U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
OLD LINE BANCSHARES, INC.
Maryland Applied for
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2995 Crain Highway, Waldorf, Maryland 20601
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(Address of principal executive offices) (Zip Code)
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Securities to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on
which registered
Not applicable Not applicable
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Securities to be registered pursuant to Section 12(g) of the Act.
EXPLANATORY NOTE
This Form 10-SB Registration Statement has been prepared on a
prospective basis on the assumption that, among other things, the reorganization
of Old Line Bank into a holding company structure will be consummated. On May
22, 2003, the stockholders of Old Line Bank approved an Agreement and Plan of
Reorganization and Articles of Share Exchange pursuant to which (i) Old Line
Bank will become a wholly-owned subsidiary of Old Line Bancshares, Inc., and
(ii) each outstanding share of Old Line Bank common stock will be converted into
one share of Old Line Bancshares, Inc. common stock, and the former holders of
Old Line Bank common stock will become the holders of all the outstanding shares
of Old Line Bancshares, Inc. common stock. The completion of the reorganization
is subject to the satisfaction of certain regulatory and other conditions, as
further discussed below. There can be no assurances that these conditions will
be met and that consequently the reorganization will occur.
As used throughout this Registration Statement, the terms "we" and "our" refer to both Old Line Bank and Old Line Bancshares, Inc., assuming the completion of the reorganization.
Item 1. Description of Business
Business of Old Line Bancshares, Inc.
Old Line Bancshares, Inc. was incorporated under the laws of the State of Maryland at the direction of management of Old Line Bank for the purpose of becoming a holding company by acquiring all of the outstanding stock of Old Line Bank. Upon consummation of the reorganization, Old Line Bank will become a wholly owned subsidiary of Old Line Bancshares, Inc. and each outstanding share of Old Line Bank common stock will be converted into one share of Old Line Bancshares, Inc. common stock. Immediately after consummation of the reorganization, it is expected that Old Line Bancshares, Inc. will not engage in any business activity other than to hold all of the stock of Old Line Bank.
The directors of Old Line Bancshares, Inc. presently consist, and are expected to continue to consist upon consummation of the reorganizaton, of all the directors of Old Line Bank. The executive officers of Old Line Bancshares, Inc. presently consist, and are expected to continue to consist upon consummation of the reorganization, of all the executive officers of Old Line Bank.
Old Line Bancshares, Inc. anticipates that the reorganization will be accounted for in a manner similar to that for a pooling of interests. Under this accounting treatment, upon consummation of the reorganization, the net assets and liabilities of Old Line Bank would be recorded as the asset of Old Line Bancshares, Inc. (investment in subsidiary) at book value, and the stockholders' equity account of Old Line Bancshares, Inc. would equal the stockholders' equity account of Old Line Bank.
The following conditions, among others, must be met or satisfied before the reorganization will be consummated: (i) approval by the Maryland Commissioner of Financial Regulation and (ii) approval by the Board of Governors of the Federal Reserve. Applications for these approvals have been filed, and it is anticipated that the approvals will be granted by the fall of 2003, although there is no assurance that this will be the case. The Board of Directors of Old Line Bank and the Board of Directors of Old Line Bancshares, Inc. have the right to terminate the reorganization at any time prior to its effective date.
Business of Old Line Bank
General
Old Line Bank is a trust company chartered under Subtitle 2 of Title 3 of the Financial Institutions Article of the Annotated Code of Maryland. Old Line Bank was originally chartered in 1989 as a national bank under the title "Old Line National Bank." In June 2002, Old Line Bank converted to a Maryland-chartered trust company exercising the powers of a commercial bank, and received a Certificate of Authority to do business from the Maryland Commissioner of Financial Regulation. Old Line Bank does not exercise trust powers and its regulatory structure is the same as a Maryland chartered
commercial bank. Old Line Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation insures its deposits.
We are headquartered in Waldorf, Maryland, approximately 10 miles south of Andrews Air Force Base and 25 miles southeast of Washington, D.C. We engage in a general commercial banking business, making various types of loans and accepting deposits. We market our financial services to small to medium sized businesses, entrepreneurs, professionals, consumers and high net worth clients. Our current primary market area is the suburban Maryland (Washington, D.C. suburbs) counties of Prince George's, Charles and northern St. Mary's. We also target customers throughout the greater Washington, D.C. metropolitan area.
Our core business strategy involves providing superior customer service to clients, with local decision makers. Our experienced executives establish a relationship with each client and bring value to all phases of a client's business and personal banking needs. To develop this strategy, we have established relationships with key customers in the community and with local business leaders who can create business opportunities.
Our primary source of revenue is interest income and fees generated by lending and investing funds on deposit. We typically balance the loan and investment portfolio towards loans. Generally speaking, loans earn more attractive returns than investments and are a key source of product cross sales and customer referrals. Our loan and investment strategies balance the need to maintain adequate liquidity via excess cash or federal funds sold with opportunities to appropriately leverage our capital.
We have based our strategic plan on the premise of enhancing stockholder value and growth through branching and operating profits. Our short-term goals include maintaining credit quality, creating an attractive branch network, expanding fee income, generating extensions of core banking services and using technology to maximize stockholder value.
Conversion from Federal Charter
At Old Line Bank's 2002 annual meeting of stockholders, the stockholders of Old Line Bank approved a Plan of Conversion pursuant to which the bank, which was then known as Old Line National Bank, converted to a Maryland-chartered trust company exercising the powers of a commercial bank named Old Line Bank.
Old Line Bank converted from a national bank to a Maryland-chartered trust company to reduce certain federal supervisory and application fees that were then applicable to Old Line Bank and to have a local primary regulator. Prior to the conversion, Old Line Bank's primary regulator was the Office of the Comptroller of the Currency. Currently, Old Line Bank's primary regulator is the Maryland Commissioner of Financial Regulation.
The conversion to a Maryland-chartered trust company did not result in a change to any of Old Line Bank's directors, officers or employees; change any of its products or services; or affect any of its assets, property, rights and powers, debts, liabilities, obligations or duties. As part of the conversion to a Maryland-chartered trust company, and to comply with certain provisions of Maryland banking law, on the effective date of the conversion, which was June 28, 2002, each two shares of Old Line National Bank common stock issued and outstanding were converted into one share of Old Line Bank common stock. While the total outstanding shares declined as a result of this stock exchange, the ownership percentages of the stockholders did not change.
Location and Market Area
We consider our current primary market area to consist of the suburban Maryland (Washington, D.C. suburbs) counties of Prince George's, Charles and northern St. Mary's.
Our headquarters and one of our branch offices is located in Waldorf, Maryland in Charles County. Just 15 miles south of the Washington Capital Beltway, Charles County is the gateway to Southern Maryland. The northern part of Charles County is the "development district" where the commercial, residential and business growth is focused. Waldorf, White Plains and the planned community of St. Charles are located here.
A critical component of our strategic plan and future growth is Prince George's County. Prince George's County wraps around the eastern boundary of Washington, D.C. and offers urban, suburban and rural settings for employers and residents. All of the regions national and international airports are less than an hour away, as is Baltimore. We currently have two branch locations in Prince George's County including our newest branch, which opened in 2002.
