difference between income earned on interest-earning assets, such
as loans and investment securities, and interest incurred on the
interest-bearing sources of funds, such as deposits and borrowings. The level of
net interest income is determined primarily by the average balances ("volume")
and the rate spreads between the interest-earning assets and the Company's
funding sources.
Net interest income was $2,337,972 for the nine months ended September
30, 1996, a 199% increase from the net interest income of $781,452 earned during
the same period of 1995. Earning assets averaged $63,964,829 in the first nine
months of 1996, a 115% increase as compared to $29,752,454 in the first nine
months of 1995. The increase in net interest income was due to the growth of the
loan portfolio and increases in yields on the loan portfolio. Average loans as a
percentage of total average earning assets increased to 88.1% in the first nine
months of 1996 as compared with 70.8% in the same period of 1995.
Net interest income was $1,291,819 for the year ended December 31,
1995, an 83% increase from the net interest income of $705,313 in 1994. Earning
assets averaged $32,414,418 in 1995, a 111% increase as compared to $15,340,770
in 1994. The increase in net interest income was due to the growth of the loan
portfolio, and increases in yields in the majority of earning asset categories
due to market rate increases, including the prime rate, throughout 1995.
Interest income on loans of $3,981,916 for the first nine months of
1996 increased by $2,698,764, or 210% from $1,283,152 for the same period in
1995, reflecting a significant increase in the average balance of loans which
totaled $56,374,298 for the first nine months of 1996 as compared to $21,060,866
for the same period in 1995.
Interest income on loans of $1,981,588 in 1995 represented an increase
of $878,676, or 80% from $1,102,912 in 1994, reflecting an increase in the
average balance of loans to $22,698,742 in 1995 from $13,395,099 in 1994. The
increase in net interest income was the result of an overall increase in earning
assets. The net interest spread declined to 3.32% in 1995 from 4.28% in 1994.
Despite lower net interest spreads (which is the difference between the
yield on earning assets and the cost of interest-bearing liabilities) and net
interest margins for the Company, net interest income improved in 1995 due to
greater dollar volumes of higher yielding assets, as well as the overall
increase in average earning assets.
The key performance measure for net interest income is the "net
interest margin," or net interest income divided by average earning assets. The
Company's net interest margins were 3.99% for 1995 and 4.6% for 1994. The
Company's net interest margin is affected by loan pricing, credit
administration, and deposit pricing. The Company's net interest margin was 4.9%
for the nine months ended September 30, 1996, as compared to 3.5% for the
comparable 1995 period. This increase was achieved by adding higher yielding
loans in 1996. The 1995 decreases were the result of a combination of factors,
including an upward trend in certificates of deposit as a percentage of total
deposits and greater increases in interest-bearing deposits than in earning
assets.
Table 1: "Comparative Average Balances - Yields and Rates" below
indicates the Company's average volume of interest-earning assets and
interest-bearing liabilities and average yields and rates. Changes in net
interest income from period to period result from increases or decreases in the
volume of
17
<PAGE>
interest-earning assets and interest-bearing liabilities, increases or
decreases in the average rates earned and paid on such assets and liabilities,
the ability to manage the earning-asset portfolio, and the availability of
particular sources of funds, such as non-interest bearing deposits.
18
<PAGE>
<TABLE>
<CAPTION>
Table 1: Comparative Average Balances (1) - Yields and Rates
Nine Months Ended September 30, Years Ended December 31,
--------------------------------------------- ---------------------------------------------
1996 1995 1995 1994
---------------------- ---------------------- ---------------------- ----------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates
------- ------- ------ ------- ------- ------ ------- ------- ------ ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans (net of unearned income)(2) $56,374 $3,982 9.42% $21,061 $1,283 8.12% $22,699 $1,982 8.73% $13,395 $1,103 8.23%
Mortgage-backed securities
held to maturity - - - 2,544 133 6.95% 2,303 177 7.69% 1,274 78 6.12%
Federal funds sold - - - - - - 175 15 8.57% - - -
Interest bearing bank balances 6,724 314 6.23% 5,846 227 5.19% 6,937 366 5.28% 480 14 2.92%
Other earning assets 866 20 3.04% 301 16 7.23% 301 22 7.31% 192 14 7.29%
------- ------ ------- ------ ------- ------ ------- ------
Total earning assets(3) 63,964 4,317 9.00% 29,752 1,659 7.44% 32,415 2,562 7.90% 15,341 1,209 7.88%
------ ------ ------ ------
Allowance for loan losses (550) (244) (256) (150)
Other assets 8,235 4,326 5,054 1,836
------- ------- ------- -------
Total assets $71,649 $33,834 $37,213 $17,027
======= ======= ======= =======
Liabilities and stockholders' equity:
Deposits:
Passbook $ 4,425 112 3.37% $ 2,973 60 2.68% $ 3,081 66 2.14% $ 1,521 47 3.13%
NOW/MMDA 10,646 222 2.79% 6,175 144 3.11% 6,477 211 3.26% 3,358 110 3.27%
Certificates 37,763 1,616 5.70% 15,035 584 5.18% 16,793 900 5.36% 7,139 254 3.56%
------- ------ ------- ------ ------- ------ ------- ------
Total interest-bearing deposits 52,834 1,950 4.92% 24,183 788 4.34% 26,351 1,177 4.47% 12,018 411 3.42%
Other borrowed funds 1,149 28 3.30% 1,841 90 6.54% 1,406 93 6.61% 1,985 93 4.69%
------- ------ ------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 53,983 1,978 4.89% 26,024 878 4.50% 27,757 1,270 4.58% 14,003 504 3.60%
------ ------ ------ ------
Demand deposits 6,447 536 984 1,051
Other liabilities 1,235 2,280 1,938 913
Stockholders' equity 9,984 4,994 6,534 1,060
------- ------- ------- -------
Total liabilities and stockholders'
equity $71,649 $33,834 $37,213 $17,027
======= ======= ======= =======
Interest rate spread
(Average yield less average rate) 4.11% 2.94% 3.32% 4.28%
Net interest income
(Interest income less interest ------ ------ ------ ------
expense ) $2,338 $ 781 $1,292 $ 705
====== ====== ======= ======
Net interest margin
(Net interest income/total
earning assets) 4.87% 3.50% 3.99% 4.60%
- -------------------------
<FN>
(1) Average balances were calculated using month end balances (which
approximates daily averages) as daily averages were not available for the
periods presented.
(2) Loans on non-accrual status are included in the calculation of average
balances.
(3) From inception through December 31, 1995, the Company made no loans or
investments that qualify for tax-exempt treatment and, accordingly, had no
tax-exempt income.
</FN>
</TABLE>
19
<PAGE>
Table 2: "Rate/Volume Variance" below indicates the changes in the
Company's net interest income as a result of changes in volume and rates.
Changes in interest income and interest expense can result from variances in
both volumes and rates. The Company has an asset and liability management policy
designed to provide a proper balance between rate sensitive assets and rate
sensitive liabilities, to attempt to maximize interest margins and to provide
adequate liquidity for anticipated needs.
<TABLE>
<CAPTION>
Table 2: Rate/Volume Analysis (in thousands)
Nine Months
Ended September 30, 1996 Year Ended December 31, 1995
Compared to Nine Months Compared to
Ended September 30, 1995 Year Ended December 31, 1994
--------------------------------- ---------------------------------
Net Net
Average Average Increase/ Average Average Increase/
Volume Rate (Decrease)(1) Volume Rate (Decrease)(1)
------- ------- ------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income: $2,465 $ 234 $2,699 $ 808 $ 71 $ 879
Loans (net of unearned income)
Mortgage-backed securities held to maturity (133) - (133) 75 24 99
Federal funds sold - - - 15 - 15
Interest bearing bank balances 37 50 87 332 20 352
Other earnings assets 5 (1) 4 8 - 8
------ ------ ------ ------ ---- ------
Total interest income 2,374 283 2,657 1,238 115 1,353
------ ------ ------ ------ ---- ------
Interest Expense:
Passbook 34 18 52 27 (8) 19
NOW/MMDA 91 (13) 78 101 - 101
Certificates 967 65 1,032 470 176 646
Other borrowed funds and escrow (27) (35) (62) (1) 1 -
------ ------ ------ ------ ----- ------
Total interest expense 1,065 35 1,100 597 169 766
------ ------ ------ ------ ----- ------
Change in net interest income $1,309 $ 248 $1,557 $ 641 $ (54) $ 587
- ---------- ====== ====== ====== ====== ===== ======
<FN>
(1) The change in interest income and expense due to both rate and volume has
been allocated proportionally between volume and rate. Loan fees are
included in the interest income computation.
</FN>
</TABLE>
Non-Interest Income
Non-interest income consists of revenues generated from service charges on
deposit accounts, as well as loan fees, wire transfer fees, gains on sales of
investment securities, official check fees and collection fees. Non-interest
income for the first nine months of 1996 was $811,937 as compared to $90,668 for
the same period in 1995, an increase of $721,269. This increase, to a large
extent, was due to a gain of $331,695 realized on the sale of trading account
investment securities which were purchased and sold in 1996. Other significant
increases were experienced in loan fee income which increased to $208,162 from
$32,344 or and service charge fee income which increased to $229,728 from
$54,017. These increases were due to significantly increased activity in both
deposits and loans.
For the year ended December 31, 1995, non-interest income was $197,014,
an increase of $121,650 from $75,364 in 1994. The increase was primarily due to
volume increases in both loan and deposit accounts, which generated more check
activity and increased fee income. Service fees on deposits
20
<PAGE>
accounted for 48.2% and 64.4% of total non-interest income for 1995 and 1994,
respectively. Service fees on loans accounted for 42.7% and 16.0% of total
non-interest income for 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Table 3: Non-interest Income
Nine Months Ended
September 30, Years Ended December 31,
--------------------------- -----------------------------
1996 1995 1995 1994
----------------- ------ ------------------ ------
Percent Percent
Amount Change Amount Amount Change Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gain on sale of securities $331,695 100% $ - $ 8,970 100% $ -
Service fees on loans 208,162 544% 32,344 84,173 596% 12,089
Service fees on deposits 229,728 325% 54,017 94,918 96% 48,524
Other operating income 42,352 833% 4,307 8,953 (39)% 14,751
-------- ------- -------- -------
Total non-interest income $811,937 796% $90,668 $197,014 161% $75,364
======== ==== ======= ======== ==== =======
Non-interest income as a percent
of average total assets (annualized) 1.51% .36% .53% .44%
==== ==== ==== ====
</TABLE>
Non-Interest Expense
Non-interest expense totaled $4,000,513 for the nine months ended
September 30, 1996 as compared to $1,361,886 for the same period of 1995, an
increase of $2,638,627. This increase reflects increased administrative expenses
and management's continuing emphasis on growth through branching. Also included
in the operating expenses for the nine months ended September 30, 1996 was the
accrual of a one-time federal assessment of approximately $154,000 to
recapitalize the Savings Association Insurance Fund. Non-interest expenses
(annualized) as a percentage of average total assets increased to 7.4% for the
first nine months of 1996 as compared to 5.4% for the comparable period in 1995.
Salaries and employee benefits continued to account for the largest component of
non-interest expense, comprising 46.5% of total non-interest expenses for the
nine months ended September 30, 1996 and 41.7% for the same period in 1995. The
increase was due to increased staffing as a result of administrative personnel
necessary to effectively serve a significantly increased customer base.
Occupancy expense increased to $480,079 for the nine months ended September 30,
1996 as compared with $136,996 for the same period in 1995, an increase of
$343,083, caused by the Company's continuing expansion into new local markets.
As a result of this growth, other components of non-interest expense increased.
Non-interest expense totaled $2,581,411 for the year ended December 31,
1995, as compared to $979,989 for 1994, an increase of $1,601,422. Non-interest
expense as a percentage of average total assets increased to 6.94% in 1995 as
compared to 5.76% in 1994. Salaries and employee benefits comprised 46.1% of
total non-interest expenses for 1995 and 41.9% in 1994. Salaries and employee
benefits increased by $778,794, from 1994 to 1995. The increase in 1995 was
mainly attributable to increased staffing of the branch network, additional
administrative staff and related benefit costs. Net occupancy expenses increased
by $159,574 or 185.7% from 1994 to 1995. This increase was due to the aggressive
development of the branch network which increased from four branches as of
December 31, 1994 to eight branches as of December 31, 1995. Additionally, the
two acquisitions of financial institutions in 1994 were accounted for as
purchases and the results of their operations are included only from the date of
acquisition in 1994. Professional services increased from $51,205 in 1994 to
$233,448
21
<PAGE>
in 1995, or $182,243, an increase of 355.9%, relating to the growth of
consulting expenses associated with supermarket banking. Advertising expense
increased from $11,706 in 1994 to $147,549 in 1995, which reflects the Company's
increased marketing efforts relating to both deposit and loan products. Other
expenses increased to $282,352 in 1995 from $51,260 in 1994 due primarily to
increased repairs and maintenance costs associated with new branch locations.
<TABLE>
<CAPTION>
Table 4: Non-interest Expense
Nine Months Ended September 30, Years Ended December 31,
----------------------------------- ----------------------------------
1996 1995 1995 1994
-------------------- --------- -------------------- --------
Percent Percent
Amount Change Amount Amount Change Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $1,859,988 227% $ 568,243 $1,189,172 190% $410,378
Net occupancy 480,079 250 136,996 245,499 186 85,925
Insurance premiums 229,810 432 43,221 79,783 20 66,239
Furniture, fixtures and equipment 173,169 230 52,408 82,968 20 68,914
Professional services 59,841 (52) 123,851 233,448 356 51,205
Advertising 290,944 300 72,791 147,549 1,161 11,706
Service bureau expense 201,067 117 92,650 134,927 31 103,079
Office supplies 183,357 147 74,144 121,250 31 92,561
Amortization of cost of intangible assets 56,195 16 47,824 64,463 67 38,722
Other 466,063 211 149,758 282,352 451 51,260
---------- ---------- ---------- --------
Total non-interest expense $4,000,513 194% $1,361,886 $2,581,411 163% $979,989
========== ========== ========== ========
Non-interest expense as a percent
of average total assets (annualized) 7.4% 5.4% 6.9% 5.8%
=== ==== ==== ====
</TABLE>
Income Taxes
The Company did not recognize any income tax benefit for the year ended
December 31, 1995 or for the nine months ended September 30, 1996 and 1995. As
of September 30, 1996 and December 31, 1995, the entire net deferred tax asset,
consisting mainly of net operating loss carryforwards, had been offset by a
valuation allowance. This valuation allowance has been established because of
the lack of sufficient profitable operating history of the Company. Management
will evaluate the need for this allowance in the future and make adjustments as
appropriate. The amount of the net operating loss carryforward for federal
income tax purposes at September 30, 1996 approximated $2,500,000. As a result
of ownership changes in 1995, utilization of a portion of the net operating loss
carryforward is subject to annual limitations.
Financial Condition
At September 30, 1996, the Company's total assets were $94,961,351 as
compared to $52,798,345 at December 31, 1995, an increase of 79.9%. This
increase was primarily due to the continual growth in the branching network and
marketing of deposit and loan products. The Bank's overall asset size and
customer base, both individual and commercial, increased significantly during
1995; this growth continued into the first nine months of 1996.
The Company's total assets were $52,798,345 as of December 31, 1995 as
compared to $26,303,452 as of December 31, 1994, which represented an increase
of 101%. The Bank's overall asset
22
<PAGE>
size and customer base, both individual and commercial, increased significantly
during 1995, and this growth is reflected in the consolidated statements of
financial condition and statements of operations.
Total loans, net of the allowance for loan losses, at September 30,
1996 was $80,981,616 as compared to $29,760,313 on December 31, 1995, which
represents an increase of $51,221,303. Significant growth was experienced in
commercial real estate and construction which increased $35,880,079, and
commercial loans which increased $10,818,346. Throughout the nine months ended
September 30, 1996 loan demand continued to be strong. At September 30, 1996 the
loan to deposit ratio was 104% as compared to 73% at December 30, 1995. The Bank
has augmented its deposits with short-term collateralized borrowings from the
Federal Home Loan Bank of Atlanta to meet liquidity needs.
Total loans, net of allowance for loan losses, at December 31, 1995
were $29,760,313 as compared to $19,930,101 at December 31, 1994, which
represented an increase of 49%. The increase in loans is due to the Bank's
continued focus on its core lending activities consisting mainly of real estate
loans secured by first mortgages, both residential and commercial. Average loans
as a percentage of average total earning assets, however, decreased from 1994 to
1995, representing 70% of total earning assets as of December 31, 1995, as
compared to 87% as of December 31, 1994, reflecting primarily increased
liquidity from the Company's sale of stock in 1995 together with increased
deposits.
Because the Bank has aggressively marketed its deposit products and
expanded its branch network, total deposits increased to $41,363,630 at December
31, 1995 from $20,882,530 at December 31, 1994, an increase of 98%. Certificates
of deposit ("CD's") accounted for the largest portion of this increase, up
$15,755,945.
Composition of Loan Portfolio
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets, the absolute volume of loans and
the volume as a percentage of total earning assets is an important determinant
of net interest margin.
During the nine month period ended September 30, 1996 average loans
totaled $56,374,298 and constituted 88% of earning assets and 79% of total
assets for the same period. This average loan balance represents an increase of
$35,313,435 over the nine month period ended September 30, 1995.
The increase in loans from $29,760,313 at December 31, 1995 to
$80,981,616 at September 30, 1996 was funded primarily by an increase in
deposits and a $6,000,000 advance from the Federal Home Loan Bank of Atlanta.
During the year ended December 31, 1995, average loans were $22,698,742
and constituted 70% of average earning assets and 61% of average total assets.
This represents an increase of $9,303,643 over 1994 average loans of
$13,395,099, which represented 87.3% of average earning assets and 78.7% of
average total assets. At December 31, 1995, the Company's loan to deposit ratio
was 72.9% as compared to 96.6% at December 31, 1994. Loan growth during 1995 of
$9,961,652 was significantly less than total deposit growth of $20,481,100 which
contributed to the decrease in the loan to deposit ratio.
The Bank's loan portfolio composition as of September 30, 1996 reflects
greater concentrations of commercial real estate and construction loans. The
following table sets forth the composition of the Bank's loan portfolio and the
related percentage composition of total loans.
23
<PAGE>
<TABLE>
<CAPTION>
Table 5: Loan Portfolio Composition
September 30, 1996 December 31, 1995 December 31, 1994
------------------------- ----------------------- -----------------------
Percent Percent Percent
Type of Loans Amount of Total Amount of Total Amount of Total
------------- ------------ -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $11,687,987 14% $ 869,641 3% $ - -%
Commercial real estate
and construction(1) 47,354,820 58 11,474,741 38 1,686,153 9
Residential real estate 21,582,328 26 16,215,918 54 17,308,341 87
Consumer and other 1,370,090 2 1,450,721 5 905,767 4
----------- ---- ------------ --- ----------- ---
Total loans 81,995,225 100% 30,011,021 100% 19,900,261 100%
=== === ===
Add:
Unamortized premiums 224,965 283,926 375,708
Accrued interest receivable 585,690 201,704 144,522
Less:
Unearned income 865,452 360,051 245,543
Allowance for loan losses 958,812 376,287 244,847
------------ ------------ -----------
Net loans $80,981,616 $ 29,760,313 $19,930,101
=========== ============ ===========
- ---------------------------
<FN>
(1) Less loans in process
</FN>
</TABLE>
Approximately 54% of the Bank's loans have adjustable rates as of
September 30, 1996 and 52% have adjustable rates as of December 31, 1995, the
majority of which are fixed to the prime rate. Interest rates on variable rate
loans adjust to the current interest rate environment, whereas fixed rates do
not permit this flexibility. If interest rates were to increase in the future,
the interest earned on the variable rate loans would improve, and if rates were
to fall, the interest earned would decline, thus impacting the Company's income.
See also the discussion under "Liquidity and Interest Rate Sensitivity" below.
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rate, for the Bank's loan
portfolio at September 30, 1996 and December 31, 1995. Some of the loans may be
renewed or repaid prior to maturity. Therefore, the following table should not
be used as a forecast of future cash collections.
24
<PAGE>
<TABLE>
<CAPTION>
Table 6: Maturity Schedule of Selected Loans
As of September 30, 1996 As of December 31, 1995
(dollars in thousands) (dollars in thousands)
-------------------------------------------- --------------------------------------------
Up to 1 Year 5 Years Up to 1 Year 5 Years
One to to 10+ One to to 10+
Year 5 Years 10 Years Years Total Year 5 Years 10 Years Years Total
------- ------- -------- ------- ------- -------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Residential Real Estate $ 6,126 $ 4,369 $ 1,415 $ 9,672 $21,582 $ 1,203 $3,449 $1,132 $7,824 $13,608
Commercial Real Estate 1,616 12,100 8,063 1,375 23,154 8,886 2,209 15 365 11,475
Construction 14,256 9,945 - - 24,201 2,608 - - - 2,608
Commercial 9,070 2,618 - - 11,688 585 166 118 - 869
Consumer 200 477 671 22 1,370 399 795 24 233 1,451
------- ------- ------- ------- ------- ------- ------ ------ ------ -------
Total $31,268 $29,509 $10,149 $11,069 $81,995 $13,681 $6,619 $1,289 $8,422 $30,011
======= ======= ======= ======= ======= ======= ====== ====== ====== =======
Fixed interest rate $ 8,364 $16,478 $ 6,027 $10,213 $41,082 $ 6,567 $3,177 $ 619 $4,043 $14,405
Variable interest rate 22,904 13,031 4,122 856 40,913 7,114 3,442 670 4,379 15,606
------- ------- ------- ------- ------- ------- ------ ------ ------ -------
Total $31,268 $29,509 $10,149 $11,069 $81,995 $13,681 $6,619 $1,289 $8,422 $30,011
======= ======= ======= ======= ======= ======= ====== ====== ====== =======
</TABLE>
The scheduled repayments as shown above are reported in the maturity
category in which the payment is due.
Loan Quality
The Bank attempts to manage the risk characteristics of its loan
portfolio through various control processes, such as credit evaluation of
borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances. However, the Bank seeks to rely primarily on the cash
flow of its borrowers as the principal source of repayment. Although credit
policies are designed to minimize risk, management recognizes that loan losses
will occur and that the amount of these losses will fluctuate depending on the
risk characteristics of the loan portfolio as well as general and regional
economic conditions.
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes require special attention.
For significant problem loans, management's review consists of
evaluation of the financial strengths of the borrower and the guarantor, the
related collateral, and the effects of economic conditions. Specific reserves
against the remaining loan portfolio are based on analysis of historical loan
loss ratios, loan charge-offs, delinquency trends, and previous collection
experience, along with an assessment of the effects of external economic
conditions. Table 8: "Allowance for Loan Loss Allocation," which is set forth
below, indicates the specific reserves allocated by loan type and also the
general reserves included in the allowance for loan losses.
As of September 30, 1996 the Company had approximately $468,000 in
non-accrual loans as compared with $633,000 at December 31, 1995. This
represents a decrease of $165,000 or 26% in non-performing assets for the nine
months ended September 30, 1996. As of December 31, 1994, the Company had loans
of approximately $692,000 in non-accrual status.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and to maintain it at a level management has
determined to be adequate. The Company
25
<PAGE>
provided $674,828 for loan losses for the nine months ended September 30, 1996,
but no provision was deemed necessary for the comparable period in 1995.
Although the Bank's loan portfolio has increased significantly during the nine
months ended September 30, 1996, no significant deterioration in loan quality
has been experienced.
As of September 30, 1996 the allowance for loan losses was $958,812, as
compared with the December 31, 1995 balance of $376,287, an increase of
$582,525. Net charge-offs of $92,303 were recognized for the nine months ended
September 30, 1996. The growth in the reserve was warranted by the growth in the
loan portfolio. The allowance for loan losses at September 30, 1996 represented
1.17% of outstanding loans as compared with 1.25% as of December 31, 1995. The
reduction in the percentage was justified based on the reduction in
non-performing assets and management's evaluation of the loan portfolio.
The Company's provision for loan losses for 1995 was $190,051, an
increase of $130,973 from the $59,078 provision in 1994. The Bank's total gross
loan balance increased to $30,011,021 as of December 31, 1995 as compared to
$19,900,201 as of December 31, 1994. The increase in the provision for loan
losses during 1995 was related primarily to the growth in the loan portfolio.
The Bank charged off loans of $59,861 in 1995 as compared to
charge-offs of $22,561 in 1994, an increase of $37,300. There were recoveries of
$1,250 on loans previously charged off during 1995, as compared to recoveries of
$921 during 1994. The following Table 7: "Allowance for Loan Losses", summarizes
the allowance activities.
<TABLE>
<CAPTION>
Table 7: Allowance for Loan Losses
Nine Months
Ended Years Ended
September 30, December 31,
1996 1995 1994
-------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of period $376,287 $244,847 $ -
-------- -------- --------
Balance acquired in acquisitions - - 207,409
-------- -------- --------
Loans charged off:
Commercial (12,357) (8,595) -
Real estate (48,682) (47,307) (2,997)
Consumer (42,147) (3,959) (19,564)
-------- -------- --------
Total loans charged off (103,186) (59,861) (22,561)
Recoveries 10,883 1,250 921
-------- -------- --------
Net (charge-offs) recoveries (92,303) (58,611) (21,640)
-------- --------- ---------
Provision for loan losses 674,828 190,051 59,078
-------- -------- --------
Allowance for loan losses, end of period $958,812 $376,287 $244,847
======== ======== ========
Loans (net of premiums and discounts):
Period-end balance $81,940,428 $30,136,600 $20,174,948
Average balance during period $56,374,298 $22,698,742 $13,395,099
Allowance as percentage of period-end loan balance 1.17% 1.25% 1.21%
Percent of average loans:
Provision for loan losses(1) 1.60% .84% .44%
Net charge-offs(1) .22% .26% .16%
- ------------------
<FN>
(1) Annualized for the nine months ended September 30, 1996.
</FN>
</TABLE>
26
<PAGE>
As of December 31, 1995, the allowance for loan losses was 1.25% of
outstanding loans, which was a slight increase from the December 31, 1994
percentage of 1.21%. Management's judgment as to the level of future losses on
existing loans is based on management's internal review of the loan portfolio,
including an analysis of the borrowers' current financial position, the
consideration of current and anticipated economic conditions and their potential
effects on specific borrowers, an evaluation of the existing relationships among
loans, potential loan losses, and the present level of the loan loss allowance.
In determining the collectibility of certain loans, management also considers
the fair value of any underlying collateral. However, management's determination
of the appropriate allowance level is based upon a number of assumptions about
future events, which are believed to be reasonable, but which may or may not
prove valid. Thus, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional increases in
the allowance for loan loss will not be required. The following table summarizes
the allocation of allowance by loan type.
<TABLE>
<CAPTION>
Table 8: Allocation of Allowance for Loan Losses
As of As of As of
September 30, 1996 December 31, 1995 December 31, 1994
------------------------------- ------------------------------- -------------------------------
Percent of Percent of Percent of
Percent Loans to Percent Loans to Percent Loans to
Amount of Total Total Loans Amount of Total Total Loans Amount of Total Total Loans
-------- -------- ----------- -------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $242,996 25.3% 42.5% $ 43,879 11.7% 19.4% $ 13,803 5.7% 4.5%
Residential real estate
and construction 273,718 28.5 55.8 92,449 24.5 75.8 68,816 28.1 91.0
Consumer 43,854 4.6 1.7 28,229 7.5 4.8 24,529 10.0 4.5
Unallocated 398,244 41.6 - 211,730 56.3 - 137,699 56.2 -
-------- ----- ----- -------- ----- ----- -------- ----- -----
Total $958,812 100.0% 100.0% $376,287 100.0% 100.0% $244,847 100.0% 100.0%
======== ===== ===== ======== ===== ===== ======== ===== =====
</TABLE>
Non-performing assets are defined as non-accrual loans and real estate
acquired by foreclosure. When real estate acquired by foreclosure and held for
sale is included with non-performing loans, such real estate is recorded as a
non-performing asset. Non-performing assets as of September 30, 1996 and
December 31, 1995 and 1994 were comprised solely of loans and totaled
approximately $468,000, $633,000 and $692,000, respectively. Table 9,
"Non-Performing Assets," presents information on these assets for the past two
years, and Table 10, "Foregone Interest," illustrates the corresponding interest
lost on non-performing assets.
As a result of management's ongoing review of the loan portfolio, loans
are classified as non-accrual, even though the presence of collateral or the
borrower's financial strength may be sufficient to provide for ultimate
repayment. Interest on non-accrual loans is recognized only when received. Table
10, "Foregone Interest," indicates the amount of interest that would have been
recorded had all loans classified as non-accrual been current in accordance with
their original terms and the amount of interest actually accrued.
Table 9: Non-Performing Assets
As of As of
September 30, December 31,
-------------- -----------------------
1996 1995 1994
-------------- ---------- --------
Loans on non-accrual basis $468,000 $633,000 $692,000
Total non-performing assets $468,000 $633,000 $692,000
======== ======== ========
27
<PAGE>
In addition, subsequent to September 30, 1996 management placed on
non-accrual status loans to a single borrower in which the Bank's participation
interest as of September 30, 1996 was $873,283. Management currently anticipates
a $100,000 charge-off on these loans in December, 1996.
