As filed with the Securities and Exchange Commission on November 12, 1996
Registration No. 333-xxxxx
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_| ________
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed Maximum Amount of
Title of Shares to be Amount to be Maximum Offering Aggregate Offering Registration
Registered Registered Price Per Share(1) Price(1) Fee
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<S> <C> <C> <C> <C> <C> <C>
Common Stock,
par value $.05 per share 1,610,000 shares $12.00 $19,320,000 $5,855
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<FN>
(1) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
</FN>
</TABLE>
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 NOVEMBER 12, 1996
[LOGO] 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. Application has been made to have the Company's Common Stock
included for quotation on the National Association of Securities Dealers
Automated Quotation National Market ("NASDAQ National Market") under the symbol
"FMAR." 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.
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Underwriting Discount Proceeds to
Price to Public and Commissions(1) Company(2)
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<S> <C> <C> <C> <C> <C> <C>
Per Share.....................
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Total(3)......................
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<FN>
(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 Proceeds to
Company will be $________, $________ and ________, respectively. See
"Underwriting".
</FN>
</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>
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.
[MAP]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and subject to,
the more detailed information and financial statements and notes thereto
included in this Prospectus. Each investor is encouraged to read this Prospectus
in its entirety. Unless otherwise indicated, the information in this Prospectus
assumes no exercise by the Underwriter of its over-allotment option to purchase
up to 210,000 shares of Common Stock. Investors should carefully consider the
information set forth under the caption "Risk Factors."
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 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
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<PAGE>
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
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.
The Offering
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<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 information discussed under
the heading "Risk Factors" starting on page 7.
Proposed NASDAQ National Market Symbol.................. FMAR
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<FN>
(1) Excludes approximately 983,923 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 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>
4
<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%
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>
5
<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"), 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"), 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
31,672 shares in privately negotiated transactions.
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
6
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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.
RISK FACTORS
Prospective investors should review and consider carefully the
following investment considerations, together with the other information
contained in the Prospectus, in evaluating an investment in the Common Stock.
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.
Limited Operating History of Current Management; Recent Operating Losses
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 operations of the Bank. 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."
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
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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 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
8
<PAGE>
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."
Economic Conditions and Monetary Policy
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."
Government Regulation
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."
Competition
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
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.
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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
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 application has been made to quote the Common
Stock 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."
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."
10
<PAGE>
Control by Management
A total of 573,200 shares of Common Stock is owned by the directors and
executive officers of the Company, representing 46.7% of the Common Stock
outstanding before the Offering. In addition, options and warrants to purchase
an aggregate of 621,768 shares of Common Stock are held by directors and
executive officers. Assuming the directors and executive officers exercise all
their stock options and warrants, the directors and executive officers would own
approximately 64.6% of the Common Stock outstanding before the Offering, and
36.8% 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, 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 573,200 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 after
the closing of the Offering, they will not sell, offer for sale or take any
action that may constitute a transfer of shares of Common Stock. There are also
983,923 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."
11
<PAGE>
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 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 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 effect the amount of cash
available
12
<PAGE>
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.
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 pubic 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.
September 30, 1996
----------------------------
Actual As Adjusted(1)
------ --------------
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
=========== ============
Net tangible book value per share............. $ 7.24 $ 8.69
- --------------------
(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 983,923 shares of Common Stock issuable upon exercise of
outstanding options and warrants at an exercise price of $10.00 per share.
13
<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%
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>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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
15
<PAGE>
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 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.
16
<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 .00%
------- ------ ------- ------ ------- ------ ------- ------
Total interest-bearing liabilities 53,983 1,978 4.89% 26,024 878 4.50% 27,757 1,270 4.58% 14,003 504 4.69%
------ ------ ------ ------
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>
17
<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:
Loans (net of unearned income) $2,465 $ 234 $2,699 $ 808 $ 71 $ 879
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 (2) 4 8 - 8
------ ------ ------ ------ ---- ------
Total interest income 2,441 216 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) - -
------ ------ ------ ------ ----- ------
Total interest expense 1,376 181 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 realized on the sale of trading account investment
securities in 1996 of $331,695. 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.
18
<PAGE>
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 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
19
<PAGE>
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 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.
20
<PAGE>
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 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 the consolidated
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.
21
<PAGE>
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.
<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
----------- ---- ------------ --- ----------- ---
c
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 50% of the Bank's loans have adjustable rates as of
September 30, 1996 and 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.
22
<PAGE>
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.
<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 More than Up to More than
One 1 Year 10+ One 1 Year 10+
Year to 10 Years Years Total Year to 10 Years Years Total
--------- ----------- -------- -------- -------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Real estate (commercial, residential
and construction) and commercial $46,122 $27,777 $6,726 $80,625 $12,326 $7,299 $8,935 $28,560
Consumer 868 500 2 1,370 314 652 485 1,451
------- ------- ------ ------- -------- ------ ------
Total $46,990 $28,277 $6,728 $81,995 $12,640 $7,951 $9,420 $30,011
======= ======= ====== ======= ======== ====== ====== =======
Fixed interest rate $11,794 $22,613 $6,728 $41,135 $ 4,349 $4,439 $8,071 $16,851
Variable interest rate 35,196 5,664 - 40,860 8,291 3,520 1,349 13,160
------- ------- ------ ------- ------- ------ ------ -------
Total $46,990 $28,277 $6,728 $81,995 $12,640 $7,951 $9,420 $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.
23
<PAGE>
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 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
======== ======== ========
24
<PAGE>
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>
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 Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $242,996 25.3% $ 43,879 11.7% $ 13,803 5.7%
Residential real estate
and construction 273,718 28.5 92,449 24.5 68,816 28.1
Consumer 43,854 4.6 28,229 7.5 24,529 10.0
Unallocated 398,244 41.6 211,730 56.3 137,699 56.2
-------- ----- -------- ------ -------- -----
Total $958,812 100.0% $376,287 100.0% $244,847 100.0%
======== ===== ======== ===== ======== =====
</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
25
<PAGE>
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
======== ======== ========
In addition, management has placed on non-accrual status loans to a
single borrower in which the Bank's participation interest is approximately
$900,000. While these loans have been placed on non-accrual status subsequent to
September 30, 1996, management currently anticipates that all principal and
interest will be collected.
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
26
<PAGE>
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).
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
27
<PAGE>
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 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-Two Two-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 41,289 4,976 5,969 22,953 6,808 81,995
------- ------- -------- ------- ------- -------
Total interest-earnings assets $45,771 $ 4,976 $ 6,068 $22,953 $ 7,289 $87,057
======= ======= ======== ======= ======= =======
28
<PAGE>
Interest-bearing Liabilities:
Savings $ 4,590 $ - $ - $ - $ - $ 4,590
NOW accounts 3,822 - - - - 3,822
Money market accounts 8,378 - - - - 8,378
CDs & IRAs 16,313 8,642 24,579 3,464 - 52,998
Federal Home Loan Bank advances 6,000 - - - - 6,000
------- ------- -------- --------- ------- -------
Total interest-bearing
liabilities $39,103 $ 8,642 $ 24,579 $ 3,464 $ - $75,788
======= ======= ======== ======= ======= =======
Interest rate sensitivity gap $ 6,668 $(3,666) $(18,511) $19,489 $ 7,289 $11,269
======= ======= ========= ======= ======= =======
Cumulative interest rate gap $ 6,668 $ 3,002 $(15,509) $ 3,980 $11,269
======= ======= ========= ======= =======
Ratio of rate sensitive assets
to rate sensitive liabilities 117% 58% 25% 663% -
</TABLE>
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.
29
<PAGE>
<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>
<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 - 8.0%
----------- ------- ----------- ------
NOW & money market savings deposits 6,477,267 3.25% 23.70% 3,357,827 3.27% 25.7%
Regular savings deposits 3,080,912 2.15% 11.27% 1,520,707 3.13% 11.7%
Time deposits 16,793,114 5.36% 61.43% 7,139,404 3.56% 54.6%
---------- ------- ---------- ------
Total interest-bearing deposits 26,351,293 4.46% 96.40% 12,017,938 3.42% 92.0%
------------ ------- ----------- ------
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.
30
<PAGE>
<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.
New Accounting Standards
Accounting for Stock-Based Compensation. In November 1995, the FASB
issued SFAS 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 costs 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
31
<PAGE>
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.
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 and businesses, and the local
governments are committed to business development in the region. The Company
believes that its market area is economically stable and is largely middle-class
with a median family income of $44,000.
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.
32
<PAGE>
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;
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 16 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.
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 and checking accounts. An extensive range of these services is offered
by the Bank to meet the varied needs of its customers from young persons to
senior citizens, including its recently developed and promoted "Absolutely Free
Checking." The Bank plans to expand these services to include alternatives to
bank
33
<PAGE>
accounts, such as mutual funds and annuities. 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 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. Further expansion of the Bank's retail
product line is expected to include the introduction of a credit card and a
debit card.
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 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.
Real Estate Development and Construction Loans. The real estate
development and construction loan portfolio consisted of the following as of
September 30, 1996:
34
<PAGE>
<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.
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, costs 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.
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.
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
35
<PAGE>
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.
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.
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 Board'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.
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.
36
<PAGE>
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 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
1170 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 1170 $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)
37
<PAGE>
Chesapeake Center Drive (Mars Store) 484 $36,500 05/01/00 5 years
Glen Burnie (Anne Arundel County)
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)(3) 484 $36,500 -- 5 years
Edgewood (Harford County)
- --------------------
<FN>
(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 will be closed in November, 1996.
(3) This branch will open in November, 1996.
</FN>
</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 relationship 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
38
<PAGE>
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
Elayne Hettleman 63 Director 1997
Bruce H. Hoffman 49 Director 1998
Melvin S. Kabik 72 Director 1997
R. Andrew Larkin 44 Director 1999
Jay J. J. Matricciani 54 Director 1997
Dennis C. McCoy -- Director 1999
Margaret D. McManus -- 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. is Chairman and Chief Executive Officer of the
Company, and Chairman of the Bank. He is also chairman and chief executive
officer of Hale Intermodal Transport Co., and Hale Intermodal Marine Co.,
private Baltimore-based trucking and shipping companies which he founded in 1975
and 1984, respectively. Mr. Hale is the former chairman of the board and chief
executive officer of the former Baltimore Bancorp.
George H. Mantakos is a director and President of the Company, and
President, Chief Executive Officer, and a director of the Bank since 1995. Mr.
Mantakos began his banking career 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. Mr. Mantakos was appointed to the Board of
Directors of Columbia Bancorp and to the Executive Committee/Board of Directors
of the Columbia Bank. He resigned from these positions to become a founder and
organizer 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 has served as vice president of Mars Super
Markets, Inc., a regional supermarket chain, since 1996.
39
<PAGE>
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.
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 presently operates a 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 the
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 five years.
40
<PAGE>
Leonard Stoler has been the owner and president of Len Stoler Inc., an
automobile dealership, since 1968.
Key Employees
The following individuals are considered key employees of the Company:
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.
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.
41
<PAGE>
<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."
<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
- -------------------
<FN>
(1) On October 19, 1996, the Company granted stock options to purchase 120,000
shares to Edwin F. Hale and options to purchase 10,000 shares to Mr.
Mantakos, all exercisable at $10.00 per share.
</FN>
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
No stock options were exercised by the Named Executive Officer during
1995. There were no stock appreciation rights outstanding during 1995. The
following table sets forth certain information regarding unexercised options
held by the Named Executive Officer as of December 31, 1995:
42
<PAGE>
<TABLE>
<CAPTION>
Aggregate Fiscal Year-End Option Values
---------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Fiscal Year-End (#) Fiscal Year-End ($)(1)
------------------- ----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
George H. Mantakos 10,500 -- -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 Bank is obligated to repurchase all or any part of Mr.
Mantakos' Common Stock.
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, 138,000 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.
43
<PAGE>
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.
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) 17,100 1.4% .6%
Elayne Hettleman(7) 14,200 1.1% .5%
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% -
44
<PAGE>
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) 1,194,968 49.3% 31.3%
-----
- --------------------
<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 warrants to purchase 8,000 shares and options to purchase 1,100
shares.
(7) Includes warrants to purchase 6,500 shares and options to purchase 1,200
shares.
(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 463,168 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 in September 1, 1996.
45
<PAGE>
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.
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
818,323 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 1990 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 Resale" and "Management--Executive
Compensation."
46
<PAGE>
Dividends
Holders of shares of Common Stock are entitled to dividends 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.
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 "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 its 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
47
<PAGE>
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 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
48
<PAGE>
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 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.
49
<PAGE>
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 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
50
<PAGE>
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 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."
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<PAGE>
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, 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
52
<PAGE>
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 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
10.56% and its ratio of total capital to risk-weighted assets stood at 11.67%.
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 12.67%.
53
<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 Federal Deposit Insurance
Corporation Improvement Act of 1991 ("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
54
<PAGE>
submit an acceptable plan, it is treated as if it is significantly
undercapitalized. Significantly undercapital- ized depository institutions may
be subject to a number of other requirements and restrictions, including orders
to sell sufficient voting stock to become adequately capitalized, requirements
to reduce total assets and stop accepting deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator, generally within 90 days of the date such institution
is determined to be critically undercapitalized.
FDICIA provides the federal banking agencies with significantly
expanded powers to take enforcement action against institutions which fail to
comply with capital or other standards. Such action may include the termination
of deposit insurance by the FDIC or the appointment of a receiver or 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.
55
<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 573,200 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 after the closing of the Offering, they will not sell, offer for sale or
take any action that may constitute a transfer of shares of Common Stock. There
are also 983,923 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."
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:
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<PAGE>
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.
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
57
<PAGE>
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
Commission's principal office in Washington, D.C. upon payment of the prescribed
fees. Statements contained in this Prospectus as to the contents of any
contract, or other document referred to herein summarize the material provisions
of such contract or document but 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.
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<PAGE>
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.
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<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 audits 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.
March 25, 1996
Baltimore, Maryland
F-2
<PAGE>
FIRST MARINER BANCORP
Consolidated Statements of Financial Condition
<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
Consolidated Statements of Operations
<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
Consolidated Statements of Stockholders' Equity
<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
Consolidated Statements of Cash Flows
<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
(Continued)
<PAGE>
FIRST MARINER BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
<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
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 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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 Banks 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 Boards'
Statement of Financial Accounting Standards 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 portfolios, the
Corporation had designated such securities as held to maturity upon
adoption of SFAS 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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 and SFAS No. 118, Accounting for
Creditors for Impairment of a Loan -
F-10
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(1) Continued
Income Recognition Disclosures. 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 approximately 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
<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, December 31, 1995 and 1994, respectively. During 1995
and 1994, the amount of interest income that would have been recorded on
loans in 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 114.