The economy in our current primary market area has focused on real estate development, high technology, retail and the government sector. Although the national and local economies have contracted somewhat over the past several years, we do not believe that we have experienced any significant credit losses or have had any non-performing assets as a result of the volatility or contraction in the economy. We believe this is due to our credit culture that reinforces strict underwriting as well as close monitoring.
We believe a natural evolution of a community-focused bank like Old Line Bank is to expand the delivery channels via the branch network. We anticipate expanding in Prince George's, Charles and northern St. Mary's counties and in contiguous northern and western counties, such as Montgomery County, Maryland and Anne Arundel County, Maryland. We plan to take advantage of strategic opportunities presented to us via mergers occurring in our marketplace. We may purchase branches that are being closed or lease branch space from other banks. Additionally, we will pursue key market locations for new branch facilities. We currently have no specific plans regarding new branch offices or acquisitions of existing financial institutions or branches thereof.
We intend to use the Internet and technology to augment our growth plans. Currently, we offer our customers image technology as well as telephone banking. In the second half of 2003, we plan to provide Internet banking that includes online account access. We will continue to evaluate cost effective ways that technology can enhance our management, products and services.
Lending Activities
General. Our primary market focus is on making loans to small and medium size businesses, entrepreneurs, professionals, consumers and high net worth clients in our primary market area. Our lending activities consist generally of short to medium term commercial business loans, commercial real estate loans, real estate construction loans, home equity loans and consumer installment loans, both secured and unsecured. As a niche-lending product, we provide luxury boat financing to individuals. These boats are generally Coast Guard documented and have a homeport of record in the Chesapeake Bay or its tributaries.
Credit Policies and Administration. We have adopted a comprehensive lending policy, which includes stringent underwriting standards for all types of loans. Our lending staff follows pricing guidelines established periodically by our management team. In an effort to manage risk, all credit decisions in excess of the officers' lending authority must be approved prior to funding by a majority vote of the loan committee consisting of the President, Chief Credit Officer, Chief Lending Officer and six members of the Board of Directors. Management believes that it employs experienced lending officers, secures appropriate collateral and carefully monitors the financial conditions of its borrowers and the concentration of loans in the portfolio.
In addition to the normal repayment risks, all loans in the portfolio are subject to the state of the economy and the related effects on the borrower and/or the real estate market. With the exception of loans provided to finance luxury boats, generally longer-term loans have periodic interest rate adjustments and/or call provisions. Senior management monitors the loan portfolio closely to ensure that we minimize past due loans and that we swiftly deal with potential problem loans.
In addition to the internal business processes employed in the credit administration area, Old Line Bank retains an outside, independent credit review firm to review the loan portfolio. This firm performs a detailed annual review and an interim update at least once a year. We use the results of the firm's report to validate our internal loan ratings and we review their commentary on specific loans and on our loan administration activities in order to improve our operations.
Commercial Business Lending. Our commercial business lending consists of lines of credit, revolving credit facilities, accounts receivable financing, term loans, equipment loans, SBA loans, stand-by letters of credit and unsecured loans. We originate commercial loans for any business purpose including the financing of leasehold improvements and equipment, the carrying of accounts receivable, general working capital, contract administration and acquisition activities. We have a diverse client base and we do not have a concentration of these types of loans in any specific industry segment.
We generally secure commercial business loans with accounts receivable, equipment, indemnity deeds of trust and other collateral such as marketable securities, cash value of life insurance, and time deposits at Old Line Bank. Commercial business loans have a higher degree of risk than residential mortgage loans because the availability of funds for repayment generally depends on the success of the business. To help manage this risk, we generally obtain appropriate collateral and personal guarantees from the borrower's principal owners and monitor the financial condition of the business.
Commercial Real Estate Lending. We finance commercial real estate for our clients, usually for owner occupied properties. We generally will finance owner-occupied commercial real estate at a maximum loan-to-value of 80%. Our underwriting policies and processes focus on the clients' ability to repay the loan as well as an assessment of the underlying real estate. Risks inherent in managing a commercial real estate portfolio relate to sudden or gradual drops in property values as well as changes in the economic climate. We attempt to mitigate these risks by carefully underwriting loans of this type as well as by following appropriate loan-to-value standards.
Real Estate Construction Lending. This segment of our loan portfolio is predominately residential in nature and is comprised of loans of short duration, meaning maturities typically of nine months or less. Residential houses under construction and the underlying land for which the loan was obtained secure the construction loans. All of these loans are concentrated in our primary market area. Construction lending entails significant risks compared with residential mortgage lending. These risks involve larger loan balances concentrated with single borrowers with funds advanced upon the security of the land or home under construction, which is estimated prior to the completion of the home. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and related loan-to-value ratios. To mitigate these risks we generally limit loan amounts to 80% of appraised values and obtain first lien positions on the property. Additionally, we generally only offer real estate construction financing to experienced builders and individuals who have demonstrated the ability to obtain a permanent loan "take-out."
Residential Real Estate Lending. We offer a variety of consumer-oriented residential real estate loans. The bulk of our portfolio is made up of home equity loans to individuals with a loan to value not exceeding 85%. We also offer fixed rate home improvement loans. Our home equity and home improvement loan portfolio gives us a diverse client base. Although most of these loans are in our primary market area, the diversity of the individual loans in the portfolio reduces our potential risk.
Consumer Installment Lending. We offer various types of secured and unsecured consumer loans. A primary aspect of our consumer lending is our financing for luxury boat purchases ($17 million or 93% of the consumer loans, excluding consumer real estate, and 35.36% of all loans at March 31, 2003). The underwriting standards for these loans are more stringent than for other installment loans. As a general guideline, the individuals' debt service should not exceed 36% of their gross income, they must own their home, have stability of employment and residency, verifiable liquidity, and the loan to value ratio may not exceed 85%. As a result of these stringent guidelines, this segment of our portfolio has experienced minimal delinquency. Since inception of the portfolio in 1997, only two accounts have experienced 30-day delinquency with total losses in the portfolio of $20,000 from one account.
We also make consumer loans for personal, family or household purposes as a convenience to our customer base. However, these loans are not a focus of our lending activities. As a general guideline, a consumer's total debt service should not exceed 40% of their gross income. The underwriting standards for consumer loans include a determination of the applicant's payment history on other debts and an assessment of his or her ability to meet existing obligations and payments on the proposed loan.
Consumer loans may present greater credit risk than residential mortgage loans because many consumer loans are unsecured or are secured by rapidly depreciating assets. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation. Consumer loan collections depend on the borrower's continuing financial stability. If a borrower suffers personal financial difficulties, the loan may not be repaid. Also, various federal and state laws, including bankruptcy and insolvency laws, may limit the amount we can recover on such loans. However, in our opinion, many of these risks do not apply to the luxury boat loan portfolio due to the credit quality and liquidity of the borrowers.
Lending Limit. As of March 31, 2003, our legal lending limit for loans to one borrower was approximately $910,000. As part of our risk management strategy, we may attempt to participate a portion of larger loans to other
financial institutions. This strategy allows Old Line Bank to maintain customer relationships yet reduce credit exposure. However, this strategy may not always be available.
Investments and Funding
We balance our liquidity needs based on loan and deposit growth via the investment portfolio and purchased funds. It is our goal to provide adequate liquidity to support our loan growth. In the event we have excess liquidity, investments are used to generate positive earnings. In the event deposit growth does not fully support our loan growth, we will use a combination of investment sales, federal funds and other purchased funds to augment our funding position.