Table 10: Foregone Interest
For the Nine For the Year
Months Ended Ended
September 30, December 31,
1996 1995 1994
---------------- -------- ------
Interest income that would have been
accrued at original terms $46,000 $65,000 $34,200
Interest recognized - - -
Capital Resources
Stockholders' equity was $9,182,554 as of September 30, 1996 as
compared to $10,701,986 as of December 31, 1995. The decrease of $1,519,432 was
the result of a net loss for the nine month period of $1,525,432 and the sale of
additional shares of Common Stock. No dividends have been declared by the
Company since its inception.
Stockholders' equity was $10,701,986 as of December 31, 1995 as
compared to $1,976,615 as of December 31, 1994. This increase was due to the
issuance of 1,000,800 shares of Common Stock during 1995 for $10,008,000. The
other component of the change in stockholders' equity was the 1995 net loss of
$1,282,629.
To date, the Company has provided its capital requirements mainly
through the funds received for its stock offerings. In the future, the Company
may consider raising capital from time to time through an offering of Common
Stock or other securities. The Bank exceeded its capital adequacy requirements
as of September 30, 1996 and December 31, 1995. The Company continually monitors
its capital adequacy ratios to assure that the Bank remains within the
guidelines.
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 as Tier 1 (common stockholders' equity less
certain intangible assets) and Total Capital (Tier 1 plus the allowance for loan
losses). Minimum required levels must at least equal 4% for Tier 1 capital and
8% for Total Capital. In addition, institutions must maintain a minimum of 3%
leverage capital ratio (Tier 1 capital to average total assets).
28
<PAGE>
The Bank's capital position is presented in the following table:
<TABLE>
<CAPTION>
Table 11: Capital Ratios
September 30, December 31, Regulatory
1996 1995 1994 Requirement
---------------- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital to risk weighted assets 10.33% 33.87% 11.76% 4.0%
Total capital to risk weighted assets 11.44% 35.10% 13.01% 8.0%
Tier 1 capital leverage ratio 12.39% 27.83% 9.57% 3.0%
</TABLE>
Liquidity and Interest Rate Sensitivity
The primary objective of asset/liability management is to ensure the
steady growth of the Company's primary earnings component, net interest income.
Net interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management endeavors to structure the
balance sheet so that repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
The measurement of the Bank's interest rate sensitivity, or "gap," is
one of the principal techniques used in asset/liability management. Interest
sensitive gap is the dollar difference between assets and liabilities which are
subject to interest-rate pricing within a given time period, including both
floating rate or adjustable rate instruments and instruments which are
approaching maturity.
Bank management oversees the asset/liability management function and
meets periodically to monitor and manage the structure of the balance sheet,
control interest rate exposure, and evaluate pricing strategies for the Bank.
The asset mix of the balance sheet is continually evaluated in terms of several
variables: yield, credit quality, appropriate funding sources and liquidity.
Management of the liability mix of the balance sheet focuses on expanding the
various funding sources.
In theory, interest rate risk can be diminished by maintaining a
nominal level of interest rate sensitivity. In practice, this is made difficult
by a number of factors, including cyclical variation in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change,
and the availability of funding sources. Accordingly, the Bank undertakes to
manage the interest-rate sensitivity gap by adjusting the maturity of and
establishing rates on the earning asset portfolio and certain interest-bearing
liabilities commensurate with management's expectations relative to market
interest rates. Management generally attempts to maintain a balance between
rate-sensitive assets and liabilities as the exposure period is lengthened to
minimize the overall interest rate risk to the Bank.
The interest rate sensitivity position as of September 30, 1996 is
presented in Table 12: "Rate Sensitivity Analysis." The difference between
rate-sensitive assets and rate-sensitive liabilities, or the interest rate
sensitivity gap, is shown at the bottom of the table. At September 30, 1996, the
Bank had an asset sensitive gap (more assets than liabilities subject to
repricing within the stated time frame) of which represents earning assets over
a 180-day period. The Bank would benefit from increasing market rates of
interest when it is asset sensitive and would benefit from decreasing market
rates of interest when it is liability sensitive. This suggests that if interest
rates should increase over this period, the net interest margin would improve;
and if interest rates should decrease, the net interest margin would decline.
Since all interest rates and yields do not adjust at the same velocity, the gap
is only a general indicator of interest rate sensitivity. The analysis presents
only a static view of the timing of maturities and repricing
29
<PAGE>
opportunities, without taking into consideration the fact that changes in
interest rates do not affect all assets and liabilities equally. Net interest
income may be impacted by other significant factors in a given interest rate
environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
Cash flows from financing activities, which included funds received
from new and existing depositors, provided a large source of liquidity in the
nine months ended September 30, 1996 and in 1995. The Bank seeks to rely
primarily on core deposits from customers to provide stable and cost-effective
sources of funding to support asset growth. The Bank also seeks to augment such
deposits with longer term and higher yielding certificates of deposit. CD's of
$100,000 or more are summarized by maturity in Table 13: "Maturity of Time
Deposits $100,000 or More". Other sources of funds available to the Bank include
short-term borrowings, primarily in the form of Federal Home Loan Bank
collateralized borrowings.
<TABLE>
<CAPTION>
Table 12: Rate Sensitivity Analysis
As of September 30, 1996
-----------------------------------------------------------------
Longer Than
10 Years
180 Days 181 Days- One-Five Five-Ten or Non-
or Less One Year Years Years sensitive Total
------- -------- ----- ----- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earnings Assets:
Interest bearing deposits $ 4,482 $ - $ - $ - $ - $ 4,482
Investment in certificates of deposit - - 99 - - 99
FHLB stock - - - - 481 481
Loans 43,259 1,845 19,095 6,919 10,877 81,995
------- ------- -------- ------- ------- -------
Total interest-earnings assets $47,741 $ 1,845 $ 19,194 $ 6,919 $11,358 $87,057
======= ======= ======== ======= ======= =======
Interest-bearing Liabilities:
Savings $ 4,590 $ - $ - $ - $ - $ 4,590
NOW accounts 3,790 - - - - 3,790
Money market accounts 8,378 - - - - 8,378
CDs & IRAs 15,802 8,852 28,343 - - 52,997
Federal Home Loan Bank advances 6,000 - - - - 6,000
------- ------- -------- ------- ------- -------
Total interest-bearing
liabilities $38,560 $ 8,852 $ 28,343 $ - $ - $75,755
======= ======= ======== ======= ======= =======
Interest rate sensitivity gap $ 9,181 $(7,007) $( 9,149) $ 6,919 $11,358 $11,302
======= ======= ======== ======= ======= =======
Cumulative interest rate gap $ 9,181 $ 2,174 $( 6,975) $( 56) $11,302
======= ======= ======== ======= =======
Ratio of rate sensitive assets
to rate sensitive liabilities 124% 21% 68% - -
</TABLE>
30
<PAGE>
Deposits
The Bank uses deposits as the primary source of funding of its assets.
The Bank has experienced significant growth in its deposits, especially in CD's.
The following table describes the maturity of time deposits of $100,000 or more.
Table 13: Maturity of Time Deposits $100,000 or More
September 30, December 31,
1996 1995 1994
------------- ---------- ----------
Under 3 months $1,463,097 $ 947,201 $ 326,414
3 to 6 months 1,263,197 470,056 -
6 to 12 months 3,701,031 521,703 304,440
Over 12 months 3,066,996 706,687 400,106
---------- ---------- ----------
Total $9,494,321 $2,645,647 $1,030,960
========== ========== ==========
The Bank offers individuals and businesses a wide variety of accounts.
These accounts include checking, savings, money market and CD's and are obtained
primarily from communities which the Bank serves. The Bank holds no brokered
deposits. The following table details the average amount, the average rate paid
on, and the total of, the following primary deposit categories for the nine
months ended September 30, 1996 and the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Table 14: Average Deposit Composition and Rates
Nine Months Ended
September 30, 1996
--------------------------------------------
Average Average % of
Balance Rate Total
------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand deposits $ 6,446,653 - 10.87%
----------- -------
NOW & money market savings deposits 10,645,814 2.79% 17.96%
Regular savings deposits 4,425,384 3.37% 7.47%
Time deposits 37,762,845 5.70% 63.70%
----------- ------
Total interest-bearing deposits 52,834,043 4.92% 89.13%
----------- ------
Total deposits $59,280,696 4.39% 100.00%
=========== ======
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1994
---------------------------------- -----------------------------------
Average Average % of Average Average % of
Balance Rate Total Balance Rate Total
------- ---- ----- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand deposits $ 984,578 - 3.60% $ 1,050,728 - 8.00%
----------- ------- ----------- ------
NOW & money market savings deposits 6,477,267 3.25% 23.70% 3,357,827 3.27% 25.70%
Regular savings deposits 3,080,912 2.15% 11.27% 1,520,707 3.13% 11.70%
Time deposits 16,793,114 5.36% 61.43% 7,139,404 3.56% 54.60%
---------- ------- ---------- ------
Total interest-bearing deposits 26,351,293 4.46% 96.40% 12,017,938 3.42% 92.00%
------------ ------- ----------- ------
Total deposits $27,335,871 4.30% 100.00% $13,068,666 3.15% 100.00%
=========== ======= =========== =======
</TABLE>
Total deposits as of September 30, 1996 were $78,857,010 compared to
$41,363,630 as of December 31, 1995, an increase of $37,493,380. Total deposits
were $41,363,630 on December 31, 1995 as compared to $20,882,530 at December 31,
1994. While the main source of these increases was certificates of deposit, all
other types of deposits increased as well, including savings accounts, money
market savings deposits, interest bearing demand deposits, and non-interest
bearing demand. These increases reflect management's growth strategy which
includes significant marketing and promotion and the development of a branching
network.
Investment Securities
The following table presents the composition of the Company's
securities portfolio as of September 30, 1996 and December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Table 15: Investment Securities
September 30, December 31,
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities-held to maturity $ - $ - $2,630,929
========== ======== ==========
</TABLE>
In December 1995, management utilized the one-time option allowed by
the Financial Accounting Standards Board and designated its mortgage-backed
securities portfolio as available for sale. This enabled management to sell its
portfolio in late 1995, providing liquidity for loan fundings.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The
impact of inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all the assets of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
32
<PAGE>
New Accounting Standards
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Awards of Stock-Based Compensation to Employees" ("SFAS No. 123"). SFAS No. 123
is effective for years beginning after December 15, 1995. Earlier application is
permitted. The Statement defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, SFAS No. 123 also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25"). Under the fair value based method, compensation cost
is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. Most fixed stock
option plans - the most common type of stock compensation plan -- have no
intrinsic value at grant date, and under Opinion 25 no compensation cost is
recognized for them. Compensation cost is recognized for other types of
stock-based compensation plans under Opinion 25, including plans with variable,
usually performance-based, features. This Statement requires that an employer's
financial statements include certain disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them. The
Company intends to continue using the intrinsic value method and will provide
the pro forma disclosures about its stock-based employee compensation plans in
its 1996 financial statements, as required by SFAS No. 123.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. In June 1996 the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996 and is to be applied
prospectively. This Statement will require, among other things, that the Company
record at fair value assets and liabilities resulting from a transfer of
financial assets. The Company plans to adopt the provisions of SFAS No. 125 on
January 1, 1997. Management does not believe the adoption of this statement will
have a material effect on the Company's financial position or results of
operations.
33
<PAGE>
THE COMPANY
General
The Company is a bank holding company formed in Maryland in 1994 under the
name MarylandsBank Corp. The business of the Company is conducted through the
Bank, whose deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"). The Bank, which is headquartered in Baltimore City, serves the central
region of the State of Maryland through 12 full-service branches and 19
Automated Teller Machines ("ATMs"). At September 30, 1996, the Company had total
assets of $94,961,351.
The Bank is an independent community bank engaged in the general
commercial banking business with particular emphasis on the needs of individuals
and small to mid-sized businesses. The Bank emphasizes personal attention and
professional service to its customers while delivering a range of traditional
and contemporary financial products and performing many of the essential banking
services offered by its larger competitors. The Bank offers its customers access
to local bank officers who are empowered to act with flexibility to meet
customers' needs in order to foster and develop long term loan and deposit
relationships.
The Company's executive offices are located at 1801 South Clinton
Street, Baltimore, Maryland 21224 and its telephone number is (410) 342-2600.
Background and History
In early 1994, an investment group led by George H. Mantakos (the
"Mantakos Group"), the President of the Company and the President and Chief
Executive Officer of the Bank, acquired Farmers Bank, FSB, a federal savings
bank ("Farmers") formed in 1896, which operated two banks, one in Baltimore City
and one in Baltimore County. In July, 1994, the Mantakos Group also acquired a
controlling interest in Garibaldi Federal Savings Bank ("Garibaldi") formed in
1920, which operated a thrift in Baltimore County. In late 1994, Garibaldi
changed its name to MarylandsBank, FSB. In May, 1995, in a series of
transactions, Farmers and MarylandsBank, FSB were merged and became a wholly
owned subsidiary of the Company, which changed its name to "First Mariner
Bancorp."
In late 1994, the Company began negotiations with Edwin F. Hale, Sr. to
obtain an infusion of capital. These negotiations led to the transactions
described above and to the private offering by the Company of 500,000 shares of
its Common Stock at $10.00 per share, for an aggregate of $5,000,000. In
connection with that offering, the Company issued warrants to purchase in the
aggregate an additional 416,664 shares at an exercise price of $10.00 per share.
In this offering, Mr. Hale purchased 300,000 shares for $3,000,000 and received
warrants to purchase an additional 300,000 shares. Mr. Hale was then elected as
Chairman and Chief Executive Officer of the Company, and Mr. Mantakos continued
as President of the Company and President and Chief Executive Officer of the
Bank.
In August, 1995, the Company issued an additional 500,000 shares of its
Common Stock in another private placement at $10.00 per share for $5,000,000 in
the aggregate. In connection with that offering, the Company issued warrants to
purchase in the aggregate an additional 206,659 shares at $10.00 per share. In
this offering, Mr. Hale purchased 60,000 shares for $600,000 and received
warrants to purchase an additional 60,000 shares. Mr. Hale subsequently
purchased an additional 31,687 shares and warrants to purchase an additional
21,672 shares in privately negotiated transactions.
34
<PAGE>
Following Mr. Hale's election as Chairman and Chief Executive Officer,
the Company assembled a Board of Directors of well-known business and civic
leaders who have strong ties to the Company's market area and are committed to
the growth and success of the Company. Mr. Hale also recruited members of
management from other successful local financial institutions with knowledge of
the local market and experience in extending credit to small to mid-sized
businesses, including several persons who were critical to the turnaround and
ultimate success of Baltimore Bancorp. The Company then embarked upon a business
strategy and capitalization plan to provide management with the tools necessary
to optimize the market opportunities created as a result of the consolidation of
the banking industry.
35
<PAGE>
BUSINESS
Market Area and Market Strategy
The Bank's core market is central Maryland, which consists primarily of
Baltimore City, Baltimore County, Harford County and Anne Arundel County. This
area contains a high concentration of population, businesses, and local
governments committed to business development in the region. The Company
believes that this market area is economically stable and largely middle-class
with a medium household income of $44,000. Nearly a third of adults in the
market area are in households with incomes in excess of $50,000. The market is
ethnically diverse and educated, now ranking seventh in the nation in the
highest concentration of professional and technical workers among major
metropolitan areas and ranking fourteenth in college graduates. Management
believes that growth is projected for households, population, and median
household income for all jurisdictions in the market area, with the exception of
Baltimore City.
As an independent Maryland-based community bank, the Bank is engaged in
the general commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized businesses. The Bank emphasizes personal
attention and professional service to its customers while delivering a range of
traditional and contemporary financial products and performing many of the
essential banking services offered by its larger competitors. The Bank offers
its customers access to local bank officers who are empowered to act with
flexibility to meet customers' needs in order to foster and develop long-term
loan and deposit relationships. The Company believes that individuals and
businesses in its market area are dissatisfied with the large out-of-state
banking institutions which have acquired local banks. Management believes that
the Bank has a window of opportunity to establish business ties with customers
who have been displaced by the consolidations and who are anxious to forge
banking relationships with locally-owned and managed institutions. These
consolidations also benefit the Bank by making available experienced and
entrepreneurial managers and acquisition opportunities from the remaining small
independent banks in the Company's market area.
Mr. Hale assembled a Board of Directors of well-known business and
civic leaders who have strong ties to the Company's market area and are
committed to the growth and success of the Company. Mr. Hale also recruited
members of management from other successful local financial institutions with
knowledge of the local market and experience in extending credit to small to
mid-sized businesses, including several individuals who were critical to the
turnaround and ultimate success of Baltimore Bancorp. The Company then embarked
upon a business strategy and capitalization plan to provide management the tools
necessary to optimize the market opportunities created as a result of
consolidation of the banking industry. Although the Company has sustained
operating losses for the past sixteen months as it established its loan
production infrastructure and increased its branch network from four to twelve,
the Company anticipates that this investment in its growth will ultimately be
substantially less than the market premiums required to purchase and improve
existing bank franchises.
Growth Strategies
The Company's continuing strategy is to capture market share and build
a community franchise for its shareholders, customers and employees. To do so,
the Company intends to:
o Expand its existing network of traditional branches and ATMs
to ultimately operate a contiguous delivery system to
accommodate customers' needs for a continuum of essential
banking services;
36
<PAGE>
o Continue to attract highly experienced, entrepreneurial
managers and staff with in-depth knowledge of the Bank's
customers and target market;
o Acquire financial institutions or branches which offer
compatible products, marketing opportunities, potential cost
savings or economies of scale;
o Establish non-traditional joint ventures with retail
establishments such as Mars Super Markets and other retail
entities that have high traffic patterns; and
o Invest in new products and technology.
To implement the strategy to create non-traditional joint ventures with
retail establishments, the Bank has opened three full service branches and
installed 10 ATMs in Mars Super Markets, a local supermarket chain ("Mars"), and
intends to increase its presence in such stores in the future. Mars currently
operates 14 markets, all of which are in the Bank's market area. Christopher P.
D'Anna and Dennis McCoy, vice president and former chief executive officer of
Mars, respectively, are directors of the Company.
The Company intends to expand its branch network through acquisitions
generally of small, local banks or bank branches that are strategically placed
within the market area. Management expects that future acquisitions will be able
to enhance profitability due to economies of scale or market synergies.
Potential candidates will be screened on the basis of compatibility, location
and size and quality of deposits and loans. Although the Company continues to
explore possible acquisitions, no targets have been identified at this time.
The new products presently planned by the Company include a business credit
card for commercial customers, home improvement loans, new and used boat loans,
a credit card and debit card, and mutual funds and annuities for retail
customers. New technology presently planned by the Company includes computerized
banking, document imaging and Internet Home Page access for retail customers and
streamlining the mortgage underwriting process through advanced computer
software programs. The credit card and debit card for retail customers are
expected to be introduced in the first quarter of 1997. The remaining products
and services are currently under evaluation. No material amount of funds have
been committed to these products and services and no assurance can be given as
to the amount, if any, of funds to be invested in such products and services, or
when any such investment would be made.
Banking Services
Commercial Banking. The Bank focuses its commercial loan originations
on small and mid-sized businesses (generally up to $20 million in annual sales)
and such loans are usually accompanied by significant related deposits.
Commercial loan products include residential real estate construction loans;
working capital loans and lines of credit; demand, term and time loans; and
equipment, inventory and accounts receivable financing. The Bank offers a range
of cash management services and deposit products to its commercial customers.
Computerized banking is currently available to the Bank's commercial customers.
Additionally, the Bank is exploring the introduction of a business credit card
to commercial customers for use for corporate purchases in addition to the more
conventional uses for employee travel and entertainment.
Retail Banking. The Bank's retail banking activities emphasize consumer
deposit accounts such as interest bearing and non-interest bearing checking
accounts, including "Absolutely Free Checking,"
37
<PAGE>
money market accounts, certificates of deposit, individual retirement accounts
and Keogh accounts, direct deposit, and savings accounts. The Bank plans to
expand these services to include alternatives to bank accounts, such as mutual
funds and annuities. The Bank intends to emphasize checking accounts, money
market accounts, and certificates of deposit. The mix of these products is,
however, influenced by many factors including the interest rate environment and
customer preference and demand. In addition, the Bank offers traveler's checks,
money orders, cashier's checks, and safe deposit boxes, together with 24-hour
ATMs with access to MOST (R) and CIRRUS (R) systems.
Consumer loan products offered by the Bank include home equity lines of
credit, fixed rate second mortgages, new and used auto loans, overdraft
protection, and unsecured personal credit lines. The Bank intends to introduce
in the near future credit and debit cards, secured and unsecured home
improvement loans and new and used boat loans. Consideration is being given to
making available to retail customers computerized banking as well as document
imaging and Internet Home Page access.
Mortgage Banking. The Bank's mortgage banking business is structured to
provide a source of fee income largely from the process of originating product
for the secondary market. Mortgage banking capabilities include FHA/VA
origination; conventional and nonconforming mortgage underwriting; and
construction and permanent financing. The Bank intends to improve its
competitive position in this market by streamlining the mortgage underwriting
process through the introduction of advanced technology.
Community Reinvestment Act. The Bank has a strong commitment to its
responsibilities under the Community Reinvestment Act and actively searches for
opportunities to meet the development needs of all members of the community it
serves, including persons of low to moderate income in a manner consistent with
safe and sound banking practices. The Bank currently fulfills this commitment by
participating in loan programs sponsored or guaranteed by the SBA, FHA, VA,
Maryland Industrial Development Financing Authority, and the Settlement Expense
Loan Program.
Lending Activities
Loan Portfolio Composition. At September 30, 1996, the Bank's loan
portfolio totaled $81,995,225, representing approximately 86% of its total
assets of $94,961,351. The following table sets forth the Bank's loans by major
categories as of September 30, 1996:
Amount Percent
------ -------
Commercial $11,687,987 14%
Real Estate Development & Construction 24,200,728 30%
Real Estate Mortgage:
Residential 21,582,328 26%
Commercial 23,154,092 28%
Consumer 1,370,090 2%
------------ -----
Total Loans: $81,995,225 100%
============ =====
Commercial Loans. The Bank originates secured and unsecured loans for
business purposes. Less than one percent of these loans are unsecured. Loans are
made to provide working capital to businesses in the form of lines of credit
which may be secured by real estate, accounts receivable, inventory, equipment
or other assets. The financial condition and cash flow of commercial borrowers
are closely
38
<PAGE>
monitored by the submission of corporate financial statements, personal
financial statements and income tax returns. The frequency of submissions of
required financial information depends on the size and complexity of the credit
and the collateral which secures the loan. It is the Bank's general policy to
obtain personal guarantees from the principals of the commercial loan borrowers.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Although commercial business loans are often collateralized by real estate,
equipment, inventory, accounts receivable or other business assets, the
liquidation of collateral in the event of a borrower default is often not a
sufficient source of repayment because accounts receivable may be uncollectible
and inventories and equipment may be obsolete or of limited use, among other
things. The primary repayment risk for commercial loans is the failure of the
business due to economic or financial factors.
Real Estate Development and Construction Loans. The real estate
development and construction loan portfolio consisted of the following as of
September 30, 1996:
<TABLE>
<CAPTION>
Amount Percent
------ -------
<S> <C> <C> <C>
Residential Construction(1) $ 12,626,637 53%
Commercial Construction 304,000 1%
Residential Land Development 10,638,591 44%
Residential Land Acquisition 316,500 1%
Commercial Land Acquisition 315,000 1%
------------ -----
Total Real Estate -
Development & Construction $ 24,200,728 100%
============ =====
- -------------------------
<FN>
(1) Includes approximately $5 million of loans to individuals for construction
of their primary residence, and approximately $8 million of residential
construction loans to residential builders.
</FN>
</TABLE>
The Bank provides interim residential real estate development and
construction loans to builders, developers, and persons who will ultimately
occupy the single family dwellings. Residential real estate construction and
development loans constitute the largest portion of the Bank's lending
activities. Residential real estate development and construction loans to
provide interim financing on the property are generally made for 80% or less of
the appraised value of the property. Residential real estate development and
construction loan funds are disbursed periodically at pre-specified stages of
completion. Interest rates on these loans are generally adjustable. The Bank
carefully monitors these loans with on-site inspections and control of
disbursements.
Loans to individuals for the construction of their primary residences
are typically secured by the property under construction, frequently include
additional collateral (such as a second mortgage on the borrower's present
home), and commonly have maturities of nine to twelve months.
Loans to residential builders are for the construction of residential
homes for which a binding sales contract exists and the prospective buyers have
been pre-qualified for permanent mortgage financing. Development loans are made
only to developers with a proven track record. Generally, these loans are
extended only when the borrower provides evidence that the lots under
development will be sold to builders satisfactory to the Bank.
39
<PAGE>
Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Such loans typically involve large loans to single borrowers or related
borrowers, the payment experience on such loans is typically dependent on the
successful operation of the project, and these risks can be significantly
affected by the supply and demand conditions in the market for commercial
property and residential units.
Development and construction loans are secured by the properties under
development/construction and personal guarantees are typically obtained. Further
to assure that reliance is not placed solely in the value of the underlying
property, the Bank considers the financial condition and reputation of the
borrower and any guarantors, the amount of the borrower's equity in the project,
independent appraisals, cost estimates and pre-construction sale information.
Residential Real Estate Mortgage Loans. The Bank's wholly-owned
subsidiary, First Mariner Mortgage Corporation, originates adjustable and
fixed-rate residential mortgage loans. Such mortgage loans are generally
originated under terms, conditions and documentation acceptable to the secondary
mortgage market. The Bank does not generally maintain a portfolio of residential
mortgage loans. These loans are generally made for 80% or less of the appraised
value of the property. Private mortgage insurance is required for loans with a
loan to value ratio in excess of 80%.
Commercial Real Estate Mortgage Loans. The Bank originates mortgage
loans secured by commercial real estate. Such loans are primarily secured by
office buildings, retail buildings, warehouses and general purpose business
space. Although terms may vary, the Bank's commercial mortgages generally have
maturities of five years or less.
Commercial real estate lending entails significant additional risks as
compared to one- to four-family residential lending. Such loans typically
involve large loans to single borrowers or related borrowers, the payment
experience on such loans is typically dependent on the successful operation of
the project, and these risks can be significantly affected by the supply and
demand conditions in the market for commercial property.
The Bank seeks to reduce the risks associated with commercial mortgage
lending by generally lending in its market area, using conservative
loan-to-value ratios and obtaining periodic financial statements and tax returns
from borrowers. It is also the Bank's general policy to obtain personal
guarantees from the principals of the borrowers and assignments of all leases
related to the collateral. Commercial real estate mortgage loans are generally
made for 80% or less of the appraised value of the property.
Consumer Loans. The Bank offers a variety of consumer loans. These
loans are typically secured by residential real estate or personal property,
including automobiles. Home equity loans are typically made up to 80% of the
appraised value, less the amount of any existing prior liens on the property and
generally have maximum terms of 10 years. The interest rates on home equity
loans are generally adjustable.
Consumer loans generally involve more risk than first mortgage
residential loans. Repossessed collateral for a defaulted loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
damage, loss or depreciation, and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
addition, loan collections are dependent on the borrower's continuing financial
stability. Further, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered.
40
<PAGE>
Credit Administration
The Bank's lending activities are subject to written policies approved
by the Board of Directors to ensure proper management of credit risk. Loans are
subject to a well defined credit process that includes credit evaluation of
borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances, as well as procedures for on-going identification and
management of credit deterioration. Regular portfolio reviews are performed to
identify potential under performing credits, estimate loss exposure and to
ascertain compliance with the Bank's policies. For significant problem loans,
management review consists of evaluation of the financial strengths of the
borrower and the guarantor, the related collateral, and the effects of economic
conditions.
The Bank's loan approval policy provides for various levels of
individual lending authority. The maximum lending authority granted by the Bank
to any one individual is $250,000. A combination of approvals from certain
officers may be used to lend up to an aggregate of $500,000. The Bank's Loan
Committee is authorized to approve loans up to the Bank's legal lending limit,
currently $1,300,000, which is expected to increase to approximately $3,300,000
as a result of this Offering.
The Bank generally does not make loans outside its market area unless
the borrower has an established relationship with the Bank and conducts its
principal business operations within the Bank's market area. Consequently the
Bank and its borrowers are affected by the economic conditions prevailing in its
market area.
Loans made to officers, directors or principal shareholders are approved
pursuant to credit administration policies in place for comparable loans to the
general public and are reviewed every six months by the Board of Directors of
the Bank.
Competition
The Company and the Bank operate in a competitive environment,
competing for deposits and loans with commercial banks, thrifts and other
financial entities. Principal competitors include other community commercial
banks and larger financial institutions with branches in the Bank's market area.
Numerous mergers and consolidations involving banks in the Bank's market area
have occurred recently, requiring the Bank to compete with banks with greater
resources.
The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank also competes
with money market mutual funds for deposits. Many of the financial institutions
operating in the Bank's market area offer certain services, such as trust,
investment and international banking, which the Bank does not offer, and possess
greater financial resources or have substantially higher lending limits than
does the Bank.
To compete with other financial services providers, the Bank
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where the
41
<PAGE>
Bank is unable to accommodate a customer's needs, the Bank will
arrange for those services to be provided by other banks with which it has a
relationship.
Recent changes in federal banking laws facilitate interstate branching
and merger activity among banks. Since September, 1995, certain bank holding
companies are authorized to acquire banks throughout the United States. In
addition, on and after June 1, 1997, certain banks will be permitted to merge
with banks organized under the laws of different states. Such changes will
result in an even greater degree of competition in the banking industry and the
Company and the Bank will be brought into competition with institutions with
which it does not presently compete. As a result, intense competition in the
Bank's market area may be expected to continue for the foreseeable future.