Changes in the allowance for losses on loans are summarized as follows:
F-14
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
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 eleven (11) 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
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
their residential mortgage loans, .3% of their total assets or 5% of their
outstanding advances from the bank, whichever is greater. Purchases and
sales of stock are made directly with the bank 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
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
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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, respectively:
F-24
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
(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 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
(Continued)
<PAGE>
FIRST MARINER BANCORP
Notes to Consolidated Financial Statements
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 [LOGO]
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
The Company 6
Risk Factors 7
Dilution 12
Use of Proceeds 12
Dividend Policy 12
Capitalization 13
Selected Consolidated Financial Data 14 Ferris, Baker Watts
Management's Discussion and Analysis Incorporated
of Financial Condition and Results
of Operations 15
Business 32
Management 38
Beneficial Ownership of Shares 44 _________, 1996
Certain Relationships and
Related Transactions 45
Description of Securities 46
Supervision and Regulation 50
Shares Eligible for Future Sale 56
Underwriting 56
Legal Matters 58
Experts 58
Additional Information 58
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
dated 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 of the Company
stock options to purchase an aggregate of 148,500 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. 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. 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. Subsidiaries of First Mariner Bancorp
23.2 Consent of KPMG Peat Marwick LLP
24. Power of Attorney (included in the signature page of the original filing of
the Registration Statement)
- -------------------
* To be filed by amendment.
(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 November 12, 1996.
FIRST MARINER BANCORP
By: /s/ Edwin F. Hale, Sr.
Edwin F. Hale, Sr.
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned, whose signature appears below constitutes and
appoints each of Edwin F. Hale, Sr. and George H. Mantakos as his or her true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue thereof. This power of attorney may be executed in
counterparts.
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 ______________, 1996
- ---------------------------------- Executive Officer
Edwin F. Hale, Sr. (Principal executive officer)
/s/ George H. Mantakos Director and President ______________, 1996
- ----------------------------------
George H. Mantakos
/s/ Kevin M. Healey Controller (Principal financial ______________, 1996
- ---------------------------------- officer)
Kevin M. Healey
II-6
<PAGE>
/s/ Barry B. Bondroff Director ______________, 1996
- ----------------------------------
Barry B. Bondroff
/s/ Rose M. Cernak Director ______________, 1996
- ----------------------------------
Rose M. Cernak
/s/ Christopher P. D'Anna Director ______________, 1996
- ----------------------------------
Christopher P. D'Anna
Director ______________, 1996
- ----------------------------------
Dennis M. Doyle
/s/ Elayne Hettleman Director ______________, 1996
- ----------------------------------
Elayne Hettleman
Director ______________, 1996
- ----------------------------------
Bruce H. Hoffman
/s/ Melvin S. Kabik Director ______________, 1996
- ----------------------------------
Melvin S. Kabik
/s/ R. Andrew Larkin Director ______________, 1996
- ----------------------------------
R. Andrew Larkin
/s/ Jay J.J. Matricciani Director ______________, 1996
- ----------------------------------
Jay J.J. Matricciani
/s/ Dennis C. McCoy Director ______________, 1996
- ----------------------------------
Dennis C. McCoy
Director ______________, 1996
- ----------------------------------
Margaret D. McManus
/s/ Walter L. McManus, Jr. Director ______________, 1996
- ----------------------------------
Walter L. McManus, Jr.
II-7
<PAGE>
Director _____________, 1996
- ----------------------------------
John J. Mitcherling
/s/ James P. O'Conor Director ______________, 1996
- ----------------------------------
James P. O'Conor
/s/ Kevin B. O'Connor Director ______________, 1996
- ----------------------------------
Kevin B. O'Connor
/s/ Governor William Donald Schaefer Director ______________, 1996
- ----------------------------------
Governor William Donald Schaefer
Director ______________, 1996
- ----------------------------------
Hanan Y. Sibel
/s/ Leonard Stoler Director ______________, 1996
- ----------------------------------
Leonard Stoler
</TABLE>
II-8
<PAGE>
Exhibit 3.1
FIRST MARINER BANCORP
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST MARINER BANCORP, a Maryland corporation, having its principal
office at 1801 South Clinton Street, Baltimore, Maryland 21224 (hereinafter
referred to as the "Corporation") hereby certifies to the State Department of
Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Corporation desires to amend and restate its Charter as
currently in effect as hereinafter provided. The provisions set forth in these
Articles of Amendment and Restatement are all the provisions of the Charter of
the Corporation as currently in effect.
SECOND: The Charter of the Corporation is hereby amended by striking in
its entirety Articles FIRST through TENTH, inclusive, and by substituting in
lieu thereof the following:
"FIRST: I, Frank C. Bonaventure, Jr., whose post office address is 120
East Baltimore Street, Baltimore, Maryland 21202-1643, being at least
eighteen (18) years of age, hereby form a corporation under and by virtue
of the General Laws of the State of Maryland, as amended.
SECOND: The name of the corporation (hereinafter, the "Corporation") is
First Mariner Bancorp
THIRD: The Corporation shall be a corporation authorized by Title Two
of the Corporations and Associations Article of the Annotated Code of
Maryland, as amended.
FOURTH: The purposes for which the Corporation is formed are:
(1) To acquire, hold, manage and dispose of investments in real and
personal property, tangible or intangible, by the use of surplus funds, by
the issuance of its own securities in exchange therefor or by other lawful
means;
(2) To acquire complete or partial ownership of other businesses by the
acquisition of shares (if incorporated) or otherwise:
(3) To acquire, own and hold stock and other securities of all types of
financial institutions and associations organized under the laws of the
<PAGE>
United States or of any State, and to do anything and everything that may
be proper and necessary in connection with owning and holding such stock
and securities; and
(4) To do every other act not inconsistent with applicable law.
FIFTH: The post office address of the principal office of the
Corporation in this State is 1801 South Clinton Street, Baltimore, Maryland
21224. The name and post office address of the Resident Agent of the
Corporation in this State are Eugene A. Friedman, 1801 South Clinton
Street, Baltimore, Maryland 21224. Said Resident Agent is an individual
actually residing in this State.
SIXTH: The total number of shares of capital stock which the
Corporation has authority to issue is twenty million (20,000,000) shares of
Common Stock with par value of Five Cents ($.05) per share.
SEVENTH: (1) The Corporation shall have five (5) directors, and the
number of directors may be increased or decreased pursuant to the By-Laws
of the Corporation, provided that the number of directors shall never be
less than the number required by Section 2402 of the Corporations and
Associations Article of the Annotated Code of Maryland, as amended.
(2) 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 for a term
expiring at the third succeeding annual meeting.
(3) The names of the directors of each class, who shall act as the
directors until their respective successors shall be duly elected and shall
qualify, are as follows:
Class One Class Two Class Three
Dennis M. Doyle Rose M. Cernak Edwin F. Hale, Sr.
Elayne Hettleman Christopher D'Anna Barry B. Bondroff
John J. Mitcherling George H. Mantakos Bruce H. Hoffman
Leonard Stoler Kevin B. O'Connor R. Andrew Larkin
Hanan Y. Sibel Gov. William Donald Schaefer Walter L. McManus, Jr.
Jay J.J. Matricciani Margaret D. McManus James P. O'Conor
Melvin S. Kabik Dennis C. McCoy
- 2 -
<PAGE>
(4) Notwithstanding paragraph (4) of Article EIGHTH, this Article NINTH
may not be amended except by the affirmative vote, cast in person or by
proxy, of the holders of record of eighty percent (80%) of the shares of
the capital stock of the Corporation entitled to vote thereon.
EIGHTH: The following provisions are hereby adopted for the purpose of
defining, limiting, and regulating the powers of the Corporation and of the
directors and stockholders:
(1) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any
class, whether now or hereafter authorized, or securities convertible into
shares of its stock of any class or classes, whether now or hereafter
authorized.
(2) The Board of Directors may classify or reclassify any unissued
shares by fixing or altering in any one or more respects, from time to time
before issuance of such shares, the preferences, rights, voting powers,
restrictions and qualifications of, the dividends on, the times and prices
of redemption of, and the conversion rights of, such shares.
(3) The Corporation reserves the right to amend its Charter so that
such amendment may alter the contract rights as expressly set forth in the
Charter, of any outstanding stock, and any objecting stockholder whose
rights may or shall be thereby substantially adversely affected shall not
be entitled to the same rights as an objecting stockholder in the case of a
consolidation, merger, share exchange, or transfer of all, or substantially
all, of the assets of the Corporation.
(4) With respect to:
(a) the amendment of the Charter of the Corporation; and
(b) the voluntary or involuntary liquidation dissolution or winding-up
of the Corporation;
such action shall be effective and valid if taken or approved by an
affirmative vote of the holders of record of a majority of the shares of
capital stock of the Corporation entitled to vote thereon, after due
authorization and/or approval and/or advice of such action by the Board of
Directors as required by law, notwithstanding any provision of law
requiring any action to be taken or authorized other than as provided in
this Article EIGHTH, paragraph (4).
- 3 -
<PAGE>
The enumeration and definition of a particular power of the Board of
Directors included in this Article shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or
any other Article of the Charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General Laws of the
State of Maryland now or hereafter in force.
NINTH: (1) No proposed transaction resulting in a Business Combination
(hereinafter defined) shall be valid unless first approved by the
affirmative vote, cast in person or by proxy, of the holders of record of
eighty percent (80%) of the shares of the capital stock of the Corporation
entitled to vote thereon; provided, however, that if any such action has
been approved prior to the vote of shareholders by a majority of the
Corporation's Board of Directors, the affirmative vote of the holders of
record of a majority of the shares of the capital stock of the Corporation
entitled to vote on such matters shall be required.
(2) Notwithstanding paragraph (4) of Article EIGHTH, this Article NINTH
may not be amended except by the affirmative vote, cast in person or by
proxy, of the holders of record of eighty percent (80%) of the shares of
the capital stock of the Corporation entitled to vote thereon.
(3) "Business Combination" as used herein shall mean any of the
following proposed transactions:
(a) the merger or consolidation of the Corporation or any subsidiary of
the Corporation;
(b) the sale, exchange, transfer or other disposition (in one or a
series of transactions) of substantially all of the assets of the
Corporation or any subsidiary of the Corporation; or
(c) any offer for the exchange of securities of another entity for the
securities of the Corporation.
TENTH: Except as may otherwise be provided by the Board of Directors,
no holder of any shares of the stock of the Corporation shall have any
pre-emptive right to purchase, subscribe for, or otherwise acquire any
shares of stock of the Corporation of any class now or hereafter
authorized, or any securities exchangeable for or convertible into such
shares, or any warrants or other instruments evidencing rights or options
to subscribe for, purchase or otherwise acquire such shares.
- 4 -
<PAGE>
ELEVENTH: (1) Directors and officers of the Corporation shall not be
liable to the Corporation or its stockholders for money damages. The
purpose of this limitation of liability is to limit liability to the
maximum extent that the liability of directors and officers of Maryland
corporations is permitted to be limited by Maryland law. This limitation on
liability shall apply to events which occurred during the term of office of
any director or officer whether or not such director or officer is serving
as such at the time of any proceeding in which liability is asserted
commences.
(2) To the maximum extent permitted by Maryland law, the Corporation
shall indemnify its currently acting and its former directors against any
and all liabilities and expenses incurred in connection with their services
in such capacities, and shall indemnify its currently acting and its former
officers to the full extent that indemnification shall be provided to
directors, and may indemnify, to the same extent, persons who serve and
have served, at its request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture or
other enterprise. The Corporation shall advance expenses to its directors
and officers and the other persons referred to above to the extent
permitted by Maryland law. This indemnification of directors and officers
shall also apply to directors and officers who are also employees, in their
capacity as employees. The Board of Directors may by By-Law, resolution or
agreement make further provision for indemnification of employees and
agents to the extent permitted by Maryland law.
(3) References to Maryland law shall include the Maryland General
Corporation Law as from time to time amended. Neither the repeal or
amendment of this Article ELEVENTH nor any other amendment to these
Articles of Incorporation, shall eliminate or reduce the protection
afforded to any person by the foregoing provisions of this Article ELEVENTH
with respect to any act or omission which shall have occurred prior to such
repeal or amendment."
THIRD: Immediately before and after this amendment, the Corporation had
authority to issue 20,000,000 shares of common stock, par value $0.05 per share,
constituting an aggregate Par value of $1,000,000.
FOURTH: At a duly called meeting of the Board of Directors of the
Corporation on October 15, 1996, the Board of Directors of the Corporation duly
advised the foregoing Articles of Amendment and Restatement, and at a duly
called special meeting of the stockholders of the Corporation on
__________________ ____, 1996, the stockholders of the Corporation duly approved
said Articles of Amendment and Restatement.
- 5 -
<PAGE>
IN WITNESS WHEREOF, FIRST MARINER BANCORP has caused these presents to
be signed in its name and on its behalf by its President and its corporate seal
to be hereunder affixed and attested by its Secretary on this ____ day of
______________, 1996, and its President acknowledges that these Articles of
Amendment and Restatement are the act and deed of FIRST MARINER BANCORP, and,
under the penalties of perjury, that the matters and facts set forth herein with
respect to authorization and approval are true in all material respects to the
best of his knowledge, information and belief.
ATTEST: FIRST MARINER BANCORP
_________________________________ By:________________________________(SEAL)
Eugene A. Friedman, Secretary George H. Mantakos, President
- 6 -
<PAGE>
Exhibit 3.2
First Mariner Bancorp
BYLAWS
(Amended and Restated as of October 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
- 4 -
<PAGE>
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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<PAGE>
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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<PAGE>
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 me Treasurer shall be
conclusive evidence of me 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 me Board
of Directors. All certificates shall be signed by the President or by the 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 me holder, shall be
entered in me Corporation's books. All certificates surrendered to me
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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<PAGE>
his attorney upon surrender and cancellation of certificates for a like number
of shares as hereinbefore provided.
SECTION 3. Registered Stockholders. The Corporation shall 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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<PAGE>
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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<PAGE>
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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<PAGE>
Exhibit 4.1
THIS WARRANT AND THE SHARES OF COMPANY STOCK ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE
SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE SOLD,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
(WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON
THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL
AND/OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO
THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF
THE ACT AND THE STATE ACTS.