Our investment portfolio is actively monitored and the majority of the portfolio is generally classified as "available for sale." Under such a classification, investment instruments may be sold as deemed appropriate by management. On a monthly basis, the investment portfolio is marked to market via equity as required by Financial Accounting Standards No. 115 ("FAS 115"). Additionally, the investment portfolio is used to balance our asset and liability position. We will invest in fixed rate or floating rate instruments as necessary to reduce our interest rate risk exposure.
Other Banking Products
We offer our customers safe deposit boxes, wire transfer services, ATM machines at three of our branch locations and credit cards through a third party processor.
Deposit Activities
Deposits are the major source of our funding. We offer a broad array of deposit products that include demand, NOW, super NOW, money market and savings accounts as well as certificates of deposit. We believe that we pay competitive rates on our interest bearing deposits. As a relationship-oriented organization, we generally seek to obtain deposit relationships with our loan clients.
As our overall balance sheet position dictates, we may become more or less competitive in our interest rate structure. To date, we have not used brokered deposits.
Competition
The banking business is highly competitive. We compete with other commercial banks, savings associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in our primary market area and elsewhere.
We believe that we have been able to effectively leverage our talents, contacts and location to achieve a strong financial position. However, our primary market area is highly competitive and heavily branched. Competition in our primary market area for loans to small and medium sized businesses, entrepreneurs, professionals and high net worth clients is intense, and pricing is important. Most of our competitors have substantially greater resources and lending limits than we do and offer extensive and established branch networks and other services that we do not offer. Moreover, larger institutions operating in our primary market area have access to borrowed funds at a lower rate than is available to us. Deposit competition also is strong among institutions in our primary market area. As a result, it is possible that to remain competitive we may need to pay above market rates for deposits. Despite strong competition, we are experiencing success in our primary market area. We believe this is because the area reacts favorably to our community focus and our emphasis on service to the small and medium sized business community, individuals and professionals.
Employees
As of the date of this Registration Statement, Old Line Bank has 28 full time and five part time employees. None of our employees are represented by any collective bargaining unit, and we believe that relations with our employees are good.
SUPERVISION AND REGULATION
Old Line Bancshares, Inc. and Old Line Bank will be and are subject to extensive regulation under state and federal banking laws and regulations. These laws impose specific requirements and restrictions on virtually all aspects of operations and generally are intended to protect depositors, not stockholders. The following discussion is only a summary and readers should refer to particular statutory and regulatory provisions for more detailed information. In addition, management cannot predict the nature or the extent of the effect on business and earnings that new federal or state legislation may have in the future
Old Line Bancshares, Inc.
Following the reorganization, Old Line Bancshares, Inc. will be a bank holding company under the Bank Holding Company Act of 1956, as amended. As such, Old Line Bancshares, Inc. will be subject to regulation and examination by the Federal Reserve Board, and will be required to file periodic reports and any additional information that the Federal Reserve Board may require. The Bank Holding Company Act generally prohibits a bank holding company from engaging in activities other than banking, managing or controlling banks or other permissible subsidiaries and acquiring or retaining direct or indirect control of any company engaged in any activities closely related to banking or managing or controlling banks.
The Federal Reserve Board must approve, among other things, the acquisition by a proposed bank holding company of control of more than five percent (5%) of the voting shares, or substantially all the assets, of any bank, or the merger or consolidation by a bank holding company with another bank holding company. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), the restrictions on interstate acquisitions of banks by bank holding companies were repealed as of September 29, 1995. The effect of the repeal of these restrictions is that, subject to certain time and deposit base requirements, Old Line Bancshares, Inc. will be able to acquire a bank located in Maryland or any other state, and a bank holding company located outside of Maryland can acquire any Maryland-based bank holding company or bank.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by statute on any extensions of credit to the bank holding company or any of its subsidiaries, or investments in their stock or other securities, and on taking such stock or securities as collateral for loans to any borrower. Further, a bank holding company and any subsidiary bank are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit. In 1997, the Federal Reserve Board adopted amendments to its Regulation Y, creating exceptions to the Bank Holding Company Act's anti-tying prohibitions that give bank subsidiaries of holding companies greater flexibility in packaging products and services with their affiliates.
In accordance with Federal Reserve Board policy, Old Line Bancshares, Inc. will be expected to act as a source of financial strength to Old Line Bank and to commit resources to support Old Line Bank in circumstances in which Old Line Bancshares, Inc. might not otherwise do so. The Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the Federal Reserve's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or non-bank subsidiary if the agency determines that divestiture may aid the depository institution's financial condition.
The Federal Reserve Board imposes risk-based capital measures on bank holding companies in order to insure their capital adequacy. Because Old Line Bancshares, Inc. will be a bank holding company with less than $150,000,000 in assets, Old Line Bancshares, Inc. will initially be exempt from most of these risk-based capital measures. However, the Federal Reserve Board will still require that Old Line Bancshares, Inc. remain adequately capitalized and have the ability to retire any debt within 25 years from the date it is incurred.
Old Line Bancshares, Inc., as a bank holding company, will be subject to dividend regulations of the Federal Reserve System. In general, a small bank holding company that has a debt to equity ratio greater than 1:1 is not expected to pay corporate dividends until such time as its debt to equity ratio declines to 1:1 or less and its bank subsidiary is otherwise well managed, well capitalized and not under any supervisory order. Old Line Bancshares, Inc. will be a small bank holding company, and will not have a debt to equity ratio that is greater than 1:1.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act ("GLBA"). Effective March 11, 2000, pursuant to authority granted under the GLBA, a bank holding company may elect to become a financial holding company and thereby engage in a broader range of financial and other activities than are permissible for traditional bank holding companies. In order to qualify for the election, all of the depository institution subsidiaries of the bank holding company must be well capitalized and well managed, as defined by regulation, and all of its depository institution subsidiaries must have achieved a rating of satisfactory or better with respect to meeting community credit needs.
Pursuant to the GLBA, financial holding companies are permitted to engage in activities that are "financial in nature" or incidental or complementary thereto and not a substantial risk to the safety and soundness of the depository institution or the financial system in general, as determined by the Federal Reserve Board. The GLBA identifies several activities as "financial in nature," including, among others, insurance underwriting and agency, investment advisory services, merchant banking and underwriting, and dealing or making a market in securities. Being designated a financial holding company will allow insurance companies, securities brokers and other types of financial companies to affiliate with and/or acquire depository institutions.
Under Maryland law, an existing bank holding company that desires to acquire a Maryland state-chartered bank or trust company, a federally-chartered bank with its main office in Maryland, or a bank holding company that has its principal place of business in Maryland, must file an application with the Maryland Commissioner of Financial Regulation. In approving the application, the Maryland Commissioner of Financial Regulation must consider whether the acquisition may be detrimental to the safety and soundness of the entity being acquired or whether the acquisition may result in an undue concentration of resources or a substantial reduction in competition in Maryland. The Maryland Commissioner of Financial Regulation may not approve an acquisition if, on consummation of the transaction, the acquiring company, together with all its insured depository institution affiliates, would control 30% or more of the total amount of deposits of insured depository institutions in Maryland. The Maryland Commissioner of Financial Regulation has authority to adopt by regulation a procedure to waive this requirement for good cause. In a transaction for which approval of the Maryland Commissioner of Financial Regulation is not required due to an exemption under Maryland law, or for which federal law authorizes the transaction without application to the Maryland Commissioner of Financial Regulation, the parties to the acquisition must provide written notice to the Maryland Commissioner of Financial Regulation at least 15 days before the effective date of the transaction.