Properties
The principal executive offices of the Company and the main office of
the Bank are located at 1801 South Clinton Street, Baltimore, Maryland. The
Company and the Bank occupy approximately 8,000 square feet of space leased from
Hale Intermodal Transport Co., of which Edwin F. Hale, Sr., Chairman and Chief
Executive Officer of the Company, is the Chairman and Chief Executive Officer.
Rental for this space is approximately $212,700 annually, of which $177,700 is
allocated for 6,890 square feet of office space and $35,000 is allocated for
1,170 square feet of Bank branch space and drive-up banking and customer parking
facilities. Management believes that such terms are at least as favorable as
those that could be obtained from an unaffiliated third party lessor.
The Bank has branches at the following locations:
<TABLE>
<CAPTION>
Lease Renewal
Location Square Feet Annual Rental Expiration Options(1)
<S> <C> <C> <C> <C> <C> <C>
1801 South Clinton Street 1,170 $35,000 08/31/01 5 years
Baltimore City
115 East Joppa Road 2,750 Owns building (subject to -- --
Towson (Baltimore County) $25 annual ground rent)
8631 Loch Raven Boulevard 1,000 $14,100 Month-to- --
Towson (Baltimore County) month
815 Scott Street(2) 2,300 Owns building -- --
Baltimore City
9833 Liberty Road 2,800 Owns building (subject to -- --
Baltimore County $12,000 annual ground rent)
303 South Main Street 1,675 $25,000 05/01/00 5 years
Bel Air (Harford County)
16 South Calvert Street 2,515 $25,270 05/14/01 --
Baltimore City
2375 Rolling Road (Mars Store) 667 $36,500 11/01/00 5 years
Woodlawn (Baltimore County)
Chesapeake Center Drive (Mars Store) 484 $36,500 05/01/00 5 years
Glen Burnie (Anne Arundel County)
42
<PAGE>
1013 Reisterstown Road 4,156 Owns building -- --
Pikesville (Baltimore County)
60 Painters Mill Road 2,350 $60,000 10/31/05 5 years
Owings Mills (Baltimore County)
161 Jennifer Road 4,000 $72,900 06/30/01 5 years
Annapolis (Anne Arundel County)
1401 Pulaski Highway (Mars Store) 484 $36,500 -- 5 years
Edgewood (Harford County)
- --------------------
(1) All lease renewal options are for one term, with the exception of the lease
for 303 South Main Street which has three five year renewals.
(2) This branch was consolidated with the 16 South Calvert Street branch in
November, 1996.
</TABLE>
In 1995, the Company and the Bank incurred rental expense on leased
real estate of approximately $97,642. The Company considers all of the
properties leased by the Bank to be suitable and adequate for their intended
purposes.
Employees
At October 31, 1996, the Company had 84 full time employees and nine
part time employees. The Company believes that its relationships with its
employees are good.
Legal Proceedings
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company other than those arising in the ordinary course of
business. In the opinion of management, no such proceeding will have a material
adverse effect on the financial position or results of operations of the
Company.
MANAGEMENT
Directors and Executive Officers
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age(1) Position Term Expires
<S> <C> <C> <C> <C> <C> <C>
Edwin F. Hale, Sr. 49 Chairman of the Board and Chief 1999
Executive Officer of the
Company and Chairman of the
Board of the Bank; Director
George H. Mantakos 54 President of the Company and 1998
President and Chief Executive
Officer of the Bank; Director
Barry B. Bondroff 48 Director 1999
Rose M. Cernak 65 Director 1998
Christopher P. D'Anna 32 Director 1998
Dennis M. Doyle 56 Director 1997
43
<PAGE>
Elayne Hettleman 63 Director 1997
Bruce H. Hoffman 49 Director 1999
Melvin S. Kabik 72 Director 1997
R. Andrew Larkin 44 Director 1999
Jay J. J. Matricciani 54 Director 1997
Dennis C. McCoy 54 Director 1999
Margaret D. McManus n/a Director 1998
Walter L. McManus, Jr. 54 Director 1999
John J. Mitcherling 52 Director 1997
James P. O'Conor 66 Director 1999
Kevin B. O'Connor 33 Director 1998
Governor William Donald Schaefer 74 Director 1998
Hanan Y. Sibel 65 Director 1997
Leonard Stoler 66 Director 1997
- ----------------
<FN>
(1) At October 31, 1996.
</FN>
</TABLE>
Edwin F. Hale, Sr. has served as Chairman and Chief Executive Officer
of the Company, and Chairman of the Bank since May, 1995. He has also served as
chairman and chief executive officer of Hale Intermodal Transport Co., and Hale
Intermodal Marine Co., private Baltimore-based trucking and shipping companies
since 1975 and 1984, respectively. Mr. Hale served as chairman of the board and
chief executive officer of the former Baltimore Bancorp from 1991 through 1994.
George H. Mantakos has been a director and President of the Company,
and President, Chief Executive Officer, and a director of the Bank, since May,
1995. Mr. Mantakos began his banking career in 1960 with Union Trust Company
(now Signet Bank). In 1985, he resigned his position as senior vice president in
charge of the Corporate and Commercial Banking Division of Union Trust to become
president and chief executive officer of Fairview Federal. Fairview Federal was
acquired by Columbia Bancorp in June, 1992. In June, 1992 Mr. Mantakos was
appointed to the Board of Directors of Columbia Bancorp and to the Executive
Committee/Board of Directors of the Columbia Bank. In 1994, he resigned from
these positions to become a founder and organizer and president and chief
executive officer of MarylandsBank, FSB, the predecessor of the Bank.
Barry B. Bondroff has been the managing officer of Grabush, Newman &
Co., P.A., a certified public accounting firm, since 1976. Mr. Bondroff is a
member of the American Institute of Certified Public Accountants, and was a
former member of the board of directors for Baltimore Bancorp.
Rose M. Cernak has served as president of Olde Obrycki's Crab House,
Inc., since 1995. Prior thereto, Ms. Cernak acted as a general manager and vice
president of Obrycki's.
Christopher P. D'Anna is a vice president of Mars Super Markets, Inc.,
a regional supermarket chain, and has been employed with Mars in various
capacities for more than five years.
Dennis M. Doyle has served as president of Blakefield Associates, LLC,
a family owned commercial real estate investment company, since 1995. Mr. Doyle
also has worked as a realtor and consultant for O'Conor, Piper & Flynn, a
prominent real estate company, since 1990.
Elayne Hettleman has served as the executive director of
Leadership-Baltimore County since 1984. Prior to establishing the Leadership
program, she was the owner of Lemon Tree Ltd., a children's retail store.
44
<PAGE>
Bruce H. Hoffman has served as the executive director the Maryland
Stadium Authority since 1989. Mr. Hoffman is currently responsible for the
operation and maintenance of Oriole Park at Camden Yards, the Baltimore
Convention Center expansion, the Ocean City Convention Center expansion, and the
financing, design, construction and operation of the proposed National Football
League stadium for the Baltimore Ravens (a professional football team).
Melvin S. Kabik operates his own commercial real estate company. He
previously owned and operated Eddie's Supermarkets.
R. Andrew Larkin has served as the president of the Maryland Realty
Investment Corp., a real estate investment firm, since 1985. Mr. Larkin served
as a director for Baltimore Bancorp from 1991- 1994.
Jay J. J. Matricciani has served as president of The Matricciani
Company, a utility and paving contractor, since 1992. He is also a partner of
Matro Properties, a heavy equipment rental company.
Dennis C. McCoy has provided representation in matters relating to
state and local relations with various government bodies and agencies for
Government Affairs-Maryland, Inc., since 1996. Mr. McCoy was the former chief
executive officer and general counsel of Mars Super Markets, Inc. from January
1995 through November 1995. Prior thereto he was a partner at Polovoy & McCoy, a
law firm.
Margaret D. McManus is a self-employed writer.
Walter L. McManus, Jr. has served as president of Castlewood Realty
Co., Inc., a commercial real estate company, since 1970.
John J. Mitcherling is an oral and maxillofacial surgeon and has been
in private practice since 1974. He is also vice president of Advance Care
Ambulance, Inc.
James P. O'Conor has served as chairman and chief executive officer of
O'Conor Piper & Flynn, a prominent real estate company, since 1984.
Kevin B. O'Connor has served as president of the Maryland State &
District of Columbia Professional Firefighters Association, since 1991.
Governor William Donald Schaefer was Governor of the State of Maryland
from 1986 to 1995 and was Mayor of the City of Baltimore from 1971 to 1986. He
is presently of counsel to the law firm of Gordon, Feinblatt, Rothman,
Hoffberger and Hollander, LLC.
Hanan Y. Sibel has served as chairman and chief executive officer of
Chaimson Brokerage Co., Inc., a food brokerage company for more than the last
five years.
Leonard Stoler has been the owner and president of Len Stoler Inc., an
automobile dealership, since 1968.
45
<PAGE>
Key Employees
The following individuals are considered key employees of the Company
and the Bank:
Kevin M. Healey, 39, is the controller of the Company and controller
and Senior Vice President of the Bank. From 1984 through 1996, he served as an
assistant controller for Provident Bank of Maryland, a regional bank operation.
Jane A. Higgins, 36, is a Senior Vice President of Retail Operations of
the Bank. Ms. Higgins was vice president and market manager for Provident Bank
of Maryland from 1989 to 1996.
Elizabeth Wright, 40, is a Senior Vice President of Commercial and Real
Estate Lending for the Bank. Ms. Wright previously served as senior vice
president in the residential construction loan department for the former Bank of
Baltimore from 1992 through 1995. Prior to her employment at the Bank of
Baltimore, she served as vice president of the residential construction loan
department for Signet Bank.
William Murphy, 49, is a Senior Vice President of Commercial Lending
for the Bank. From 1991 through 1996, he served as vice president of commercial
lending for Bank of Annapolis and as vice president of commercial lending for
Annapolis National Bank.
Brett Carter, 34, is a Senior Vice President of Mortgage Lending for
the Bank. Mr. Carter served as a vice president of sales for PNC Mortgage
Corporation of America from 1994 through 1996. From 1992 to 1994, he was an
assistant vice president and regional sales manager for First Advantage Mortgage
Corp. From 1989 through 1992, he was an area sales manager for Citibank.
Recent Developments
It is expected that at the meetings of the Boards of Directors of the
Company and Bank to be held on December 17, 1996, the directors will take action
to appoint Joseph A. Cicero as a director of both the Company and the Bank and
as President and Chief Operating Officer of the Company and Chief Operating
Officer of the Bank. Upon such appointment Mr. Hale will be Chairman and Chief
Executive Officer of both the Company and the Bank, and George H. Mantakos will
be President of the Bank and will continue as a director of the Company and the
Bank.
Mr. Cicero has been Maryland Area President of First Union Bank during
1996 and Maryland Area President for First Fidelity Bank from November, 1994 to
December, 1995. Prior thereto he was Executive Vice President and Chief
Financial Officer and director of Baltimore Bancorp from January, 1992 to
November, 1994. It is expected that Mr. Cicero will invest at least $500 to
purchase shares of Common Stock of the Company to comply with bank regulatory
requirements.
Audit Committee of the Company's Board of Directors
The Audit Committee of the Board of Directors of First Mariner Bancorp
was established in accordance with Section 10 of the By-Laws of the Corporation.
Its membership consists of Walter L. McManus (Chairman), Jay Matricciani and R.
Andrew Larkin, Jr. The Committee recommends to the Board the selection of the
independent public accountants, reviews the financial statements with such
accountants, discusses with the accountants and management other results of the
audit, and oversees
46
<PAGE>
internal accounting procedures and controls. The Audit Committee also reviews,
considers and makes recommendations regarding proposed related party
transactions, if any.
Director Compensation
Directors receive fees for their services, and are reimbursed for
expenses incurred in connection with their service as directors. Directors
receive $200 for each Board meeting attended and $300 for each executive
committee meeting attended. In addition, each director received, pursuant to the
1996 Stock Option Plan, an option to purchase 100 shares of the Company's Common
Stock for each Board meeting attended. This automatic grant of options was
discontinued effective November, 1996. See "Stock Option Plan."
Executive Compensation
The following table sets forth the compensation paid by the Company and
the Bank and their predecessors for the last three fiscal years to the Chief
Executive Officer of the Company and the Bank and to any other officer of the
Company or the Bank who received compensation in excess of $100,000 during any
of those fiscal years.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term
Other Compensation
Annual Securities Underlying
Name Fiscal Year Salary Bonus Compensation Option (#)
<S> <C> <C> <C> <C> <C> <C>
Edwin F. Hale, Sr. 1995 -- -- $12,048(1) --
Chairman, CEO of Company;
Chairman of Bank(2)
George H. Mantakos 1995 $110,000 $20,000 3,000(1) 10,500
President of Company; 1994 $ 85,000 $15,000 4,000(1) --
President and CEO of Bank
David M.K. Metzger 1995 $100,000(3) -- -- --
CFO, Senior Vice
President of Bank
- ---------------
<FN>
(1) The amount disclosed represents car lease payments made by the Company on behalf of Mr. Hale and Mr. Mantakos,
respectively.
(2) Starting on October 1, 1996, Mr. Hale began receiving a salary of $200,000 per annum.
(3) Mr. Metzger left the Company in May, 1996.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
Options granted to the executive officers named in the Summary
Compensation Table during 1995 are set forth in the following table. For
disclosure regarding the terms of stock options, see "Stock Option Plan."
47
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Percent of Total Options Exercise Expiration
Name Underlying Options Granted to Employees Price Date
<S> <C> <C> <C> <C> <C> <C>
George H. Mantakos 10,500 100% $10/share 5/22/05
</TABLE>
On October 19, 1996, the Company granted stock options to purchase
120,000 shares to Edwin F. Hale, Sr. and options to purchase 10,000 shares to
Mr. Mantakos, all exercisable at $10.00 per share.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No stock options were exercised by the Named Executive Officer during
1995. There were no stock appreciation rights outstanding during 1995. The
following table sets forth certain information regarding unexercised options
held by the Named Executive Officer as of December 31, 1995:
<TABLE>
<CAPTION>
Aggregate Fiscal Year-End Option Values
---------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Fiscal Year-End (#) Fiscal Year-End ($)(1)
------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
George H. Mantakos 10,500(2) -- -0- --
- ---------------------
<FN>
(1) Value determined by Board of Directors of the Company
(2) The exercise price of these options is $10.00 per share.
</FN>
</TABLE>
Employment Arrangements and Agreements
The Board of Directors has approved a salary of $200,000 per year for
Mr. Hale commencing October 1, 1996. In addition, the Bank has a key man life
insurance policy on Mr. Hale in the amount of $10 million.
The Company and the Bank have an Employment Agreement with George H.
Mantakos dated May 1, 1995, pursuant to which Mr. Mantakos is employed as the
President of the Company and President and Chief Executive Officer of the Bank.
The agreement provides for an annual salary of $110,000, which will be adjusted
on the anniversary date of the agreement to an amount to be approved by the
Board of Directors. Mr. Mantakos is entitled to participate in any management
bonus plans established by the Bank and to receive all benefits offered to
employees. Mr. Mantakos will, at the discretion of the Chairman, have the
opportunity to receive a bonus in the maximum amount of $20,000 per year. Mr.
Mantakos receives the use of an automobile provided by the Bank. The term of the
Employment Agreement is two years, expiring in 1997; however, the Board of
Directors of the Bank may terminate the agreement at any time. In the event of
involuntary termination for reasons other than gross negligence, fraud or
dishonesty (or in the event of the material diminution of or interference with
Mr. Mantakos' duties, or a change of control of the Bank), the Bank is obligated
to pay Mr. Mantakos his salary through the remaining term plus additional
severance equal to the then current annual salary, but not less than $110,000.
In such event, Mr. Mantakos is permitted to exercise all options and warrants
held by him, and the Company is obligated to repurchase all or any part of Mr.
Mantakos' Common Stock.
48
<PAGE>
Stock Option Plan
On April 16, 1996, the Board of Directors approved the 1996 Stock
Option Plan (the "Plan"). On October 31, 1996, the Plan was amended to authorize
a total of 190,000 shares. The Plan is administered by a compensation committee
(the "Committee") appointed by the Board of Directors. Full- time employees of
the Company or any subsidiary and each director of the Company or any subsidiary
are eligible to participate. As of October 31, 1996, 155,100 options have been
granted under the Plan.
Options granted under the Plan may be either incentive stock options
within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified options. The purchase price of each share
subject to an option is fixed by the Committee and stated in each option
agreement. The purchase price of any option intended to be an "incentive stock
option" shall not be less than the fair market value of a share of Common Stock
on the date the option is granted. In the event the optionee owns 10% of the
Common Stock, the purchase price is not less than 110% of the fair market value
per share at the time the option is granted.
The Plan provides that non-employee directors are granted options to
purchase 100 shares for each Board of Directors' meeting attended by such person
from and after November 21, 1995. The exercise price of each such option is
$10.00 per share. This automatic grant of options was discontinued effective
November, 1996.
Each option granted under the Plan expires on the 10th anniversary of
the date the option was granted or such earlier date as the Committee provides.
In the event of the termination of employment of an optionee, all unexercised
options will terminate, be forfeited and will lapse unless such options are
exercised by the employee within 90 days after such termination date.
Under the Plan, upon the occurrence of certain "Extraordinary Events",
all options granted under the Plan will vest and become fully exercisable. An
"Extraordinary Event" is defined as 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 at least
equal to 50% of the fair market value of all assets of the Company, or a merger,
consolidation or share exchange pursuant to which shares may be exchanged for or
converted into cash, property or securities of another issuer, or the
liquidation of the Company.
49
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of October 31, 1996 by (i) each person or group
known by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group. The term "beneficial ownership" as
defined by SEC rules includes shares that may be acquired within 60 days upon
the exercise of options, warrants and other rights. Unless otherwise noted
below, the persons named in the table have sole voting and sole investment
powers with respect to each of the shares reported as beneficially owned by such
person.
<TABLE>
<CAPTION>
Number of Percent Prior Percent After
Name and Address Shares to Offering(1) Offering
<S> <C> <C> <C> <C> <C> <C>
Edwin F. Hale, Sr.(2) 873,359 50.8% 28.0%
Barry B. Bondroff(3) 14,533 1.2% .6%
Rose M. Cernak(4) 14,483 1.2% .6%
Christopher P. D'Anna(5) 14,483 1.2% .6%
Dennis M. Doyle(6) 30,100 2.4% 1.1%
Elayne Hettleman(7) 18,200 1.5% .7%
Bruce H. Hoffman(8) 14,533 1.2% .6%
Melvin S. Kabik(9) 14,383 1.2% .5%
R. Andrew Larkin, Jr.(10) 10,550 .9% .4%
George H. Mantakos(11) 30,500 2.4% 1.1%
Jay Matricciani(12) 14,583 1.2% .6%
Dennis C. McCoy(13) 14,333 1.2% .5%
Margaret D. McManus 50 - -
Walter L. McManus, Jr.(14) 67,866 5.5% 2.6%
John J. Mitcherling(15) 20,329 1.6% .8%
Kevin B. O'Connor(16) 450 - -
James P. O'Conor(17) 21,000 1.7% .8%
Governor William Donald Schaefer(18) 1,900 .2% -
Hanan Y. Sibel(19) 14,433 1.2% .5%
Leonard Stoler(20) 20,900 1.7% .8%
All directors and executive
officers as a group (21 persons)(21) 1,211,968 65.2% 37.2%
- --------------------
<FN>
(1) Percent is calculated by treating as outstanding only those shares subject
to options or warrants held by the named individual which are exercisable
within 60 days of October 31, 1996.
(2) Includes warrants to purchase 371,672 shares and options to purchase
120,000 shares.
(3) Includes warrants to purchase 3,333 shares and options to purchase 1,200
shares.
(4) Includes 50 shares held individually and 10,000 shares held jointly with
her husband; also includes warrants to purchase 3,333 shares and options to
purchase 1,100 shares.
(5) Includes 50 shares held individually and 10,000 shares held by D'Anna
Family Enterprise, LLC, of which he is a member; also includes warrants to
purchase 3,333 shares and options to purchase 1,100 shares.
(6) Includes 6,500 shares held by his wife, warrants to purchase 14,500 shares
and options to purchase 1,100 shares.
(7) Includes 2,000 shares held by her husband, warrants to purchase 8,500
shares and options to purchase 1,200 shares.
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(8) Includes warrants to purchase 3,333 shares and options to purchase 1,200
shares.
(9) Includes 50 shares held individually and 10,000 shares held jointly with
his wife; also includes warrants to purchase 3,333 shares and options to
purchase 1,000 shares.
(10) Includes 50 shares held individually and 5,000 shares held in an Individual
Retirement Account; also includes warrants to purchase 5,000 shares and
options to purchase 500 shares.
(11) Includes 4,000 shares held in an Individual Retirement Account and 1,000
shares held jointly with his wife; also includes warrants to purchase 5,000
shares; and options to purchase 20,500 shares.
(12) Includes 50 shares held individually and
10,000 shares held by Matro Properties, of which he is partner; also
includes warrants to purchase 3,333 shares and options to purchase 1,200
shares.
(13) Includes 50 shares held individually and 9,950 shares held jointly with his
wife; also includes warrants to purchase 3,333 shares and options to
purchase 1,000 shares.
(14) Includes warrants to purchase 16,666 shares and options to purchase 1,200
shares.
(15) Includes 50 shares held individually and 10,613 shares held by Mitcherling
& Mitcherling, of which he is a partner; also includes warrants to purchase
8,666 shares; and options to purchase 1,000 shares.
(16) Includes options to purchase 400 shares.
(17) Includes warrants to purchase 10,000 shares and options to purchase 1,000
shares.
(18) Includes options to purchase 900 shares.
(19) Includes warrants to purchase 3,333 shares and options to purchase 1,100
shares.
(20) Includes warrants to purchase 5,000 shares and options to purchase 900
shares.
(21) Includes warrants to purchase 471,668 shares and options to purchase
158,600 shares.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and it is expected that it will have in the future,
banking transactions in the ordinary course of business with the Company's and
the Bank's directors, officers, principal stockholders and their associates on
substantially the same terms, including interest rates, collateral and payment
terms, on extensions of credit as those prevailing at the same time for
comparable transactions with others. In the opinion of management, these
transactions did not involve more than a normal risk of collectibility or
present other unfavorable features. As of September 30, 1996, the aggregate
principal amount of indebtedness to the Bank owed by directors and executive
officers of the Company who were indebted to the Bank on that date was
approximately $623,000.
As described under the caption "Business--Properties," the Company and
the Bank lease space from Hale Intermodal Transport Co. pursuant to a five year
lease entered into on September 1, 1996.
Edwin F. Hale, Sr. is an officer, director and shareholder of the Company
and of Hale Intermodal Transport Co. Hale Intermodal Transport Company is paid
$212,700 annually for office and branch space.
The Bank has full-service branches in three Mars supermarkets, and has
installed ATMs in 10 of the supermarkets. The Bank pays rent of $36,500 per year
to Mars for approximately 400-500 square feet of space in each of the stores
where branches are located. The Bank also bears all costs of construction of
each branch. However, the Bank incurs no charge from Mars in connection with the
installation of ATMs. The Bank intends to open additional branches in Mars in
the future. The terms of the arrangements are described in a Master Lease
Agreement between the Company and Mars dated March 1, 1996. Dennis C. McCoy,
formerly the Chief Executive Officer and General Counsel of Mars, is a member of
the Board of Directors of the Company and the Bank. Christopher P. D'Anna, Vice
President of Mars, is also member of the Board of Directors of the Company and
the Bank.
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The Company has engaged, or may in the future engage in transactions in
the ordinary course of business with some of its directors, officers, principal
stockholders and their associates. Management believes that all such
transactions have been or will be made on terms at least as favorable as those
that could be obtained at the time from unrelated persons.
DESCRIPTION OF SECURITIES
Common Stock
The Company has 20,000,000 shares of Common Stock authorized, par value
$0.05 per share. At October 31, 1996, the Company had 156 shareholders and
1,227,263 shares of the Common Stock were issued and outstanding. The
outstanding shares of Common Stock are fully paid and nonassessable. The Common
Stock offered hereby will, upon payment therefor as contemplated hereby, be
fully paid and nonassessable. In the event of any voluntary or any involuntary
liquidation, dissolution, or winding-up of the affairs of the Company, the
assets of the Company available for distribution to its stockholders shall be
distributed pro rata to the holders of the Common Stock. The holders of Common
Stock have one vote per share in all proceedings in which action shall be taken
by the stockholders of the Company. Upon completion of the Offering, the Company
expects that the Common Stock will be quoted on the NASDAQ National Market under
the symbol "FMAR."
Options and Warrants
At October 31, 1996, the Company had outstanding warrants to purchase
828,323 shares and options to purchase 165,600 shares of the Company's Common
Stock at an exercise price of $10.00 per share. The term of the warrants and
options is 10 years. Holders of the warrants and options have no rights to have
the underlying shares registered under the Securities Act of 1933, as amended.
The number of shares that may be purchased upon the exercise of warrants or
options will be adjusted in the event of a reclassification, recapitalization or
other adjustment to the outstanding Common Stock. Furthermore, the options
provide that upon the occurrence of an "Extraordinary Event" such as a tender
offer, a sale or transfer of more than 50% in value of the Company's assets, or
a merger, consolidation or share exchange, or upon the liquidation of the
Company, all options granted under the 1996 Stock Option Plan will vest and
become fully exercisable. The exercise of any of these warrants or options will
result in a dilution of the percentage of the shares of the Company's Common
Stock owned by each purchaser of the Common Stock in this Offering. See "Risk
Factors--Shares Eligible for Future Sale" and "Management--Executive
Compensation."
Dividends
Holders of shares of Common Stock are entitled to dividends if, when
and as declared by the Board of Directors out of funds legally available
therefor. The Company has not paid any dividends on its Common Stock and intends
to retain earnings, if any, to finance the development and expansion of its
business. Future dividend policy is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including future earnings,
capital requirements, regulatory constraints, and the financial condition of the
Company.
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<PAGE>
General Voting Requirements
Except as described in the next section regarding certain supermajority
voting requirements, the affirmative vote of the holders of a majority of the
shares of Common Stock entitled to vote is required to approve any action for
which shareholder approval is required. A sale or transfer of substantially all
of the Company's assets, liquidation, merger, consolidation, reorganization, or
similar extraordinary corporate action requires the affirmative vote of 80% of
the shares of Common Stock entitled to vote thereon. See "Risk
Factors--Supermajority Voting Requirements; Anti-Takeover Measures."
Supermajority Voting Requirements; Anti-Takeover Measures
General. The Company's Articles and Bylaws contain certain provisions
designed to enhance the ability of the Board of Directors to deal with attempts
to acquire control of the Company. These provisions may be deemed to have an
anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors (including takeovers which certain
shareholders may deem to be in their best interest). These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
though such transaction may be favorable to the interests of shareholders, and
could potentially adversely affect the market price.
The following briefly summarizes protective provisions contained in the
Articles and Bylaws. This summary is necessarily general and is not intended to
be a complete description of all the features and consequences of those
provisions, and is qualified in its entirety by reference to the Articles and
Bylaws.
Staggered Board Terms. The Articles provide that the Board of Directors
be divided into three classes of directors, one class to be originally elected
for a term expiring at the next annual meeting of stockholders in 1997, another
class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1998 and another class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1999, with
each director to hold office until his or her successor is duly elected and
qualified. Commencing with the 1997 annual meeting of stockholders, directors
elected to succeed directors whose terms then expire will be elected for a term
of office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until such person's successor
is duly elected and qualified. This provision cannot be amended without the
affirmative vote of holders of at least 80% of the shares of the Company's
Common Stock entitled to vote.
The Bylaws provide that any directorships resulting from any increase
in the number of directors and any vacancies on the Company's Board resulting
from death, resignation, disqualification, or removal, may be filled by the
Board of Directors, acting by a majority of the directors then in office, even
though less than a quorum, and any director so chosen shall hold office until
the next election of the class for which such director shall have been chosen
and until his or her successor shall be elected and qualified. At each annual
meeting of stockholders the successors to the class of directors whose term
shall then expire shall be elected to hold office for a term expiring at the
third succeeding annual meeting. In addition, any director may be removed from
office with or without cause by the affirmative vote of the holders of 80% of
the capital stock of the Company entitled to vote on such matter, at any special
meeting of stockholders duly called for such purpose.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of the Board by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of the Board. Accordingly, these
provisions could
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<PAGE>
discourage a third party from initiating a proxy contest, making a tender offer
or otherwise attempting to gain control of the Company.
Stockholder Vote Required to Approve Business Combinations. The
Articles require the affirmative vote of holders of at least 80% of the
Company's Common Stock entitled to vote to approve certain business
combinations. If Board approval has been obtained, then the affirmative vote of
holders of only a majority of the Company's Common Stock entitled to vote would
be required to approve the transaction. Business combinations subject to the
supermajority voting requirements include (i) a merger or consolidation of the
Company or any subsidiary of the Company; (ii) the sale, exchange, transfer or
other disposition (in one or a series of transactions) of substantially all of
the assets of the Company or a subsidiary of the Company; and (iii) any offer
for the exchange of securities of another entity for the securities of the
Company. Any amendments to this provision would require the approval of holders
of at least 80% of the Company's Common Stock entitled to vote thereon.