WARRANT*
TO PURCHASE ------ SHARES
OF COMMON STOCK
OF
FIRST MARINER BANCORP
(a Maryland Corporation)
Not Transferable Or Exercisable Except
Upon Conditions Herein Specified
Void after 5:00 O'Clock P.M.,
Baltimore, Maryland Time, on August 1, 2005
FIRST MARINER BANCORP, a Maryland corporation (the "Company")
hereby certifies that , or such
- --------------------------------------------------------------------------------
holder's registered successors and permitted assigns, registered on the books of
the Company maintained for such purposes as the registered holder hereof (the
"Holder"), for value received, is entitled to purchase from the Company the
number of fully paid and non-assessable shares of Common Stock of the Company,
par value $.05 per share (the "Shares") stated above at the purchase price of
$10.00 per Share (the "Exercise Price") (the number of Shares and Exercise Price
being subject to adjustment as hereinafter provided) upon the terms and
conditions herein provided.
1) EXERCISE OF WARRANTS. (i) Subject to subsection (b) of this
Section 1, upon presentation and surrender of this Warrant Certificate, with the
attached Purchase Form duly executed, at the principal office of the Company at
1801 South Clinton Street, Baltimore, -------- * Exchanged for Warrant dated ,
issued to
<PAGE>
Maryland 21224, or at such other place as the Company may designate by notice to
the Holder hereof, together with a check payable to the order of the Company in
the amount of the Exercise Price times the number of Shares being purchased, the
Company shall deliver to the Holder hereof, as promptly as practicable,
certificates representing the Shares being purchased. This Warrant may be
exercised in whole or in part; and, in case of exercise hereof in part only, the
Company, upon surrender hereof, will deliver to the Holder a new Warrant
Certificate or Warrant Certificates of like tenor entitling the Holder to
purchase the number of Shares as to which this Warrant has not been exercised.
(ii) This Warrant may be exercised in whole or in part at any
time on and after August 1, 1995.
2) RIGHTS AND OBLIGATIONS OF WARRANT HOLDER. (i) The Holder of
this Warrant Certificate shall not, by virtue hereof, be entitled to any rights
of a stockholder in the Company, either at law or in equity; provided, however,
in the event that any certificate representing the Shares is issued to the
Holder hereof upon exercise of this Warrant, such Holder shall, for all
purposes, be deemed to have become the holder of record of such Shares on the
date on which this Warrant Certificate, together with a duly executed Purchase
Form, was surrendered and payment of the Exercise Price was made, irrespective
of the date of delivery of such Share certificate. The rights of the Holder of
this Warrant are limited to those expressed herein and the Holder of this
Warrant, by its acceptance hereof, consents to and agrees to be bound by and to
comply with all the provisions of this Warrant Certificate, including, without
limitation, all the obligations imposed upon the Holder hereof by Section 4
hereof. In addition, the Holder of this Warrant Certificate, by accepting the
same, agrees that the Company may deem and treat the person in whose name this
Warrant Certificate is registered on the books of the Company maintained for
such purpose as the absolute, true and lawful owner for all purposes whatsoever,
notwithstanding any notation of ownership or other writing thereon, and the
Company shall not be affected by any notice to the contrary.
(ii) No Holder of this Warrant Certificate, as such, shall be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Warrant Certificate be
construed to confer upon any Holder of this Warrant Certificate, as such, any of
the rights of a shareholder of the Company or any right to vote, give or
withhold consent to any action by the Company receive dividends, subscription
rights, or otherwise, until this Warrant shall have been exercised and the
Shares purchasable upon the exercise thereof shall have become deliverable as
provided herein; provided, however, that any such exercise on any date when the
stock transfer books of the Company shall be closed shall constitute the person
or persons in whose name or names the certificate or certificates for those
Shares are to be issued as the record holder or holders thereof for all purposes
at the opening of business on the next succeeding day on which such stock
transfer books are open, and the Warrant Certificate surrendered shall not be
deemed to have been exercised, in whole or in part as the case may be, until the
next succeeding day on which stock transfer books are open for the purpose of
determining entitlement to dividends on the Company's common stock.
3) SHARES UNDERLYING WARRANTS. The Company covenants and
agrees that all Shares delivered upon the exercise of this Warrant shall, upon
delivery and payment therefor, be duly and validly authorized and issued,
fully-paid and non-assessable, and free from all stamptaxes, liens and charges
with respect to the purchase thereof.
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<PAGE>
4) DISPOSITION OF WARRANTS OR SHARES. The Holder of this
Warrant Certificate and any transferee hereof or of the Shares issuable upon the
exercise of the Warrant, by their acceptance hereof, each hereby (i) represents
and warrants that this Warrant and the Shares issuable upon exercise thereof are
being acquired for investment for the account of the holder and with no intent
to sell, transfer or subdivide such Warrant or Shares, and (ii) understands and
agrees that the Warrant, and the Shares issuable upon the exercise hereof, have
not been and will not be registered under either the Securities Act of 1933 (the
"Act") or applicable State Securities Laws (the "State Acts") and shall not be
sold, pledged, hypothecated, donated or otherwise transferred (whether or not
for consideration) except upon the issuance to the Company of a favorable
opinion of counsel and/or for submission to the Company of such evidence as may
be satisfactory to counsel to the Company, in each such case, to the effect that
any such transfer shall not be in violation of the Act and the State Acts. It
shall be a condition to the transfer of this Warrant that any transferee thereof
deliver to the Company its written agreement to accept and be bound by all of
the terms and conditions of this Warrant Certificate.
5) ADJUSTMENTS. The number of Shares purchasable upon the
exercise of each Warrant is subject to adjustment from time to time upon the
occurrence of any of the events enumerated below.
(i) In case the Company shall: (i) pay a
dividend in shares of its Common Stock, (ii) subdivide outstanding shares of its
Common Stock into a greater number of shares, (iii) combine outstanding shares
of its Common Stock into a smaller number of shares or (iv) issue by
reclassification of shares of its Common Stock, any shares of its capital stock,
the amount of shares purchasable upon the exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder shall be entitled to receive
upon exercise of the Warrant that number of shares which such Holder would have
owned or would have been entitled to receive after the happening of such event
had such Holder exercised the Warrant immediately prior to the record date, in
the case of such dividend, or the effective date, in the case of any such
subdivision, combination or reclassification. An adjustment made pursuant to
this subparagraph (a) shall be made whenever any of such events shall occur, but
shall become effective retroactively after such record date or such effective
date, as the case may be, as to Warrants exercised between such record date or
effective date and the date of happening of any such event.
(ii) Whenever the number of Shares purchasable
hereunder is adjusted as herein provided, the Company shall cause to be mailed
to the Holder in accordance with the provisions of this Section 5 a notice (i)
stating that the number of Shares purchasable upon exercise of this Warrant have
been adjusted, (ii) setting forth the adjusted number of Shares purchasable upon
the exercise of the Warrant and (iii) showing in reasonable detail the
computations and the facts, including the amount of consideration received or
deemed to have been received by the Company, upon which such adjustments are
based.
6) FRACTIONAL SHARES. The Company shall not be required to
issue any fraction of a Share upon the exercise of Warrants. If more than one
Warrant shall be surrendered for exercise at one time by the same Holder, the
number of full Shares which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of Shares with respect to which
this Warrant is exercised. If any fractional interest in a Share shall be
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<PAGE>
deliverable upon the exercise of this Warrant, the Company shall make an
adjustment therefor and pay to the Holder in cash an amount equal to such
fraction multiplied by the fair market value of the Shares on the business day
next preceding the day of exercise, as determined by the Company's Board of
Directors in its sole discretion.
7) LOSS OR DESTRUCTION. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement or bond satisfactory in form, substance and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant Certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
8) SURVIVAL. The various rights and obligations of the Holder
hereof as set forth herein shall survive the exercise of the Warrant represented
hereby and the surrender of this Warrant Certificate.
9) NOTICES. Whenever any notice, payment of any purchase
price, or other communication is required to be given or delivered under the
terms of this Warrant, it shall be in writing and delivered by hand delivery or
United States registered or certified mail, return receipt requested, postage
prepaid, and will be deemed to have been given or delivered on the date such
notice, purchase price or other communication is so delivered or posted, as the
case may be; and, if to the Company, it will be addressed to the address
specified in Section 1 hereof, and if to the Holder, it will be addressed to the
registered Holder at his address as it appears on the books of the Company.
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<PAGE>
IN WITNESS WHEREOF, First Mariner Bancorp has caused this
Warrant Certificate to be executed on its behalf as of this ____ day of
_______________.
ATTEST: FIRST MARINER BANCORP
By: By: (SEAL)
---------------------------------- ----------------------------------
Eugene A. Friedman, Secretary Edwin F. Hale, Sr., Chairman
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<PAGE>
PURCHASE FORM
TO: FIRST MARINER BANCORP
The undersigned hereby irrevocably elects to exercise the
attached Warrant to the extent of ..............shares of the Common Stock, par
value $.05 per share, of FIRST MARINER BANCORP and hereby makes payment of
$............... in accordance with the provisions of Section 1 of the Warrant
Certificate in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
UPON THE STOCK LEDGER OF THE COMPANY
Name: ..........................................................................
(Please typewrite or print in block letters)
Address: ..............................................................
..............................................................
Signature
Name
Date
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<PAGE>
Exhibit 10.1
FIRST MARINER BANCORP
1996 STOCK OPTION PLAN
(Amended as of October 31, 1996)
First Mariner Bancorp (the "Corporation") sets forth herein the terms
of this 1996 Stock Option Plan (the "Plan") as follows:
1. Purpose.
The Plan is intended to advance the interests of the Corporation by
providing eligible individuals (as designated pursuant to Section 4 below) with
an opportunity to acquire or increase a proprietary interest in the Corporation,
which thereby will create a stronger incentive to expend maximum effort for the
growth and success of the Corporation and its subsidiaries, and will encourage
such eligible individuals to remain in the employ of service of the Corporation
or that of one or more of its subsidiaries. Each stock option granted under the
Plan (an "Option") is intended to be an "incentive stock option" ("Incentive
Stock Option") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or the corresponding provision of any subsequently enacted tax
statute (the "Code"), except (i) to the extent that any such Option would exceed
limitations set forth in Section 7 below; (ii) for Options specifically
designated at the time of grant as not being Incentive Stock Options; and (iii)
for Options granted to directors of the Corporation who are not officers or
other salaried employees of the Corporation or any "subsidiary corporation" (a
"Subsidiary") thereof within the meaning of Section 424(f) of the Code
("Non-Employee Directors") or to directors of a Subsidiary who are not
Non-Employee Directors and who are not officers or employees of the Corporation
or any Subsidiary ("Subsidiary Directors").
2. Administration.
(a) Committee. The Board of Directors of the Corporation (the "Board")
shall appoint a compensation committee (the "Committee") in accordance with the
By-Laws of the administration of the Plan as the Board shall determine,
consistent with the Articles of Incorporation and By-Laws of the Corporation and
applicable law. The Board may remove members, add members, and fill vacancies on
the Committee from time to time, all in accordance with the Corporation's
Articles of Incorporation and By-Laws, and with applicable law. The majority
vote of the Committee, or acts reduced to or approval in writing by a majority
of the members of the Committee, shall be valid acts of the Committee.
(b) Administration. The Plan shall be administered by the Committee
which shall have full power and authority to take all actions, and to make all
determinations required or provided for under the Plan or any Option granted or
Option Agreement (as defined in Section 8 below) entered into hereunder and all
such actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate to
the administration of the Plan or any Option granted or Option Agreement entered
into hereunder. The interpretation and construction by the Committee of any
provision of the Plan or of any Option granted or Option Agreement entered into
hereunder shall be final and conclusive. The Committee shall cause a copy of the
this Plan to be delivered to each participant in the Plan.
(c) No Liability. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted or Option Agreement entered into hereunder.
<PAGE>
(d) Delegation to the Committee. In the event that the Plan or any
Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(a) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and conclusive.
3. Stock.
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of Common Stock, par value $.05 per share, of the Corporation
(the "Stock"), which shares may be authorized but unissued shares or shares that
may be purchased by the Corporation in the open market or in private
transactions. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 190,000 shares,
which number of shares is subject to adjustment as hereinafter provided in
Section 17 below. If any Option expires, terminates, or is terminated or
canceled for any reason prior to exercise in full, the shares of Stock that were
subject to the unexercised portion of such Option shall be available for future
Options granted under the Plan.
4. Eligibility.
(a) Employee and Subsidiary Directors. Options may be granted under the
Plan to any full-time employee of the Corporation or any Subsidiary (including
any such employee who is an office or director of the Corporation or any
Subsidiary) or to any Subsidiary Director as the Committee shall determine and
designate from time to time prior to expiration or termination of the Plan. For
this purpose, a full-time employee is one who is customarily employed at least
1,000 hours per year.
(b) Non-Employee Directors. Each Non-Employee Director who is serving
on the Board on the Effective Date (as defined in Section 5(a) hereof) shall be
granted an Option on the Effective Date to purchase 100 shares of the Stock for
each Board of Directors meeting attended by such person from and after November
21, 1995 through and including the Effective Date. Thereafter, each Non-Employee
Director shall be granted as Option as of the date of his or her attendance at a
meeting of the Board of Directors of the Corporation to purchase 100 shares of
the Stock. Each Option granted to a Non-Employee Director shall be granted at an
Option Price equal to the greater of par value or 100 percent of the fair market
value of a share of Stock on the date of grant (determined under Section 9
below) and upon the other terms and conditions specified in the Plan. Except as
provided in this Section 4(b), no Non-Employee Director shall be eligible to be
granted Options under this Plan.
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. Effective Date and Term of the Plan.
(a) Effective Date. The Plan shall be effective as of January 16, 1996
(the "Effective Date"). the date of adoption by the Board.
(b) Term. The Plan shall terminate on the 10th anniversary of the
Effective Date.
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6. Grant of Options.
Subject to the terms and conditions of the Plan, the Committee may, at
any time and from time to time, prior to the date of termination of the Plan,
grant to such eligible individuals as the Committee may determine ("Optionees"),
Options to purchase such number of shares of the Stock on such terms and
conditions as the Committee may determine, including any terms or conditions
which may be necessary to qualify such Options as Incentive Stock Options under
Section 422 of the Code. The date on which the Committee approves the grant of
an Option shall be considered the date on which such Option is granted.
7. Limitation on Options Received in Calendar Year.
An Option (other than an Option described in exception (ii) or (iii) of
Section 1) shall constitute an Incentive Stock Option to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Stock with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year (under the Plan and all other
plans of the Optionee's employer corporation and its parent and subsidiary
corporations within the meaning of Section 422(d) of the Code) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
8. Option Agreements.
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Committee shall from time to time
determine. Option Agreements covering Options granted from time to time or at
the same time need not contain similar provisions; provided, however, that all
such Option Agreements shall comply with all terms of the Plan.