The status of Old Line Bancshares, Inc. as a registered bank holding company under the Bank Holding Company Act and a Maryland-chartered bank holding company will not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
Old Line Bank
Old Line Bank is a Maryland chartered trust company (with all powers of a commercial bank), is a member of the Federal Reserve System (a "state member bank") and its deposit accounts are insured by the Bank Insurance Fund of the FDIC up to the maximum legal limits of the FDIC. It is subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation and the Federal Reserve Board. The regulations of these various agencies govern most aspects of Old Line Bank's business, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowing, dividends and location and number of branch offices. The laws and regulations governing Old Line Bank generally have been promulgated to protect depositors and the deposit insurance funds, and not for the purpose of protecting stockholders.
Branching and Interstate Banking
The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether such transactions are prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Such interstate bank mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration limitations described in the Riegle-Neal Act.
The Riegle-Neal Act authorizes the federal banking agencies to approve interstate branching de novo by national and state banks in states that specifically allow for such branching. The District of Columbia, Maryland and Virginia have all enacted laws that permit interstate acquisitions of banks and bank branches and permit out-of-state banks to establish de novo branches.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act altered substantially the statutory framework for providing banking and other financial services in the United States of America. The GLBA, among other things, eliminated many of the restrictions on affiliations among banks and securities firms, insurance firms, and other financial service providers.
The GLBA also provides protections against the transfer and use by financial institutions of consumers' nonpublic personal information. A financial institution must provide to its customers, at the beginning of the customer relationship and annually thereafter, the institution's policies and procedures regarding the handling of customers' nonpublic personal financial information. The privacy provisions generally prohibit a financial institution from providing a customer's personal financial information to unaffiliated third parties unless the institution discloses to the customer that the information may be so provided and the customer is given the opportunity to opt out of such disclosure.
Capital Adequacy Guidelines
The Federal Reserve Board and the FDIC have adopted risk based capital adequacy guidelines pursuant to which they assess the adequacy of capital in examining and supervising banks and in analyzing bank regulatory applications. Risk-based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items.
State member banks are expected to meet a minimum ratio of total qualifying capital (the sum of core capital (Tier 1) and supplementary capital (Tier 2)) to risk weighted assets of 8%. At least half of this amount (4%) should be in the form of core capital.
Tier 1 Capital generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stock which may be included as Tier 1 Capital), less goodwill, without adjustment for changes in the market value of securities classified as "available for sale" in accordance with FAS 115. Tier 2 Capital consists of the following: hybrid capital instruments; perpetual preferred stock which is not otherwise eligible to be included as Tier 1 Capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no risk-based capital) for assets such as cash, to 100% for the bulk of assets which are typically held by a commercial bank, including certain multi-family residential and commercial real estate loans, commercial business loans and consumer loans. Residential first mortgage loans on one to four family residential real estate and certain seasoned multi-family residential real estate loans, which are not 90 days or more past-due or non-performing and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighing system, as are certain privately-issued mortgage-backed securities representing indirect ownership of such loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics.
In addition to the risk-based capital requirements, the Federal Reserve Board has established a minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets) requirement for the most highly-rated banks, with an additional cushion of at least 100 to 200 basis points for all other banks, which effectively increases the minimum Leverage Capital Ratio for such other banks to 4.0% - 5.0% or more. The highest-rated banks are those that are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, those which are considered a strong banking organization. A bank having less than the minimum Leverage Capital Ratio requirement shall, within 60 days of the date as of which it fails to comply with such requirement, submit a reasonable plan describing the means and timing by which the bank shall achieve its minimum Leverage Capital Ratio requirement. A bank which fails to file such plan is deemed to be operating in an unsafe and unsound manner, and could be subject to a cease-and-desist order. Any insured depository institution with a Leverage Capital Ratio that is less than 2.0% is deemed to be operating in an unsafe or unsound condition pursuant to Section 8(a) of the Federal Deposit Insurance Act (the "FDIA") and is subject to potential termination of deposit insurance.
However, such an institution will not be subject to an enforcement proceeding solely on account of its capital ratios if it has entered into and is in compliance with a written agreement to increase its Leverage Capital Ratio and to take such other action as may be necessary for the institution to be operated in a safe and sound manner. The capital regulations also provide, among other things, for the issuance of a capital directive, which is a final order issued to a bank that fails to maintain minimum capital or to restore its capital to the minimum capital requirement within a specified time period.
Prompt Corrective Action
Under Section 38 of the FDIA, each federal banking agency is required
to implement a system of prompt corrective action for institutions that it
regulates. The federal banking agencies have promulgated substantially similar
regulations to implement the system of prompt corrective action established by
Section 38 of the FDIA. Under the regulations, a bank will be deemed to be: (i)
"well capitalized" if it has a Total Risk Based Capital Ratio of 10.0% or more,
a Tier 1 Risk Based Capital Ratio of 6.0% or more, a Leverage Capital Ratio of
5.0% or more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a Total Risk Based Capital Ratio of 8.0% or
more, a Tier 1 Risk Based Capital Ratio of 4.0% or more and a Tier 1 Leverage
Capital Ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized;" (iii) "undercapitalized" if it has a
Total Risk Based Capital Ratio that is less than 8.0%, a Tier 1 Risk based
Capital Ratio that is less than 4.0% or a Leverage Capital Ratio that is less
than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a Total Risk Based Capital Ratio that is less than
6.0%, a Tier 1 Risk Based Capital Ratio that is less than 3.0% or a Leverage
Capital Ratio that is less than 3.0%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less than
2.0%.
An institution generally must file a written capital restoration plan which meets specified requirements with an appropriate federal banking agency within 45 days of the date the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the applicable agency.
An institution that is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. Such guaranty will be limited to the lesser of (i) an amount equal to 5.0% of the institution's total assets at the time the institution was notified or deemed to have notice that it was undercapitalized or (ii) the amount necessary at such time to restore the relevant capital measures of the institution to the levels required for the institution to be classified as adequately capitalized. Such a guaranty shall expire after the federal banking agency notifies the institution that it has remained adequately capitalized for each of four consecutive calendar quarters. An institution which fails to submit a written capital restoration plan within the requisite period, including any required performance guaranty, or fails in any material respect to implement a capital restoration plan, will be subject to the restrictions in Section 38 of the FDIA which are applicable to significantly undercapitalized institutions.
A "critically undercapitalized institution" is to be placed in conservatorship or receivership within 90 days unless the FDIC formally determines that forbearance from such action would better protect the deposit insurance fund. Unless the FDIC or other appropriate federal banking regulatory agency makes specific further findings and certifies that the institution is viable and is not expected to fail, an institution that remains critically undercapitalized on average during the fourth calendar quarter after the date it becomes critically undercapitalized must be placed in receivership. The general rule is that the FDIC will be appointed as receiver within 90 days after a bank becomes critically undercapitalized unless extremely good cause is shown and the federal regulators agree to an extension. In general, good cause is defined as capital that has been raised and is immediately available for infusion into the bank except for certain technical requirements that may delay the infusion for a period of time beyond the 90 day time period.