This provision would have the effect of making more difficult the
accomplishment of a merger or the assumption of control of the Company by a
stockholder, because a higher percentage of votes would be required to approve a
business combination if the transaction is not approved by the Company's Board
of Directors. The Board of Directors of the Company believes that the Company
and its stockholders are best served when the Board has the opportunity to
objectively review and evaluate proposed transactions involving the Company, and
that these provisions are desirable and in the best interests of the Company and
its stockholders because they will deter potential acquirors from influencing a
transaction that could result in stockholders receiving less than fair value for
their shares. These provisions, however, may make more difficult the
consummation of a transaction that has terms favorable to stockholders of the
Company.
Business Combinations
Under the Maryland General Corporation Law, certain "business
combinations" (including any merger or similar transaction subject to a
statutory stockholder vote and additional transactions involving transfers of
assets or securities in specific amounts) between a Maryland corporation and any
person who, after the date on which the corporation has 100 or more beneficial
owners of its stock, beneficially owns 10% or more of the voting power of the
corporation's shares or any affiliate of the corporation who, at any time within
the two year period prior to the date in question and after the date on which
the corporation has 100 or more beneficial owners of its stock, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder"), or an affiliate
thereof, are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder unless an exemption is
available. Thereafter, any such business combination must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at
least: (i) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the corporation; and (ii) two-thirds of the votes entitled to be cast
by holders of outstanding voting shares of the corporation other than shares
held by the Interested Stockholder with whom the business combination is to be
effected, unless the corporation's stockholders receive a minimum price (as
described in the Maryland General Corporation Law) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
board of directors prior to the time that the Interested Stockholder becomes an
Interested Stockholder. In order to amend the Company's charter to elect not to
be subject to the foregoing requirements with respect to Interested
Stockholders, an affirmative vote of at least 80% of the votes entitled to be
cast by all holders
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<PAGE>
of outstanding shares of voting stock and two-thirds of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not Interested
Stockholders is required under the Maryland General Corporation Law.
Control Share 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 shares
entitled to be voted on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror, or in respect of which
the acquiror is able to exercise or direct the exercise of voting power except
solely by virtue of a revocable proxy, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third; (ii) one-third or more but
less than a majority; or (iii) a majority 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 and delivery of an "acquiring person statement"), 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.
Unless the charter or bylaws provide otherwise, if voting rights are
not approved at the meeting or if the acquiring person does not deliver an
acquiring person statement within 10 days following a control share acquisition
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 the
absence of voting rights for the control shares, 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. Moreover, unless the
charter or bylaws provides otherwise, if voting rights for control shares are
approved at a stockholders' meeting and the acquiror becomes entitled to
exercise or direct the exercise of a majority or more of all voting power, 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 by the acquiror in the control share acquisition.
Transfer Agent
The Company presently intends to use the American Stock Transfer and
Trust Company as its transfer agent after the Offering.
SUPERVISION AND REGULATION
General
The Company and the Bank 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
55
<PAGE>
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 Company and the Bank.
Federal Bank Holding Company Regulation and Structure
The Company 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. The Company 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 the Company and its subsidiaries.
With certain limited exceptions, the Company 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 the Company 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, the Company 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
In September, 1996, the FRB proposed expedited procedures for expansion into
approved categories of non-bank activities. It is impossible to predict whether
or when the proposal may become final.
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 the Company's ability to obtain funds
from the Bank for its cash needs, including funds for the payment of dividends,
interest and operating expenses. Further, 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, the Bank may not generally require a customer to
obtain other services from itself or the Company, 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. In September, 1996, the FRB proposed
to end the anti-tying rules for bank holding companies and their non-banking
subsidiaries; they would be retained for banks. It is impossible to predict
whether or when the proposal may become final.
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 the Company
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<PAGE>
causes a loss to the FDIC, other insured subsidiaries of the Company 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 shareholders due solely to
their status as shareholders and obligations to other affiliates.
State Bank Holding Company Regulation
As a Maryland bank holding company, the Company 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 "--Federal Bank Holding Company
Regulation and Structure." Under Maryland law, a bank holding company that
desires to acquire a bank 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 and State Bank Regulation
The Company's banking subsidiary is a Maryland state-chartered trust
company, with all the powers of a commercial bank, regulated and examined by the
Commissioner and the FDIC. The FDIC has extensive enforcement authority over the
institutions it regulates to prohibit or correct activities which violate law,
regulation or written agreement with the FDIC 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.
In its lending activities, the maximum legal rate of interest, fees and
charges which a financial institution may charge on a particular loan depends on
a variety of factors such as the type of borrower, the purpose of the loan, the
amount of the loan and the date the loan is made. Other laws tie the maximum
amount which may be loaned to any one customer and its related interests to
capital levels. The Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, principal shareholders 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 the Bank and not involve more than the normal risk of
repayment.
The Community Reinvestment Act ("CRA") requires that, in connection
with the examination of financial institutions within their jurisdictions, the
FDIC evaluate the record of the financial institutions in meeting the credit
needs of their local communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered by all regulatory agencies in evaluating
mergers, acquisitions and applications to open a branch or facility. As of the
date of its most recent examination report, the Bank has a CRA rating of
"Satisfactory."
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 FDIC, have adopted standards
covering internal controls, information systems and internal audit systems, loan
documentation,
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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. The Company, on behalf of the Bank, believes that it meets
substantially all standards which have been adopted. FDICIA also imposed new
capital standards on insured depository institutions. See "--Capital
Requirements."
Before establishing new branch offices, the Bank must meet certain
minimum capital stock and surplus requirements. With each new branch located
outside the municipal area of the Bank's principal banking office, these minimal
levels increase by $120,000 to $900,000, based on the population size of the
municipal area in which the branch will be located. Prior to establishment of
the branch, the Bank must obtain Commissioner and FDIC approval. If
establishment of the branch involves the purchase of a bank building or
furnishings, the total investment in bank buildings and furnishings cannot
exceed, with certain exceptions, 50% of the Bank's unimpaired capital and
surplus.
Deposit Insurance
As a FDIC member institution, deposits of the Bank are currently
insured to a maximum of $100,000.00 per depositor through the Savings
Association Insurance Fund ("SAIF"), administered by the FDIC. Insured financial
institutions are members of either SAIF or the Bank Insurance Fund ("BIF"). SAIF
members generally are savings and loan associations or savings banks, including
banks and trust companies that have converted from a savings and loan
association or savings bank to a commercial bank or trust company, such as the
Bank did in 1995. (See "Business--Background and History.") At this time, an
insured financial institution cannot convert from one insurance fund to another,
but mergers or transfers of assets between SAIF and BIF members generally are
permitted with the assuming or resulting depository institution making payments
of SAIF assessments on the portion of liabilities attributable to the
SAIF-insured institution.
The FDIC is required to establish the semi-annual assessments for BIF-
and SAIF-insured depository institutions at a rate determined to be appropriate
to maintain or increase the reserve ratio of the respective deposit insurance
funds at or above 1.25 percent of estimated insured deposits or at such higher
percentage that the FDIC determines to be justified for that year by
circumstances raising significant risk of substantial future losses to the fund.
SAIF historically has not met the designated reserve ratio for the fund.
Accordingly, federal legislation that became effective September 30, 1996
assesses a one-time charge on deposits insured by SAIF. This one-time charge for
the Bank is approximately $154,000, which it will pay by November 27, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."
This recapitalization is expected to significantly lower the
semi-annual assessments paid by the Bank as a SAIF member. Assessments are made
on a risk-based premium system with nine risk classifications based on certain
capital and supervisory measures. Financial institutions with higher levels of
capital and involving a low degree of supervisory concern are assessed lower
premiums than financial institutions with lower levels of capital or involving a
higher degree of supervisory concern. Before the recapitalization, the rates
assessable on SAIF-insured deposits ranged from $.23 per $100 of domestic
deposits to $.31 per $100 of domestic deposits; the Bank's assessment stood at
$.23 per $100. Rates assessable to BIF members have been significantly lower at
a range of $.03 to $.27 per $100, with the highest rated BIF institutions paying
the statutory minimum of $2,000 per year. With recapitalization of SAIF, the
assessment ranges for both BIF and SAIF institutions will decrease. The Bank
expects is assessment rate to be $.0644 per $100 starting on January 1, 1997.
Currently, federal law calls for merger
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of the SAIF and BIF funds by January 1, 1999 if no insured financial institution
is a savings association on such date. It is impossible to predict whether or
when this will occur.
Limits on Dividends and Other Payments
The Company's current ability to pay dividends is largely dependent
upon the receipt of dividends from its banking subsidiary, the Bank. Both
federal and state laws impose restrictions on the ability of the Bank 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 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 FRB and FDIC 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, such
as the Company, 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
September 30, 1996, the Bank's ratio of Tier 1 to risk-weighted assets stood at
10.33% and its ratio of total capital to risk-weighted assets stood at 11.44%.
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%. At September 30, 1996, the Bank's
leverage capital ratio stood at 12.39%.
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<PAGE>
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 bank's interest
rate risk 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. The
Bank 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, the Company does not expect the
addition of IRR evaluation to the agencies' capital guidelines to result in
significant changes in capital requirements for the Bank.
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 the Bank 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 the 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." 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
60
<PAGE>
submit an acceptable plan, it is treated as if it is significantly
undercapitalized. Significantly undercapitalized 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 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. Among other things, the law
eliminated substantially all state law barriers to the acquisition of banks by
out-of-state bank holding companies as of September 29, 1995. The law will also
permit 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.
On December 13, 1995, Maryland, Delaware, Virginia and Pennsylvania signed a
supervisory pact establishing uniform rules for the supervision of
state-chartered banks and trust companies that operate branches across state
lines. Other states have expressed interest in eventually joining the compact.
Under the agreement, home-state regulators will have primary responsibility for
banks chartered in the home state, including those that branch into other
jurisdictions, although such branches may be subject to the other jurisdiction's
regulatory authorities in certain circumstances. The Company anticipates that
the effect of the new law and the supervisory compact may be to increase
competition within the markets in which the Company now operates, although the
Company cannot predict the extent to which competition will increase in such
markets or the timing of such increase.
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 borrowings 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 money 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.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no established public trading
market for the Common Stock. Future sales of substantial amounts of Common Stock
in the public market could adversely affect the prevailing market price and
impair the Company's ability to raise additional funds.
Upon completion of this Offering, the Company will have outstanding
2,627,263 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). The shares sold in this Offering will be freely
tradeable by persons other than "affiliates" of the Company, as that term is
defined in the Securities Act. The 1,227,263 shares of Common Stock outstanding
prior to this Offering may not be sold unless they are registered under the Act
or are sold pursuant to Rule 144 under the Act or another exemption from
registration.
As of October 31, 1996, there were 1,227,263 shares of the Company's
Common Stock outstanding, of which approximately 200,000 shares will be eligible
for sale 90 days after the date of this Prospectus pursuant to Rule 144 under
the Securities Act, subject to volume, notice and manner of sale limitations in
that rule. In addition, an aggregate of 581,700 shares of Common Stock are
beneficially owned by the Company's executive officers and directors. All of the
Company's executive officers and directors have agreed that for a period of 180
days from the date of this Prospectus, they will not sell, offer for sale or
take any action that may constitute a transfer of shares of Common Stock. There
are also 993,923 shares subject to outstanding options and warrants. Although
the sale of the shares issued upon exercise of options and warranties will be
restricted under Rule 144, the sale of any number of shares of Common Stock in
the public market following the Offering could have an adverse impact on the
then prevailing market price of the shares.
Beginning 90 days after the date of this Prospectus, if a period of at
least two years has elapsed from the date that shares of Common Stock were
acquired from the Company or an affiliate of the Company, then, pursuant to Rule
144, the holder of such shares (including an affiliate of the Company), may sell
within any three month period that number of shares which does not exceed the
greater of 1% of the then outstanding shares of Common Stock (26,272 shares
immediately following the Offering, assuming no exercise of the Underwriters'
over-allotment option) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding such sale. Sales pursuant to Rule 144
are subject to certain requirements relating to the manner of sale, notice and
availability of current public information about the Company. If at least three
years has elapsed from the date the shares of Common Stock were acquired from
the Company, or an affiliate of the Company, and the proposed seller has not
been an affiliate of the Company at any time during the three months immediately
preceding the sale, such person is entitled to sell such shares pursuant to Rule
144(k) without regard to the limitations described above. See "Risk Factors -
Shares Eligible for Future Sale."
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to Ferris, Baker Watts, Incorporated
(the "Underwriter"), and the Underwriter has agreed to purchase, the number of
shares of Common Stock set forth opposite its name below:
Number of Shares
Underwriter to be Purchased
Ferris, Baker Watts, Incorporated _________
Total 1,400,000
=========
The nature of the Underwriter's obligations under the Underwriting
Agreement is such that all shares of Common Stock offered, excluding shares
covered by the over-allotment option granted to the Underwriter, must be
purchased if any are purchased. The Underwriting Agreement provides that the
obligations of the Underwriter to pay for and accept delivery of the shares of
Common Stock offered hereby are subject to the approval of certain legal matters
by counsel and to certain other conditions.
The Company has been advised by the Underwriter that it proposes to
offer the shares of Common Stock to the public initially at the price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $0.__ per share. The Underwriter may allow, and such
dealers may re-allow, a concession not in excess of $0.__ per share to certain
other dealers. The public offering price and concessions and allowances to
dealers may be changed by the Underwriter.
The Company has granted the Underwriter an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
210,000 shares of Common Stock to cover over-allotments, at the same price per
share to be paid by the Underwriter for the other shares offered hereby. The
Underwriter may purchase such shares only to cover over-allotments, if any, in
connection with the Offering made hereby.
The executive officers, directors and certain stockholders of the
Company have agreed that they will not offer, sell, contract to sell or grant an
option to purchase or otherwise dispose of any shares of the Company's Common
Stock, options to acquire shares of Common Stock or any securities exercisable
for or convertible into Common Stock owned by them, in the open market or
otherwise, for a period of 180 days from the date of this Prospectus, without
the prior written consent of the Underwriter. The Company has agreed not to
offer, sell or issue any shares of Common Stock, options to acquire Common Stock
or securities exercisable for or convertible into shares of Common Stock for a
period of 180 days after the date of this Prospectus, without the prior written
consent of the Underwriter, except that the Company may issue securities
pursuant to the Company's stock option plans and upon the exercise of all
outstanding stock options and warrants.
The Company and the Underwriter have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, which may arise out of or be based upon any untrue statement
or alleged untrue statement of any material fact made by the indemnifying party
and contained in this Prospectus, the Registration Statement, any supplement or
amendment thereto, or any documents filed with state securities authorities, or
any omission or alleged omission of the indemnifying party to state a material
fact required to be stated in any such document or required to make the
statements in any such document, in light of the circumstances in which they are
made, not misleading.
63
<PAGE>
The initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter based on
certain factors, in addition to prevailing market conditions, including the
history of and prospects for the industry in which the Company competes, an
assessment of the Company's management, the prospects of the Company, an
evaluation of the Company's assets, comparisons of the relationships between
market prices and book values of other financial institutions of a similar size
and asset quality, and other factors that were deemed relevant. Such decision
has not been based upon an actual trading market for the Common Stock;
accordingly, there can be no assurance that the Common Stock may be resold at or
above the offering price.
The Underwriter intends to make a market in the securities of the
Company, as permitted by applicable laws and regulations. The Underwriter,
however, is not obligated to make a market in such securities and any such
market making may be discontinued at any time at the sole discretion of the
Underwriter.
The Underwriter has informed the Company that it does not expect to
confirm sales of Common Stock offered by this Prospectus to any accounts over
which it exercises discretionary authority.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC,
Baltimore, Maryland. Governor William Donald Schaefer, a member of the Board of
Directors of the Company and the Bank and a beneficial owner of 1,000 shares of
Common Stock, and options to purchase an additional 900 shares, is of counsel to
such law firm. In addition, members of such firm own 2,500 shares and warrants
to purchase an additional 2,500 shares of the Company's Common Stock. Certain
legal matters related to the Offering will be passed upon for the Underwriter by
Shapiro and Olander, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of First Mariner Bancorp as of
December 31, 1995 and 1994 and for the years then ended, included herein have
been included in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), at 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form SB-2 (herein, together with all amendments and exhibits, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement. Further information with
respect to the Company and the Common Stock offered hereby, is included or
incorporated by reference in the Registration Statement, financial statements,
exhibits and schedules filed therewith. A copy of the Registration Statement may
be inspected without charge as the Commission's principal offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of all or part of the Registration Statement may be obtained from the
64
<PAGE>
Commission's principal office in Washington, D.C. upon payment of the prescribed
fees. The Commission also maintains a web site that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is http://www.sec.gov. The
material provisions of any contract or other document referred to herein are
described in this Prospectus; statements concerning the contents of such
contracts and documents, however, are not necessarily complete, and in each such
instance reference is made to the copy of such contract or other document filed
as an exhibit to such Registration Statement, each such statement being
qualified in all respect by such reference.
Prior to the date of this Prospectus, the Company was not subject to
the information requirements of the Securities Exchange Act of 1934. The Company
intends to furnish to its stockholders annual reports containing consolidated
financial statements examined by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited consolidated financial information.
65
<PAGE>
[This page intentionally left blank]
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C> <C> <C> <C>
Independent Auditors' Report............................................................................F-2
Consolidated Statements of Financial Condition as of September 30, 1996 (unaudited) and as of
December 31, 1995 and 1994..............................................................................F-3
Consolidated Statements of Operations for the nine months ended September 30, 1996
and 1995 (unaudited) and for the years ended December 31, 1995 and 1994.................................F-4
Consolidated Statements of Changes in Stockholders' Equity for the nine months ended
September 30, 1996 (unaudited) and for the years ended December 31, 1995 and 1994.......................F-5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1996
and 1995 (unaudited) and for the years ended December 31, 1995 and 1994.................................F-6
Notes to Consolidated Financial Statements at September 30, 1996 and
1995 (unaudited) and as of December 31, 1995 and 1994..................................................F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Mariner Bancorp:
We have audited the accompanying consolidated statements of financial condition
of First Mariner Bancorp and subsidiaries (the Corporation) as of December 31,
1995 and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Mariner
Bancorp and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 25, 1996
F-2
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 (unaudited)
and
December 31, 1995 and 1994
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
(unaudited)
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash:
On hand and in banks $ 5,766,252 $ 3,435,126 $ 1,331,054
Interest-bearing deposits 4,482,164 14,218,989 128,212
Securities sold (note 1) -- 2,337,625 --
Investment in certificates of deposit (note 3) 99,000 99,000 590,000
Mortgage-backed securities held to maturity,
fair value of $2,519,736 (note 4) -- -- 2,630,929
Loans receivable, net (notes 5 and 8) 80,981,616 29,760,313 19,930,101
Federal Home Loan Bank of Atlanta stock,
at cost (notes 8 and 11) 480,800 301,000 301,000
Property and equipment, net (note 6) 2,594,600 1,796,963 1,009,449
Prepaid expenses and other assets 556,919 849,329 382,707
----------- ----------- -----------
$94,961,351 $52,798,345 $26,303,452
=========== =========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 7) $78,857,010 $41,363,630 $20,882,530
Federal Home Loan Bank advances (note 8) 6,000,000 -- 3,150,000
Mortgage escrow accounts 79,791 123,011 164,218
Accrued expenses and other liabilities 841,996 609,718 130,089
----------- ----------- -----------
Total liabilities 85,778,797 42,096,359 24,326,837
Stockholders' equity (notes 10 and 11):
Common stock, $.05 par value; 5,000,000
shares authorized; 1,227,213, 1,226,613 and 225,813
shares issued and outstanding, respectively 61,361 61,331 11,291
Additional paid-in capital 12,170,210 12,164,240 2,206,280
Accumulated deficit (3,049,017) (1,523,585) (240,956)
----------- ----------- -----------
Net stockholders' equity 9,182,554 10,701,986 1,976,615
----------- ----------- -----------
Commitments and contingencies (notes 5 and 6)
$94,961,351 $52,798,345 $26,303,452
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Month Periods Ended September 30, 1996 and 1995 (unaudited)
and
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
--------------------------- ------------------------
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 3,981,916 $1,283,152 $ 1,981,588 $1,102,912
Mortgage-backed securities -- 132,563 176,650 77,576
Investment securities 334,507 243,774 403,201 28,653
------------ ---------- ----------- ----------
Total interest income 4,316,423 1,659,489 2,561,439 1,209,141
Interest expense:
Deposits (note 7) 1,949,995 787,677 1,176,436 411,364
Borrowed funds and other (note 8) 28,456 90,360 93,184 92,464
------------ ---------- ----------- ----------
Total interest expense 1,978,451 878,037 1,269,620 503,828
------------ ---------- ----------- ----------
Net interest income 2,337,972 781,452 1,291,819 705,313
Provision for loan losses (note 5) 674,828 -- 190,051 59,078
------------ ---------- ----------- ----------
Net interest income after provision
for loan losses 1,663,144 781,452 1,101,768 646,235
Noninterest income:
Service fees on loans 208,162 32,344 84,173 12,089
Service fees on deposits 229,728 54,017 94,918 48,524
Gain on sale of securities 331,695 -- 8,970 --
Other 42,352 4,307 8,953 14,751
------------ ---------- ----------- ----------
Total noninterest income 811,937 90,668 197,014 75,364
Noninterest expenses:
Salaries and employee benefits 1,859,988 568,243 1,189,172 410,378
Net occupancy 480,079 136,996 245,499 85,925
Insurance premiums 229,810 43,221 79,783 66,239
Furniture, fixtures and equipment 173,169 52,408 82,968 68,914
Professional services 59,841 123,851 233,448 51,205
Advertising 290,944 72,791 147,549 11,706
Service bureau expense 201,067 92,650 134,927 103,079
Office supplies 183,357 74,144 121,250 92,561
Amortization of cost of intangible assets 56,195 47,824 64,463 38,722
Other 466,063 149,758 282,352 51,260
------------ ---------- ----------- ----------
Total noninterest expenses 4,000,513 1,361,886 2,581,411 979,989
------------ ---------- ----------- ----------
Loss before income tax benefit (1,525,432) (489,766) (1,282,629) (258,390)
Income tax benefit (note 9) -- -- -- 17,434
------------ ---------- ----------- ----------
Net loss $ (1,525,432) $ (489,766) $(1,282,629) $ (240,956)
============ ========== =========== ==========
Net loss per common share (note 1) $ (1.24) $ (.97) $ (1.88) $ (2.07)
============ ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Month Period Ended September 30, 1996 (unaudited)
and
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Number of
shares of Additional Net
common Common paid-in Accumulated stockholders'
stock stock capital deficit equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 -- $ -- $ -- $ -- $ --
Common stock issued, net of
costs of issuance 225,813 11,291 2,206,280 -- 2,217,571
Net loss - 1994 -- -- -- (240,956) (240,956)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1994 225,813 11,291 2,206,280 (240,956) 1,976,615
Common stock issued 1,000,800 50,040 9,957,960 -- 10,008,000
Net loss - 1995 -- -- -- (1,282,629) (1,282,629)
--------- -------- ----------- ----------- -----------
Balance at December 31, 1995 1,226,613 61,331 12,164,240 (1,523,585) 10,701,986
Common stock issued
(unaudited) 600 30 5,970 -- 6,000
Net loss - 1996 (unaudited) -- -- -- (1,525,432) (1,525,432)
--------- -------- ----------- ----------- -----------
Balance at September 30, 1996
(unaudited) 1,227,213 $ 61,361 $12,170,210 $(3,049,017) $ 9,182,554
========= ========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Month Periods Ended September 30, 1996 and 1995 (unaudited)
and
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
--------------------------- -------------------------
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,525,432) $ (489,766) $ (1,282,629) $ (240,956)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of unearned loan fees, net (413,786) (82,935) (139,713) (16,777)
Amortization of premiums on deposits (21,025) (55,974) (74,632) (95,500)
Amortization of discounts on loans 58,961 68,878 83,973 58,021
Depreciation and amortization 284,572 113,685 189,755 64,360
Provision loans losses 674,828 -- 190,051 59,078
Net increase (decrease) in accrued
expenses and other liabilities 685,271 47,904 479,629 (94,549)
Amortization of premiums and
discounts on mortgage-backed
securities, net -- (13,829) (16,778) (5,874)
Increase in prepaids and
other assets (157,847) (373,022) (518,461) (162,213)
Gain on sale of securities (331,695) -- (8,970) --
Other, net -- -- -- (6,800)
------------ ----------- ------------ -----------
Net cash used in operating activities (746,153) (785,059) (1,097,775) (441,210)
------------ ----------- ------------ -----------
Cash flows from investing activities:
Loan disbursements, net of principal repayments (51,157,320) (4,671,036) (10,198,765) 1,137,536
Purchases of property and equipment (1,015,938) (356,949) (904,637) ( 881,130)
Purchases of Federal Home Loan Bank
of Atlanta stock (179,800) -- -- --
Proceeds from securities sold 2,337,625 -- -- --
Purchase of investment securities available for sale (1,838,672) -- -- --
Sale of investment securities available for sale 2,170,367 -- -- --
Principal repayments of mortgage-backed
securities -- 239,475 294,273 281,285
Sales of loans -- -- 2,630,929 665,629
Purchases of loans -- -- (2,339,505) (1,434,300)
Maturities of investments in certificates of deposit -- 491,000 491,000 --
Purchases of investments in certificates of deposit -- -- -- (590,000)
Cash acquired in excess of payments for
purchases of MBFSB and FBFSB -- -- -- 652,022
Other, net -- -- -- 300
------------ ----------- ------------ ----------
Net cash used in investing activities (49,683,738) (4,297,510) (10,026,705) (168,658)
</TABLE>
F-6
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Nine Month Periods Ended September 30, 1996 and 1995 (unaudited)
and
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
--------------------------- -------------------------
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits 37,061,412 9,254,042 20,502,536 (2,839,473)
Proceeds from advances from Federal
Home Loan Bank of Atlanta 6,000,000 -- -- 2,850,000
Repayment of advances from Federal
Home Loan Bank of Atlanta -- (2,650,000) (3,150,000) --
Net decrease in mortgage escrow accounts (43,220) (95,685) (41,207) (864)
Proceeds from stock issuance, net 6,000 9,401,029 10,008,000 2,059,471
------------ ----------- ----------- -----------
Net cash provided by financing activities 43,024,192 15,909,386 27,319,329 2,069,134
------------ ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (7,405,699) 10,826,817 16,194,849 1,459,266
Cash and cash equivalents at beginning of period 17,654,115 1,459,266 1,459,266 --
------------ ----------- ------------ -----------
Cash and cash equivalents at end of period $ 10,248,416 $12,286,083 $17,654,115 $ 1,459,266
============ =========== =========== ===========
Supplemental information:
Interest paid on deposits and
borrowed funds $ 1,499,588 $ 868,282 $ 1,216,424 $ 687,839
============ =========== =========== ===========
Exchange of stock for MBFSB stock (note 2) $ -- $ -- $ -- $ 158,100
============ =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
Organization and basis of presentation
First Mariner Bancorp (the "Corporation") is a bank holding company
incorporated under the laws of Maryland and registered under the Bank
Holding Company Act of 1956, as amended. The Corporation, was organized as
"MarylandsBank Corp." in May 1994, and the Corporation's name was changed
to "First Mariner Bancorp" in May 1995. The Corporation owns 100% of the
common stock of First Mariner Bank (the "Bank"). First Mariner Bank is the
banking corporation created by the combination of Farmers Bank, FSB and
Garibaldi Federal Savings Bank, which, once combined, was named
MarylandsBank, FSB. The bank was converted to a Maryland-chartered trust
company with all of the powers of a commercial bank, at which time the name
was changed to "First Mariner Bank."
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries for 1995 and for 1994 include the accounts
of the Corporation and its subsidiaries MarylandsBank, FSB (MBFSB) and
Farmers Bank, a Federal Savings Bank (FBFSB), from July 31, 1994 and
February 1, 1994, respectively, their dates of acquisition for accounting
purposes. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
The accompanying unaudited financial statements for the nine months ended
September 30, 1996 and 1995 do not include all information and footnotes
necessary for a complete presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. However, all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
presentation of the unaudited consolidated financial statements have been
included in the results of operations for the nine months ended September
30, 1996 and 1995. Operating results for the nine months ended September
30, 1996 and 1995 are not necessarily indicative of results that may be
expected for the complete year.
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 at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan
losses. In connection with these determinations, management evaluates
historical trends and ratios and where appropriate obtains independent
appraisals for significant properties and prepares fair value analyses as
appropriate.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions, particularly in the State of Maryland. In addition,
various
F-8
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(1) Continued
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
Securities sold
Securities sold represents net sales proceeds due from brokers for sales
transactions executed prior to December 31, 1995 but not settling until
after December 31, 1995.
Loan fees
Origination and commitment fees and direct origination costs on loans held
for investment are deferred and amortized to income over the contractual
lives of the related loans using the interest method. Under certain
circumstances, commitment fees are recognized over the commitment period or
upon expiration of the commitment. Unamortized loan fees are recognized in
income when the related loans are sold or prepaid.
Sales of mortgage loans
Loans originated for sale are carried at the lower of aggregate cost or
market value. Market value is determined based on outstanding investor
commitments or, in the absence of such commitments, based on current
investor yield requirements. Gains and losses on loan sales are determined
using the specific identification method.