9. Option Price.
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be fixed by the Committee and stated in each Option
Agreement; provided, however, that the purchase price of any Option intended to
be an Incentive Stock Option shall be not less than the greater of par value or
100% of the fair market value of a share of the Stock on the date the Option is
granted (as determined in good faith by the Committee); provided further, that
in the event the Optionee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the
Code (relating to stock ownership of more than 10 percent), the Option Price of
an Option which is intended to be an Incentive Stock Option shall be not less
than the greater of par value or 110 percent of the fair market value of a share
of Stock at the time such Option is granted. In the event that the Stock is
listed on an established national or regional stock exchange, is admitted to
quotation on the National Association or Securities Dealers Automated Quotation
System, or is publicly traded in an established securities market, in
determining the fair market value of the Stock, the Committee shall use the
closing price of the Stock on such exchange or System or in such market (the
highest such closing price if there is more than one such exchange or market) on
the trading date immediately before the Option is granted (or, if there is no
such closing price, then the Committee shall use the mean between the highest
bid and the lowest asked prices or between the high and low priced on such
date), or, if no sale of the Stock has been made on such day, on the next
preceding day on which any such sale have been made.
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10. Term and Exercise of Options.
(a) Term. Each Option granted under the Plan shall terminate, and all
rights to purchase shares thereunder shall cease upon the expiration of ten
years from the date such Option is granted, or, with respect to Options granted
to persons other than Non-Employee Directors, on such date prior thereto as may
be fixed by the Committee and stated in the Option Agreement relating to such
Option; provided, however, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Section 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10 percent), an Option granted to such Optionee which is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
(b) Option Period and Limitations on Exercise. Except as otherwise
provided in an Option Agreement, each Option granted shall be exercise in whole
or in part at any time after the date of grant. Notwithstanding the foregoing,
the Committee, subject to the terms and conditions of the Plan, may in its sole
discretion provide other time periods during which an Option may be exercised in
whole or in part while such Option is outstanding. Any limitation on the
exercise of an Option may be rescinded, modified or waived by the Committee, in
its sole discretion, at any time and from time to time after the date of grant
of such Option, so as to accelerate the time at which the Option may be
exercised.
(c) Method of Exercise. An Option that is exercisable hereunder may be
exercised by delivery to the Corporation on any business day, at its principal
office, addressed to the attention of the Committee, of written notice of
exercise, which notice shall specify the number of shares with respect to which
the Option is being exercised. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of 100 shares of the maximum number of shares available for
purchase under the Option at the time of exercise. Payment of the Option Price
for the shares of Stock purchased pursuant to the exercise of an Option shall be
made (i) in cash or in cash equivalents; (ii) through the tender to the
Corporation of shares of Stock, which shares shall be valued, for purposes of
determining the extent to which the Option Price has been paid thereby, at their
fair market value (determined in the manner described in Section 9 above) on the
date of exercise; (iii) through the tender to the Corporation of Options, to the
extent of the difference between the Option Price and the fair market value of
the shares of Stock subject to such Option (determined in the manner described
in Section 9 above) on the exercise date; or (iv) by combination of the methods
described in (i), (ii) and (iii) above. Payment in full of the Option Price need
not accompany the written notice of exercise provided the notice of exercise
directs that the Stock certificate or certificates for the shares for which the
Option is exercised be delivered to a licensed broker applicable to the
Corporation as the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the broker tenders to
the Corporation cash (or cash equivalents acceptable to the Corporation) equal
to the Option Price for the shares of Stock purchased pursuant to the exercise
of the Option plus the amount (if any) of federal and/or the taxes which the
Corporation may, in its judgment, be required to withhold with respect to the
exercise of the Option. An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Promptly after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising the
Option shall be entitled to the issuance of a Stock certificate or certificates
evidencing his ownership of such shares; provided however, that the Corporation
shall have the right to withhold and deduct from the number of shares of Stock
deliverable upon exercise of an Option, a number of shares having an aggregate
fair market value (determined in the manner described in Section 9 above) equal
to the amount of any taxes and other charges the Corporation or any Subsidiary
is obligated to withhold or deduct from amounts payable to such individual. A
separate Stock certificate or certificates shall be issued for any shares
purchased pursuant to the exercise of an Option which is an Incentive Stock
Option, which certificate or certificates shall not include any shares which
were purchased pursuant to the exercise of an Option which is not an Incentive
Stock Option. An individual holding or exercising an Option shall
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have none of the rights of a shareholder until the shares of Stock covered
thereby are fully paid and issued to him and, except as provided in Section 17
below, no adjustment shall be made for dividends or other rights, if any, for
which the record date is prior to the date of such issuance.
11. Transferability of Options.
During the lifetime of an Optionee to whom an Option is granted, only
such Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise the Option. No Option
shall be assignable or transferable by the Optionee to whom it is granted, other
than by will or the laws of the descent and distribution.
12. Termination of Service or Employment.
(a) Employees and Subsidiary Directors. Upon the termination of the
employment of service of an Optionee (other than a Non-Employee Director) with
the Corporation or a Subsidiary, other than by reason of (i) the death or
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, or (ii) the dismissal of such Optionee for dishonesty or
commission of a crime or for any reason constituting "cause" under the terms of
an employment agreement, if any, between the Optionee and the Corporation or a
Subsidiary, any Option granted pursuant to the Plan shall terminate three months
after the date of such termination of employment or service, unless earlier
terminated pursuant to Section 10(a) above, and such Optionee shall have no
further right to purchase shares of Stock pursuant to such Option; provided,
however, that the Committee may purchase shares of Stock pursuant to such
Option; provided, however, that the Committee may provide, by inclusion of
appropriate language in an Option Agreement, that an Optionee may (subject to
the general limitations on exercise set forth in Section lO(b) above), in the
event of termination of employment or service of the Optionee with the
Corporation or a Subsidiary, exercise an Option, in whole or in part, at any
time subsequent to such termination of employment or service and prior to
termination of the Option as provided in Section 10(a) above either subject to
or without regard to any installment limitation on exercise imposed pursuant to
Section 10(b)above. Whether a leave of absence or leave on military or
government services shall constitute a termination of employment or service for
purposes of the Plan shall be determined by the Committee, which determination
shall be final and conclusive. For purposes of the Plan, a termination of
employment or service with the Corporation or a Subsidiary shall not be deemed
to occur if immediately thereafter the Optionee is employed with the Corporation
or any Subsidiary or is serving as a Subsidiary Director.
(b) Non-Employee Directors. Any Option granted to a Non-Employee
Director shall terminate upon the expiration of three months following the date
on which the Non-Employee Director ceases to be a member of the Board other than
because of death or "permanent and total disability" as defined above, or, if
earlier, upon the expiration of ten years after grant of the Option.
13. Rights in the Event of Death or Disability.
(a) Death of an Employee or Subsidiary Director. If an Optionee (other
than a Non-Employee Director) dies while employed by the Corporation or a
Subsidiary or while serving as a Subsidiary Director, the executors or
administrators or legatees or distributees of such Optionee's estate shall have
the right (subject to the general limitations on exercise set forth in Section
10(b) above), at any time within one year after the date of such Optionee's
death and prior to termination of the Option as provided in Section 10(a) above,
the exercise any Option held by such Optionee at the date of such Optionee's
death, whether or not such Option was exercisable immediately prior to such
Optionee's death; provided, however, that the Committee may provide, by
inclusion of appropriate language in an Option Agreement, that, in the event of
the death of the Optionee, the executors or administrators or legatees or
distributees
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<PAGE>
of such Optionee's estate may exercise an Option (subject to the general
limitations on exercise set forth in Section 10(b) above), in whole or in part,
at any time subsequent to such Optionee's death and prior to termination of the
Option as provided in Section 10(a) above, either subject to or without regard
to any installment limitation on exercise imposed pursuant to Section 1 0(b)(i)
above.
(b) Disability of an Employee or Subsidiary Director. If an Optionee
(other than a Non-Employee Director) terminates employment or service with the
Corporation or a Subsidiary by reason of the "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code) of such Optionee, then such
Optionee shall have the right (subject to the general limitations on exercise
set forth in Section 10(b) above), at any time within one year after such
termination of employment or service and prior to termination of the Option as
provided in Section 10(a) above, to exercise, in whole or in part, any Option
held by such Optionee at the date of such termination of employment or service,
whether or not such Option was exercisable immediately prior to such termination
of employment or service; provided, however, that the Committee may provide, by
inclusion of appropriate language in the Option Agreement, that the Optionee may
(subject to the general limitations on exercise set forth in Section 10(b)
above), in the event of the termination of employment or service of the Optionee
with the Corporation or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, exercise an Option, in whole or in part, at any time subsequent to
such termination of employment or service and prior to termination of the Option
as provided in Section 1 0(a) above, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10(b) above.
Whether a termination of employment or service is to be considered by reason of
"permanent and total disability" for purposed of this Plan shall be determined
by the Committee, which determination shall be final and conclusive.
(c) Death or Disability of a Non-Employee Director. Any Option granted
to a Non-Employee Director shall terminate upon the expiration of one year
following the date on which the Non-Employee Director ceases to be a member of
the Board by reason of death or "permanent and total disability" as defined
above or, if earlier, upon the expiration of ten years following grant of the
Option.
14. Use of Proceeds.
The proceeds received by the Corporation from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Corporation.
15. Requirements of Law.
(a) Violations of Law. The Corporation shall not be required to sell or
issue any shares of stock under any Option if the sale or issuance of such
shares would constitute a violation by the individual exercising the Option or
the Corporation of any provision of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act of 1933 (as now
in effect with respect to the shares of any Option), unless a registration
statement under such Act is in effect with respect to the shares of Stock
covered by such Option, the Corporation shall not be required to sell or issue
such shares unless the Corporation has received evidence satisfactory to it that
the holder of such Option may acquire such shares pursuant to an exemption from
registration under such Act, and the shares of Stock to be issued upon the
exercise of all or any portion of any Option granted under the Plan shall be
issued on the exercise of all or any portion of any Option granted under the
Plan shall be issued on the condition that the Optionee represents that the
purchase of Stock upon such exercise shall be for investment purposes and not
with a view to resale, distribution, offering, transferring, mortgaging,
pledging, hypothecating or otherwise disposing of any such Stock under the
circumstances which would constitute a public offering or distribution under the
Securities Act of 1993 or the securities laws of any state. No shares of Stock
shall be issued upon the
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<PAGE>
exercise of any Option unless the Corporation shall have received from the
Optionee a written statement satisfactory to legal counsel for the Corporation
containing the above representations, stating that certificates representing
such shares may bear a legend restricting their transfer and stating that
certificates representing such shares may bear a legend restricting their
transfer and stating that the Corporation's transfer agent or agents may be
given instructions to stop transfer of any certificate bearing such legend. Such
representation and restrictions provided for herein shall not be required if (i)
an effective registration statement for such shares under the Securities Act of
1933 and any applicable state laws has been filed with the Securities and
Exchange Commission and with the appropriate agency or commission of any state
whose laws apply to the transaction, or (ii) an opinion of counsel satisfactory
to the Corporation has been delivered to the Corporation to the effect that
registration is not required under the Securities Act of 1933 or under the
applicable securities laws of any state. Any determination by the Committee
regarding the foregoing shall be final, binding, and conclusive. The Corporation
shall not be obligated to take any affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply with
any law or regulation or any governmental authority.
(b) Restriction on Transfer of Stock. The certificate or certificates
for Stock issued upon the exercise of an Option shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART
OF THE HOLDER THEREOF AND SHALL NOT BE SOLD. PLEDGED,
HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR
NOT FOR CONSIDERATION FOR A PERIOD THREE YEARS FROM THE DATE
OF THE ISSUANCE THEREOF BY THE HOLDER EXCEPT UPON THE ISSUANCE
TO THE ISSUER OF A FAVORABLE OPINION OF ITS COUNSEL AND/OR THE
SATISFACTORY TO COUNSEL TO THE ISSUER, TO THE EFFECT THAT ANY
SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
16. Amendment and Termination of the Plan.
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted. Except as permitted under Section 17 hereof, no amendment, suspension
or termination of the Plan shall, without the consent of the holder of the
Option, alter or impair rights or obligations under any Option theretofore
granted under the Plan.
17. Effect of Changes in Capitalization.
(a) Changes in Stock. If the outstanding shares of Stock are increased
or decreased or changed into or exchanged for a different number or kind or
shares or other securities of the Corporation by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other increase
or decrease in such shares effected without receipt of consideration by the
Corporation, occurring after the effective date of the Plan, the number and
kinds of shares for the purchase of which Options may be granted under the Plan
shall be adjusted proportionately and accordingly by the Corporation. In
addition, the number and kind of shares for which Options are outstanding shall
be adjusted proportionately and accordingly so that the proportionate interest
of the holder of the Option immediately following such event shall, to the
extent practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options
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<PAGE>
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion in the Option outstanding but shall include a
corresponding proportionate adjustment in the Option Price per share.
(b) Reorganization in which the Corporation is the Surviving
Corporation. Subject to Subsection (d) hereof, if the Corporation shall be
surviving corporation in any reorganization, merger, share exchange or
consolidation of the Corporation with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.
(c) Reorganization in which the Corporation is not the Surviving
Corporation or Sale of Assets or Stock. In the event of the commencement of a
tender offer (other than by the Corporation) for any shares of the Corporation
or a sale or transfer, in one or a series of transactions, of assets having a
fair market value of 50% or more of the fair market value of all assets of the
Corporation, or a merger, consolidation or share exchange pursuant to which
shares of the Corporation may be exchanged for or converted into cash, property
or securities of another issuer, or the liquidation of the Corporation (an
"Extraordinary Event"), then regardless of whether or not any Option granted
pursuant to the Plan shall have vested or become fully exercisable, all Options
granted pursuant to the Plan shall immediately vest and become fully exercisable
for the full number of shares subject to any such Option on and at all times
after the "Event Date" of the Extraordinary Event.
(i) The "Event Date" is the date of the commencement of the
tender offer, if the Extraordinary Event is a tender offer, and in the case of
any other Extraordinary event, the day preceding the date as of which
shareholders of record become entitled to the consideration payable in respect
or such Extraordinary Event.