Immediately upon becoming undercapitalized, an institution will become
subject to the provisions of Section 38 of the FDIA, which (i) restrict payment
of capital distributions and management fees; (ii) require that the appropriate
federal banking agency monitor the condition of the institution and its efforts
to restore its capital; (iii) require submission of a capital restoration plan;
(iv) restrict the growth of the institution's assets; and (v) require prior
approval of certain expansion proposals. The appropriate federal banking agency
for an undercapitalized institution also may take any number of discretionary
supervisory actions if the agency determines that any of these actions is
necessary to resolve the problems of the institution at the least possible
long-term cost to the deposit insurance fund, subject in certain cases to
specified procedures. These discretionary supervisory actions include: requiring
the institution to raise additional capital, restricting
transactions with affiliates, requiring divestiture of the institution or the sale of the institution to a willing purchaser, and any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or
receiver may be appointed for an institution where: (i) an institution's
obligations exceed its assets; (ii) there is substantial dissipation of the
institution's assets or earnings as a result of any violation of law or any
unsafe or unsound practice; (iii) the institution is in an unsafe or unsound
condition; (iv) there is a willful violation of a cease-and-desist order; (v)
the institution is unable to pay its obligations in the ordinary course of
business; (vi) losses or threatened losses deplete all or substantially all of
an institution's capital, and there is no reasonable prospect of becoming
"adequately capitalized" without assistance; (vii) there is any violation of law
or unsafe or unsound practice or condition that is likely to cause insolvency or
substantial dissipation of assets or earnings, weaken the institution's
condition, or otherwise seriously prejudice the interests of depositors or the
insurance fund; (viii) an institution ceases to be insured; (ix) the institution
is undercapitalized and has no reasonable prospect that it will become
adequately capitalized, fails to become adequately capitalized when required to
do so, or fails to submit or materially implement a capital restoration plan; or
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital.
Currently, Old Line Bank is well capitalized under the prompt corrective actions regulations.
Regulatory Enforcement Authority
Federal banking law grants substantial enforcement powers to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.
Transactions with Affiliates and Insiders
Maryland law imposes restrictions on certain transactions with affiliates of Maryland commercial banks. Generally, under Maryland law, a director, officer or employee of a commercial bank may not borrow, directly or indirectly, any money from the bank, unless the loan has been approved by a resolution adopted by and recorded in the minutes of the board of directors of the bank, or the executive committee of the bank, if that committee is authorized to make loans. If the executive committee approves such a loan, the loan approval must be reported to the board of directors at its next meeting. Certain commercial loans made to directors of a bank and certain consumer loans made to non-officer employees of the bank are exempt from the law's coverage.
In addition, Old Line Bank is subject to the provisions of Section 23A of the Federal Reserve Act, which limits the amount of loans or extensions of credit to, investments in, or certain other transactions with, affiliates, and limits the amount of advances to third parties collateralized by the securities or obligations of affiliates. Section 23A limits the aggregate amount of transactions with any individual affiliate to ten percent (10%) of the capital and surplus of Old Line Bank and also limits the aggregate amount of transactions with all affiliates to twenty percent (20%) of capital and surplus. Loans and certain other extensions of credit to affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited.
Old Line Bank also is subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution and or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated entities. In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards that in good faith would be offered to or would apply to non-affiliated companies.
Loans to One Borrower
Old Line Bank is subject to the statutory and regulatory limits on the extension of credit to one borrower. Generally, the maximum amount of total outstanding loans that a Maryland chartered trust company may have to any one borrower at any one time is 15% of Old Line Bank's unimpaired capital and surplus.
Liquidity
Old Line Bank is subject to the reserve requirements imposed by the State of Maryland. A Maryland commercial bank is required to have at all times a reserve equal to at least 15% of its demand deposits. Old Line Bank is also subject to the reserve requirements of Federal Reserve Board Regulation D, which applies to all depository institutions. As of June 30, 2003, amounts in transaction accounts above $6,000,000 and up to $42,100,000 must have reserves held against them in the ratio of three percent of the amount. Amounts above $42,100,000 require reserves of $1,083,000 plus 10 percent of the amount in excess of $42,100,000. The Maryland reserve requirements may be used to satisfy the requirements of Federal Reserve Regulation D.
Dividends
Under Maryland law, Old Line Bank may declare a cash dividend, after providing for due or accrued expenses, losses, interest, and taxes, from its undivided profits or, with the prior approval of the Maryland Commissioner of Financial Regulation, from its surplus in excess of 100% of its required capital stock. Also, if Old Line Bank's surplus 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, the bank regulatory agencies have the ability to prohibit or limit proposed dividends if such regulatory agencies determine the payment of such dividends would result in Old Line Bank being in an unsafe and unsound condition.
Community Reinvestment Act
Old Line Bank is required to comply with the Community Reinvestment Act ("CRA") regardless of its capital condition. The CRA requires that, in connection with its examinations of Old Line Bank, the Federal Reserve evaluates the record of Old Line Bank in meeting the credit needs of its local community, including low and moderate income neighborhoods, consistent with the safe and sound operation of the institution. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. These factors are considered in evaluating mergers, acquisitions and applications to open a branch or facility. The CRA also requires all institutions to make public disclosure of their CRA ratings. Old Line Bank received a "Satisfactory" rating in its latest CRA examination.
USA PATRIOT Act
On October 26, 2001, President Bush signed into law comprehensive anti-terrorism legislation known as the USA PATRIOT Act of 2001 (the "USA Patriot Act"). Title III of the USA Patriot Act substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Treasury Department ("Treasury") has issued a number of implementing regulations that apply various requirements of the USA Patriot Act to financial institutions such as Old Line Bank. Those regulations impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. Treasury is expected to issue a number of additional regulations that will further clarify the USA Patriot Act's requirements.
Failure of a financial institution to comply with the USA Patriot Act's requirements could have serious legal and reputational consequences for the institution. Old Line Bank has adopted appropriate policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and Treasury's regulations.
Factors Affecting Future Results
Some of the matters discussed in the Registration Statement including under the captions "Business of Old Line Bancshares, Inc.," "Business of Old Line Bank," and "Management's Discussion And Analysis Of Financial Condition And Results Of Operations include forward-looking statements. These forward-looking statements include statements regarding profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk and financial and other goals. Forward-looking statements often use words such as "believe," "expect," "plan," "may," "will," "should," "project," "contemplate," " anticipate," "forecast," "intend" or other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. When you read a forward-looking statement, you should keep in mind the risk factors described below and any other information contained in this Registration Statement which identifies a risk or uncertainty. Our actual results and the actual outcome of our expectations and strategies could be different from that described in this Registration Statement because of these risks and uncertainties and you should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and we undertake no obligation to make any revisions to the forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.
We depend on the services of key personnel, including James W. Cornelsen, Joseph E. Burnett and Christine M. Rush. The loss of any of these personnel could disrupt our operations and result in reduced earnings. Mr. Cornelsen is the President and Chief Executive Officer of Old Line Bank, Mr. Burnett is a Senior Vice President and the Chief Lending Officer. Ms. Rush is a Senior Vice President, the Chief Financial Officer and the Chief Credit Officer. They provide valuable services to us and would be difficult to replace. Also, the relationships maintained by our banking executives with our customers has in a large part driven our growth and success. The unexpected loss of services of one or more of these executives could have a material adverse effect on our operations and could result in reduced revenues and earnings.