Investment securities
In 1994, the Corporation adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS No. 115), which
addresses the accounting and reporting for certain investments in debt and
equity securities. SFAS No. 115 requires classification of such securities
into three categories. Debt securities that an entity has the positive
intent and ability to hold to maturity are classified as held to maturity
and recorded at amortized cost. Debt and equity securities are classified
as trading securities if bought and held principally for the purpose of
selling them in the near term. Trading securities are reported at fair
value, with unrealized gains and losses included in earnings. Debt
securities not classified as held to maturity and debt and equity
securities not classified as trading securities are considered available
for sale and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of
stockholders' equity, net of tax effects.
Based on a review of its mortgage-backed securities portfolio, the
Corporation had designated such securities as held to maturity upon
adoption of SFAS No. 115. If a decline in value of an individual security
classified as held to maturity or available for sale is judged to be other
than temporary, the cost basis of that security is reduced to its fair
value and the amount of the write-down is reflected
F-9
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(1) Continued
in earnings. Fair value is determined based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
For purposes of computing realized gains or losses on the sales of
investments, cost is determined using the specific identification method.
Premiums and discounts on investment and mortgage-backed securities are
amortized over the term of the security using methods that approximate the
interest method.
In November 1995, the Financial Accounting Standards Board announced its
intention to allow a one-time change in the classification of securities,
providing such change was effected by December 31, 1995. Management
utilized this opportunity and designated its portfolio of mortgage-backed
securities as available for sale.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are accumulated using
straight-line and accelerated methods over the estimated useful lives of
the assets. Additions and betterments are capitalized and charges for
repairs and maintenance are expensed when incurred. The cost and
accumulated depreciation or amortization are eliminated from the accounts
when an asset is sold or retired and the resultant gain or loss is credited
or charged to income.
Intangible assets
Intangible assets acquired in connection with the acquisitions of MBFSB and
FBFSB are amortized using the straight-line method over the estimated
useful lives of the assets of ten years. Organization costs are being
amortized over five years. These amounts are included in prepaid expenses
and other assets.
Nonaccrual and impaired loans
The allowance for losses on loans is determined based on management's
review of the loan portfolio and analysis of the borrowers' ability to
repay, past collection experience, risk characteristics of individual loans
or groups of similar loans and underlying collateral, current and
prospective economic conditions and status of nonperforming loans.
Loans are placed in nonaccrual status when they are past-due 90 days as to
either principal or interest or when, in the opinion of management, the
collection of principal and interest is in doubt. A loan remains in
nonaccrual status until the loan is current as to payment of both principal
and interest and the borrower demonstrates the ability to pay and remain
current. Loans are charged-off when a loan or a portion thereof is
considered uncollectible.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, Accounting
by Creditors for Impairment of a Loan (SFAS No. 114) and SFAS No. 118,
Accounting for Creditors for Impairment of a Loan -
F-10
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(1) Continued
Income Recognition Disclosures (SFAS No. 118). In accordance with SFAS Nos.
114 and 118, the Corporation identifies impaired loans and measures
impairment (i) at the present value of expected cash flows discounted at
the loan's effective interest rate; (ii) at the observable market price, or
(iii) at the fair value of the collateral if the loan is collateral
dependent. If the measure of the impaired loan is less than the recorded
investment in the loan, an impairment is recognized through a valuation
allowance and corresponding charge to bad-debt expense.
A loan is determined to be impaired when, based on current information and
events, it is probable that the Corporation will be unable to collect all
amounts due according to the contractual terms of the loan agreement. A
loan is not considered impaired during a period of delay in payment if the
Corporation expects to collect all amounts due, including interest
past-due. The Corporation generally considers a period of delay in payment
to include delinquency up to 90 days.
SFAS No. 114 does not apply to larger groups of smaller-balance homogeneous
loans such as consumer installment, residential first and second mortgage
loans and credit card loans. These loans are collectively evaluated for
impairment.
Changes resulting from the implementation of SFAS Nos. 114 and 118 did not
materially impact the financial condition or results of operations of the
Corporation as of and for the year ended December 31, 1995.
Income taxes
Deferred tax assets are recognized only to the extent that it is more
likely than not that such amounts will be realized based on consideration
of available evidence, including tax planning strategies and other factors.
The effects of changes in tax laws or rates on deferred tax assets and
liabilities are recognized in the period that includes the enactment date.
Statements of cash flows
For purposes of the consolidated statements of cash flows, the Corporation
considers all highly liquid investments with maturities at date of purchase
of three months or less to be cash equivalents.
Loss per share
The loss per share computation is based on the weighted average number of
shares outstanding for the nine months ended September 30, 1996 and 1995
and during the years ended December 31, 1995 and 1994. The number of shares
used in the computation was 1,226,996, 681,893, 504,577 and 110,013 shares,
respectively.
Net loss per share for the portion of the year ended December 31, 1994
subsequent to incorporation, May 1, 1994 through December 31, 1994, is
computed using net loss for such period.
F-11
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(1) Continued
The common stock equivalents, disclosed in note 10, were antidilutive for
all periods presented, and were thus excluded from the computation of net
loss per common share.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the September 30, 1996 presentation.
(2) Acquisitions
The Corporation acquired FBFSB on February 1, 1994 and MBFSB on July 31,
1994. The acquisitions were accounted for under the purchase accounting
method.
In connection with the acquisition of FBFSB, the Corporation purchased all
of the outstanding stock of FBFSB at a price of $797,000 in cash.
MBFSB was formerly owned by a group of individual stockholders. In
connection with the acquisition of MBFSB, the Corporation purchased 62,950
shares of MBFSB outstanding common stock for $832,000 in cash
(approximately 83% of the outstanding stock of MBFSB) and to acquire the
remaining 17% of MBFSB issued 15,813 shares of the Corporation's stock with
an assigned value of $158,000.
The purchase price of FBFSB and MBFSB exceeded the estimated fair values of
assets acquired less liabilities assumed by $134,000.
(3) Investments in Certificates of Deposit
Investments in certificates of deposit is comprised of the following at
December 31:
<TABLE>
<CAPTION>
Weighted average rate
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Certificates maturing:
Within 1 year -- 4.75% $ -- $491,000
1 through 5 years 8.00% 8.00% 99,000 99,000
----- ----- --------- --------
$ 99,000 $590,000
========= ========
</TABLE>
(4) Mortgage-backed Securities
Mortgage-backed securities are summarized as follows at December 31, 1994:
F-12
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(4) Continued
<TABLE>
<CAPTION>
Amortized Market
cost value
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation certificates $1,018,224 $ 925,356
Federal National Mortgage Association certificates 569,818 556,994
Government National Mortgage Association certificates 1,107,483 1,012,607
Unamortized discount (89,375) --
Accrued interest 24,779 24,779
---------- ----------
$2,630,929 $2,519,736
========== ==========
</TABLE>
Gross unrealized losses on mortgage-backed securities at December 31, 1994
were $111,000.
During 1995, the Corporation sold its mortgage-backed securities portfolio,
classified as available for sale and recognized a gain of $8,970.
(5) Loans Receivable
Substantially all of the Corporation's loans receivable are mortgage loans
secured by residential and commercial real estate properties located in the
State of Maryland. Properties pledged as collateral include single and
multi-family residences, office buildings, retail buildings, land
undergoing development, warehouses and general purpose business space.
Loans are extended only after evaluation by management of customers'
creditworthiness and other relevant factors on a case-by-case basis. The
Corporation generally does not lend more than 90% of the appraised value of
a property and requires private mortgage insurance on residential mortgages
with loan-to-value ratios in excess of 80%. In addition, the Corporation
generally obtains personal guarantees of repayment from borrowers and/or
others for development, construction, commercial and multi-family
residential loans and disburses the proceeds of construction and similar
loans only as work progresses on the related projects.
Residential lending is generally considered to involve less risk than other
forms of lending, although payment experience on these loans is dependent
to some extent on economic and market conditions in the Corporation's
primary lending area. Commercial, development and construction loan
repayments are generally dependent on the operations of the related
properties or the financial condition of its borrower or guarantor.
Accordingly, repayment of such loans can be more susceptible to adverse
conditions in the real estate market and the regional economy.
Loans receivable and accrued interest thereon are summarized as follows:
F-13
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
<TABLE>
<CAPTION>
September 30, December 31,
-------------- -------------------------------
1996 1995 1994
---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Loans secured by first mortgages on real estate:
Residential $20,339,199 $15,634,976 $16,886,708
Commercial 23,154,092 4,938,948 886,976
Construction 25,887,077 10,465,343 1,230,262
----------- ----------- -----------
69,380,368 31,039,267 19,003,946
Commercial 11,687,987 869,641 --
Loans secured by second mortgages
on real estate 1,243,129 580,942 421,633
Consumer loans 782,974 1,263,563 873,604
Loans secured by savings accounts and other 587,116 187,158 32,163
----------- ----------- -----------
83,681,574 33,940,571 20,331,346
Less:
Undisbursed portion of loans in process 1,686,349 3,929,550 431,085
----------- ----------- -----------
81,995,225 30,011,021 19,900,261
Add:
Unamortized loan premiums 224,965 283,926 375,708
Accrued interest receivable 585,690 201,704 144,522
Less:
Unearned loan fees, net 819,509 308,220 171,866
Unearned loan discounts 45,943 51,831 73,677
Allowance for losses 958,812 376,287 244,847
----------- ----------- -----------
$80,981,616 $29,760,313 $19,930,101
=========== =========== ===========
</TABLE>
Nonaccrual loans totaled approximately $468,000, $633,000 and $692,000 at
September 30, 1996, and December 31, 1995 and 1994, respectively. During
1995 and 1994, the amount of interest income that would have been recorded
on loans on nonaccrual status at December 31, 1995 and 1994 had such loans
performed in accordance with their contractual terms, was approximately
$65,000 and $34,200, respectively.
As of and for the year ended December 31, 1995 no loans were determined to
be impaired in accordance with the provisions of SFAS No. 114.
Changes in the allowance for losses on loans are summarized as follows:
F-14
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(5) Continued
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $376,287 $244,847 $ --
Provisions charged to expense 674,828 190,051 59,078
Charge-offs, net of recoveries (92,303) (58,611) (21,640)
Balance acquired in acquisitions -- -- 207,409
-------- -------- --------
Balance at end of period $958,812 $376,287 $244,847
======== ======== ========
</TABLE>
Commitments to extend credit are agreements to lend to customers, provided
that terms and conditions established in the related contracts are met. At
December 31, 1995, the Corporation had commitments to originate first
mortgage loans on real estate of approximately $1,495,000, all of which
were committed for sale in the secondary market.
At December 31, 1995, the Corporation had commitments to loan funds under
unused home equity lines of credit aggregating approximately $615,000 and
unused commercial lines of credit aggregating approximately $3,987,000.
Such commitments carry a floating rate of interest.
Commitments for mortgage loans generally expire within sixty days and are
normally funded with loan principal repayments, excess liquidity and
savings deposits. Since certain of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements.
Substantially all of the Corporation's outstanding commitments at December
31, 1995 are for loans which would be secured by real estate with appraised
values in excess of the commitment amounts. The Corporation's exposure to
credit loss under these contracts in the event of non-performance by the
other parties, assuming that the collateral proves to be of no value, is
represented by the commitment amounts.
During the ordinary course of business, the Bank may make loans to
directors and policy making officers on substantially the same terms,
including interest rates and collateral, as those for comparable
transactions with other customers. These loans are consistent with sound
banking practices, are within regulatory lending limitations and do not
involve more than normal risk of collectibility. Loans outstanding to
directors and policy making officers totaled approximately $623,000 at
December 31, 1995. There were no loans outstanding to directors and policy
making officers at December 31, 1994.
F-15
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
Changes during the year ended December 31, 1995 in the aggregate of loans
to such directors and officers exceeding $60,000 are as follows:
Balance at beginning of year $ --
Originations 624,000
Repayments (1,000)
----------
Balance at end of year $ 623,000
==========
(6) Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31, Estimated
------------- ------------------------ useful lives
1996 1995 1994 -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Land $ 391,540 $ 391,540 $ 266,250 --
Buildings and improvements 739,125 885,986 644,240 10-39 years
Leasehold improvements 738,362 255,258 25,712 10-33 years
Furniture, fixtures and equipment 1,271,038 581,799 273,744 5-7 years
Automobiles -- 9,544 9,544 5 years
---------- ----------- ----------
Total at cost 3,140,065 2,124,127 1,219,490
Less accumulated depreciation
and amortization 545,465 327,164 210,041
---------- ---------- ----------
$2,594,600 $1,796,963 $1,009,449
========== ========== ==========
</TABLE>
Rent expense for the years ended December 31, 1995 and 1994 was
approximately $118,000 and $23,000, respectively.
The Corporation and the Bank occupy space leased from a company of which
the Chairman and CEO of the Corporation is an officer, director and
shareholder. This company is paid approximately $212,000 annually for
office and branch space. The term of the lease is five years.
The Bank has opened full-service branches in two of Mars Super Markets,
Inc. stores and has installed ATMs in ten (10) of the markets. The Bank
pays rent of $36,500 per year for approximately 500 square feet of branch
space in each store. There is no charge to the Bank for
F-16
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
the operation of ATMs in each store. Mars Super Markets, Inc. is
represented on the Board of Directors of the Corporation and the Bank.
Minimum lease payments due for each of the next five years total
approximately $226,000 as of December 31, 1995.
(7) Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31,
------------------------ 1995 1994
(unaudited) ------------------------- ------------------------
Weighted Weighted Weighted
Amount average Amount average Amount average
maturing effective rate maturing effective rate maturing effective rate
-------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Noncertificate:
Passbook and
other $ 4,589,670 2.79% $ 3,523,598 2.80% $ 2,867,114 3.04%
Checking
accounts 3,790,237 0.78% 2,138,552 2.38% 1,457,734 2.52%
Money fund
accounts 8,378,025 3.41% 5,601,546 3.21% 4,277,244 3.32%
Non-interest
bearing demand 8,544,072 -- 3,073,860 -- 988,873 --
----------- ----- ----------- ----- ----------- -----
25,302,004 14,337,556 9,590,965
----------- ----------- -----------
Certificates:
Original maturities:
Under 12
months 5,134,687 4.79% 3,775,761 5.33% 3,486,215 4.26%
12 to 120
months 35,839,490 6.16% 19,086,432 6.73% 6,124,882 5.59%
IRA and KEOGH 12,023,315 6.06% 4,038,335 6.24% 1,533,486 5.13%
----------- ----- ----------- ----- ----------- -----
52,997,492 26,900,528 11,144,583
----------- ----------- -----------
Accrued interest
payable 515,671 62,678 9,482
Unamortized premium 41,843 62,868 137,500
----------- ----------- -----------
$78,857,010 $41,363,630 $20,882,530
=========== =========== ===========
</TABLE>
F-17
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(7) Continued
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
------------------------- ----------------------- ----------------------
(Unaudited)
Amount Amount Amount
maturing % of total maturing % of total maturing % of total
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scheduled certificate
maturities:
Under 6 months $15,801,717 29.82% $ 5,946,824 22.11% $ 4,062,754 36.45%
6 months to
12 months 8,852,468 16.70% 11,599,052 43.12% 1,985,010 17.81%
12 months to
24 months 24,879,435 46.94% 5,741,082 21.34% 1,706,365 15.31%
24 months to
36 months 1,666,943 3.15% 1,550,118 5.76% 1,251,018 11.23%
36 months to
48 months 1,446,521 2.73% 649,275 2.41% 1,450,833 13.02%
Over 48 months 350,408 0.66% 1,414,177 5.26% 688,603 6.18%
----------- ------- ----------- ------- ----------- -------
$52,997,492 100.00% $26,900,528 100.00% $11,144,583 100.00%
=========== ======= =========== ======= =========== =======
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
-------------------------- ------------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Certificates $1,615,713 $583,768 $ 899,648 $253,867
Checking and money fund accounts 222,460 144,231 210,412 109,880
Passbook and other 111,822 59,678 66,376 47,617
---------- -------- ---------- --------
$1,949,995 $787,677 $1,176,436 $411,364
========== ======== ========== ========
</TABLE>
Certificates of deposit of $100,000 or more totaled approximately
$2,646,000 and $1,031,000 at December 31, 1995 and 1994, respectively.
F-18
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(8) Federal Home Loan Bank Advances
Under a blanket floating lien agreement with the Federal Home Loan Bank of
Atlanta (FHLB), the Corporation is required to maintain as collateral for
all of its borrowings eligible first mortgage loans in an amount equal to
154% of the advances. At September 30, 1996, the Corporation had no credit
available under the blanket floating lien agreement with the FHLB.
Borrowings bear interest at the FHLB Daily Rate Credit (approximately 5.5%
at September 30, 1996).
(9) Income Taxes
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal $ -- -- -- $ 12,337
State -- -- -- 5,097
----------- ---------- ----------- ----------
$ -- -- -- $ 17,434
=========== ========== =========== ==========
</TABLE>
The income tax benefit is reconciled to the amount computed by applying the
federal corporate tax rate of 34% to income before taxes as follows:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
1996 1995 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit at federal
corporate rate $ 518,000 $ 166,000 $ 436,000 $ 87,852
State income taxes, net of
federal income tax benefit -- 3,364
Amortization of cost of
intangible assets (3,000) -- (3,000) (1,979)
Change in valuation allowance (515,000) (166,000) (433,000) (56,697)
Effect of graduated tax rates -- -- -- (15,106)
----------- -------- ---------- --------
$ -- $ -- $ -- $ 17,434
=========== ======== ========== ========
</TABLE>
F-19
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(9) Continued
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities relate to the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Interest and fees on loans $ 100,000 $ 119,000 $ 56,000
Allowance for losses on loans 287,000 107,000 95,000
Excess of fair value of liabilities
acquired over cost 20,000 25,000 53,000
Net operating loss carryforwards 753,000 407,000 49,000
Other -- 3,000 2,000
------------- ---------- ----------
Total gross deferred assets 1,160,000 661,000 255,000
Less valuation allowance (1,080,000) (565,000) (132,000)
------------- ---------- ----------
Net deferred tax assets 80,000 96,000 123,000
------------- ---------- ----------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends 12,000 12,000 12,000
Excess of fair value of assets acquired
over cost 68,000 84,000 111,000
------------- ---------- ----------
Total gross deferred tax liabilities 80,000 96,000 123,00
------------- ---------- ----------
Net deferred tax asset $ -- $ -- $ --
============= ========== ==========
</TABLE>
At December 31, 1995, the Corporation has net operating loss carryforwards
for federal income tax purposes of approximately $1,000,000 which are
available to offset future federal taxable income, if any, through 2010. As
a result of ownership changes in 1995, utilization of a portion of the net
operating loss carryforward is subject to annual limitations. In addition,
approximately $76,000 of the valuation allowance at December 31, 1995 was
established in connection with the acquisitions of MBFSB and FBFSB and will
be credited to intangible assets as realized.
F-20
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(10) Stockholders' Equity
Dividends
Under federal regulations, the Bank may not declare or pay a cash dividend
on its common stock if the dividend would cause the Bank's capital to be
reduced below the amount required by the capital requirements imposed by
FIRREA and the Federal Reserve Board. Since the Bank currently meets the
fully phased-in capital requirements under FIRREA, it may pay a cash
dividend on its capital stock up to the higher of (i) 100% of net income to
date during the calendar year plus an amount not to exceed 50% of surplus
capital ratio at the beginning of the calendar year or (ii) 75% of net
income over the most recent four quarter period. Based upon this
calculation, there were no amounts available for payment of dividends at
December 31, 1995. In addition, income appropriated to bad debt reserves
and deducted for federal income tax purposes cannot be used to pay cash
dividends without the payment of federal income taxes at the then current
tax rate on the amount withdrawn from such reserves.
Stock Options
The Corporation has stock option award arrangements which provide for the
granting of options to acquire common stock to directors and key employees.
The exercise price of each option is $10.00 per share. Options may be
exercised at any time after the date of grant and expire ten years after
the date of grant.
Options are summarized as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, December 31,
-------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 10,500 -- --
Granted 16,200 10,500 10,500
Expired (700) -- --
------ ------ ------
Outstanding at end of period 26,000 10,500 10,500
Exercisable at end of period 26,000 10,500 10,500
====== ====== ======
</TABLE>
F-21
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
Warrants
Warrants to acquire 818,323 and 195,000 shares of common stock at $10.00
per share were outstanding and exercisable at December 31, 1995 and 1994,
respectively. During all periods presented no warrants to acquire shares of
common stock were exercised.
(11) Insurance of Savings Accounts and Related Matters
The Federal Deposit Insurance Corporation (FDIC), through the Savings
Association Insurance Fund (SAIF), insures deposits of account holders up
to $100,000. First Mariner Bank pays an annual premium to provide for this
insurance. The Bank is a member of the Federal Home Loan Bank System and is
required to maintain an investment in the stock of the Federal Home Loan
Bank of Atlanta equal to at least 1% of the unpaid principal balances of
its residential mortgage loans, .3% of its total assets or 5% of its
outstanding advances from the FLHB, whichever is greater. Purchases and
sales of stock are made directly with the FLHB at par value.
In connection with the insurance of their deposits, commercial banks are
required to maintain certain minimum levels of regulatory capital. The
regulatory capital regulations require minimum levels of Tier 1 risk-based
capital of 4% of adjusted total assets and risk-based capital of 8.0% of
risk-weighted assets.
At September 30, 1996, the Corporation was in compliance with the
regulatory capital requirements with Tier 1 risk-based capital and
risk-based capital of 10.33% and 11.44%, respectively.
At December 31, 1995, the Corporation was in compliance with the regulatory
capital requirements with Tier 1 risk-based capital and risk-based capital
of 33.87% and 35.10%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
included prompt corrective action provisions for which implementing
regulations became effective on December 19, 1992. FDICIA also includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reduction in insurance coverage for
certain kinds of deposits, increased supervision by the federal regulatory
agencies, increased reporting requirements for insured institutions, and
new regulations concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including
F-22
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
the requirement to file a capital plan with its primary federal regulator,
prohibitions on the payment of dividends and management fees, restrictions
on executive compensation, and increased supervisory monitoring, among
other things.
To be considered "well capitalized," an institution must generally have a
leverage capital ratio of at least 5%, a tier one risk-based capital ratio
of at least 6% and a total risk-based capital ratio of at least 10%. At
September 30, 1996, First Mariner Bank met the criteria required to be
considered "well capitalized" under this regulation.
On September 30, 1996, Federal legislation was enacted and signed into law
which provides a resolution to the disparity in the Bank Insurance fund and
SAIF premiums. In particular, the SAIF-insured institutions, such as the
Bank, will pay a one-time assessment of 65.7 cents on every $100 of
deposits held at March 31, 1995. Such payment is due no later than November
29, 1996. As a result of the new law the Corporation will be required to
pay approximately $154,000. Assuming the special assessment is tax
deductible, the cost, net of income tax benefits, will be approximately
$102,000. The Corporation recorded the one-time charge to earnings during
the quarter ended September 30, 1996. Also, beginning January 1, 1997, the
current annual minimum SAIF premium of 23 basis points will be reduced to
approximately 6.5 basis points.
(12) Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments (SFAS
No. 107) requires the Corporation to disclose estimated fair values for
certain on- and off-balance sheet financial instruments. Fair value
estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments as of December 31, 1995.
The carrying value and estimated fair value of financial instruments is
summarized as follows (in thousands):
Carrying Estimated
value fair value
----- ----------
Assets:
Cash and interest-bearing deposits $ 17,654 $ 17,654
Investment securities 2,738 2,738
Loans receivable 29,730 30,329
Liabilities:
Deposit accounts 41,367 41,830
Mortgage escrow accounts 123 123
Off balance sheet instruments:
Commitments to extend credit - 1,495
Loans sold with recourse - -
Unused lines of credit - 3,987
Cash on Hand and in Banks
The carrying amount for cash on hand and in banks approximates fair value
due to the short maturity of these instruments.
Federal Funds Sold
The carrying amount for federal funds sold approximates fair value due to
the overnight maturity of these instruments.
F-23
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(12) Continued
Investment Securities
The fair value of investment securities is based on bid prices received
from an external pricing service or bid quotations received from securities
dealers.
Loans
Loans were segmented into portfolios with similar financial
characteristics. Loans were also segmented by type such as residential,
multifamily and nonresidential, construction and land, second mortgage
loans, commercial, and consumer. Each loan category was further segmented
by fixed and adjustable rate interest terms and performing and
nonperforming categories. The fair value of residential loans was
calculated by discounting anticipated cash flows based on weighted-average
contractual maturity, weighted-average coupon, prepayment assumptions and
discount rate. Prepayment speed estimates were derived from published
historical prepayment experience in the mortgage pass-through market and
recent issuance activity in the primary and secondary mortgage markets. The
discount rate for residential loans was calculated by adding to the
Treasury yield for the corresponding weighted average maturity associated
with each prepayment assumption a market spread as observed for
mortgage-backed securities with similar characteristics. The fair values of
multifamily and nonresidential loans were calculated by discounting the
contractual cash flows at the Bank's current nonresidential loan
origination rate. Construction, land and commercial loans, loans secured by
savings accounts and mortgage lines of credit were determined to be at fair
value due to their adjustable rate nature. The fair value of second
mortgage loans was calculated by discounting scheduled cash flows through
the estimated maturity using estimated market discount rates that reflected
the credit and interest rate risk inherent in the portfolio. The fair value
of consumer loans was calculated by discounting the contractual cash flows
at the Company's current consumer loan origination rate.
The fair value for nonperforming loans was determined by reducing the
carrying value of nonperforming loans by the Company's percentages and
management analysis of the underlying collateral for each specific loan
category.
The carrying amounts and fair values of loans receivable consisted of the
following at December 31, 1995:
F-24
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
(12) Continued
Carrying Fair
Amount Value
Loans secured by first mortgages on real estate $27,979,358 $28,123,000
Consumer and other loans 2,031,663 2,004,000
Unamortized premiums, discount and fees, net (76,)25 --
Accrued interest receivable 201,704 202,000
----------- -----------
30,136,600 30,329,000
----------- -----------
Allowance for losses on loans 376,287 --
----------- -----------
Total loans $29,760,313 $30,329,000
=========== ===========
Accrued Interest Receivable
The carrying amount of accrued interest receivable approximates its fair
value.
Deposits
Under SFAS No. 107, the fair value of deposits with no stated maturity,
such as noninterest bearing deposits, interest bearing now accounts, money
market and statement savings accounts, is equal to the carrying amounts.
The fair value of certificates of deposit was based on the discounted value
of contractual cash flows. The discount rate for certificates of deposit
was estimated using the rate currently offered for deposits of similar
remaining maturities.
The carrying value and estimated fair value of certificates of deposit at
December 31, 1995 were:
Carrying value $ 26,900,528
Fair value $ 27,429,000
Accrued Interest Payable
The carrying amount of accrued interest payable approximates its fair
value.
Off-Balance Sheet Financial Instruments
The Corporation's adjustable rate commitments to extend credit move with
market rates and are not subject to interest rate risk. The rates and terms
of the Corporation's fixed rate commitments to extend credit are
competitive with others in the various markets in which the Corporation
operates. The carrying amounts are reasonable estimates of the fair value
of these instruments.
F-25
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 1996 and 1995 (unaudited) and
December 31, 1995 and 1994
The disclosure of fair value amounts does not include the fair values of
any intangibles, including core deposit intangibles. Core deposit
intangibles represent the value attributable to total deposits based on an
expected duration of customer relationships.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about financial instruments.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Corporation's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Corporation's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect estimates.
(13) Employee Stock Ownership Plan
MBFSB has an established Employee Stock Ownership Plan. In connection with
the acquisition by the Corporation, the 4,500 shares of MBFSB held by the
Plan were exchanged for 4,500 shares of the Corporation's stock. Funding
for the shares were provided by a loan from an independent lending
institution. Such loan is not guaranteed by MBFSB or the Corporation. The
Corporation is in the process of converting the Plan from MBFSB to the
Corporation. Expenses related to the Plan for 1995 and 1994 were $10,000
and $4,000, respectively.
<PAGE>
=========================================== ===================================
No dealer, salesperson or any other
person has been authorized to give
any information or to make any repre- 1,400,000 Shares
sentation in connection with this
offering other than those contained
or incorporated by reference in this
Prospectus, and if given or made, such
information or representation must not
be relied upon as having been so
authorized by the Company or any
Underwriter. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy, any FIRST MARINER
of these securities in any jurisdiction BANCORP
to any person to whom it is unlawful to
make such offer or solicitation in such
jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder
shall, under any circumstances, create Common Stock
any implication that there has been no
change in the affairs of the Company
since the date hereof or that the
information contained herein is
correct as of any time subsequent
to its date.
------------
TABLE OF CONTENTS PROSPECTUS
Page ------------
Prospectus Summary 3
Summary Consolidated Financial Data 6
Risk Factors 7
Dilution 12
Use of Proceeds 12
Dividend Policy 12
Capitalization 14
Selected Consolidated Financial Data 15 Ferris, Baker Watts
Management's Discussion and Analysis Incorporated
of Financial Condition and Results
of Operations 16
The Company 34
Business 36
Management 48
Beneficial Ownership of Shares 50 , 1996
Certain Relationships and
Related Transactions 51
Description of Securities 52
Supervision and Regulation 55
Shares Eligible for Future Sale 62
Underwriting 63
Legal Matters 64
Experts 64
Additional Information 64
Until , 1997, all dealers effecting
transactions in the registered securities,
whether or not participating in this
distribution may be required to deliver a
prospectus. This is in addition to the
obligation of dealers to deliver a
prospectus when acting as underwriters
and with respect to their unsold
allotments or subscriptions.