(ii) In the case of an Extraordinary Event other than a tender
offer, the exercise of an Option pursuant to this Section prior to the Event
Date shall be effective on and as of the Event Date. Upon the exercise of an
Option upon the occurrence of an Extraordinary Event, the Corporation shall
issue, on and as of the effective date of such exercise, all shares with respect
to which the Option shall have been exercised.
(iii) In the event of the exercise pursuant to this Section of
any Option the Option Price for which shall not have been fixed as of the Event
Date, the Option Price in respect of such Option shall be equal to the average
fair market value (determined in the manner described in Section 9 above) for
the 30 days preceding the announcement or other publication of the Extraordinary
Event.
(iv) In the event that an Optionee fails to exercise his or
her Option, in whole or in part, pursuant to this Section upon an Extraordinary
Event, the Corporation shall take such action as may be necessary to enable each
Optionee to receive upon any subsequent exercise of his or her Option, in whole
or in part, in lieu of shares of the Corporation, securities or other assets as
were issuable or payable upon such Extraordinary Event in respect of, or in
exchange for, such shares.
(d) Adjustments. Adjustments under this Section 17 related to stock or
securities of the Corporation shall be made by the Committee, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any
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such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) No Limitations on Corporation. The grant of an Option pursuant to
the Plan shall not affect or limit in any way the right or power of the
Corporation to make adjustments, reclassification, reorganizations or changes of
its capital or business structure or to merge, consolidate. dissolve or
liquidate, or sell or transfer all or any part of its business or assets.
18. Disclaimer of Rights.
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ or service of the Corporation or
any Subsidiary, or to interfere in any way with the right and authority of the
Corporation or any Subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary.
19. Non-Exclusivity of the Plan.
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Corporation for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
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<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this First day
of May, 1995, by and between First Mariner Bancorp and First Mariner Bank which,
together with any successor thereto which executes and delivers the assumption
agreement provided for in Section 10(a) hereof or which otherwise becomes bound
by all of the terms and provisions of this Agreement by operation of law, is
hereinafter referred as the "Bank") and GEORGE H. MANTAKOS, whose residence
address is 2890 Ordway Drive, Ellicott City, Maryland 21042 (the "Employee").
WHEREAS, the Employee is currently serving as the President of
the Holding Co., and President and Chief Executive Officer of the Bank
Subsidiaries;
WHEREAS, the parties desire to enter into this Employment
Agreement (the "Agreement") setting forth the terms and conditions of the
employment relationship between the Bank and the Employee;
WHEREAS, the Board of Directors of the Bank believes it is in
the best interest of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties and without distraction in the face of potentially disruptive
circumstances arising from the possibility of a change of control of the Bank,
although no such change is now contemplated; and
WHEREAS, the Board of Directors of the Bank has approved and
authorized the execution of this Agreement with the Employee to take effect as
stated in Section 4 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, it is
AGREED as follows:
1. Employment. The Employee shall continue to serve as the
President of the Holding Co., and President and Chief Executive Officer of the
Bank Subsidiaries, and shall have supervision and control over, and
responsibility for, the management and operation of the Bank, and shall have
such other powers and duties as may from time to time be prescribed by the
Board, provided that such duties are consistent with his present duties and with
the Employee's position as a senior executive officer in charge of the
management of the Bank. The Employee shall devote his best efforts and
substantially all his business time and attention to the business and affairs of
the Bank.
2. Compensation.
(a) Base Salary. The Bank agrees to pay the Employee during
the term of this Agreement a salary equal to $110,000.00 per annum ( the "Base
Salary"). The salary provided for herein shall be payable in equal semi-monthly
installments, less such sums as may
<PAGE>
be required to be deducted or withheld under provisions of law. On each
subsequent anniversary, starting 12 months from the date of this contract,
during the term of this Agreement, the Base Salary shall be increased by an
amount to be dictated and approved by the Board of Directors. The Employee's
salary hereunder shall not thereafter be reduced, and shall never be less than
$110,000.00 per annum. The Bank agrees, that other than the compensation of Mr.
Edwin F. Hale, Sr., and a Senior Banking Officer that may be hired in the
future, no other employee of the Bank or the Bank Holding Co. will receive total
annual compensation in excess of Mr. Mantakos' compensation.
(b) Bonuses. The Employee will participate in any
Management Bonus Plans established in the Holding Co. or Bank subsidiaries. The
Employee will, at the discretion of the Chairman, have the opportunity for a
bonus up to $20,000.00 per year payable quarterly.
(c) Expenses. During the term of his employment hereunder,
the Employee shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him in performing services hereunder, provided
that the Employee properly accounts therefor in accordance with Bank policy.
3. (a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled while employed hereunder to participate in, or
receive benefits under, any plan of the Bank relating to stock options, stock
purchases, pension, thrift, profit-sharing, group life insurance, medical
coverage, education or other retirement or employee benefits or combinations
thereof that the Bank may adopt for the benefit of its executive employees. The
Bank guarantees that the benefits provided under any new plans that the Bank may
establish in place of any plan now in effect shall be comparable to the benefits
provided under any plan now in effect.
(b) Fringe Benefits. The Employee shall be eligible while
employed hereunder to participate in, or receive benefits under, any other
fringe benefits, a reasonable expense account, and the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, which
may be or become applicable to the Bank's executive employees.
(c) Automobile. The Bank shall provide the Employee during
the term of his employment hereunder with an automobile for the use of the
Employee in the performance of his duties for the Bank. The automobile may be
the vehicle of the employees choice, but in no circumstances can the total cost
exceed $25,000.00.
4. Term. The term of this Agreement shall be a period of two
(2) years commencing on May 1, 1995 (the "Commencement Date"), subject to
earlier termination as provided herein. Beginning on the twenty-third month
following said Commencement Date, and annually thereafter, this Agreement shall
be extended for a period of one year, unless either the Bank or the Employee
gives contrary written notice to the other not less than 90 days in advance of
the date on which this Agreement would otherwise be extended. Reference herein
to the term of this Agreement shall refer both to such initial term and such
extended terms.
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<PAGE>
5. Vacation. The Employee shall be entitled, without loss of
pay, to absent himself voluntarily from the performance of his employment under
this Agreement, all such voluntary absences to count as vacation time, provided
that:
(a) The Employee shall be entitled to an annual paid
vacation of not less than fifteen (15) business days per year. The Employee
shall be entitled to all paid holidays given by the Bank to its senior executive
officers.
(b) In addition to the aforesaid paid vacations, the
Employee shall be entitled, without loss of pay, to absent himself voluntarily
from the performance of his employment with the Bank for such additional periods
of time and for such valid and legitimate reasons as the Board of Directors in
its discretion may determine. Further, the Board of Directors shall be entitled
to grant to the Employee a leave or leaves of absence with or without pay at
such time or times and upon such terms and conditions as the Board in its
discretion, may determine.
6. Termination of Employment and Death.
(a) The Employee's employment under this Agreement may be
terminated at any time by the Board of Directors of the Bank. If the employment
of the Employee is involuntarily terminated for any reason, the Bank shall pay
the Employee his salary through the remaining term of this Agreement, plus all
other amounts to which the Employee is entitled under the compensation plan of
the Bank, at the time such payments are due. The terms "termination" or
"involuntarily terminated" in this Agreement shall refer to the termination of
the employment of Employee without his express written consent. In no case will
the compensation to be paid due to involuntary termination be less than the
balance owed under this contract plus severance equal to the than existing one
years salary. In no case will the severance payment alone be less than
$110,000.00. A separate severance agreement is to be executed granting the
employee this severance the larger of the than existing annual salary or
$110,000.00 if the employee is released for any reason either during the life of
this contract or at any time after this contract may expire. In case of
involuntary termination, at the option of the employee, the Bank shall buy all
or any part of the stock of Holding Co./Bank held by Employee personally or in
Employee's Individual Retirement Plan at the then book value or market value as
calculated by a qualified disinterested third party. The bank will also honor
all options and warrants of the Employee or his Individual Retirement Plan.
In addition, a material diminution of or interference with
the Employee's duties, responsibilities and benefits as President of the Holding
Co., or President and Chief Executive Officer of the Bank subsidiaries shall be
deemed and shall constitute an involuntary termination of employment to the same
extent as express notice of such involuntary termination. By way of example and
not by way of limitation, any of the following actions, if unreasonable or
materially adverse to the Employee, shall constitute such diminution or
interference unless consented to in writing by the Employee: (1) reduction in
size or change in location of Employee's office; (2) reduction or adverse change
in scope or nature of secretarial or other administrative support of Employee
(3) reduction or adverse change in decision-making responsibilities or title of
Employee; (4) reduction in number or seniority of other Bank personnel
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reporting to Employee, other than as part of a Bankwide reduction in staff, or
reduction in frequency with which, or in nature of matters with respect to
which, such personnel are to report to Employee; (5) increase in the number of
or decrease in the seniority of the persons (other than the Board of Directors)
to whom Employee must report, other than as is normal and customary for a
President of the Holding Co., or President and Chief Executive Officer of a
similarly situated bank subsidiary, or an increase in frequency of, or in nature
of matters with respect to which, such reports by Employee shall be required;
(6) reduction or adverse change in the salary, perquisites, benefits, contingent
benefits or vacation time which had theretofore been provided to Employee, other
than as part of an overall program applied uniformly and with equitable effect
to all members of senior management of the Bank; (7) material increase in hours,
workload or responsibilities of Employee.
(b) The Employee's employment may be voluntarily terminated
by the Employee at any time upon 30 days written notice to the Bank or upon such
shorter period as may be agreed upon between the Employee and the Board of
Directors of the Bank. In the event of such voluntary termination, except as
provided in Section 8 below, the Bank shall be obligated to continue to pay the
Employee his salary only through the date of termination, plus all other amounts
to which the Employee is entitled under any compensation plan of the Bank at the
time such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
(c) In the event of death of the Employee during the term
of this Agreement, the Employee's estate, or such person as the Employee may
have previously designated in writing, shall be entitled to receive the salary
due the Employee through the last day of the calendar month in which his death
shall have occurred, plus sixty days, and the term of the Agreement shall end on
such last day of compensation.
(d) If the Employee is suspended from office and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 5(d) (4) (D) or Section 5(d) (55 (A) of the
Home Owners' Loan Act (12 U.S.C. 1464(d) (4) (D) and (d) (5) (A)) or under
Section 407(g) (4) or Section 407 (h) of the National Housing Act (12 U.S.C.
1730(g) (4) and (h)) the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended and (ii) reinstate in whole or in part any
of the obligations which were suspended.
(e) If the Employee is removed from office and/or
permanently prohibited from participating in the conduct of the Bank's affairs
by an order issued under Section 5(d) (4) (E) or Section 5(d) (5) (A) of the
Home Owners' Loan Act (12 U.S.C. 1464(d) (4) (E) and (d) (5) (A)) or under
Section 407(g) (5) or Section 407(h) of the National Housing Act (12 U.S.C.
1730(g) (5) and (h)) all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order, but vested rights of the
parties shall not be affected.
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<PAGE>
(f) If the Bank becomes in default (as defined in Section
401(d) of the National Housing Act), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the parties.
(g) All obligations may be terminated: (i) by the FDIC at
the time the FDIC enters into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section 406(f) of the National
Housing Act; or (ii) by the Office of Thrift Supervision ("OTS") at the time the
OTS approves a supervisory merger to resolve problems related to operation of
the Bank or when the Bank is determined by the OTS to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by any such action.
The FDIC and OTS may be succeeded by other Government
Regulatory Bodies in the future. This section 6 (h) pertains to whatever
regulatory agency is governing the bank at the time an action is taken and
pertains to new or changed authority sections contained in the National Housing
Act.
(h) If the Bank shall fail to pay or provide for payment of
any amounts required to be paid or provided for payment of any amounts required
to be paid or provided for hereunder at any time, the Employee shall be entitled
to consult with independent counsel, and the Bank agrees to pay the reasonable
fees and expenses of such counsel for the Employee in advising him in connection
therewith or in bringing any proceedings, or in defending any proceedings,
involving the Employee's rights under this Agreement, such right to
reimbursement to be immediate upon presentment by the Employee of written
billings for such reasonable fees and expenses. The Employee shall be entitled
to the prime rate of interest established from time to time at First National
Bank of Maryland or its successor, for payments of such expenses, or any other
payments under this Agreement, that are overdue.
7. Disability. If the Employee shall become disabled or
incapacitated to the extent that he is unable to perform the duties of President
of the Holding Co., or President, and Chief Executive Officer of the bank
subsidiaries, he shall be entitled to receive disability benefits of the type
provided for other executive employees of the Bank. In such event, the rights of
the Employee to receive the salary stated in Section 2 hereof shall be suspended
until the Employee is able to resume his duties; provided, however, that if such
disability or incapacity shall have continued for a period of 180 days or more
or if a physician attending the Employee shall have stated in writing that in
his professional opinion such disability or incapacity is likely to continue for
a period of 180 days or more after such opinion, the Board of Directors may
terminate this Agreement and the term hereof and all obligations hereunder shall
cease upon the giving of written notice of such termination to the Employee,
except that the Employee shall be entitled to receive disability payments as
provided in the first sentence of this Section.
8. Change in Control. If a change in control of more than 50
per cent of any class of the outstanding common stock of the Bank takes place,
the Employee's employment is involuntarily terminated, and the Employee shall be
entitled to the benefits provided below:
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(A) The Bank shall pay the Employee his salary in
accordance with Section 2 for the remaining term hereof, plus all other amounts
to which the Employee is entitled under any compensation plan of the Bank, at
the time such payments are due.
9. No Mitigation. The Employee shall not be required to
mitigate the amount of any salary or other payment or benefit provided for in
this Agreement by seeking other employment or otherwise, nor shall the amount of
any payment or benefit provided for in this Agreement be reduced by any
compensation earned by the Employee as the result of employment by another
employer, by retirement benefits after the date of termination or otherwise.
10. No Assignments. (a) This Agreement is personal to each
of the parties hereto, and neither party may assign or delegate any of its
rights or obligations hereunder without first obtaining the written consent of
the other party; provided, however, that the Bank will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank to obtain
such an assumption agreement prior to the effectiveness of any such succession
or assignment shall be a breach of this Agreement and shall entitle the Employee
to compensation from the Bank in the same amount and on the same terms as the
Termination Payment pursuant to Section 8 hereof. For purposes of implementing
the provisions of this Section 10(a), the date on which any such succession
becomes effective shall be deemed the date of termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
11. Notice. For the purposes of this Agreement, notices and
all other communication provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (provided
that all notices to the Bank shall be directed to the attention of the Board of
Directors of the Bank with a copy to the Secretary of the Bank), or to such
other address as either party may have furnished to the other in writing in
accordance herewith.