Our focus on commercial and real estate loans may increase the risk of credit losses. We offer a variety of loans including commercial business loans, commercial real estate loans, construction loans, home equity loans and consumer loans, which includes luxury boat financing. Many of our loans are secured by real estate (both residential and commercial) in the Maryland suburbs of Washington, D.C. We believe our credit underwriting adequately considers the underlying collateral in the evaluation process, however a major change in the real estate market could have an adverse effect on our customers, which in turn could adversely impact us.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease. We maintain an allowance for loan losses that we believe is adequate for absorbing any potential losses in our loan portfolio. Management, through a periodic review and consideration of the loan portfolio, determines the amount of the allowance for loan losses. Although we believe the allowance for loan losses is adequate to absorb probable losses in our loan portfolio, we cannot predict such losses or that our allowance will be adequate in the future. If management's assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, our earnings will suffer.
Our profitability depends on interest rates and changes in monetary policy may impact us. Our results of operations depend to a large extent on our "net interest income," which is the difference between the interest expense incurred in connection with our interest-bearing liabilities, such as interest on deposit accounts, and the interest income received from our interest-earning assets, such as loans and investment securities. Fluctuations in interest rates are not predictable or controllable and, therefore, we might not be able to maintain a consistent positive spread between the interest that we receive and the interest that we pay, which may significantly reduce our earnings.
The market value of our investments could negatively impact stockholders' equity. Approximately 67% of our securities investment portfolio as of March 31, 2003 has been designated as available for sale pursuant to Statement of Financial Accounting Standards (SFAS) No. 115 relating to accounting for investments. SFAS 115 requires that unrealized gains and losses in the estimated value of the available for sale portfolio be "marked to market" and reflected as a separate item in stockholders' equity, net of tax. Also, at March 31, 2003, we maintained approximately 14.42% of total assets in securities available for sale. If the market value of the investment portfolio declines, this could cause a corresponding decline in stockholders' equity.
Because Old Line Bank serves a limited market area in Maryland, we could be more adversely affected by an economic downturn in our market area than our larger competitors which are more geographically diverse. Our current primary market area consists of the suburban Maryland (Washington, D.C. suburbs) counties of Prince George's, Charles and northern St. Mary's. We anticipate expanding in these counties and in contiguous northern and western counties, such as Montgomery County, Maryland and Anne Arundel County, Maryland. However, broad geographic diversification is not currently part of our community bank focus. As a result, if our market area suffers an economic downturn, our business and financial condition may be more severely affected by such circumstances. Our larger bank competitors serve more geographically diverse market areas, parts of which may not be affected by the same economic conditions that may exist in our market area.
Old Line Bank faces substantial competition which could adversely affect our growth and operating results. Old Line Bank operates in a competitive market for financial services and faces intense competition from other financial institutions both in making loans and in attracting deposits. Many of these financial institutions have been in business for many years, are significantly larger, have established customer bases, have greater financial resources and lending limits than Old Line Bank, and are able to offer certain services that we are not able to offer.
Our expansion strategy may not be successful. As part of our strategic plan, we intend to expand our asset base and add branches to our banking network, either through internal growth or through acquisitions of existing financial institutions or branches thereof. Our ability to continue to grow depends upon our ability to open new branches, attract new deposits, identify loan and investment opportunities and maintain adequate capital levels. There are no guarantees that our expansion strategies will be successful.
With respect to the branch expansion strategy, we may not be able to correctly identify profitable or growing markets for new branches or to integrate existing financial institutions or branches thereof into our operations. Also, the costs to start up new branch facilities or to acquire existing financial institutions or branches, and the additional costs to operate these facilities, may increase our non-interest expense and decrease our earnings. It may also be difficult to adequately and profitably manage the anticipated growth from the new branches. We can provide no assurance that any new branch sites will successfully attract a sufficient level of deposits and other banking business to offset their operating expenses. Any new or acquired branches will be subject to regulatory approval, and there can be no assurance that we will succeed in securing such approvals.
Our lending limit may limit our growth. We are limited in the amount we can loan to a single borrower by the amount of our capital. Generally, under current law, we may lend up to 15% of our unimpaired capital and surplus to any one borrower. Based upon our current capital levels, the amount we may lend is significantly less than that of many of our competitors and may discourage potential borrowers who have credit needs in excess of our lending limit from doing business with us. We accommodate larger loans by selling participations in those loans to other financial institutions, but this strategy is not always available.
Our need to comply with extensive and complex governmental regulation could have an adverse effect on our business and our growth strategy. The banking industry is subject to extensive regulation by state and federal banking authorities. Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not stockholders. Regulatory requirements affect our lending practices, capital structure, investment practices, dividend policy and many other aspects of our business. These requirements may constrain our rate of growth and changes in regulations could adversely affect us. The burden imposed by these federal and state regulations may place banks in general, and Old Line Bank specifically, at a competitive disadvantage compared to less regulated competitors. In addition, the cost of compliance with regulatory requirements could adversely affect our ability to operate profitably.
Item 2. Management's Discussion and Analysis or Plan of Operation
SELECTED FINANCIAL DATA
The following table summarizes Old Line Bank's selected financial information and other financial data. The selected balance sheet and statement of income data, insofar as they relate to the years ended December 31, 2002, 2001 and 2000, are derived from our audited financial statements. The selected financial data for the three-month periods ended March 31, 2003 and 2002 are derived from our unaudited financial statements. In our opinion, we have included all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of results as of and for the
three-month periods ended March 31, 2003 and 2002. This information should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this Registration Statement. Results for past periods are not necessarily indicative of results that may be expected for any future period, and results for the three-month period ended March 31, 2003 are not necessarily indicative of results that may be expected for the full year ending December 31, 2003.