=========================================== ===================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Articles of Incorporation of the Company, as amended (the "Charter"),
provides that, among other matters, to the fullest extent permitted by Maryland
General Corporation Law as it may be amended from tune to time, current and
former directors and officers of the Company, and those persons who serve or
have served, at the Company's request, as a director, officer, partner, trustee,
employee or agent of another entity or enterprise shall be indemnified against
any and all liabilities and expenses incurred in connection with their services
in such capacities. Other provisions of the Charter provide that the Company
shall advance expenses to its officers and directors and other persons to the
same extent it shall indemnify such persons. The indemnification of directors
and officers applies to directors and officers who also are employees, in their
capacity as employees.
Furthermore, the Charter of the Company provides that, to the fullest extent
permitted by the Maryland General Corporation Law as it may be amended from time
to time, no director or officer of the Company shall be liable to the Company or
its stockholders for monetary damages arising out of events occurring at the
time such person is serving as a director or officer, regardless of whether such
person is a director or officer at the time of a proceeding in which liability
is asserted. Under current Maryland law, the effect of this provision is to
eliminate the rights of the Company and its stockholders to recover monetary
damages from a director or officer except (i) to the extent that it is proved
that the director or officer actually received an improper benefit, or profit in
money, property, or services for the amount of the benefit or profit in money,
property or services actually received, or (ii) to the extent that a judgment or
other final adjudication adverse to the person is entered in a proceeding based
on a finding in the proceeding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. In situations to which the Charter
provision applies, the remedies available to the Company or a stockholder are
limited to equitable remedies such as injunction or rescission.
The Company maintains directors' and officers' liability insurance in the amount
of $3,000,000.
Item 25. Other Expenses of Issuance and Distribution.
The following is an estimate of expenses payable by the Company in connection
with the sale of the securities offered hereby:
SEC Registration Fee $ 5,855
Accounting fees and expenses 85,000
Legal fees and expenses 125,000
Blue Sky fees and expenses 15,000
Printing and engraving 75,000
Transfer Agent Fee 5,000
Listing Fees 13,000
Miscellaneous 46,145
--------
Total $370,000
--------
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
(1) The Company offered and sold, pursuant to a Private Placement Memorandum in
September, 1994, a total of 210,000 shares of Common Stock at a price per
share of $10.00. In addition to the Common Stock, investors received
warrants exercisable at $10 for 10 years, for each three shares purchased
in the offering. A total of 195,000 warrants were issued. The shares were
sold to accredited investors as defined by Section 501 (a) of Regulation D
("Accredited Investors") pursuant to a Private Placement Memorandum and to
no more that 35 non-accredited investors in reliance upon an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to Rule 505 of Regulation D.
(2) The Company offered and sold, pursuant to a Private Placement Memorandum
dated May 22, 1995, a total of 500,000 shares of Common Stock at a price
per share of $10.00 to Accredited Investors. In addition to the Common
Stock, each investor received one warrant exercisable at $10 for 10 years
for each three shares purchased in the offering and investors who purchased
25,000 shares received one warrant per share purchased. A total of 416,664
warrants were issued. The Offering was made in reliance upon an exemption
from registration under the Securities Act pursuant to Rule 506 of
Regulation D.
(3) The Company offered and sold, pursuant to a Limited Offering Memorandum
dated August 1, 1995, a total of 500,000 shares of Common Stock at a price
per share of $10.00. In addition to the Common Stock, each investor
received one warrant, exercisable at $10 for 10 years for each three shares
purchased in the offering and investors who purchased 25,000 shares
received one warrant per share purchased. A total of 206,659 warrants were
issued. The Offering was made in reliance upon an exemption from
registration under the Securities Act pursuant to Rule 506 of Regulation D
and the shares were sold to Accredited Investors.
The issuance of the shares described in (1) above were exempt from
registration under the Securities Act pursuant to Section 3(b) of the
Securities Act as transactions by an issuer under $5,000,000. The
issuances of the shares described in (2) and (3) above were exempt
from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act as transactions by an issuer not involving a public
offering. The recipients of securities in such issuances represented
their intention to acquire the securities for investment only and not
with view to or for sale in connection with any distribution thereof.
No underwriters were involved in such issuances.
(4) As of October 31, 1996, the Company has issued to employees and directors
of the Company stock options to purchase an aggregate of 165,600 shares of
its Common Stock. Such options at the time of grant had an exercise prices
of $10.00 per share. With respect to the grant of stock options, an
exemption from registration was unnecessary in that none of the
transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Securities Act
II-2
<PAGE>
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits.
1.1 Form of Underwriting Agreement between First Mariner Bancorp and Ferris,
Baker Watts, Incorporated
3.1 Amended and Restated Articles of Incorporation of First Mariner Bancorp*
3.2 Amended and Restated Bylaws of First Mariner Bancorp
4.1 Form of Warrant*
4.2 Form of Common Stock Certificate
5.1 Opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC as to
legality of Common Stock
10.1 1996 Stock Option Plan of First Mariner Bancorp*
10.2 Employment Agreement dated May 1, 1995 between First Mariner Bancorp and
First Mariner Bank and George H. Mantakos*
10.3 Lease Agreement dated September 1, 1996 between Hale Intermodal Transport
Co. and First Mariner Bancorp*
10.4 Lease Agreement dated March 1, 1996 between First Mariner Bancorp and Mars
Super Markets, Inc.*
21.1 Subsidiaries of First Mariner Bancorp*
23.1 Consent of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
(contained in their opinion included herein as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included in the signature page of the original filing of
the Registration Statement)*
- -------------
*previously filed
(b) Financial Statement Schedules.
Schedules have been omitted because they are not applicable or not required or
because the required information is included in the consolidated financial
statements or notes thereto.
Item 28. Undertakings.
The undersigned registrant hereby undertakes that:
(1) The registrant will provide to the Underwriter at the closing specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(2) The undersigned registrant hereby undertakes that:
(a) For determining any liability under the Securities Act, the registrant
will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant
II-3
<PAGE>
under Rule 424(b)(1), or (4), or 497(h) under the Securities Act as
part of this registration statement as of the time the Commission
declared it effective; and
(b) For determining any liability under the Securities Act, the registrant
will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered
in the registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.
(3) The undersigned registrant hereby undertakes to:
(a) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration fee" table in the effective registration statement.
(iii)Include any additional or changed material information on the
plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(c) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, in Baltimore, Maryland
on December 16, 1996.
FIRST MARINER BANCORP
By: /s/ Edwin F. Hale, Sr.
------------------------------------
Edwin F. Hale, Sr.
Chairman and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C> <C> <C> <C> <C>
/s/ Edwin F. Hale, Sr. Chairman and Chief December 16, 1996
- ---------------------------------- Executive Officer
Edwin F. Hale, Sr. (Principal executive officer)
/s/ George H. Mantakos* Director and President December 16, 1996
- ----------------------------------
George H. Mantakos
/s/ Kevin M. Healey Controller (Principal financial December 16, 1996
- ---------------------------------- officer)
Kevin M. Healey
II-6
<PAGE>
/s/ Barry B. Bondroff* Director December 16, 1996
- ----------------------------------
Barry B. Bondroff
/s/ Rose M. Cernak* Director December 16, 1996
- ----------------------------------
Rose M. Cernak
/s/ Christopher P. D'Anna* Director December 16, 1996
- ----------------------------------
Christopher P. D'Anna
Director ______________, 1996
- ----------------------------------
Dennis M. Doyle
/s/ Elayne Hettleman* Director December 16, 1996
- ----------------------------------
Elayne Hettleman
Director ______________, 1996
- ----------------------------------
Bruce H. Hoffman
/s/ Melvin S. Kabik* Director December 16, 1996
- ----------------------------------
Melvin S. Kabik
/s/ R. Andrew Larkin* Director December 16, 1996
- ----------------------------------
R. Andrew Larkin
/s/ Jay J.J. Matricciani* Director December 16, 1996
- ----------------------------------
Jay J.J. Matricciani
/s/ Dennis C. McCoy* Director December 16, 1996
- ----------------------------------
Dennis C. McCoy
Director ______________, 1996
- ----------------------------------
Margaret D. McManus
/s/ Walter L. McManus, Jr.* Director December 16, 1996
- ----------------------------------
Walter L. McManus, Jr.
II-7
<PAGE>
Director _____________, 1996
- ----------------------------------
John J. Mitcherling
/s/ James P. O'Conor* Director December 16, 1996
- ----------------------------------
James P. O'Conor
/s/ Kevin B. O'Connor* Director December 16, 1996
- ----------------------------------
Kevin B. O'Connor
/s/ Governor William Donald Schaefer* Director December 16, 1996
- ----------------------------------
Governor William Donald Schaefer
Director ______________, 1996
- ----------------------------------
Hanan Y. Sibel
/s/ Leonard Stoler* Director December 16, 1996
- ----------------------------------
Leonard Stoler
</TABLE>
________________________
*Pursuant to power-of-attorney
II-8
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
1.1 Form of Underwriting Agreement between First Mariner Bancorp
and Ferris, Baker Watts, Incorporated
3.1 Amended and Restated Articles of Incorporation of First Mariner
Bancorp*
3.2 Amended and Restated Bylaws of First Mariner Bancorp
4.1 Form of Warrant*
4.2 Form of Common Stock Certificate
5.1 Opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander,
LLC as to legality of Common Stock
10.1 1996 Stock Option Plan of First Mariner Bancorp*
10.2 Employment Agreement dated May 1, 1995 between First Mariner
Bancorp and First Mariner Bank and George H. Mantakos*
10.3 Lease Agreement dated September 1, 1996 between Hale Intermodal
Transport Co. and First Mariner Bancorp*
10.4 Lease Agreement dated March 1, 1996 between First Mariner
Bancorp and Mars Super Markets, Inc.*
21.1 Subsidiaries of First Mariner Bancorp*
23.1 Consent of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
(contained in their opinion included herein as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (included in the signature page of the original
filing of the Registration Statement)*
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*previously filed
<PAGE>
Exhibit 1.1
UNDERWRITING AGREEMENT
Ferris, Baker Watts, Incorporated ______________, 1996
As Representative of the
Several Underwriters Identified
In Schedule A Annexed Hereto
1720 Eye Street, N.W.
Washington, DC 20006
Gentlemen:
SECTION 1. Introduction. First Mariner Bancorp, a Maryland corporation
(the "Company"), has authorized capital stock consisting of 20,000,000 shares of
Common Stock, $.05 par value per share (the "Common Stock"), of which 1,227,263
shares are issued and outstanding. The Company proposes to sell an aggregate of
1,400,000 shares of Common Stock (the "Firm Common Shares") to the several
underwriters identified in Schedule A annexed hereto (the "Underwriters"), who
are acting severally and not jointly. In addition, the Company has agreed to
grant to the Underwriters an option to purchase up to 210,000 additional shares
of Common Stock (the "Optional Common Shares") as provided in Section 5 hereof.
The Firm Common Shares and, to the extent such option is exercised, the Optional
Common Shares, are hereinafter collectively referred to as the "Common Shares".
You as representative of the Underwriters (the "Representative"), have
advised the Company that the Underwriters propose to make an initial public
offering of their respective portions of the Common Shares on the effective date
of the Registration Statement, as defined in Section 2(f) hereof, or as soon
thereafter as in the Representative's judgment is advisable, and that the
purchase price of the Common Shares will be the public offering price of $____
per share less underwriting discounts and commissions of seven percent (7%) or
$___ per share.
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Except as set forth below with respect to First Mariner
Bank (the "Bank"), a wholly-owned subsidiary of the Company, the
Company and each subsidiary ("Subsidiary") identified on Exhibit 21 of
the Registration Statement (hereinafter defined) is duly incorporated
and validly existing as a corporation in good standing under the laws
of Maryland, with full corporate power and authority to own and/or
lease its properties and conduct its business as described in the
Prospectus (as defined in Section 2(f) hereof).
The Bank is a state chartered trust company duly
organized, validly existing and in good standing under the laws of
Maryland, with all the powers of a commercial bank and full corporate
power to own and/or lease its properties and conduct its business as
described in the Prospectus. The activities of the Bank are permitted
to a commercial bank by the rules, regulations, resolutions and
practices of the Maryland Commissioner of Financial Regulation (the
"Commissioner"). The deposit accounts of the Bank are insured by the
<PAGE>
Federal Deposit Insurance Corporation ("FDIC") up to the applicable
limits prescribed by law.
(b) The Company does not own or control any Subsidiary and
does not own any interest in any other corporation, joint venture,
proprietorship or other commercial entity or organization except as
described in the Registration Statement.
(c) The issued and outstanding shares of Common Stock as set
forth in the Prospectus have been duly authorized and validly issued
and are fully paid and nonassessable. There are no pre-emptive,
preferential or other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder, and no shares of
Common Stock have been issued in violation of such rights of
stockholders. Except as disclosed in the Prospectus, there are no
outstanding rights, warrants or options to acquire or instruments
convertible into or exchangeable for, any shares of Common Stock or
other equity interest in the Company. No holders of securities of the
Company have any rights to the registration of such securities under
the Registration Statement. The statements made in the Prospectus under
the caption "Description of Securities" are accurate in all material
respects. The outstanding shares held by the Company of capital stock
of each Subsidiary have been duly authorized and validly issued, are
fully paid and nonassessable and are all owned beneficially by the
Company free and clear of all liens, encumbrances, equities and claims.
(d) The Common Shares to be sold by the Company have been duly
authorized, and when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, and
will conform to the description thereof contained in the Prospectus.
Upon consummation of the purchase of the Common Shares by the
Underwriters under this Agreement, the Underwriters will acquire good
and marketable title thereto, free and clear of any claim, security
interest, community property right, or other encumbrance or restriction
on transfer.
(e) The Company has full corporate power and authority to
enter into and perform this Agreement, and this Agreement, the
execution and delivery hereof, and the performance of the Company's
obligations hereunder have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered
by the Company and is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms, except that rights to
indemnity or contributions may be limited by applicable law and
enforceability of the Agreement may be limited by bankruptcy,
insolvency or similar laws generally affecting the rights of creditors
and by equitable principles limiting the right to specific performance
or other equitable relief. The execution and performance by the Company
of this Agreement, including application of the net proceeds of the
offering, if and when received, as described in the Prospectus under
"Prospectus Summary," "Capitalization" and "Use of Proceeds," will not
violate any provisions of the Company's Articles of Incorporation or
By-Laws or any law, rule or regulation applicable to the Company or any
Subsidiary of any government, court, regulatory body, administrative
agency or other governmental body having jurisdiction
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<PAGE>
over the Company or any Subsidiary or any of its respective businesses
or properties, and will not result in the breach, or be in
contravention, of any provision of any loan agreement, lease,
franchise, license, note, bond, other evidence of indebtedness,
indenture, mortgage, deed of trust, other instrument, permit or other
contractual obligation to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or their respective
property may be bound or affected, or any order of any court or
governmental agency or authority entered in any proceeding to which the
Company or any Subsidiary was or is now a party or by which it is bound
except those, if any, described in the Prospectus or which are not
material to the Company and do not materially affect its business. No
consent, approval, authorization or other order of any court,
regulatory body, administrative agency, or other governmental body is
required for the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for compliance with the
Securities Act of 1933, as amended (the "Act") and the state securities
laws (the "Blue Sky Laws") applicable to the initial public offering of
the Common Shares by the Underwriters, and the clearance of such
offering with the National Association of Securities Dealers, Inc.
(the "NASD").
(f) A registration statement on Form SB-2 with respect to the
Common Shares, prepared by the Company in conformity with the
requirements of the Act and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, has been filed with the Commission, and the
Company has prepared and has filed prior to the effective date of such
registration statement an amendment or amendments to such registration
statement as may be required. There have been delivered to the
Representative and its counsel two conformed copies of such
registration statement, as initially filed with the Commission and for
each of the Underwriters conformed copies of such registration
statement, as initially filed with the Commission and each amendment
thereto (but without exhibits) and of each related form of prospectus
included in the registration statement prior to the time it becomes
effective or filed with the Commission pursuant to Rule 424(a) under
the Act (each, a "Preliminary Prospectus").
Such registration statement, as finally amended and
revised at the time such registration statement becomes effective,
which shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A under the Act and contained in the Prospectus,
is herein referred to as the "Registration Statement". The related form
of prospectus and any term sheet that may be provided pursuant to Rule
434 of the Act, including information incorporated by reference
therein, filed by the Company with the Commission pursuant to Rules
424(b) and 430A under the Act is herein referred to as the
"Prospectus".
(g) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed fully in all material respects with the
requirements of the Act and the Rules and Regulations and, as of its
date, has not included any untrue statement of a material fact or
omitted to state
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<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are
made, not misleading. The Registration Statement and the Prospectus,
and any amendments or supplements thereto, contain all statements that
are required to be stated therein in accordance with the Act and the
Rules and Regulations and in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, includes any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they are made, not misleading; provided, however, that the
Company makes no representation or warranty as to information contained
in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the
Representative specifically for use in the preparation thereof. There
are no legal or governmental actions, suits or legal proceedings, and
there are no contracts or other documents, transactions or
relationships of or by the Company required to be described in the
Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not
been described or filed as required.
(h) KPMG Peat Marwick LLP, which has expressed its opinion
with respect to certain of the consolidated financial statements filed
with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(i) The consolidated financial statements of the Company for
the respective periods covered thereby, and the related notes and
schedules thereto included in the Registration Statement and the
Prospectus, present fairly the financial position of the Company for
the periods covered thereby as of the respective dates of such
financial statements, all in conformity with generally accepted
accounting principles consistently applied throughout the periods
involved and all adjustments necessary for a fair presentation of
results for such periods have been made. The consolidated selected
financial data included in the Registration Statement present fairly
the information shown therein and have been compiled on a basis
consistent with the consolidated financial statements presented
therein. No other financial statements are required by Form SB-2 or
otherwise to be included in the Registration Statement.
(j) Neither the Company nor any Subsidiary is in violation of
its Articles of Incorporation or By-Laws, or in default under any court
or administrative order or decree, or in default with respect to any
material provision of any material loan agreement, lease, franchise,
license, note, bond, other evidence of indebtedness, indenture,
mortgage, deed of trust, other instrument, permit or other contractual
obligation to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective
properties or businesses are bound, and, to the knowledge of the
Company, there does not exist any state of facts which constitutes an
event of default as defined in
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<PAGE>
such documents or which, upon notice or lapse of time or both, would
constitute such an event of default, except those, if any, described in
the Prospectus or which are not material to the Company and do not
materially affect its business.
(k) There are no governmental actions, suits or legal
proceedings pending or, to the Company's knowledge, threatened to which
the Company or any Subsidiary is a party or to which the Company's or
Subsidiary's business or any material property owned or leased by the
Company or any Subsidiary is subject, or related to product liability,
environmental or discrimination matters which are not disclosed in the
Registration Statement and the Prospectus, or which question the
validity of this Agreement or any action taken or to be taken pursuant
hereto except those, if any, described in the Prospectus or which are
not material to the Company and do not materially affect its business.
(l) The Company or a Subsidiary has good and marketable title
to all the properties and assets reflected as owned in the consolidated
financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind or nature whatsoever except those, if any,
reflected in such consolidated financial statements (or elsewhere in
the Prospectus) or which, in the aggregate, are not material to the
Company and its business and do not materially affect the value of such
property and do not materially interfere with the use made or proposed
to be made of such property; all material properties held or used by
the Company or a Subsidiary under leases, licenses or other agreements
are held under valid, subsisting and enforceable leases, franchises, or
other agreements with respect to which it is not in default, except to
the extent that the enforceability of the rights and remedies of the
Company or a Subsidiary under any such lease, franchise, license or
other agreement may be limited by bankruptcy, insolvency or similar
laws generally affecting the rights of creditors and by equitable
principles limiting the right to specific performance or other
equitable relief.
(m) The Company will not take and has not taken, directly or
indirectly, any action (and does not know of any action by its
directors, officers or stockholders, or others) designed to or which
has constituted or which might reasonably be expected to cause or
result, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise, in stabilization or manipulation of the
price of the Common Shares to facilitate the sale or resale of the
Common Shares, except that the Underwriters may engage in stabilization
to the extent permitted by the Exchange Act and rules promulgated
thereunder.
(n) Except as reflected in or contemplated by the Registration
Statement or any amendment thereto, since the respective dates as of
which information is given in the Registration Statement:
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<PAGE>
(i) neither the Company nor the Bank has incurred any
material liabilities or obligations, direct or contingent, nor
entered into any material transactions not in the ordinary
course of business;
(ii) neither the Company nor the Bank has paid or
declared any dividends or other distributions with respect to
its capital stock and the Company is not delinquent in the
payment of principal or interest on any outstanding debt
obligations; and
(iii) there has not been any change in the capital
stock or long-term debt of the Company or the Bank, or any
material adverse change in the business (resulting from
litigation or otherwise), business prospects, properties,
condition (financial or otherwise), net worth or results of
operations of the Company.
(o) The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid all taxes shown
as due thereon; and the Company has no knowledge of any tax deficiency
which has been asserted or threatened against the Company which would
materially adversely affect the business or operations or properties of
the Company taken as a whole.
(p) The Company has an outstanding capitalization as set forth
under "Capitalization" in the Prospectus as of the date indicated
therein and there has been no material change therein except as
disclosed in the Prospectus. The financial and numerical information
and data in the Prospectus under "Prospectus Summary," "The Company,"
"Use of Proceeds," "Dividend Policy," "Dilution," "Consolidated
Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business,"
"Management," "Beneficial Ownership of Shares," "Certain Relationships
and Related Transactions" and "Description of Securities" are fairly
presented and prepared on a basis consistent with the audited
consolidated financial statements of the Company.
(q) The Company and each Subsidiary has obtained all licenses,
permits, approvals and other governmental authorizations required for
the present and proposed conduct of its business as described in the
Prospectus. Such licenses, permits and other governmental
authorizations are in full force and effect, the Company and the
Subsidiary are is in all material respects complying therewith, and
neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
license, permit, approval or authorization. The Company and each
Subsidiary is complying in all respects with all laws, ordinances and
regulations applicable to the Company and each Subsidiary, their
respective properties and their business.
(r) The Company has maintained its books of account in
accordance with generally accepted accounting principles consistently
applied in all material respects, and such books and records are, and
during periods covered by the financial statements
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<PAGE>
included in the Registration Statement and the Prospectus are, correct
and complete in all material respects, and fairly and accurately
reflect or reflected the income, expenses, assets and liabilities of
the Company and provide or provided a fair and materially accurate
basis for the preparation of such financial statements.
(s) The minute books of the Company and the Bank are current
and contain a materially correct and complete record of all corporate
action taken by the respective Boards of Directors and stockholders of
the Company and the Bank, and all signatures contained therein are true
signatures of the persons whose signatures they purport to be.
(t) Except as described in the Prospectus, the Company is
unaware of any loss or threatened loss of any key customer, supplier,
or account which is material to the Company.
(u) Neither the Company nor any Subsidiary has received any
notice of infringement of or conflict with asserted rights of others
with respect to any patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, affairs or business
prospects of the Company.
(v) The Company and each Subsidiary is in substantial
compliance with all federal, state or local laws or ordinances,
including orders, rules and regulations thereunder, regulating or
otherwise affecting employee health and safety or the environment,
non-compliance with which could have a material adverse effect on the
Company. To the Company's knowledge, it and each Subsidiary has
disposed of all wastes in substantial compliance with applicable laws,
and the Company is not aware of any existing condition that may form
the basis for any present or future claim, demand or action seeking
clean-up of any site, location, or body of water, surface or
subsurface.
(w) The employee benefit plans, including employee welfare
benefit plans, of the Company and the Bank ("Employee Plans") have been
operated in compliance with the applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the
Internal Revenue Code of 1986, as amended (the "Code"), all
regulations, rulings and announcements promulgated or issued thereunder
and all other applicable governmental laws and regulations (except to
the extent such noncompliance would not have a material adverse effect
on the Company). No reportable event under Section 4043(b) of ERISA or
any prohibited transaction under Section 406 of ERISA has occurred with
respect to any employee benefit plan maintained by the Company or the
Bank. There are no pending or, to the Company's knowledge, threatened
claims by or on behalf of any employee benefit plan, by any employee or
beneficiary covered under any such plan or by any governmental agency
or otherwise involving such plans or any of their respective
fiduciaries (other than for routine claims for benefits). All Employee
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<PAGE>
Plans that are group health plans have been operated in compliance with
the group health plan continuation coverage requirements of Section
4980B of the Code in all material respects.
(x) Neither the Company nor the Bank is subject to any
directive or order (including any memorandum of understanding) specific
to the Company or the Bank from the FDIC, the Board of Governors of the
Federal Reserve System (the "FRB") or any agency to make any material
change in the method of conducting its business as described in the
Prospectus or as otherwise presently contemplated; and each of the
Company and the Bank is conducting its business so as to comply in all
respects with all applicable banking statutes and regulations. No
order, directive, request or other correspondence has been received by
the Company or the Bank from the FRB, the FDIC and/or the Commissioner
which could have the effect of delaying or canceling the Offering.
(y) The Company and the Bank are in compliance in all material
respects with the applicable financial record keeping and reporting
requirements of the Currency and Foreign Transaction Reporting Act of
1970, as amended, and the rules and regulations thereunder, and the
lending practices of the Bank are and have been, in all material
respects, in conformity with the Real Estate Settlement Procedures Act,
as amended, and the rules and regulations thereunder.
(z) All of the loans represented as assets on the consolidated
financial statements or selected consolidated financial information of
the Company included in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to lending,
including without limitation, truth in lending (including the
requirements of Regulations Z and 12 C.F.R. Part 226), consumer credit
protection, equal credit opportunity and all disclosure laws applicable
to such loans, except for violations which, if asserted, would not have
a material adverse effect on the Company.
(aa) To the knowledge of the Company, except as described in
the Prospectus, none of the Company or the Bank or any employee of the
Bank has made any payment of funds of the Company or the Bank as a loan
for the purchase of the Common Stock or made any other payment of funds
prohibited by law, and no funds have been set aside to be used for any
payment prohibited by law.
A certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriters shall be deemed a representation and warranty
of the Company to you as to the matters covered thereby.
SECTION 3. [Intentionally Deleted.]
SECTION 4. Representation of Underwriters. You have been duly
authorized to act and will act as the Representative for the Underwriters in
connection with this financing, and any action under or in respect of this
Agreement taken by you, as such Representative, will be binding upon all
Underwriters.
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<PAGE>
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell
1,400,000 Firm Common Shares to the Underwriters, and the Underwriters agree,
severally and not jointly, to purchase from the Company the number of Firm
Common Shares as hereinafter set forth at the price per share set forth in
Section 1 hereof.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase from the Company up to 210,000 Optional Common Shares
at the same purchase price per share to be paid for the Firm Common Shares, for
use solely in covering any overallotment made by the Underwriters in the sale
and distribution of the Firm Common Shares. The obligation of each Underwriter
to the Company shall be to purchase from the Company that number of full
Optional Common Shares which (as nearly as practicable in full shares as
determined by the Representative) bears to 210,000 the same proportion as the
number of shares set forth opposite the name of such Underwriter in Schedule A
hereto bears to the total number of Firm Common Shares to be purchased by all
the Underwriters under this Agreement.
At 9:00 A.M., Baltimore time, on the third full business day after the
initial public offering, or at such other time not later than one week after
such third full business day as may be agreed upon by the Representative, the
Company, the Company will deliver to the Representative, at the offices of
Ferris, Baker Watts, Incorporated, 1720 Eye Street, N.W., Washington, D.C., or
through the facilities of The Depository Trust Company, for the accounts of the
Underwriters, certificates representing the Firm Common Shares to be sold,
against payment in Washington, DC of the purchase price therefor in next day
funds payable, as appropriate, to the order of the Company in respect of the
Firm Common Shares being sold by the Company. Such time of delivery and payment
is referred to throughout this Agreement as the "First Closing Date." The
certificates for the Firm Common Shares to be so delivered will be in
denominations and registered in such names as the Representative requests by
notice delivered to the Company prior to 9:00 A.M., Baltimore time, no later
than two business days prior to the First Closing Date, and will be made
available for checking and packaging at such time and at such location to be
designated by the Representative.
The overallotment option granted hereunder may be exercised at any time
(but not more than once) within thirty (30) days after the date the Registration
Statement becomes effective upon written notice by the Representative to the
Company setting forth the aggregate number of Optional Common Shares as to which
the Underwriters are exercising the option, the names and denominations in which
the certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date, as hereinafter defined), being herein
referred to as the "Second Closing Date," shall be determined by the
Representative, but if at any time other than the First Closing Date, shall not
be earlier than three (3) nor later than five (5) full business days after
delivery of such notice of exercise to the Company. Certificates for the
Optional Common Shares will be made available for checking and packaging at such
time and at such location to be designated
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<PAGE>
by the Representative. The manner of payment for and delivery of (including the
denominations of and the names in which certificates are to be registered) the
Optional Common Shares shall be the same as for the Firm Common Shares purchased
from the Company. As Representative of the several Underwriters you may cancel
the option at any time prior to its expiration by giving written notice of such
cancellation to the Company.
The Representative has advised the Company that each Underwriter has
authorized the Representative to accept delivery of its Common Shares and to
make payment therefor. You, individually and not as the Representative of the
Underwriters, may make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
obligation hereunder.