12. Amendments. No amendments or additions to this Agreement
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
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<PAGE>
13. Paragraph Headings. The paragraph headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
14. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
15. Governing Law. This Agreement shall be governed by the
laws of the United States and of the State of Maryland.
16. Arbitration. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
First Mariner Bancorp and
First Mariner Rank
By
Edwin F. Hale,
Chairman of the Board
EMPLOYEE
/s/ George H. Mantakos
George H. Mantakos
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Exhibit 10.3
L E A S E
THIS LEASE, made as of the 1st day of September, 1996, between HALE
INTERMODAL TRUCKING CO., (hereinafter called "Lessor"), and FIRST MARINER BANK,
a Maryland banking corporation (hereinafter called "Lessee").
W I T N E S S E T H:
That for and in consideration of the payment by Lessee of the rent and
other charges hereinafter reserved and the performance by Lessee of the
covenants and agreements hereinafter agreed to be performed by Lessee, and in
accordance with all of the provisions hereinafter set forth, Lessor does hereby
let and demise unto Lessee and Lessee does hereby take and hire from Lessor, the
following described real property (hereinafter called "Leased Premises"):
Third Floor, (less portion now occupied by Lessor) plus branch office
on first floor with drive-thru and five exclusive parking spaces
located at 1801 S. Clinton Street Baltimore Maryland 21224.
(the Leased Premises are more particularly described or shown on Exhibit "A"
attached hereto and made a part hereof) together with the land and any parking
areas, walkways, landscaped areas, piers, fixtures and equipment servicing the
real property and located thereon and therein and with all the rights, easements
and appurtenances thereto or therewith usually held and enjoyed, for a term of
five (5) years beginning September 1, 1996 (the "Commencement Date") and ending
August 31, 2001 at a rent of Two Hundred Twelve Thousand Six Hundred Eighty
Eight Dollars ($212,688) per year, in equal monthly installment of Seventeen
Thousand Seven Hundred Twenty Four Dollars ($17,724.00) in advance, without
notice, on or before the first day of each month during the term of this Lease
(3rd floor, 1801 S. Clinton Street $14,808.00), Canton Branch, 1801 S. Clinton
Street $2,916.00).
This Lease is made upon the foregoing and following agreements,
covenants, and conditions, all and every one of which Lessor and Lessee agree to
keep and perform:
1. USE OF LEASED PREMISES:
Lessee will use and occupy the Leased Premises for its General Office,
retail banking and any ancillary purpose. Lessee will comply with any and all
laws, ordinances, rules, orders, and regulations of any governmental authority
which are applicable to the conduct of Lessee's business on the Leased Premises;
provided, however that Lessee shall not hereby be under any obligation to make
any structural changes in or alterations to the Leased Premises without the
prior written consent of Lessor.
<PAGE>
Lessor hereby warrants that the Leased Premises are in compliance with
all applicable laws, ordinances, rules, orders and regulations of any
governmental authority or regulatory body with jurisdiction thereof or any
applicable insurance rating agency and that there is no asbestos in the Building
or the Leased Premises.
2. TAXES AND ASSESSMENTS:
Lessor shall pay, prior to delinquency, all real estate taxes
assessments and charges which are levied, imposed, or assessed upon or against
the Leased Premises. If Lessor shall fail to pay any such taxes, assessments or
charges prior to delinquency, Lessee shall have the right to pay same and to add
to any rent which may then or thereafter be due all amounts expended by Lessor
in making such payment.
3. UTILITY CHARGES AND SERVICES:
Lessor shall pay for utility services for sewage disposal, electricity,
water, gas or other fuel required to operate and maintain the Leased Premises.
Lessee shall pay to Lessor all charges for sewage disposal, janitorial
services, water and gas or other fuel consumed by it upon the Leased Premises
which are separately metered. Lessor shall be responsible to provide or arrange
for the installation and maintenance of such separate meters to the extent it so
desires or is practical.
4. INSURANCE:
(a) Lessor shall procure and maintain all insurance which Lessor deems
necessary for Lessor's protection against loss or damage to the Leased Premises
including loss by fire or other hazard or any other property of Lessor situated
thereon.
(b) Lessee shall procure and maintain all insurance which Lessee deems
necessary for its protection against loss of or damage to any of its personal
property situated in the Leased Premises.
(c) Nothing contained in the Lease shall be construed to require either
party to repair, replace, reconstruct, or pay for any property of the other
party which may be damaged or destroyed by fire, flood, windstorm, earthquake,
strikes, riots, civil commotions, acts of public enemy, acts of God, or other
casualty, and each party hereby waives, on behalf of each and their insurer, all
rights of subrogation and claims against the other for all loss or damage
arising out of perils normally insured against by standard fire and extended
coverage insurance.
5. MAINTENANCE AND REPAIRS:
(a) Except for such maintenance, repairs, and replacements as are
necessitated by the negligence of Lessee, Lessor shall perform any and all
alterations, maintenance, repairs, and replacements which may be necessary, or
required by any law, order or other regulation of any
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<PAGE>
governmental authority, to maintain the Leased Premises and Lessor's fixtures
and equipment located thereon in good, safe and tenantable conditions.
(b) Lessor shall have the right to enter upon the Leased Premises from
time to time during regular business hours in order to inspect the same and to
perform any maintenance, repairs, and replacements which it is required to make
under the provisions of this Lease, but this right shall be exercised in such
manner as to not interfere with Lessee's use and enjoyment of the Leased
Premises, and shall be subject to any and all laws, orders, or regulations of
the United States Government, the State of Maryland or any department or agency
thereof, which may at any time apply to Lessee's use of the Leased Premises.
(c) Lessor shall maintain and keep in good repair and condition the
exterior and structural elements of the Leased Premises, including the roof and
structure and the electrical, air conditioning, heating and plumbing systems on
the Leased Premises, except for such maintenance, repairs and replacements, as
are necessitated by the negligence of Lessee, its servants, agents, or
employees. Lessor shall perform any and all alterations, maintenance, repairs
and replacements, which may be necessary to maintain the Leased Premises and
Lessee's fixtures and equipment in good, safe and tenantable condition. Lessor
shall be responsible for snow removal of the Leased Premises and maintaining
adequate outside lighting.
6. DAMAGE OR DESTRUCTION OF PREMISES:
(a) If, during the term of this Lease, the Leased Premises is damaged
by fire, flood, windstorm, strikes, riots, civil commotions, acts of public
enemy, acts of God or other casualty so that the same are rendered wholly unfit
for occupancy, and if said Leased Premises cannot be repaired within sixty (60)
days from the time of such damage, then this Lease, at the option of Lessee or
Lessor, may be terminated as of the date of such damage and any insurance
proceeds shall be paid to Lessor. In the event Lessee elects to terminate this
Lease, the Lessee shall pay the rent apportioned to the time of damage and shall
immediately surrender the Leased Premises to Lessor who may enter upon and
repossess the same and Lessee shall be relieved from any further liability
hereunder. If the Lessee does not elect to terminate the Lease or if any damage
by any of the above casualties, rendering the Leased Premises wholly unfit, can
be repaired within one hundred twenty (120) days thereafter, Lessor agrees to
repair such damage promptly and this Lease shall not be affected in any manner
except that the rent shall be suspended and shall not accrue from the date of
such damage until such repairs have been completed.
(b) If said Leased Premises shall be so slightly damaged by any of the
above casualties as not to be rendered wholly unfit for occupancy, Lessor shall
repair the Leased Premises promptly and during the period from the date of such
damage until the repairs are completed the rent shall be apportioned so the
Lessee shall pay as rent an amount which bears the same ratio to the entire
monthly rent as the portion of the Leased Premises which Lessee is able to
occupy without disturbance during such period bears to the entire Leased
Premises.
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(c) If the damage by any of the above casualties is so slight that
Lessee is not disturbed in Lessee's possession and enjoyment of the Leased
Premises, then Lessor shall repair the same promptly and in that case the rent
and other charges accrued or accruing shall not abate.
7. ACTION OF PUBLIC AUTHORITIES:
In the event that any exercise of the power of eminent domain by any
governmental authority, Federal, State, County or Municipal, or by any other
party vested by law with such power shall at any time prevent the full use and
enjoyment of the Leased Premises by Lessee for the purposes set forth in Section
1, Lessee shall have the right thereupon to terminate this Lease. In the event
of such action both Lessor and Lessee shall have the right to claim, recover,
and retain from the governmental authority or other party taking such action the
damages suffered by them respectively as a result of such action.
8. IMPROVEMENTS BY LESSEE:
Lessee shall have the right to make such alterations, additions, or
improvements in or to the Leased Premises as it shall consider necessary or
desirable for the conduct of its business, subject to approval of Lessor in
advance which approval shall not be unreasonably withheld or delayed, provided
that all such work is done in a good and workmanlike manner, and the structural
integrity of any building shall not be impaired, and that no liens shall attach
to the Leased Premises by reason thereof. Upon the termination of this Lease
such alterations, additions, or improvements shall, at the option of the Lessee,
(1) become the property of Lessor, or (2) be removed by the Lessee provided that
any part of the Leased Premises affected by such removal shall be restore to its
original condition, reasonable wear and tear excepted.
9. IMPROVEMENTS BY LESSOR: Intentionally omitted.
10. FIXTURES AND SIGNS:
(a) Lessee shall have the right to install in or place on the Leased
Premises such fixtures, machines, tools, or other equipment (including but not
limited to trade fixtures, lighting fixtures, water coolers, and air
conditioning equipment) as it may choose. Such fixtures, machines, tools, or
other equipment shall at all times remain the personal property of Lessee
regardless of the manner or degree of attachment thereof to the premises and may
be removed at any time by Lessee whether at the termination of this Lease or
otherwise, provided, however, that Lessee shall make reasonable restoration of
the Leased Premises in the event that any substantial damage is done thereto in
the removal of such property
(b) Lessee shall have the right to install or erect on the Leased
Premises or affix to the Building which is a part of the Leased Premises, such
signs as it may deem necessary of appropriate to advertise its name and business
subject to prior approval of Lessor which consent shall not be unreasonably
withheld or delayed.
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<PAGE>
11. LIABILITY AND INDEMNITY:
(a) Except as otherwise provided in Section 4(c) (Insurance) herein,
Lessee shall be liable for any injury to or death of persons and for any loss of
or damage to property caused by the negligent acts or omissions of its agents,
employees, or invitees, or caused by Lessee's failure to perform the
maintenance, repairs, and replacements required to be performed by it under the
provisions of Section 5 (Maintenance and Repairs) or to perform any other
obligation of Lessee under this lease. Lessee shall indemnify and save Lessor
harmless against any and all liabilities, claims, demands, actions, costs, and
expenses which may be sustained by Lessor by reason of any of the causes for
which Lessee is liable pursuant to this subsection (a).
(b) Except as otherwise provided in Section 4 (c) (Insurance) herein,
Lessor shall be liable for any injury to or death of persons and for any loss of
or damage to property caused by the negligent acts or omission of its agents,
employees or invitees, or caused by Lessor's failure to perform the maintenance,
repairs, and replacements required to be performed by it under the provisions of
Section 5 (Maintenance and Repairs) or to perform any other obligation of Lessor
under this lease. Lessor shall indemnify and save Lessee harmless against any
and all liabilities, claims, demands, actions, costs, and expenses which may be
sustained by Lessee by reason of any of the causes for which Lessor is liable
pursuant to this subsection (b).
12. DEFAULT:
(a) If Lessee shall fail to pay any rent to Lessor when the same is due
and payable under the terms of this Lease and such default shall continue for a
period of ten (10) days after written notice thereof has been given to Lessee by
Lessor, or if the Lessee shall fail to perform any other duty or obligation
imposed upon it by this Lease and such default shall continue for a period of
thirty (30) days after written notice thereof has been given to Lessee by
Lessor, and Lessee has not commenced diligently to correct such default and
thereafter has not diligently pursued such correction to completion, or if the
Lessee shall be adjudged bankrupt, or shall make a general assignment for the
benefit of its creditors, or if a receiver of any property of Lessee in or upon
the Leased Premises be appointed in any actions, suit, or proceeding by or
against Lessee and such appointment shall not be vacated or annulled within
sixty (60) days, or if the interest of Lessee in the Leased Premises shall be
sold under execution or other legal process, then and in any such event Lessor
shall have the right to enter upon the premises and again have, repossess, and
enjoy the same as it this Lease had not been made, and thereupon this Lease
shall terminate without prejudice, however, to the right of Lessor to recover
from Lessee all rent due and unpaid up to the time of such re-entry. In the
event of any such default and reentry, Lessor shall have the right to relet the
Leased Premises for the remainder of the then existing term whether such term be
the initial term of this Lease or any renewed or extended term, for the highest
rent then obtainable, and to recover from Lessee the difference between the rent
reserved by this Lease and the amount obtained through such reletting plus the
costs and expenses reasonable incurred by Lessor in such reletting and in
addition thereto Lessor shall have all rights and remedies available to Lessor
under applicable Law.
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<PAGE>
(b) If Lessor shall fail to perform any duty or obligation imposed upon
it by this Lease and such default shall continue for a period of thirty (30)
days after written notice thereof has been given by Lessee, (or such shorter
period as is reasonable in case of emergency or other circumstances), provided
that if such default cannot be reasonably corrected within thirty (30) days and
Lessor has not commenced diligently to correct such default within such thirty
(30) day period and thereafter has not diligently pursued such correction to
completion, then and in such event Lessee may, at its option, terminate this
Lease without prejudice to its right to recover appropriate damages or pursue
any other remedy available at law or equity. Upon termination of this Lease
pursuant to this provision, all obligations of Lessee arising under this lease,
including payment of rent, shall cease.
13. ASSIGNMENT AND SUBLETTING:
Lessee shall have the right to assign the Lease or to sublet the
Premises or any part thereof with the consent of Lessor which consent shall not
be unreasonably withheld or delayed, provided, however, that no such assignment
or subletting shall relieve Lessee from its duty to perform fully all of the
agreements, covenants, and conditions set forth in this lease. Notwithstanding
the foregoing, Lessee may, without Lessor's consent, permit any affiliates of
Lessee to use any portion of the Leased Premises.
14. HAZARDOUS MATERIALS:
Lessee, at its sole cost and expense, may at its option conduct an
environmental assessment of the Leased Premises prior to occupying the building.