(Unaudited)
Three Months
Ended March 31, Year Ended December 31,
------------------------------------------------------------------------------
2003 2002 2002 2001 2000
----------------------------- ----------------------------------------------
(Dollars in thousands, except per share data)
Income Statement Data:
Interest income $962 $884 $3,756 $3,457 $3,213
Interest expense 341 380 1,497 1,569 1,388
Net interest income 621 504 2,259 1,888 1,825
Provision for loan losses 36 30 144 78 26
Non-interest income 146 115 472 321 296
Non-interest expense 544 465 2,084 1,660 1,631
Income taxes 60 38 165 156 158
Net income $127 $ 86 $338 $315 $306
Per Share and Shares Outstanding Data: (1)
Basic net income $.44 $.30 $1.18 $1.10 $1.07
Fully diluted net income .43 .30 1.16 1.09 1.06
Cash dividends declared .28 .24 .24 .20 .00
Book value at period end $19.72 $18.41 $19.84 $18.71 $17.57
Shares outstanding, period end 286,631.5 286,631.5 286,631.5 286,631.5 286,631.5
Average shares outstanding, basic 286,631.5 286,631.5 286,631.5 286,631.5 286,631.5
Average shares outstanding, diluted 291,626.5 290,732.5 291,356.5 288,223.5 287,836.5
Balance Sheet Data:
Total assets $83,065 $61,945 $72,245 $60,469 $49,388
Total loans 47,753 35,307 43,059 33,733 26,861
Total investment securities 17,879 14,386 18,739 15,757 9,952
Total deposits 73,072 52,396 62,256 50,837 40,145
Stockholders' equity 5,652 5,278 5,687 5,362 5,035
Performance Ratios:
Return on average assets .70% .59% .53% .59% .69%
Return on average equity 9.10% 6.44% 6.40% 6.02% 6.42%
Net interest margin 3.77% 3.80% 3.78% 3.91% 4.59%
Asset Quality Ratios:
Allowance to period-end loans .89% .81% .90% .79% .93%
Non-performing assets to total assets .00% .00% .00% .00% .00%
Capital Ratios:
Tier I risk-based capital 9.9% 12.6% 10.9% 13.1% 14.7%
Total risk-based capital 10.7% 13.2% 11.7% 13.7% 15.4%
Leverage capital ratio 7.8% 9.9% 7.9% 9.2% 11.4%
Total equity to total assets 6.8% 8.6% 7.7% 8.8% 10.3%
Dividend payout ratio for period 63.42% 80.27% 20.36% 18.19% .00%
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(1) Restated for the effect of the one for two stock exchange in June 2002. See "Business of Old Line Bank - Conversion from Federal Charter."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Old Line Bancshares, Inc. has only recently been formed and, therefore, has no results of operations. The following discussion relates to the financial condition and results of operations of Old Line Bank, the shares of which will be exchanged on a one-for-one basis for Old Line Bancshares, Inc.'s common stock in the reorganization.
The following discussion is intended to assist readers in understanding and evaluating Old Line Bank's financial condition and results of operations. You should read this review in conjunction with Old Line Bank's financial statements and accompanying notes included elsewhere in this Registration Statement. All share amounts and dollar amounts per share with regard to our common stock have been adjusted, unless otherwise indicated, to reflect the one for two stock exchange in June 2002. See "Business of Old Line Bank - Conversion from Federal Charter."
Overview
Old Line Bank was founded in 1989. Prior to the installation of our current management team, from 1989 to 1993, Old Line Bank experienced five years of operating losses and declining credit quality, and was placed under a Memorandum of Understanding by its federal regulator, the Office of the Comptroller of the Currency. In 1994, we hired our current President and Chief Executive Officer, James W. Cornelsen, and were released from the Memorandum of Understanding. Mr. Cornelsen's strategic plan was to increase profitability by improving credit quality and changing the composition of the loan portfolio from indirect, installment lending to commercial lending, by reducing operating expenses and by expanding the branch network. Under Mr. Cornelsen's leadership, we have been profitable every year since 1994.
In 1999, Christine M. Rush joined Old Line Bank as our Chief Credit Officer with the primary goal of maintaining asset quality while growing the commercial loan portfolio. In 2001, Joseph E. Burnett joined Old Line Bank as our Chief Lending Officer with a focus on continuing to maintain asset quality and expanding Old Line Bank's commercial loan portfolio in the suburban Maryland market.
With our current management team of Mr. Cornelsen, Ms. Rush and Mr. Burnett, we have generally increased profitability, substantially improved asset quality and experienced significant growth. In the past five years, total average assets have grown from $43.8 million at December 31, 1998, to $72.4 million as of March 31, 2003. During the same time period our average stockholder's equity has grown from $4.4 million at December 31, 1998, to $5.6 million at March 31, 2003. Basic and fully diluted earnings per share have increased from $0.48 for the year ended December 31, 1998 on net income of $136,476, to $1.18 ($1.16 on a fully diluted basis) for the year ended December 31, 2002 on net income of $337,869.
We have paid dividends in each of the last three years. In March 2001, we paid a dividend of $0.20 per share, in March 2002, we paid a dividend of $0.24 per share and in February 2003, we paid a dividend of $0.28 per share.
Summary of Recent Performance
For the three-month period ending March 31, 2003, net income amounted to $126,541, compared to net income of $85,697 for the same period in the prior year. Basic and fully diluted earnings per share were $0.44 and $0.43, respectively, in the first three months of 2003, compared to $0.30 and $0.30 for the same period in 2002.
For the year ended December 31, 2002, net income amounted to $337,869, compared to net income of $315,231 for the same period in the prior year. Basic and fully diluted earnings per share were $1.18 and $1.16, respectively, for the year ended December 31, 2002, compared to $1.10 and $1.09 for the year ended December 31, 2001.
Return on average equity on an annualized basis during the first three months of 2003 increased to 9.10%, compared to a return on average equity of 6.44% for the same period in 2002. Return on average assets on an annualized basis for the first three months of 2003 was 0.70% compared to 0.59% for the same period in 2002. Return on average equity for the year ended December 31, 2002 was 6.40%, compared to 6.02% in 2001. Return on average assets for the year ended December 31, 2002 was 0.53%, compared to 0.59% in 2001.
Total assets reached a historical high of $83.1 million on March 31, 2003. This represented a $10.8 million or 15.0% increase over the December 31, 2002 level of $72.2 million, and a $22.6 million or 37.4% increase over the December 31, 2001 level of $60.5 million.
At March 31, 2003, total loans, net of allowance, had grown to $47.8 million, as compared to $43.1 million at December 31, 2002 and $33.7 million at December 31, 2001, representing increases of 10.9% and 41.6%, respectively. The growth in the loan portfolio reflects the hiring of additional relationship officers, the opening of the Clinton, Maryland branch in September 2002 and increased marketing efforts.
The allowance for loan losses was $426,407 or 0.89% of loans at March 31, 2003, compared to $389,553 or 0.90% of loans at December 31, 2002 and $268,806 or 0.79% of loans at December 31, 2001. For all periods presented, our non-performing loans have been immaterial.
Deposits amounted to $73.1 million at March 31, 2003, which represents a $10.8 million or 17.4% increase from $62.3 million of total deposits at December 31, 2002, and a $22.2 million or 43.7% increase from $50.8 million of total deposits at December 31, 2001. Deposits grew as a result of increased marketing efforts and the opening of the Clinton, Maryland branch in September 2002.
Total stockholders' equity was $5.7 million at March 31, 2003 and at December 31, 2002, and was $5.4 million at December 31, 2001. Stockholders' equity did not increase during the first quarter of 2003 because the increase to stockholders' equity as a result of net income of $126,541 for the period was offset by the payment of $80,257 in dividends in February 2003 and an $81,351 net decline in the carrying value of our available for sale securities. Stockholders' equity increased from December 31, 2001 to December 31, 2002 as a result of net income during 2002 of $337,869 and a $56,011 net increase in the carrying value of our available for sale securities, which was offset by the payment of $68,791 in dividends in March 2002.
Our net interest margin was 3.77% for the first three months of 2003, as compared to 3.80% for the first three months of 2002. The net interest margin was 3.78% for the full year 2002 and 3.91% for 2001. The decline in the net interest margin is a direct result of actions taken by the Board of Governors of the Federal Reserve System to lower the target federal funds rate from 6.50% at January 1, 2001, to 1.625% on January 1, 2002, to 1.25% on January 1, 2003, to 1.25% on March 31, 2003. Many of our interest-earning assets, including many of our commercial loans, real estate loans and home equity loans, are based on the Wall Street Journal "Prime" rate, which is generally tied to the federal funds rate. In contrast, our time deposits have fixed interest rates, which have not re-priced as quickly during the declining interest rate environment. The effect on net interest margin of declining interest rates was somewhat offset by increases in deposits and interest earning assets during the periods. During the next 12 months, there are $12 million in certificates of deposit or 45.01% of our certificate of deposit portfolio with an average interest rate of 4.33% that will mature and will re-price to the then current market interest rate. We believe that we offer competitive interest rates on certificates of deposit and that we will be able to retain these deposits. If retained at our current average certificate of deposit rate of 1.80%, our interest expense would decline and our net interest margin would increase.