SECTION 6. Covenants of the Company. The Company covenants and agrees
with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective at the earliest possible
time and upon notification from the Commission that the Registration
Statement has become effective, will so advise the Representative and
its counsel promptly. Thereafter, the Company will prepare and timely
file with the Commission pursuant to Rule 424(b) under the Act the
Prospectus containing information previously omitted in reliance upon
Rule 430A under the Act. The Company will advise the Representative and
its counsel promptly of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, or of any
notification of the initiation or threatening of any proceedings for
that purpose, and will also advise the Representative and its counsel
promptly of any request of the Commission for amendment or supplement
of the Registration Statement (either before or after it becomes
effective), of any Preliminary Prospectus or of the Prospectus, or for
additional information, and will not file or make any amendment or
supplement to the Registration Statement (either before or after it
becomes effective), to any Preliminary Prospectus or to the Prospectus
of which the Representative has not been furnished with a copy prior to
such filing or to which you object; and the Company will file promptly
and will furnish to the Representative at or prior to the filing
thereof copies of all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
pursuant to Sections 13, 14 and 15 of the Exchange Act subsequent to
the date of the Prospectus, and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Common Shares.
(b) If, at any time when a prospectus relating to the Common
Shares is required to be delivered under the Act, any event occurs as a
result of which the Prospectus, including any subsequent amendment or
supplement, would include an untrue statement of a material fact, or
would omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under
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<PAGE>
which they were made, not misleading, or if it is necessary at any time
to amend the Prospectus, including any amendment or supplement thereto,
to comply with the Act or the Rules and Regulations, the Company
promptly will advise the Representative and its counsel thereof and
will promptly prepare and file with the Commission an amendment or
supplement which will correct such statement or omission or an
amendment which will effect such compliance; and, in case any
Underwriter is required to deliver a prospectus nine months or more
after the effective date of the Registration Statement, the Company
upon request, but at the expense of such Underwriter, will prepare
promptly such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act.
(c) Except as described in the Prospectus, the Company will
not, prior to the Second Closing Date, incur any liability or
obligation, direct or contingent, or enter into any material
transaction, other than in the ordinary course of business or, if there
is no Second Closing Date, then prior to the First Closing Date.
(d) The Company will not acquire any of the Company's capital
stock prior to the Second Closing Date nor will the Company declare or
pay any dividend or make any other distribution upon its capital stock
payable to its holders of record on a date prior to the Second Closing
Date or, if there is no Second Closing Date, then prior to the First
Closing Date.
(e) Until the Underwriters have completed the offering
referred to in Section 1 above, the Company will not take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result, under the Exchange Act, or otherwise, in
stabilization or manipulation of the price of the Common Shares to
facilitate the sale or resale of the Common Shares.
(f) The Company will make generally available to the
Representative and to the Company's security holders an earnings
statement (which need not be audited) as soon as practicable, but in no
event later than 15 months after the end of the Company's current
fiscal quarter, covering a period of 12 consecutive calendar months
beginning after the effective date of the Registration Statement, which
will satisfy the provisions of the last paragraph of Section 11(a) of
the Act and Rule 158 promulgated thereunder.
(g) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company will furnish the Representative, at the Company's expense, with
copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in
each case as soon as available and in such quantities as the
Representative may reasonably request, for the purposes contemplated by
the Act or Exchange Act. The Company will furnish or cause to be
furnished to the Representative and its counsel copies of all reports
on Form SR if required by Rule 463 under the Act to be filed by the
Company with the Commission.
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(h) The Company will cooperate with the Representative, its
counsel and the Underwriters in qualifying or registering the Common
Shares for sale, or obtaining an exemption therefrom, under the Blue
Sky Laws of such jurisdictions as the Representative shall designate,
and will continue such qualifications or registrations or exemptions in
effect so long as reasonably requested by the Representative to effect
the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any such jurisdiction where it is not
presently qualified.
(i) During the period of five years after the date hereof, as
soon as practicable after the end of each fiscal year, the Company will
furnish the Representative with two copies, and to each of the other
Underwriters who may so request, one copy, of the Annual Report of the
Company containing the consolidated statement of financial condition of
the Company as of the close of such fiscal year and corresponding
consolidated statements of operations, stockholders' equity and cash
flows for the year then ended, such consolidated financial statements
to be under the certificate or opinion of the Company's independent
certified public accountants. During such period the Company will also
furnish the Representative with one copy:
(i) as soon as practicable after the filing thereof,
of each report filed by the Company with the Commission; and
(ii) as soon as available, of each report of the
Company mailed to its stockholders.
(j) The Company will comply or cause to be complied with the
conditions to the obligations of the Underwriters set forth in Section
9 hereof.
(k) The Company shall, as soon as practicable, but in no event
later than 120 days after the effectiveness of the Registration
Statement, register the Common Stock by filing with the Commission a
Registration Statement under Section 12(g) of the Exchange Act with
respect to such securities, containing such information and documents
as the Commission may require regardless of whether the Company would
be otherwise required so to register by the terms of the Exchange Act,
and shall file a request for acceleration of effectiveness of such
registration to the earliest practicable date not later than 120 days
after the effectiveness of the Registration Statement.
(l) The Company shall take all necessary and appropriate
action such that the Common Shares are authorized for quotation on the
NASDAQ National Market as soon as practicable after the effectiveness
of the Registration Statement and the Common Shares shall remain so
authorized for at least thirty-six (36) months thereafter.
(m) The Company shall promptly prepare and file with the
Commission, from time to time, such reports as may be required to be
filed by the Rules and Regulations.
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(n) The Company shall comply in all respects with the
undertakings given by the Company in connection with the qualification
or registration of the Common Shares for offering and sale under the
Blue Sky Laws of one or more jurisdictions.
(o) The Company shall apply the net proceeds from the sale of
the Common Shares to be sold by it hereunder for the purposes set forth
in the Prospectus.
(p) Except for the sale of Common Shares pursuant to this
Agreement, the Company shall not make any offering, sale or other
disposition of any of its Common Stock on the open market or otherwise
within 180 days after the effective date of the Registration Statement
without the Representative's prior written consent. The Company has
obtained for the benefit of the Underwriters, the agreement of all
present officers and directors of the Company that for the period
indicated in the foregoing sentence, they will not offer, sell or
otherwise dispose of any Common Stock without the Representative's
prior written consent.
SECTION 7. [Intentionally Deleted.]
SECTION 8. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated for any reason, except as otherwise set forth below, the Company will
pay the costs and expenses incurred in connection with the initial public
offering. Costs, fees and expenses to be paid by the Company include:
(a) All costs, fees and expenses incurred in connection with
the performance of the Company's obligations hereunder, including
without limiting the generality of the foregoing, all costs and
expenses incurred in connection with the preparation, printing, filing
and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial
statements) and the Preliminary and any Supplemental Blue Sky
Memoranda.
(b) All costs, fees and expenses, including legal fees and
disbursements of counsel for the Underwriters, incurred by the
Underwriters in connection with qualifying or registering all or any
part of the Common Shares for offer and sale under the Blue Sky Laws,
or obtaining exemptions from qualification or registration including
the preparation of the Preliminary and any Supplemental Blue Sky
Memoranda relating to the Common Shares.
(c) All fees and expenses of the Company's transfer agent,
printing of the certificates for the Common Shares, and all transfer
taxes, if any, with respect to the transfer, sale and delivery of the
Common Shares to the several Underwriters and all fees of the NASD and
NASDAQ.
SECTION 9. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and
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the Optional Common Shares on the Second Closing Date shall be subject to the
accuracy of the representations and warranties on the part of the Company herein
set forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 3:00 P.M., Baltimore time, on the date of this Agreement;
and prior to each Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been instituted
or shall be pending or, to the knowledge of the Company, or the
Representative, shall be contemplated by the Commission, and any
request of the Commission for additional information shall have been
complied with to the Representative's reasonable satisfaction.
(b) The Common Shares shall have been qualified or registered
for sale, or exempted therefrom, under the Blue Sky Laws of such states
as shall have been specified by the Representative prior to the date
hereof.
(c) The legality and sufficiency of the authorization,
issuance and sale of the Common Shares hereunder, the validity and form
of the certificates representing the Common Shares, the execution and
delivery of this Underwriting Agreement, and all corporate proceedings
and other legal matters incident thereto, and the form of the
Registration Statement and the Prospectus (except financial statements
and other financial data included therein) shall have been approved by
Shapiro and Olander, Baltimore, Maryland, counsel for the
Representative and the Underwriters.
(d) The Representative shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact, which, in the
opinion of Shapiro and Olander, counsel for the Representative and the
Underwriters, is material or omits to state a fact which, in the
written opinion of such counsel, is material and is required to be
stated therein or necessary to make the statements therein not
misleading.
(e) Since the dates as of which information is given in the
Registration Statement:
(i) the Company shall not have sustained any material
loss or interference with its business from any labor dispute,
strike, fire, explosion, flood or other calamity (whether or
not insured), or from any court or governmental action, order
or decree; and
(ii) there shall not have been any change in the
capital stock, short-term debt or long-term debt of the
Company or a change or a development involving a prospective
change in or affecting the ability of the Company to conduct
its business (whether by reason of any court, legislative,
other governmental action,
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<PAGE>
order, decree, or otherwise), or in the general affairs,
management, financial position, stockholders' equity or
results of the operations of the Company, whether or not
arising from transactions in the ordinary course of business,
in each case other than as set forth in or contemplated by the
Registration Statement and Prospectus, the effect of which on
the Company, in any such case described in clause (i) or (ii),
above, is in the Representative's opinion sufficiently
material and adverse as to make it impracticable or
inadvisable to proceed with the initial public offering or the
delivery of the Common Shares on the terms and in the manner
contemplated in the Registration Statement and the Prospectus.
(f) All formal and informal voting agreements, understandings
and arrangements with respect to the voting of Common Stock shall have
been terminated and shall be of no further force or effect except as
disclosed in the Prospectus.
(g) There shall have been furnished to you, as Representative
of the Underwriters, on each Closing Date:
(i) An opinion of Gordon, Feinblatt, Rothman,
Hoffberger & Hollander LLC, counsel for the Company, addressed
to the Representative as such and dated the First Closing Date
or the Second Closing Date, as the case may be, to the effect
that:
(1) the Company is duly incorporated,
validly existing and in good standing under the laws
of its jurisdiction of incorporation with full
corporate power and authority to own and/or lease its
properties and conduct its business as described in
the Prospectus, and does not own or lease any
property in any other state; and the Bank has been
duly organized and is validly existing as a state
chartered trust company and is in good standing under
the laws of the State of Maryland with all powers of
a commercial bank and full corporate power and
authority to own and/or lease its properties and
conduct its business as described in the Prospectus;
and the deposit accounts of the Bank are insured by
the FDIC up to the maximum amount allowed by law.
(2) the Company does not own or control any
subsidiary and does not own any interest in any other
corporation, proprietorship or other commercial
entity or organization except as described in the
Registration Statement.
(3) the authorized capital stock of the
Company consists of 20,000,000 shares of Common
Stock, $0.05 par value, and all such capital stock
conforms as to legal matters to the description
thereof in the Registration Statement and Prospectus;
the issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are
fully paid and nonassessable and were issued in
compliance with
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<PAGE>
exemptions from the registration provisions of
Section 5 of the Act and comparable provisions of
applicable Blue Sky Laws; to such counsel's
knowledge, there are no preemptive, preferential or
other rights to subscribe for or purchase any of the
Common Shares to be sold by the Company hereunder and
no shares of Common Stock have been issued in
violation of such rights of stockholders; and, to
such counsel's knowledge, there are no outstanding
rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, any
shares of Common Stock or other equity interest in
the Company, except as described in the Prospectus.
Except as otherwise stated in the Registration
Statement, no holders of securities of the Company
have rights to the registration of such securities in
the Registration Statement. The statements made in
the Prospectus under the section entitled
"Description of Securities" are accurate in all
material respects.
(4) the certificates for Common Shares to be
delivered hereunder are in due and proper form and,
when duly countersigned by the Company's transfer
agent and delivered to you or upon your order against
payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the
Common Shares represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable and, upon consummation of the purchase
by the Underwriters, and assuming they have no
knowledge of any liens, claims or encumbrances
affecting the Common Shares, the Underwriters will
acquire good and marketable title thereto, free and
clear of any claim, security interest, community
property right, or other encumbrance or restriction
on transfer (except for restrictions under the Act
and under the Blue Sky Laws).
(5) the Company has full corporate power and
authority to enter into and perform this Agreement,
and this Agreement, the execution and delivery
hereof, and the performance of the Company's
obligations hereunder have been duly authorized by
all necessary corporate action. This Agreement has
been duly executed and delivered by and on behalf of
the Company, and is a legal, valid, and binding
agreement of the Company, enforceable in accordance
with its terms, except that rights to indemnity or
contribution may be limited by applicable law and
enforceability of the Agreement may be limited by
bankruptcy, insolvency or similar laws affecting the
rights of creditors and by equitable principles
limiting the right to specific performance or other
equitable relief.
(6) the execution and performance by the
Company of this Agreement, including application of
the net proceeds of the offering, if and when
received, as described in the Prospectus under
"Prospectus Summary," "Capitalization" and "Use of
Proceeds," will not violate any provisions of the
Company's Articles of Incorporation or By-Laws or, to
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<PAGE>
such counsel's knowledge, any law, rule or regulation
applicable to the Company or any Subsidiary of any
government, court, regulatory body, administrative
agency or other governmental body having jurisdiction
over the Company or any Subsidiary or any of their
respective properties or businesses, and will not, to
such counsel's knowledge, result in the breach, or be
in contravention, of any provision of any loan
agreement, lease, franchise, license, note, bond,
other evidence of indebtedness, indenture, mortgage,
deed of trust, other instrument, permit or other
contractual obligation to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or their respective property is bound, or
any order of any court or governmental agency or
authority entered in any proceeding to which the
Company or any Subsidiary was or is now a party or by
which it is bound.
(7) no consent, approval, authorization or
other order of any court, regulatory body,
administrative agency or other governmental body is
required for the execution and delivery of this
Agreement by the Company or the consummation by the
Company of the transactions contemplated by this
Agreement, except for compliance with the Act and
Blue Sky Laws applicable to the initial public
offering of the Common Shares by the Underwriters,
and the clearance of the underwriting arrangements
for such offering with the NASD.
(8) the Registration Statement has become
effective under the Act, and no stop order suspending
the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under
the Act, and the Registration Statement, the
Prospectus and each amendment or supplement thereto
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations
(except that such counsel need express no opinion as
to the financial statements and other financial data
included therein). Such counsel shall confirm that it
has no reason to believe that either the Registration
Statement or the Prospectus or any such amendment or
supplement thereto, or any document incorporated by
reference therein, contains any untrue statement of a
material fact or omits to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
in which they are made, not misleading (except that
such counsel need express no opinion as to the
financial statements and other financial data
included therein). Such counsel does not know of any
legal or governmental proceedings or of any contracts
or other documents, transactions or relationships of
or by the Company or any Subsidiary required to be
described in the Registration Statement or to be
filed as exhibits to the Registration Statement by
the Act or the Rules and Regulations which are not
described or filed, as required.
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<PAGE>
(9) except as described in the Prospectus,
there are no legal or governmental actions, suits or
legal proceedings pending or threatened to which the
Company or any Subsidiary is a party or to which the
Company's or Subsidiary's business or material
property owned or leased by the Company or any
Subsidiary is subject, which such actions, suits or
proceedings would have a material adverse effect on
the Company or Subsidiary, or which question the
validity of this Agreement or any action taken or to
be taken pursuant hereto.
(10) to the knowledge of such counsel, the
Company or a Subsidiary, as the case may be, has good
and marketable title except as otherwise stated in
the Prospectus, to all the real property owned by the
Company or a Subsidiary as set forth in the
Prospectus, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind or nature
whatsoever except those, if any, referred to in the
Prospectus (or reflected in the financial statements
included therein) or which, in the aggregate, are not
material to the Company and its business and do not
materially affect the value of such property; and the
real properties held or used by the Company or a
Subsidiary under material leases or other material
agreements as set forth in the Prospectus are held by
it under valid, subsisting and enforceable leases or
other agreements with respect to which neither the
Company nor any Subsidiary is in default, except to
the extent that the enforceability of the rights and
remedies of the Company or a Subsidiary under any
such lease or other agreement may be limited by
bankruptcy, insolvency, or similar laws generally
affecting the rights of creditors and by equitable
principles limiting the right to specific performance
or other equitable relief.
(11) (i) the Company and each Subsidiary
possesses all licenses, permits, approvals and other
governmental authorizations required for the conduct
of its business, as described in the Prospectus; (ii)
such licenses, permits and other governmental
authorizations are in full force and effect and, to
such counsel's knowledge, the Company and each
Subsidiary is in all material respects complying
therewith; and (iii) to such counsel's knowledge, the
Company and each Subsidiary is complying in all
material respects with all laws, ordinances and
regulations applicable to the Company and each
Subsidiary, and their respective properties and
business, the noncompliance or violation of which
would have a material adverse effect on the Company.
It is understood that the opinion of such counsel may state
that such counsel is relying as to factual matters on certificates of
officers of the Company and of state officials and, as to legal matters
in jurisdictions other than in which they are domiciled, on opinions of
local counsel or of other counsel retained or having rendered legal
services with respect to specific matters, in which case their opinion
is to state that they are so
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<PAGE>
doing and they believe such reliance is reasonable, and copies of said
certificates and/or opinions are to be attached to the opinion. The
opinion of such counsel shall state that Shapiro and Olander, Counsel
for the Representative and the Underwriters, shall be entitled to rely
on such opinion.
(ii) An opinion of Shapiro and Olander, counsel for
the Representative and the Underwriters, addressed to the
Representative in such capacity and dated the First Closing
Date or the Second Closing Date, as the case may be, with
respect to the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you
may reasonably require, and the Company shall have furnished
to such counsel such documents and shall have exhibited to
them such papers and records as they request for the purpose
of enabling them to pass upon such matters.
(iii) A certificate of the chief executive officer
and the principal financial officer of the Company, dated the
First Closing Date or the Second Closing Date, as the case may
be, to the effect that:
(1) the representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, as if again made on
and as of such Closing Date, and the Company has
complied with all the agreements and satisfied all
the conditions to be performed or satisfied by it at
or prior to such Closing Date.
(2) the Commission has not issued any order
preventing or suspending the use of any Preliminary
Prospectus or the Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued, and no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act.
(3) each of the respective signatories of
the certificate has carefully examined the
Registration Statement and the Prospectus, and any
amendment or supplement thereto, and, in the opinion
of such signatory and to his knowledge, the
Registration Statement and the Prospectus and any
amendment or supplement thereto contain all
statements that are required to be stated therein,
and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto,
includes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances in which they
are made, not misleading, and, since the date on
which the Registration Statement was first filed with
the Commission, there has occurred no event required
to be set forth in an
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<PAGE>
amended or supplemented prospectus or in an amendment
to the Registration Statement which has not been so
set forth.
(4) since the date on which said
Registration Statement was initially filed, there has
not been any material adverse change or a development
involving a prospective material adverse change in
the business, properties, financial condition or
earnings of the Company, whether or not arising from
transactions in the ordinary course of business,
except as disclosed in said Registration Statement as
heretofore amended including the proposed amendment
thereto delivered to the Representative prior to or
contemporaneously with the execution of this
Agreement or (but only if the Representative
expressly consents thereto in writing) delivered to
the Representative thereafter; since such date and
except as so disclosed or in the ordinary course of
business, the Company has not incurred any liability
or obligation, direct or indirect, or entered into
any material transaction; since such date and except
as so disclosed there has not been any material
change in the capital stock, short-term debt or
long-term debt of the Company and the Company has not
acquired any of the Common Shares nor has the Company
declared or paid any dividend, or made any other
distribution, upon its outstanding shares of Common
Stock payable to stockholders of record on a date
prior to the First Closing Date or Second Closing
Date, as the case may be; since such date and except
as so disclosed, the Company has not incurred any
material contingent obligations, and no material
litigation is pending or threatened against the
Company; and, since such date and except as so
disclosed the Company has not sustained a material
loss or interference by strike, labor dispute, fire,
explosion, flood, windstorm, accident or other
calamity (whether or not insured) or from any court
or governmental action, order or decree.
The delivery of the certificate provided for in this
subparagraph (iii) shall be and constitute a representation and
warranty of the Company as to the facts required in the immediately
foregoing clauses (1), (2), (3) and (4) of this subparagraph (iii) to
be set forth in said certificate.
(iv) A written agreement or agreements signed by each
director and officer of the Company to the effect that such
persons will not make any offering, sale or other disposition
of any Common Stock in the open market or otherwise for a
period of 180 days after the commencement of the initial
public offering of the Common Shares by the Underwriters,
except with the prior written consent of the Representative.
(v) At the time this Agreement is executed and also
on the First Closing Date and the Second Closing Date, there
shall be delivered to the Representative a letter addressed to
the Representative, as Representative of the Underwriters,
from KPMG Peat Marwick LLP, independent certified public
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accountants, the first letter to be dated the date of this
Agreement, the second letter to be dated the First Closing
Date and the third letter (in the event of a Second Closing)
to be dated the Second Closing Date, to the effect set forth
in Schedule B annexed hereto and containing the information
set forth therein and such other information as may be
requested by the Representative as of a date within five days
of the date of such letter. There shall not have been any
change or decrease specified in any of the letters referred to
in this subparagraph (v) which makes it impractical or
inadvisable in the Representative's judgment to proceed with
the initial public offering or the purchase of the Common
Shares as contemplated hereby.
(vi) Such further certificates and documents as the
Representative may reasonably request.
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are
satisfactory to the Representative and to Shapiro and Olander, counsel
for the Representative and the Underwriters. The Company shall furnish
the Representative with such manually signed or conformed copies of
such opinions, certificates, letters and documents as the
Representative may reasonably request.
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at either Closing Date is not so satisfied,
this Agreement at the Representative's election will terminate upon
notification to the Company without liability on the part of any
Underwriter (including the Representative), the Company, except for the
expenses to be paid by the Company pursuant to Section 8 hereof and
except to the extent provided in Section 12 hereof.
SECTION 10. [Intentionally Deleted.]
SECTION 11. Effectiveness of Registration Statement. The Company will
use its best efforts to cause the Registration Statement to become effective, to
prevent the issuance of any stop order suspending the effectiveness of the
Registration Statement, and, if such stop order is issued, to obtain as soon as
possible the lifting thereof.
SECTION 12. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act or the Exchange Act against any losses,
claims, damages, or liabilities, joint or several, to which such
Underwriter or each such controlling person may become subject under
the Act, the Exchange Act, Blue Sky Laws or other federal or state
securities laws or regulations, at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration
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<PAGE>
Statement, any Preliminary Prospectus, the Prospectus, or any amendment
or supplement thereto, or in any application filed under any Blue Sky
Law or other document executed by the Company specifically for that
purpose or filed in any state or other jurisdiction in order to qualify
any or all of the Common Shares under the securities laws thereof (any
such application or document being hereinafter referred to as a "Blue
Sky Application") or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; the Company
agrees to reimburse each Underwriter and each such controlling person
for any legal or other expenses reasonably incurred by such Underwriter
or any such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent that:
(i) any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or in any
Blue Sky Application in reliance upon and in conformity with
written information furnished to the Company by or on behalf
of any Underwriter through the Representative specifically for
use therein; or
(ii) if such statement or omission was contained or
made in any Preliminary Prospectus and corrected in the
Prospectus and (1) any such loss, claim, damage or liability
suffered or incurred by any Underwriter (or any person who
controls any Underwriter) resulted from an action, claim or
suit by any person who purchased Common Shares which are the
subject thereof from such Underwriter in the offering, and (2)
such Underwriter failed to deliver or provide a copy of the
Prospectus to such person at or prior to the confirmation of
the sale of such Common Shares in any case where such delivery
is required by the Act unless such failure was due to failure
by the Company to provide copies of the Prospectus to the
Underwriters as required by this Agreement.
The indemnification obligations of the Company as provided above are in
addition to any liabilities the Company may otherwise have under other
agreements, under common law or otherwise.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, each of its directors and each of its
officers who sign the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Act or the Exchange
Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become
subject under the Act, the Exchange Act, Blue Sky Laws or other federal
or state statutory laws or regulations, at common law or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter and the
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<PAGE>
Representative, which shall not be unreasonably withheld), insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, in reliance upon
and in conformity with any written information furnished to the Company
by such Underwriter through the Representative specifically for use in
the preparation thereof; each Underwriter will severally reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action. The indemnification obligations of each Underwriter as provided
above are in addition to any liabilities any such Underwriter may
otherwise have under other agreements, under common law or otherwise.
Notwithstanding the provisions of this Section, no Underwriter shall be
required to indemnify the Company or any officer, director or
controlling person of the Company in any amount in excess of the total
price at which the Common Shares purchased by any such Underwriter
hereunder were offered to the public, plus reimbursement for reasonable
legal fees and other reasonable expenses incurred. For all purposes of
this Agreement, the name of each Underwriter and the amounts of the
selling concession and reallowance set forth in the Prospectus
constitute the only information furnished in writing by or on behalf of
any Underwriter expressly for inclusion in any Preliminary Prospectus,
the Registration Statement, the Prospectus (as from time to time
amended or supplemented) or Blue Sky Application.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party in
writing of the commencement thereof, but the omission to so notify the
indemnifying party will not relieve any indemnifying party from any
liability which it or he may have to any indemnified party otherwise
than under this Section. In case any such action is brought against any
indemnified party and such indemnified party notifies an indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it or he may wish,
jointly with all other indemnifying parties, similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, provided, however, if the defendants in any
such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it or he and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or
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<PAGE>
parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election to assume the defense of such action
and upon approval by the indemnified party of counsel to the
indemnifying party, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, unless:
(i) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in
accordance with the proviso to the next preceding sentence (it
being understood, however, that the indemnifying party shall
not be liable for the expenses of more than one separate
counsel, approved by the Representative in the event that one
or more of the Underwriters, their directors, officers or
controlling persons, are the indemnified parties);
(ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
notice of commencement of the action; or
(iii) the indemnifying party has authorized the
employment of counsel at the expense of the indemnifying
party.
(d) If the indemnification provided for in this Section is
unavailable to an indemnified party under subparagraphs (a) or (b)
hereof in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall, subject to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities:
(i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the
Underwriters from the offering of the Common Shares; or
(ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred
to in clause (i) above, but also the relative fault of the
Company and the Underwriters in connection with the statements
or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable
considerations.
The respective relative benefits received by the Company and
the Underwriters shall be deemed to be in such proportion so that the
Underwriters are responsible for the portion of the losses, claims,
damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the
Prospectus bears to the initial public offering price per share
appearing thereon, and the Company is responsible for the remaining
portion. The relative fault of the Company and the
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<PAGE>
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
the information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result of the losses, claims,
damages and liabilities referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section,
any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section were
determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method or allocation which does not take into account the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Common Shares underwritten
by it and distributed to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant
to this Section are several in proportion to their respective
underwriting commitments and not joint.
SECTION 13. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Common
Shares hereunder, and of each Underwriter to purchase the Common Shares
hereunder in the manner as described herein, that, except as hereinafter in this
paragraph provided, each of the Underwriters shall purchase and pay for all of
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representative of all such Common Shares in accordance with the
terms hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the Representative may make arrangements
satisfactory to the Company for the purchase of such Common Shares by other
persons, including any of the Underwriters, but if no such arrangements are made
by such Closing Date the nondefaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Common Shares which such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default and
the aggregate number of Common Shares with respect to which such default or
defaults occur is greater than the above percentage and arrangements
satisfactory to the Representative and the Company for the purchase of such
Common Shares by other persons are not made with 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
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<PAGE>
defaulting Underwriter or the Company, except for the expenses to be paid by the
Company pursuant to Section 8 hereof and except to the extent provided in
Section 12 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representative or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected.
Nothing herein will relieve a defaulting Underwriter from liability for its
default.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section.
SECTION 14. Effective Date. If the date of execution of this Agreement
is subsequent to the effective date of the Registration Statement, this
Agreement shall become effective immediately in all respects. If the date of
execution of this Agreement precedes the effective date of the Registration
Statement, this Agreement shall become effective immediately as to Sections 8,
12 and 15 and, as to all other provisions, at 9:00 A.M., Baltimore time, on the
day following the date upon which the Registration Statement becomes effective,
unless such a day is a Saturday, Sunday or holiday (in which event this
Agreement shall become effective at such hour on the business day next
succeeding such Saturday, Sunday or holiday); notwithstanding the foregoing,
this Agreement shall nevertheless become effective (a) at such earlier time
after the Registration Statement becomes effective as the Representative may
determine on and by notice to the Company or (b) by release of any of the Common
Shares for sale to the public. For the purposes of this Section, the Common
Shares shall be deemed to have been released upon the release for publication of
any newspaper advertisement relating to the Common Shares or upon the release by
the Representative of written communications:
(a) advising the Underwriters that the Common Shares are
released for public offering; or
(b) offering the Common Shares for sale to securities dealers,
whichever may occur first.
SECTION 15. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provisions hereof:
(a) This Agreement may be terminated by the Company by notice
to the Representative or by the Representative by notice to the Company
at any time prior to the time this Agreement shall become effective as
to all its provisions, and any such termination shall be without
liability on the part of the Company to any Underwriter (except for the
expenses to be paid by the Company pursuant to Section 8 hereof and
except to the extent provided in Section 12 hereof) or of any
Underwriter to the Company.