In the event that any oil, pollutant, toxic, or hazardous substance or other
substances or wastes of any kind including, but not limited to, hazardous waste
as that term is defined in the Resource Conservation and Recovery Act (RCRA) or
hazardous substance as that term is defined in the Comprehensive Environmental
Response as that term is defined in the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA), are found, or suspected to be present
of or near the Leased Premises, Lessee shall have the right, at its sole
discretion, to cancel and terminal this Lease by giving written notice thereof
to the Lessor.
Lessor shall indemnify and hold harmless Lessee from and against any
claims, demands, or losses resulting from or arising out of the presence of any
hazardous substance, oil or petroleum product or residue, or any other substance
or material actionable under federal, state or local law, regulation or
ordinance, present on, in or under the Leased Premises prior to Lessee's
occupancy.
15. TITLE:
Lessor covenants and warrants that it has lawful title and right to
make this Lease, that it will maintain Lessee in full and exclusive possession
of the Leased Premises and that, if Lessee shall pay the rent and perform all of
the agreements, covenants required by this Lease to be
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performed by it, Lessee may freely, peaceable and quietly occupy and enjoy the
Leased Premises without molestation or hindrance, lawful or unlawful, of any
person whomsoever.
16. RENEWAL AND EXTENSION:
Lessee shall have the option to renew and extend the term of the Lease
for a period of five (5) years beginning upon the expiration of the initial
term, provided that Lessee, at lease ninety (90) days prior to the expiration of
the initial term, give Lessor written notice of its intention to exercise such
option.
Any such renewed and extended term shall be at the annual rent of Two
Hundred Twelve Thousand Six Hundred Eighty Eight Dollars ($212,688). The Lessee
shall pay an additional amount of rent in each lease year other than the initial
term of this lease determined as follows: Index shall mean the Consumer Price
Index 13 for U.S. City Average All Urban Consumers Revised (1967-100), published
by the Bureau of Labor Statistics of the United States Department of Labor. If
the Index for the calendar month immediately preceding that during which a lease
year commences (hereinafter referred to as the "Latest Index") exceeds the Index
for the calendar month containing the commencement date of this Lease
(hereinafter referred to as the "Base Index"), then the additional rental for
such lease year shall be that figure obtained by multiplying the Basic Rent by
that fraction having the Latest Index minus the Base Index as its numerator, and
having the Base Index as its denominator. See Rider A for annual cap.
Basic Rent x (Latest Index - Base Index) = Additional Rent
Base Index
Such additional amount shall be divided and paid together with the monthly
payment of Basic Rent in twelve (12) equal monthly installments during such
respective lease year in advance on the first day of each month. If the Index is
not so published for such calendar month, then the Index for the most recent
calendar month or other period for which it is so published shall be used, and
if the Index hereafter uses a different standard reference base or is otherwise
revised, an adjustment shall be made therein for purposes of the provisions of
this Lease, using such conversion factor, formula or table for making such
adjustments as is published by such Bureau, or if such Bureau does not publish
the same, then as published by Prentice-Hall, Inc. the Bureau of National
Affairs, Commerce Clearing House, or any other nationally recognized publisher
of similar statistical information, as selected by Lessor. In no event shall the
annual rent be less than the previous year's Basic Rent.
17. SURRENDER:
When the Lease shall terminate in accordance with the terms hereof,
Lessee shall quietly and peaceable deliver up possession to Lessor without
notice from Lessor other than as may be specifically required by any provision
of this Lease. Lessor and Lessee expressly waive the benefit of all laws now or
hereafter in force requiring notice for either party with respect to
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<PAGE>
termination. Lessee shall deliver up possession of the Leased Premises in as
good order, repair, and condition as the same are in at the beginning of the
term of this Lease except for reasonable wear and tear and loss, damage, or
destruction caused by fire, flood, windstorm, earthquake, strikes, riots, civil
commotions, acts of public enemy, acts of God, or other casualty, or caused by
negligence of Lessor, its agents, employees or invitees.
18. NOTICES:
(a) Any notice or demand required by the provisions of the Lease to be
given to Lessor shall be deemed to have been given adequately if sent by
Registered or Certified Mail, Return Receipt Requested, to Lessor at the
following address:
c/o Harry E. Lipsitz
1801 S. Clinton Street
Baltimore, Maryland 21224-5800
(b) Any notice or demand required by the provisions of this Lease to be
given to Lessee shall be deemed to have been given adequately if sent by
Registered or Certified Mail, Return Receipt Requested, to Lessee at the
following address:
1801 S. Clinton Street
Baltimore, Maryland 21224-5800
Attn: General Counsel
(c) Either party shall have the right to change its address as above
designated by giving to the other party fifteen (15) days notice of its
intention to make such change and of the substituted address at which any notice
or demand may be directed to it.
19. SUBORDINATION/NON-DISTURBANCE:
Lessee agrees that the Lease shall be subordinate to any mortgage,
trust deed or ground Lease that is now on or may hereafter be placed upon the
demised premises and to any and all advances to be made thereunder, and to the
interest thereon, and all renewals, replacements and extensions thereof,
provided that the rights of Lessee as set forth herein shall not be affected in
the event of foreclosure or sale resulting in lieu or as a result thereof so
long as Lessee is not in default under the terms hereof. If there is a mortgage,
trust deed or ground Lease already filed or in effect as of the execution of
this lease, Lessor hereby covenants and agrees to secure a non-disturbance
agreement from the applicable mortgagees(s), trustee(s) or ground lessor(s) who
has a superior claim to the Leased Premises and the real property of which it is
a part in a form reasonably satisfactory to Lessee. Failure top secure such
non-disturbance agreement within thirty (30) days of execution thereof shall be
grounds for Lessee to, at its option, declare this Lease null and void. In the
event of any mortgagee or trustee electing to have within the Lease a prior lien
to its mortgage or deed of trust, then and in such event, upon such mortgage or
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<PAGE>
trustee notifying Lessee to the effect, this Lease shall be deemed prior in lien
to said mortgage or trust deed, whether this Lease is dated prior to or
subsequent to the date of said mortgage or trust deed.
20. CHANGES, MODIFICATIONS OR AMENDMENTS:
This agreement may not be changed, modified, discharged or terminated
orally or in any other manner than by an agreement mutually signed by the
parties hereto or their respective successors and assigns.
21. COVENANTS TO BIND RESPECTIVE PARTIES:
The Lease, and all of the agreements, covenants, and conditions
contained herein shall be binding upon Lessor and Lessee and upon their
respective heirs, executors, administrators, successors, and assigns.
22. TERMINATION RIGHT:
Notwithstanding any other provisions contained in this Lease, in the
event the Lessee is closed or taken over by the banking authority, of the State
of Maryland, or other bank supervisory authority, the Lessor may terminate the
Lease only with the concurrence of such -banking authority or other bank
supervisory authority and any such authority shall in any event have the
election either to continue or to terminate the Lessee; provided, that in the
event this Lease is terminated, the maximum claim of Lessor for damages or
indemnity for the injury resulting from the rejection or abandonment of the
unexpired term of the Lease shall in no event be in an amount exceeding the rent
reserved by the Lease, without acceleration, for the year next succeeding the
date of the surrender of the Leased Premises to the Lessor, or the date of
re-entry of the Lessor.
23. WHOLE AGREEMENT:
The whole and entire agreement of the parties is set forth in this
Agreement and the parties are not bound by any agreements, understandings or
conditions otherwise than as expressly set forth and stipulated hereunder.
IN WITNESS WHEREOF, LESSOR and LESSEE have caused these presents to be
executed by their duly authorized officers and have caused their respective
corporate seals to be hereto affixed, all as of the day and year first above
written.
ATTEST: HALE INTERMODAL TRUCKING CO., a
Maryland corporation
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<PAGE>
(SEAL)
NAME
TITLE
ATTEST: FIRST MARINER BANK,
a Maryland banking corporation
(SEAL)
NAME
TITLE
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<PAGE>
Exhibit 10.4
L E A S E
THIS LEASE, made this 1 day of March, 1996, between MARS SUPER MARKETS,
INC. (hereinafter called "Lessor"), and FIRST MARINER BANK, a Maryland banking
Corporation (hereinafter called "Lessee").
W I T N E S S E T H:
That for and in consideration of the payment by Lessee of the rent and
other charges hereinafter reserved and the performance by Lessee of the
covenants and agreements hereinafter agreed to be performed by Lessee, and in
accordance with all of the provisions hereinafter set forth, Lessor does hereby
demise to Lessee and Lessee does hereby lease from Lessor, approximately four
hundred (400) square feet of usable space in Lessor's facility located at the
property more particularly described in Exhibit A attached hereto and made a
part hereof together with the premises being occupied by Lessee, (hereafter
called "Leased Premises"), together with the right to use in common with others
the land and any parking areas, walkways, landscaped areas, fixtures and
equipment servicing the real property and located thereon and with all the
rights, easements and appurtenances thereto or therewith usually held and
enjoyed, for a term of five (5) years beginning with the "Commencement Date"
contained in Exhibit B at a basic rent of Thirty Five Thousand Dollars
($35,000.00) per year payable in equal monthly installments of Two Thousand Nine
Hundred Sixteen Dollars and Sixty Seven Cents ($2,916.67) in advance, without
notice, on or before the first day of each month during the term of this lease.
Lessee shall have no additional obligation to pay any common area maintenance
charges, percentage rents, or any other amounts in addition to basic rent and
yearly contributions discussed in Section 3 below.
This Lease is made upon the following terms and conditions, which
Lessor and Lessee agree to keep and perform:
1. USE OF LEASED PREMISES:
Lessee will use and occupy the Leased Premises for its general
office, retail banking and any ancillary purpose. Lessee will comply with any
and all laws, ordinances, rules, orders, and regulations of any governmental
authority which are applicable to the conduct of Lessee's business on the Leased
Premises. It is understood and agreed by the parties that all new bank branch
locations are subject to approval by applicable regulatory agencies. Lessor
warrants that the Leased Premises and the proposed use thereof are in compliance
with all applicable laws, ordinances, rules, orders and regulations of any
governmental authority or regulatory body with jurisdiction thereof or any
applicable insurance rating agency and that there is no asbestos in the Building
or the Leased Premises. The Leased Premises are being turned over to Lessee in
an "AS IS" and "WHERE IS" condition. All ingress and egress to the Leased
Premises shall be through
<PAGE>
Lessor's space only. Lessee agrees that it shall remain open for business during
those hours as more fully set forth in Exhibit C attached herewith.
Notwithstanding any other provisions contained in this lease, in the
event the Lessee is closed or taken over by the banking authority, of the State
of Maryland, or other bank supervisory authority, the Lessor may terminate the
lease only with the concurrence of such banking authority or other bank
supervisory authority and any such authority shall in any event have the
election either to continue or to terminate the lease: Provided, that in the
event this lease is terminated, the maximum claim of Lessor for damages or
indemnity for the injury resulting from the rejection or abandonment of the
unexpired term of the lease shall in no event be in an amount exceeding the rent
reserved by the lease, without acceleration, for the year next succeeding the
date of the surrender of the premises to the Lessor, or the date of reentry of
the Lessor, whichever occurs, whether before or after the closing of the bank,
plus an amount equal to the unpaid rent accrued, without acceleration up to such
date.
2. IMPROVEMENTS BY LESSEE:
Lessee shall have the right at its sole cost and expense to
make such alterations, additions, or improvements in or to the Leased Premises
as it shall consider necessary or desirable for the conduct of its business,
subject to the express written consent of Lessor in advance which approval shall
not be unreasonably withheld or delayed, provided that all such work is done in
a good and workmanlike manner, and the structural integrity of any building
shall not be impaired, and that no liens shall attach to the Leased Premises.
Lessee shall take all necessary steps not to interfere with Lessor's business,
including, if necessary, encapsulation of the work area. If improvements are to
be constructed by the Lessor based upon Lessee's plans, Lessee shall be billed
at cost plus fifteen (15) percent. The cost of construction shall be approved in
writing in advance by Lessee. Lessee shall have access to the interior of
Lessor's store during construction of the Leased Premises.
Upon the termination of this Lease such alterations, additions, or
improvements shall, at the option of the Lessee (1) become the property of
Lessor, or (2) be removed by the Lessee provided that any part of the Leased
Premises affected by such removal shall be restored to its original condition,
reasonable wear and tear and casualty excepted.
3. TAXES AND ASSESSMENTS. AND UTILITY CHARGES AND SERVICES:
Lessor shall pay, in addition to basic rent a yearly
contribution of One Thousand Five Hundred Dollars ($1,500.00) toward the payment
of real estate taxes and assessments, as well as utilities, in the event the
Leased Premises are not separately metered for utilities. In the event, however,
the said Premises are separately metered, the yearly contribution shall be
reduced to One Thousand Dollars ($1,000.00). Payments shall be made on the basis
of one-twelfth (l/12) per month. Said yearly contribution shall be paid on a
monthly basis together with basic rent. Lessor shall be responsible to provide
or arrange for the installation and maintenance of such separate meters to the
extent it so desires or is practical.
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<PAGE>
4. INSURANCE:
(a) Lessor shall procure and maintain all insurance, including
sufficient liability coverage, which Lessor deems necessary for Lessor's
protection against loss or damage to the Leased Premises or any other property
of Lessor situated thereon.
(b) Lessee shall procure and maintain liability insurance as
well as such other coverages which Lessee deems necessary for its protection
against loss of or injury or damage to any persons or property situated in the
branch bank area which constitutes the Leased Premises.
(c) Nothing contained in the Lease shall be construed to
require either party to repair, replace, reconstruct, or pay for any property of
the other party which may be damaged or destroyed by fire, flood, windstorm,
earthquake, strikes, riots, civil commotions, acts of public enemy, acts of God,
or other casualty and each party hereby waives, on behalf of itself and its
insurer, all rights of subrogation and claims against the other for all loss or
damage arising out of perils normally insured against by standard fire and
extended coverage insurance.
5. MAINTENANCE AND REPAIRS:
(a) Except for such maintenance, repairs, and replacements as
are necessitated by the negligence of Lessor, Lessee shall perform any and all
alterations, maintenance, repairs and replacements which may be necessary, or
required by any law, order or other regulation of any governmental authority, to
maintain the Lessee's fixtures and equipment located thereon in good, safe and
tenantable condition. Lessee shall also be solely responsible for the security
of the Leased Premises.
(b) Lessor shall have the right to enter upon the Leased
Premises from time to time during regular business hours in order to inspect the
same and to perform any maintenance, repairs, and replacements which it is
required to make under the provisions of this Lease, but this right shall be
exercised in such manner as to not interfere with Lessee's use and enjoyment of
the Leased Premises, and shall be subject to Lessee's security procedures and to
any and all laws, orders, or regulations of the United States or the State of
Maryland or any department or agency thereof having jurisdiction over Lessee.
(c) Lessor shall maintain and keep in good repair and
condition the exterior and structural elements of the Leased Premises, including
the roof and structure and the electrical, air conditioning, heating and
plumbing systems in the Leased Premises, except for such maintenance, repairs,
and replacements as are required by subsection (a) of this section to be made by
Lessee or necessitated by the negligence of Lessor, its servants, agents, or
employees. Lessor shall perform any and all alterations, maintenance, repairs
and replacements, which may be necessary to maintain the Leased Premises in
good, safe, and tenantable condition. Lessor shall be responsible for snow
removal of the Leased Premises, the parking lots and sidewalks serving it and
maintaining adequate outside lighting.
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<PAGE>
6. DAMAGE OR DESTRUCTION OF PREMISES:
(a) If, during the term of this Lease, the Leased Premises is
damaged by fire, flood, windstorm, strikes, riots, civil commotion, acts of
public enemy, acts of God or other casualty so that the same are rendered wholly
unfit for occupancy, and if said Leased Premises cannot be repaired within sixty
(60) days from the time of such damage, then this Lease, at the option of Lessee
or Lessor may be terminated as of the date of such damage and any insurance
proceeds shall be paid to Lessor. In the event Lessee elects to terminate this
Lease, the Lessee shall pay the rent apportioned to the time of damage and shall
immediately surrender the Leased Premises to Lessor who may enter upon and
repossess the same and Lessee shall be relieved from any further liability
hereunder. If the Lessee does not elect to terminate the Lease or if any damage
by any of the above casualties, rendering the Leased Premises wholly unfit, can
be repaired within one hundred (120) days thereafter, Lessor agrees to
repair such damage promptly and this Lease shall not be affected in any manner
except that the rent shall be suspended and shall not accrue from the date of
such damage until such repairs have been completed.
(b) If said Leased Premises shall be so slightly damaged by
any of the above casualties as not to be rendered wholly unfit for occupancy,
Lessee shall repair the Leased Premises promptly and during the period from the
date of such damage until the repairs are completed the rent shall be
apportioned so the Lessee shall pay as rent an amount which bears the same ratio
to the entire monthly rent as the portion of the Leased Premises which Lessee is
able to occupy without disturbance during such period bears to the entire Leased
Premises.
(c) If the damage by any of the above casualties is so slight
that Lessee is not disturbed in Lessee's possession and enjoyment of the Leased
Premises, then Lessee shall repair the same promptly and in that case the rent
and other charges accrued or accruing shall not abate.
7. ACTION OF PUBLIC AUTHORITIES:
In the event that any exercise of the power of eminent domain
by any governmental authority, Federal, State, or County, or by any other party
vested by law with such power shall at any time prevent the full use and
enjoyment of the Leased Premises by Lessee for the purpose set forth in Section
1, Lessee shall have the right thereupon to terminate this Lease. In the event
of such action both Lessor and Lessee shall have the right to claim, recover,
and retain from the governmental authority or other party taking such action the
damages suffered by them respectively as a result of such action.
8. FIXTURES AND SIGNS:
(a) Lessee shall have the right to install in or place on the
Leased Premises such fixtures, machines, furniture, or other equipment
(including but not limited to trade fixtures, lighting fixtures, water coolers,
etc.) as it may choose, which shall at all times remain the personal property of
Lessee regardless of the manner or degree of attachment thereof to the premises
and may be removed at anytime by Lessee whether at the termination of this Lease
or
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<PAGE>
otherwise, provided, however, that Lessee shall make reasonable restoration of
the Leased Premises in the event that any substantial damage is done thereto in
the removal of such property.
(b) Lessee shall have the right to install or erect on the
Leased Premises or affix to the exterior building structure which is a part of
the Leased Premises, such signs as it may deem necessary or appropriate to
advertise its name and business subject to the express prior written approval of
Lessor which consent shall not be unreasonably withheld or delayed. However, any
signage placed on the exterior of the building must also be in conformity with
the master lease.
9. DEFAULT:
(a) If Lessee shall fail to pay any rent to Lessor when the
same is due and payable under the terms of this Lease and such default shall
continue for a period of five (5) days after written notice thereof has been
given to Lessee by Lessor, or if the Lessee shall fail to perform any other duty
or obligation imposed upon it by this Lease and such default shall continue for
a period of thirty (30) days after written notice thereof has been given to
Lessee by Lessor, and Lessee has not commenced diligently to correct such
default and thereafter has not diligently pursued such correction to completion,
or if the Lessee shall be adjudged bankrupt, or shall make a general assignment
for the benefit of its creditors, or if a receiver of any property or Lessee in
or upon the Leased Premises be appointed in any actions, suit, or proceeding by
or against Lessee and such appointment shall not be vacated or annulled within
sixty (60) days, or if the interest of Lessee in the Leased Premises shall be
sold under execution or other legal process, then and in any such event Lessor
shall have the right to enter upon the premises and again have, repossess, and
enjoy the same as if this Lease had not been made, and thereupon this Lease
shall terminate without prejudice, however, to the right of Lessor to recover
from Lessee all rent due and unpaid up to the time of such re-entry. In the
event of any such default and re-entry, Lessor shall have the right to relet the
Leased Premises for the remainder of the then existing term whether such term be
the initial term of this Lease or any renewed or extended term, for the highest
rent then obtainable, and to recover from Lessee the difference between the rent
reserved by this Lease and the amount obtained through such reletting plus the
costs and expenses reasonably incurred by Lessor in such reletting.
(b) If Lessor shall fail to perform any duty or obligation
imposed upon it by this Lease and such default shall continue for a period of
thirty (30) days after written notice thereof has been given by Lessee, (or such
shorter period as is reasonable in case of emergency or other circumstances),
provided that if such default cannot be reasonably corrected within thirty (30)
days and Lessor has not commenced diligently to correct such default within such
thirty (30) day period and thereafter has not diligently pursued such correction
to completion or if any representation or warranty made by Lessor herein shall
be untrue, then and in such event Lessee may, at its option, terminate this
Lease without prejudice to its right to recover appropriate damages or pursue
any other remedy available at law or equity. Upon termination of this Lease
pursuant to this provision, all obligations of Lessee arising under this Lease,
including payment of rent, shall cease.
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<PAGE>
10. ASSIGNMENT AND SUBLETTING:
Lessee shall have the right to assign the Lease or to sublet
the premises or any part thereof with the express written consent of Lessor
which consent shall not be unreasonably withheld or delayed, provided, however,
that no such assignment or subletting shall relieve Lessee from its duty to
fully perform all of the agreements, covenants, and conditions set forth in this
Lease. Notwithstanding the foregoing, Lessee shall have the right without
Lessor's prior written consent to assign this lease or sublet the Leased
Premises to any parent, subsidiary, affiliate corporation of to the survivor of
any merger or to the purchaser of all or substantially all of the assets of the
Lessee.
11. DISPUTE RESOLUTION:
The parties agree that any unresolved disputes or
disagreements between them will be referred for final and binding arbitration to
the American Arbitration Association. Arbitration shall constitute the sole and
exclusive remedy available to the parties for dispute resolution.
12. TITLE:
Lessor covenants and warrants that it has lawful title and
right to make this Lease, that it will maintain Lessee in full and exclusive
possession of the Leased Premises for its permitted use and that, if Lessee
shall pay the rent and perform all of the agreements, covenants required by this
Lease to be performed by it, Lessee may freely, peaceably and quietly occupy and
enjoy the Leased Premises without molestation or hinderance, lawful or unlawful,
of any person whatsoever.
13. RENEWAL AND EXTENSION:
Provided it is not in default under the Lease, Lessee shall
have the option to renew and extend the term of the Lease for a period of five
(5) years beginning upon the expiration of the initial term, provided that
Lessee, at least ninety (90) days prior to the expiration of the initial term,
gives Lessor written notice of its intention to exercise such option.
Any such renewed and extended term shall be at the basic annual rent as
adjusted yearly by the Consumer Price Index for Urban Wage Earners and Clerical
Workers (1982-84 .- 100). All Items Index Washington, D.C. - MD - VA (hereafter
referred to as "Index") published by the Bureau of Labor Statistics of the U.S.
Department of Labor.
14. SURRENDER:
When the Lease shall terminate in accordance with the terms
hereof, Lessee shall quietly and peaceably deliver up possession of Lessor
without notice from Lessor other than as may be specifically required by any
provision of this Lease. Lessor and Lessee expressly waive the benefit of all
laws now or hereafter in force requiring notice for either party with respect to
termination. Lessee shall deliver up possession of the Leased Premises in as
good order, repair,
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<PAGE>
and condition as the same are in at the beginning of the term of this Lease
except for reasonable wear and tear and loss, damage, or destruction caused by
fire, flood, windstorm, earthquake, strikes, riots, civil commotions, acts of
public enemy, acts of God, or other casualty, or caused by negligence of Lessor,
its agents, employees or invites.
15. NOTICES:
(a) Any notice or demand required by the provisions of the
Lease to be given to Lessor shall be deemed to have been given adequately if
sent by Registered or Certified Mail, Return Receipt Requested, to Lessor at the
following address:
7183 Holabird Avenue
Baltimore, Maryland 21224-5800
Attention: Dennis C. McCoy, CEO
(b) Any notice or demand required by the provisions of this
Lease to be given to Lessee shall be deemed to have been given adequately if
sent by Registered or Certified Mail, Return Receipt Requested, to Lessee at the
following address:
1801 S. Clinton Street
Baltimore, Maryland 21224-5800
Attn: David M. K. Metzger, General Counsel
(c) Either party shall have the right to change its address as
above designated by giving to the other party fifteen (15) days notice of its
intention to make such change and of the substituted address at which any notice
or demand may be directed to it.
16. SUBORDINATION:
Lessee agrees that the Lease shall be subordinate to any
mortgage, trust, deed or ground Lease that is now or may hereafter be placed
upon the demised premises and to any and all advances to be made hereunder, and
to the interest thereon, and all renewals, replacements and extensions thereof,
provided that Lessor shall cause the holder, beneficiary or ground lessor to
deliver a nondisturbance agreement to Lessee setting forth the rights of Lessee
as set forth herein shall not be affected in the event of foreclosure or sale
resulting in lieu of or as a result thereof so long as Lessee is not in default
under the terms hereof.
17. CHANGES, MODIFICATIONS OR AMENDMENTS:
This agreement may not be changed, modified, discharged or
terminated orally or in any other manner than by an agreement mutually signed by
the parties hereto or their respective successors and assigns.
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<PAGE>
18. COVENANTS TO BIND RESPECTIVE PARTIES:
The Lease and all of the agreements, covenants, and conditions
contained herein shall be binding upon Lessor and Lessee and upon their
respective officers, directors, successors and assigns.
19. TERMINATION RIGHT:
Notwithstanding any other provisions contained in this Lease,
the same shall terminate upon the bankruptcy or insolvency of Lessee or in the
event the Lessee is closed or taken over by any banking authority of the United
States or the State of Maryland, the Lessor may terminate the Lease only with
the concurrence of such banking authority or other bank supervisory authority
and any such authority shall in any event have the election either to continue
or to terminate the Lessee; provided, that in the event this Lease is
terminated, the maximum claim of Lessor for damages or indemnity for the injury
resulting from the rejection or abandonment of the unexpired term of the Lease
shall in no event be in an amount exceeding the rent reserved by the Lease,
without acceleration, for the year next succeeding the date of the surrender of
the Leased Premises to the Lessor, or the date of reentry of the Lessor.
20. WHOLE AGREEMENT:
The whole and entire agreement of the parties is set forth in
this Agreement and the parties are not bound by any agreements, understandings
or conditions otherwise than as expressly set forth and stipulated hereunder.
IN WITNESS WHEREOF, LESSOR and LESSEE have caused these
presents to be executed by their duly authorized officers and have caused their
respective corporate seals to be hereto affixed, all as of the day and year
first above written.
LESSOR
ATTEST: MARS SUPER MARKETS, INC.
/s/ Dennis C. McCoy By: /s/ Carmen V. D'Anna, Jr.
LESSEE
ATTEST: FIRST MARINER BANK
/s/ Tina D. Winemill By: /s/ David Metzger
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<PAGE>
EXHIBIT A
LOCATION OF BRANCH IN MARS SUPER MARKETS, INC.
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<PAGE>
COMMENCEMENT AGREEMENT
(EXHIBIT "B" TO LEASE OF MARCH 1, 1996)
Whereas the parties hereto entered into MASTER LEASE dated March 1, 1996 wherein
the LESSOR agreed to lease to the LESSEE certain space in supermarkets operated
by the LESSOR, and
Whereas the parties agreed that the terms and conditions of the lease for
various locations would be identical, with the exception of the physical
location of the LESSEE'S bank within the individual stores and the COMMENCEMENT
DATE of the lease at the various locations, and
Whereas attached hereto and hereinto incorporated by reference is a sketch or
drawing showing the actual location of the bank within the property of the
LESSOR located at 6721 Chesapeake Center Dr., Glen Burnie, Md. (57___15).
NOW THEREFORE, this 6th day of March, 1996 in and for the mutual promises herein
and in the MASTER LEASE aforesaid the parties further agree as follows:
1) That they incorporate by reference and reaffirm all the terms and
conditions of the aforesaid MASTER LEASE.
2) That the sketch or drawing hereinto incorporated is agreed upon as
the premises leased.
3) That the tenancy shall commence and all terms and conditions of the
aforesaid lease as they relate to the premises indicated shall be the 15th day
of March, 1996.
4) That rent shall be paid as provided to the Lessor at 7183 Holabird
Ave., Baltimore, Maryland 21222.
Lessee:
1ST MARINER BANK
/s/ Tina D. Winemill By:/s/ David Metzger
Witness Authorized Officer
Lessor: MARS SUPER MARKET, INC.
/s/ Dennis C. McCoy By:/s/ Carmen V. D'Anna, Jr.
Witness Authorized Officer
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<PAGE>
EXHIBIT C
Regular branch banking hours will be as follows:
Monday - Friday 9:00 a.m. - 8:00 p.m.
Saturday 9:00 a.m. - 5:00 p.m.
Sunday 10:00 a.m. - 3:00 p.m
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<PAGE>
Exhibit 21
List of Subsidiaries of First Mariner Bancorp.
1. First Mariner Bank
2. Compass Properties, Inc.
3. First Mariner Mortgage Company
<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/ KPMC Peat Marwick LLP
KPMG Peat Marwick LLP
Baltimore, Maryland
November 12, 1996
<PAGE>