- 26 -
<PAGE>
(b) This Agreement may also be terminated by the
Representative prior to the First Closing Date, and the option from the
Company referred to in Section 5 hereof, if exercised, may be canceled
at any time prior to the Second Closing Date, if in the
Representative's judgment payment for and delivery of the Common Shares
is rendered impracticable or inadvisable because:
(i) additional material governmental restrictions,
not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the
New York Stock Exchange, the American Stock Exchange, the
NASDAQ National Market or over-the-counter market, or trading
in securities generally shall have been suspended on either
such exchange or over-the-counter market or a general banking
moratorium shall have been established by federal, or New York
or Maryland authorities; or
(ii) any event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any
statement or information contained in the Registration
Statement or which is not reflected in the Registration
Statement but should be reflected therein in order to make the
statements or information contained therein, in light of the
circumstances in which they are made, not misleading in any
material respect; or
(iii) an outbreak or escalation of major hostilities
or other national or international emergency or calamity or
any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated to
such extent, as in your judgment, to have a material adverse
effect on the general securities market or make it impractical
or inadvisable to proceed with completion of the sale of and
payment for the Common Shares; or
(iv) since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, a material adverse change has occurred in the
business, financial condition, results of operations,
properties or business prospects of the Company, whether or
not in the ordinary course of business; or
(v) trading in any of the securities of the Company
shall have been suspended by the NASDAQ National Market.
Any termination pursuant to this subsection (b) shall be
without liability on the part of any Underwriter to the Company or on
the part of the Company to any Underwriter (except for expenses to be
paid by the Company pursuant to Section 8 hereof and except as to
indemnification to the extent provided in Section 12 hereof).
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company, of its officers or directors, and of the Underwriters
set forth in or made pursuant to
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<PAGE>
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
its or their partners, officers, directors or any controlling person, as the
case may be, and will survive delivery of and payment for the Common Shares sold
hereunder.
SECTION 17. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters or the Representative will be mailed, delivered
or transmitted by facsimile transmission and confirmed to you c/o Ferris, Baker
Watts, Incorporated, 100 Light Street, 8th Floor, Baltimore, Maryland 21202,
Attention: Steven L. Shea, Senior Vice President,
With a copy to:
Shapiro and Olander
36 S. Charles Street, 20th Floor
Baltimore, Maryland 21201
Attention: Melissa Allison Warren
If sent to the Company, communications will be mailed, delivered or
transmitted by facsimile transmission and confirmed to the Company at:
First Mariner Bancorp
1801 South Clinton Street
Baltimore, Maryland 21224
Attention: Edwin F. Hale, Sr., Chairman and CEO
With a copy to Eugene A. Friedman, Deputy Corporate Counsel
And to:
Gordon, Feinblatt, Rothman,
Hoffberger & Hollander LLC
233 East Redwood Street
Baltimore, Maryland 21202
Attention: Abba David Poliakoff
SECTION 18. Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors, personal
representatives and assigns, and to the benefit of the officers and directors
and controlling persons referred to in Section 12, and no other person will have
any right or obligations hereunder. The term "successors" shall not include any
purchaser of the Common Shares as such from any of the Underwriters merely by
reason of such purchase.
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<PAGE>
SECTION 19. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland.
SECTION 21. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon this Agreement will become a binding agreement among the Company and
the several Underwriters, including you, all in accordance with its terms.
Very truly yours,
FIRST MARINER BANCORP
By:----------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
FERRIS, BAKER WATTS, INCORPORATED
By:-----------------------------------
Acting as Representative of the several
Underwriters (including itself) named in
Schedule A hereto.
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<PAGE>
SCHEDULE A
----------
Number of
Name of Underwriter Shares
- ------------------- ---------
Ferris, Baker Watts, Incorporated
---------
Total...................................................1,400,000
=========
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<PAGE>
SCHEDULE B
----------
Comfort Letter of KPMG Peat Marwick LLP
---------------------------------------
(1) They are independent public accountants with respect to the Company
within the meaning of the Act and the applicable rules and regulations
thereunder, and the answer to Item 13 of the Form SB-2 Registration Statement,
insofar as it relates to them, is correct.
(2) In their opinion, the financial statements of the Company included
in the Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the rules and regulations
thereunder.
(3) They have not examined any financial statements of the Company as
of any date or for any period subsequent to December 31, 1995; although they
have conducted an audit for the year ended December 31, 1995, the purpose (and
therefore the scope) of the examination was to enable them to express their
opinion on the financial statements as of December 31, 1995, and for the year
then ended, but not on the financial statements for any interim period within
that period. Therefore, they are unable to and do not express any opinion on the
unaudited statement of financial condition as of September 30, 1996 or the
unaudited statements of operations, stockholders' equity and cash flow for the
nine months ended September 30, 1996 and September 30, 1995 included in the
Registration Statement.
(4) For purposes of their letter, they have read the minutes of
meetings of the stockholders and Board of Directors as set forth in the minute
books at [December __, 1996], officials of the Company having advised them that
the minutes of all such meetings through that date were set forth therein, and
have carried out other procedures to [December ___, 1996], as follows:
(a) With respect to the nine-month periods ended September 30,
1996 and September 30, 1995, they have:
(i) Read the unaudited statement of financial
condition of the Company as of September 30, 1996 and the
unaudited statements of operations, stockholders' equity and
cash flows for the nine-month periods ended September 30, 1996
and September 30, 1995 included in the Registration Statement;
and
(ii) Made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters regarding (1) whether the unaudited financial
statements referred to under (4)(a)(i) comply in form in all
material aspects with the applicable accounting requirements
of the Act and the rules and regulations thereunder and (2)
whether those financial statements are in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement.
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<PAGE>
(b) With respect to the period from October 1, 1996 to
[November 30, 1996], they have:
(i) Read the unaudited financial statements of the
Company for October and November of both 1996 and 1995
furnished to them by the Company, officials of the Company
having advised them that no financial statements as of any
date or for any period subsequent to [November 30, 1996] were
available; and
(ii) Made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters as to whether the unaudited financial statements
referred to in (4)(b)(i) are in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement.
(5) On the basis of the specified procedures detailed above (which did
not include an examination in accordance with generally accepted auditing
standards), nothing came to their attention as a result of the foregoing
procedures, however, that caused them to believe that:
(a) The financial statements described in (4)(a)(i), included
in the Registration Statement, do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
rules and regulations thereunder or are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements;
or
(b) At [November 30, 1996] there was any change in the capital
stock or long-term debt of the Company as compared with amounts shown
in the September 30, 1996 unaudited statement of financial condition
included in the Registration Statement.
(6) Company officials have advised them that no statements as of any
date or for any period subsequent to [November 30, 1996] are available;
accordingly, the procedures carried out by them after [November 30, 1996] have,
of necessity, been even more limited than those with respect to the periods
referred to in 4 above. They have made inquiries of certain Company officials
who have responsibility for financial and accounting matters regarding whether
(a) there was any change at [December ___, 1996] in the capital stock or
long-term debt of the Company or any decreases in net current assets or
stockholders' equity as compared with amounts shown on the September 30, 1996
unaudited statement of financial condition included in the Registration
Statement or (b) for the period from [December 1, 1996] to [December ___, 1996]
there were any decreases, as compared with the corresponding period in the
preceding year, in net sales or in the total or per share amounts of net
earnings. On the basis of these inquiries and their reading of the minutes as
described in 4 above, nothing came to their attention that caused them to
believe that there was any such change or decrease except in all instances for
changes or decreases that the Registration Statement discloses have occurred or
may occur.
(7) In addition to the procedures referred to in 4, 5 and 6 above, they
have carried out certain specified procedures, not constituting an audit, with
respect to certain amounts,
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<PAGE>
percentages, numerical data and financial information appearing in the
Registration Statement, which have previously been specified by the
Representative and which are specified in their letter, and have compared
certain of such items with, and have found such amounts, percentages, numerical
data and financial information to be in agreement with, the accounting,
financial and other records of the Company.
- 34 -
<PAGE>
Exhibit 3.2
First Mariner Bancorp
BYLAWS
(Amended and Restated as of December 1996)
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of First
Mariner Bancorp (hereafter, the "Corporation") shall be held on a day duly
designated by the Board of Directors in May, if not a legal holiday, and if a
legal holiday then the next succeeding day not a legal holiday, for the purpose
of electing directors to succeed those whose terms shall have expired as of the
date of such annual meeting, and for the transaction of such other corporate
business as may come before the meeting.
SECTION 2. Special Meeting. Special meetings of the stockholders may be
called at any time for any purpose or purposes by the Chairman of the Board, the
President, by a Vice President, or by a majority of the Board of Directors, and
shall be called forthwith by the Chairman of the Board, the President, by a Vice
President, the Secretary or any director of the Corporation upon the request in
writing of the holders of a majority of all the shares outstanding and entitled
to vote on the business to be transacted at such meeting. Such request shall
state the purpose or purposes of the meeting. Business transacted at all special
meetings of stockholders shall be confined to the purpose or purposes stated in
the notice of the meeting.
SECTION 3. Place of Holding Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation or elsewhere in the United
States as designated by the Board of Directors.
SECTION 4. Notice of Meeting. Written notice of each meeting of the
stockholders shall be mailed, postage prepaid by the Secretary, to each
stockholder of record entitled to vote thereat at his post office address, as it
appears upon the books of the Corporation, at least ten (10) days before the
meeting. Each such notice shall state the place, day, and hour at which the
meeting is to be held and, in the case of any special meeting, shall state
briefly the purpose or purposes thereof.
SECTION 5. Quorum. The presence in person or by proxy of the holders of
record of a majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote thereat shall constitute a quorum at
all meetings of the stockholders, except as otherwise provided by law, by the
Articles of Incorporation or by these By-Laws. If less than a quorum shall be in
attendance at the time for which the meeting shall have been called, the meeting
may be adjourned from time to time by a majority vote of the stockholders
present or
<PAGE>
represented, without any notice other than by announcement at the meeting, until
a quorum shall attend. At any adjourned meeting at which a quorum shall attend,
any business may be transacted which might have been transacted if the meeting
had been held as originally called.
SECTION 6. Conduct of Meetings. Meetings of stockholders shall be presided
over by the President of the Corporation or, if he is not present, by a Vice
President, or, if none of said officers is present, by a chairman to be elected
at the meeting. The Secretary of the Corporation, or if he is not present, any
Assistant Secretary shall act as secretary of such meetings; in the absence of
the Secretary and any Assistant Secretary, the presiding officer may appoint a
person to act as Secretary of the meeting.
SECTION 7. Voting. At all meetings of stockholders, every stockholder
entitled to vote thereat shall have one (1) vote for each share of stock
standing in his name on the books of the Corporation on the date for the
determination of stockholders entitled to vote at such meeting. Such vote may be
either in person or by proxy appointed by an instrument in writing subscribed by
such stockholder or his duly authorized attorney, bearing a date not more than
three (3) months prior to said meeting, unless said instrument provides for a
longer period. Such proxy shall be dated, but need not be sealed, witnessed or
acknowledged. All elections shall be had and all questions shall be decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided by law, in the Articles of Incorporation or by these By-Laws.
If the chairman of the meeting shall so determine, a vote by ballot may be
taken upon any election or matter, and the vote shall be so taken upon the
request of the holders of ten percent (10%) of the stock entitled to vote on
such election or matter. In either of such events, the proxies and ballots shall
be received and be taken in charge and all questions touching the qualification
of voters and the validity of proxies and the acceptance or rejection of votes,
shall be decided by the tellers. Such tellers shall be appointed by the chairman
of said meeting.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The property and business of the Corporation
shall be managed under the direction of the Board of Directors of the
Corporation.
SECTION 2. Number and Term of Office. The number of directors shall be five
or such other number, but not more than twenty-five, as may be designated from
time to time by resolution of the majority of the entire Board of Directors. The
Board of Directors shall be divided into three (3) classes, with the term of
office of one class expiring each year. Directors of the first class shall be
elected to hold office for a term expiring at the next succeeding annual
meeting, directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office
- 2 -
<PAGE>
for a term expiring at the third succeeding annual meeting. Each director shall
serve until his or her successor shall be elected and shall qualify; provided,
however, that a director shall not be eligible to serve after reaching age 75.
Any director may be removed from office with or without cause by the
affirmative vote of the holders of 80% of the capital stock of the Corporation
entitled to vote on such matter, at any special meeting of stockholders duly
called for such purpose.
SECTION 3. Filling of Vacancies. Any vacancies in the Board of Directors
for any reason, including death, resignation, disqualification, or removal, and
any directorships resulting from any increase in the number of directors as
provided in these By-Laws, may be filled by the Board of Directors, acting by a
majority of the directors then in office, although less than a quorum, and any
director so chosen shall hold office until the next election of the class for
which such director shall have been chosen and until his or her successor shall
be elected and qualified. At each annual meeting of stockholders the successors
to the class of directors whose term shall then expire shall be elected to hold
office for a term expiring at the third succeeding annual meeting.
SECTION 4. Place of Meeting. The Board of Directors may hold their meetings
and have one or more offices, and keep the books of the Corporation, either
within or outside the State of Maryland, at such place or places as they may
from time to time determine by resolution or by written consent of all the
directors. The Board of Directors may hold their meetings by conference
telephone or other similar electronic communications equipment in accordance
with the provisions of the Maryland Corporation Act.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by resolution of the Board, provided that notice of every resolution
of the Board fixing or changing the time or place for the holding of regular
meetings of the Board shall be mailed to each director at least three (3) days
before the first meeting held pursuant thereto. The annual meeting of the Board
of Directors shall be held immediately following the annual stockholders'
meeting at which a Board of Directors is elected. Any business may be transacted
at any regular meeting of the Board.
SECTION 6. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board or the
President and must be called by the Chairman of the Board, the President or the
Secretary upon written request of a majority of the Board of Directors. The
Secretary shall give notice of each special meeting of the Board of Directors,
by mailing the same at least three (3) days prior to the meeting or by
telegraphing the same at least two (2) days before the meeting, to each
director; but such notice may be waived by any director. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at any
special meetings. At any meeting at which every director shall
- 3 -
<PAGE>
be present, even though without notice, any business may be transacted and any
director may in writing waive notice of the time, place and objectives of any
special meeting.
SECTION 7. Quorum. A majority of the whole number of directors shall
constitute a quorum for the transaction of business at all meetings of the Board
of Directors, but, if at any meeting less than a quorum shall be present, a
majority of those present may adjourn the meeting from time to time, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or by the Articles of Incorporation or by these
By-Laws.
SECTION 8. Action by Directors. Any action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting, if
an unanimous written consent which sets forth the action is signed by each
member of the Board and filed with the minutes of proceedings of the Board.
SECTION 9. Compensation of Directors. Directors shall not receive any
stated salary for their services as such, but each director shall be entitled to
receive from the Corporation reimbursement of the expenses incurred by him in
attending any regular or special meeting of the Board, and, by resolution of the
Board of Directors, a fixed sum may also be allowed for attendance at each
regular or special meeting of the Board and such reimbursement and compensation
shall be payable whether or not a meeting is adjourned because of the absence of
a quorum. Nothing herein contained shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 10. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the directors of the Corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of the
Board of Directors, and may authorize the seal of the Corporation to be affixed
to all papers which may require it. Such committee or committees shall have such
names as may be determined from time to time by resolution adopted by the Board
of Directors.
ARTICLE III
Officers
SECTION 1. Election, Tenure and Compensation. The officers of the
Corporation shall be a President, a Secretary, and a Treasurer, and also such
other officers including a Chairman of the Board and/or one or more Vice
Presidents and/or one or more assistants to the foregoing officers as the Board
of Directors from time to time may consider necessary for the proper conduct of
the business of the Corporation. The officers shall be elected annually by the
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Board of Directors at its first meeting following the annual meeting of the
stockholders except where a longer term is expressly provided in an employment
contract duly authorized and approved by the Board of Directors. The President
and Chairman of the Board shall be directors and the other officers may, but
need not be, directors. Any two or more of the above offices, except those of
President and Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity if
such instrument is required by law or by these By-Laws to be executed,
acknowledged or verified by any two or more officers. The compensation or salary
paid all officers of the Corporation shall be fixed by resolutions adopted by
the Board of Directors.
In the event that any office other than an office required by law, shall
not be filled by the Board of Directors, or, once filled, subsequently becomes
vacant, then such office and all references thereto in these By-Laws shall be
deemed inoperative unless and until such office is filled in accordance with the
provisions of these By-Laws.
Except where otherwise expressly provided in a contract duly authorized by
the Board of Directors, all officers and agents of the Corporation shall be
subject to removal at any time by the affirmative vote of a majority of the
whole Board of Directors, and all officers, agents, and employees shall hold
office at the discretion of the Board of Directors or of the officers appointing
them.
SECTION 2. Powers and Duties of the Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of Directors unless the
Board of Directors shall be a majority vote of a quorum thereof elect a chairman
other than the Chairman of the Board to preside at meetings of the Board of
Directors. He may sign and execute all authorized bonds, contracts or other
obligations in the name of the Corporation; and he shall be ex-officio a member
of all standing committees.
SECTION 3. Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation and shall have general charge and
control of all its business affairs and properties. He shall preside at all
meetings of the stockholders.
The President may sign and execute all authorized bonds, contracts or other
obligations in the name of the Corporation. He shall have the general powers and
duties of supervision and management usually vested in the office of president
of a corporation. The President shall be ex-officio a member of all the standing
committees. He shall do and perform such other duties as may, from time to time,
be assigned to him by the Board of Directors.
In the event that the Board of Directors does not take affirmative action
to fill the office of Chairman of the Board, the President shall assume and
perform all powers and duties given to the Chairman of the Board by these
By-Laws.
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SECTION 4. Powers and Duties of the Vice President. The Board of Directors
shall appoint a Vice President and may appoint more than one Vice President. Any
Vice President (unless otherwise provided by resolution of the Board of
Directors) may sign and execute all authorized bonds, contracts, or other
obligations in the name of the Corporation. Each Vice President shall have such
other powers and shall perform such other duties as may be assigned to him by
the Board of Directors or by the President. In case of the absence or disability
of the President, the duties of that office shall be performed by any Vice
President, and the taking of any action by any such Vice President in place of
the President shall be conclusive evidence of the absence or disability of the
President.
SECTION 5. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect to do so, any such notice may be given by any person thereunto directed
by the President, or by the directors or stockholders upon whose written request
the meeting is called as provided in these By-Laws. The Secretary shall record
all the proceedings of the meetings of the stockholders and of the directors in
books provided for that purpose, and he shall perform such other duties as may
be assigned to him by the directors or the President. He shall have custody of
the seal of the Corporation and shall affix the same to all instruments
requiring it, when authorized by the Board of Directors or the President, and
attest to the same. In general, the Secretary shall perform all the duties
generally incident to the office of Secretary, subject to the control of the
Board of Directors and the President.
SECTION 6. Treasurer. The Treasurer shall have custody of all the funds and
securities of the Corporation, and he shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation in such depository or depositories as may be designated by the Board
of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements. He
shall render to the President and the Board of Directors, whenever either of
them so requests, an account of all his transactions as Treasurer and of the
financial condition of the Corporation.
The Treasurer shall give the Corporation a bond, if required by the Board
of Directors, in a sum, and with one or more sureties, 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 of all books, papers, vouchers, moneys, and other
properties of whatever kind in his possession or under his control belonging to
the Corporation.
The Treasurer shall perform all the duties generally incident to the office
of the Treasurer, subject to the control of the Board of Directors and the
President.
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SECTION 7. Assistant Secretary. The Board of Directors may appoint an
Assistant Secretary or more than one Assistant Secretary. Each Assistant
Secretary shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Secretary in the absence or
disability of the Secretary and shall have such other powers and shall perform
such other duties as may be assigned to him by the Board of Directors or the
President. In case of the absence or disability of the Secretary, the duties of
the office shall be performed by any Assistant Secretary, and the taking of any
action by any such Assistant secretary in place of the Secretary shall be
conclusive evidence of the absence or disability of the Secretary.
SECTION 8. Assistant Treasurer. The Board of Directors may appoint an
Assistant Treasurer or more than one Assistant Treasurer. Each Assistant
Treasurer shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Treasurer in the absence or
disability of the Treasurer and shall have such other powers and shall perform
such other duties as may be assigned to him by the Board of Directors or the
President. In case of the absence or disability of the Treasurer, the duties of
the office shall be performed by any Assistant Treasurer, and the taking of any
action by any such Assistant Treasurer in place of the Treasurer shall be
conclusive evidence of the absence or disability of the Treasurer.
ARTICLE IV
Capital Stock
SECTION 1. Issuance of Certificates of Stock. The certificates for shares
of the stock of the Corporation shall be of such form not inconsistent with the
Articles of Incorporation, or its amendments, as shall be approved by the Board
of Directors. All certificates shall be signed by the Chairman of the Board, or
by a Vice President and countersigned by the Secretary or by an Assistant
Secretary. All certificates for each class of stock shall be consecutively
numbered. The name of the person owning the shares issued and the address of the
holder, shall be entered in the Corporation's books. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificates representing the same number of shares shall be issued until the
former certificate or certificates for the same number of shares shall have been
so surrendered, and canceled, unless a certificate of stock be lost or
destroyed, in which event another may be issued in its stead upon proof of such
loss or destruction and unless waived by the President, the giving of a
satisfactory bond of indemnity not exceeding an amount double the value of the
stock. Both such proof and such bond shall be in a form approved by the general
counsel of the Corporation and by the Transfer Agent of the Corporation and by
the Register of the stock.
SECTION 2. Transfer of Shares. Shares of the capital stock of the
Corporation shall be transferred on the books of the Corporation only by the
holder thereof in person or by
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his attorney upon surrender and cancellation of certificates for a like number
of shares as hereinbefore provided.
SECTION 3. Registered Stockholders. 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 in the name of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the laws of Maryland.
SECTION 4. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than ninety (90) days before the date on
which the action requiring the determination will be taken; the transfer books
may not be closed for a period longer than twenty (20) days; and, in the case of
a meeting of stockholders, the record date of the closing of the transfer books
shall be at least ten (10) days before the date of such meeting.
ARTICLE V
Corporate Seal
SECTION 1. Seal. In the event that the President shall direct the Secretary
to obtain a corporate seal, the corporate seal shall be circular in form and
shall have inscribed thereon the name of the Corporation, the year of its
organization and the word "Maryland." Duplicate copies of the corporate seal may
be provided for use in the different offices of the Corporation but each copy
thereof shall be in the custody of the Secretary of the Corporation or of an
Assistant Secretary of the Corporation nominated by the Secretary.
ARTICLE VI
Bank Accounts and Loans
SECTION 1. Bank Accounts. Such officers or agents of the Corporation as
from time to time shall be designated by the Board of Directors shall have
authority to deposit any funds of the Corporation in such banks or trust
companies as shall from time to time be designated by the Board of Directors and
such officers or agents as from time to time shall be authorized by the Board of
Directors may withdraw any or all of the funds of the Corporation so deposited
in any such bank or trust company, upon checks, drafts or other instruments or
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orders for the payment of money drawn against the account or in the name or
behalf of this Corporation, and made or signed by such officers or agents; and
each bank or trust company with which funds of the Corporation are so deposited
is authorized to accept, honor, cash and pay, without limit as to amount, all
checks, drafts or other instruments or orders for the payment of money, when
drawn, made or signed by officers or agents so designated by the Board of
Directors until written notice of the revocation of the authority of such
officers or agents by the Board of Directors shall have been received by such
bank or trust company. There shall from time to time be certified to the banks
or trust companies in which funds of the Corporation are deposited, the
signature of the officers or agents of the Corporation so authorized to draw
against the same. In the event that the Board of Directors shall fail to
designate the persons by whom checks, drafts and other instruments or orders for
the payment of money shall be signed, as hereinabove provided in this Section,
all of such checks, drafts and other instruments or orders for the payment of
money shall be signed by the President or a Vice President and countersigned by
the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer
of the Corporation.
SECTION 2. Loans. Such officers or agents of this Corporation as from time
to time shall be designated by the Board of Directors shall have authority to
effect loans, advances or other forms of credit at any time or times for the
Corporation from such banks, trust companies, institutions, corporations, firms
or persons as the Board of Directors shall from time to time designate, and as
security for the repayment of such loans, advances, or other forms of credit to
assign, transfer, endorse and deliver, either originally or in addition or
substitution, any or all stocks, bonds, rights and interests of any kind in or
to stocks or bonds, certificates of such rights or interests, deposits,
accounts, documents covering merchandise, bills and accounts receivable and
other commercial paper and evidences of debt at any time held by the
Corporation; and for such loans, advances or other forms of credit to make,
execute and deliver one or more notes, acceptances or written obligations of the
Corporation on such terms, and with such provisions as the security or sale or
disposition thereof as such officers or agents shall deem proper; and also to
sell to, or discount or rediscount with, such banks, trust companies,
institutions, corporations, firms or persons any and all commercial paper, bills
receivable, acceptances and other instruments and evidences of debt at any time
held by the Corporation, and to that end to endorse, transfer and deliver the
same. There shall from time to time be certified to each bank, trust company,
institution, corporation, firm or person so designated the signatures of the
officers or agents so authorized; and each such bank, trust company,
institution, corporation, firm or person is authorized to rely upon such
certification until written notice of the revocation by the Board of Directors
of the authority of such officers or agents shall be delivered to such bank,
trust company, institution, corporation, firm or person.
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ARTICLE VII
Reimbursements
Any payments made to an officer or other employee of the Corporation, such
as salary, commission, interest or rent, or entertainment expense incurred by
him, which shall be disallowed in whole or in part as a deductible expense by
the Internal Revenue Service, shall be reimbursed by such officer or other
employee of the Corporation to the full extent of such disallowance. It shall be
the duty of the Directors, as a Board, to enforce payment of each such amount
disallowed. In lieu of payment by the officer or other employees subject to the
determination of the Directors, proportionate amounts may be withheld from his
future compensation payments until the amount owned to the Corporation has been
recovered.
ARTICLE VIII
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end on the
last day of December.
SECTION 2. Notices. Whenever under the provisions of these By-Laws notice
is required to be given to any director, officer or stockholder, it shall not be
construed to mean personal notice, but such notice shall be given in writing, by
mail, by depositing the same in a post office or letter box in a postpaid sealed
wrapper addressed to each stockholder, officer or director at such address as
appears on the books of the Corporation, or in default of any other address, to
such director, officer or stockholder, at the general post office in Baltimore
County, Maryland, and such notice shall be deemed to be given at the time the
same shall be thus mailed. Any stockholder, director or officer may waive any
notice required to be given under these By-Laws.
ARTICLE IX
Amendments
SECTION 1. Amendment of By-Laws. The Board of Directors shall have the
power and authority to amend, alter or repeal these By-Laws or any provision
thereof, and may from time to time make additional By-Laws.
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Exhibit 4.2
1ST MARINER BANCORP
COMMON STOCK COMMON STOCK
NUMBER SHARES
C___________
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF MARYLAND CERTAIN DEFINITIONS
CUSIP 320795 10 7
THIS IS TO CERTIFY That is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.05
PER SHARE OF FIRST MARINER BANCORP transferable only on the books of the
corporation by the holder hereof in person or by attorney duly authorized, upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Maryland
and to the Articles of Incorporation and By-Laws of the corporation as now or
hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the corporation and the facsimile
signatures of its duly authorized officers.
Dated: 1ST
MARINER
BANCORP
/s/ Eugene A. Friedman INCORPORATED /s/ Edwin F. Hale
Secretary 1994 Chairman of the Board
MARYLAND and Chief Executive
Officer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY_________________________________________
AUTHORIZED SIGNATURE
<PAGE>
REVERSE SIDE
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- ________Custodian_________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ----------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING
ZIP CODE, OF ASSIGNEE)
================================================================
_________________________________________________________ shares of the capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ______________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ___________________________
NOTICE: ________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
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Exhibit 5.1
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
233 East Redwood Street
Baltimore, Maryland 21202-3332
410-576-4000
Fax 410-576-4246
December 16, 1996
First Mariner Bancorp
1801 South Clinton Street
Baltimore, Maryland 21224
Ladies and Gentlemen:
We have acted as counsel to First Mariner Bancorp (the
"Company"), in connection with the registration of up to 1,610,000 shares of
Common Stock, par value $.05 per share (the "Shares"), to be issued pursuant to
a Registration Statement on Form SB-2 (File No. 333-16011) (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
As counsel to the Company, we have examined the Articles of
Incorporation, as amended, and Bylaws, as amended, of the Company, the minutes
of the proceedings of the Board of Directors of the Company relating to the
issuance of the Shares, the Registration Statement and the Underwriting
Agreement filed as an exhibit thereto, and have reviewed and are relying upon,
without any independent investigation or verification, certificates of officers
of the Company, and such other documents and records as we have deemed
necessary.
Based upon the foregoing, we are of the opinion that the
Shares, when issued as described in the Registration Statement against payment
therefor by the purchasers thereof, will be duly and validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our Firm under the
heading "Legal Matters" in the prospectus included in the Registration
Statement.
Very truly yours,
GORDON, FEINBLATT, ROTHMAN,
HOFFBERGER & HOLLANDER, LLC
<PAGE>
Exhibit 23.2
The Board of Directors
First Mariner Bancorp
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Baltimore, Maryland
December 16, 1996
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