We are not aware of any current recommendations by any regulatory authorities, which, if they were implemented, would have a material effect on our liquidity, capital resources or results of operations.
Results of Operations
Net Interest Income
Net interest income is the difference between income on assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments, and federal funds sold; interest-bearing deposits and other borrowings make up the cost of funds. Non-interest bearing deposits and capital are also funding sources. Changes in the volume and mix of earning assets and funding sources along with changes in associated interest rates determine changes in net interest income.
Net interest income after provision for loan losses for the three months ended March 31, 2003 increased 23.50% to $584,778 from $473,501 for the same period in 2002. The increase is primarily attributable to a 25.91% increase in
average interest earning assets to $67.7 million for the three months ended March 31, 2003, over $53.7 million of average interest earning assets for the same period in 2002.
Interest income increased from $884,237 for the three months ended March 31, 2002 to $962,426 for the three months ended March 31, 2003. Interest expense for all interest bearing liabilities amounted to $341,648 for the three months ended March 31, 2003, which was $39,088 lower than the $380,736 amount for the three months ended March 31, 2002.
Net interest income after provision for loan losses for the year ended December 31, 2002 amounted to $2.1 million, which was $305,703 or 16.89% greater than the 2001 level of $1.8 million.
Interest income increased from $3.5 million for the year ended December 31, 2001 to $3.8 million for the year ended December 31, 2002. The increase was primarily attributable to substantial increases in earning assets, which was somewhat offset by decreasing market interest rates. The increase in earning assets was directly attributable to the hiring of additional relationship officers, the opening of the Clinton, Maryland branch and increased marketing efforts.
Average loans, net of allowance, were $36.9 million in 2002, compared to $27.7 million in 2001. The related interest income including fees from loans was $2.8 million in 2002, or $455,029 greater than the 2001 level of $2.4 million. The average yield on loans decreased to 7.58% in 2002 from 8.46% in 2001, as a result of the reduction in the prime rate from 9.00% at December 31, 2000 to 4.25% at December 31, 2002. Investment securities and other earning assets, such as federal funds sold, contributed $931,699 to interest income for the year ended December 31, 2002. This represents a decrease of $155,640 over the 2001 level of $1.1 million as a higher level of assets was deployed into loan growth and interest rates declined during the period. The yield on earning assets was 6.28% in 2002, which was 87 basis points less than the 2001 level of 7.15%.
Interest expense for all interest bearing liabilities amounted to $1.5 million in 2002, which was $72,314 lower than the 2001 level of $1.6 million. The cost of interest bearing liabilities was 3.14% in 2002, or 82 basis points lower than the 2001 level of 3.96%. The decrease in interest expense resulted from declining market interest rates exceeding the increase in interest bearing liabilities. Consistent with asset growth, average interest bearing funding sources (deposits and borrowed funds) grew to $58.5 million in 2002, which was $11.0 million greater than the 2001 level of $47.6 million.
The following table illustrates average balances of total interest earning assets and total interest bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders' equity and related income, expense and corresponding weighted average yields and rates. The average balances used in this table and other statistical data were calculated using average daily balances.
Average Balances, Interest, and Yields
Three Months Ended March 31,
2003 2002
-----------------------------------------------------------------------------
Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
Assets:
Federal Funds Sold $4,004,913 $12,339 1.25% $4,003,037 $16,369 1.66%
Interest-bearing deposits 600,000 4,812 3.25 - -
Investment Securities
U.S. Treasury - - - - - -
U.S. Agency 12,645,398 129,469 4.10 15,209,476 214,396 5.64
Mortgage backed 3,092,910 26,917 3.48 461,657 6,394 5.54
State and municipal 2,141,012 25,814 4.82 - -
Other 373,763 5,565 5.96 368,212 6,290 6.83
------- ----- ---- ------- ----- ----
Total investment securities 18,253,083 187,765 4.17 16,039,345 227,080 5.74
---------- ------- ---- ---------- ------- ----
Loans:
Commercial 6,088,266 130,707 8.71 5,387,142 111,765 8.41
Mortgage 21,409,891 347,956 6.59 15,681,867 287,643 7.44
Installment 17,712,480 287,284 6.58 12,900,848 241,380 7.59
---------- ------- ---- ---------- -------
Total loans 45,210,637 765,947 6.87 33,969,857 640,788 7.65
Allowance for loan losses 412,816 279,592
------- -------
Total loans, net of allowance 44,797,821 765,947 6.93 33,690,265 640,788 7.71
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 67,655,817 970,863 5.82 53,732,647 884,237 6.67
---------- ------- ---- ---------- ------- ----
Noninterest-bearing cash 1,851,183 1,589,876
Premises and equipment 1,961,261 1,732,888
Other assets 936,100 947,970
------- -------
Total assets $72,404,361 $970,863 5.44 $58,003,381 $884,237 6.18
============ ========= ============ =========
Liabilities and Stockholders' Equity
Interest-bearing Deposits
Savings and NOW deposits $12,205,457 $18,153 0.60 $9,305,559 $21,998 0.96
Money market and super NOW 10,488,631 16,647 0.64 6,610,251 14,053 0.86
Other time deposits 26,573,388 258,314 3.94 23,725,328 296,516 5.07
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits 49,267,476 293,114 2.41 39,641,138 332,567 3.4
Borrowed funds 4,150,000 48,534 4.74 4,000,000 48,169 4.88
--------- ------ ---- --------- ------ ----
Total interest-bearing liabilities 53,417,476 341,648 2.59 43,641,138 380,736 3.54
Noninterest-bearing deposits 13,140,379 8,564,802
---------- ---------
66,557,855 341,648 2.08 52,205,940 380,736 2.96
Other liabilities 285,681 473,113
Stockholders' equity 5,560,825 5,324,328
---------
Total Liabilities and Stockholders' Equity $72,404,361 $58,003,381
============ ===========
Net interest spread 3.23 3.13
Net interest income $629,215 3.77% $503,501 3.80%
========= ===== ========= =====
Years Ended December 31,
2002 2001
---------------------------------------------------------------------------------
Average Average
Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
Assets:
Federal Funds Sold $6,809,790 $109,880 1.61% $7,333,393 $306,002 4.17%
Interest-bearing deposits 347,945 8,297 2.38 - - -
Investment Securities
U.S. Treasury - - - - - -
U.S. Agency 11,806,666 609,988 5.17 12,889,966 758,163 5.88
Mortgage backed 2,969,958 160,498 5.40 - -
State and municipal 694,697 31,966 4.60 - - -
Other 378,988 20,832 5.50 363,287 23,174 6.38
------- ------ ---- ------- ------ ----
Total investment securities 15,850,309 823,284 5.19 13,253,253 781,337 5.90
---------- ------- ---- ---------- ------- ----
Loans:
Commercial 5,842,925 533,785 9.14 5,287,806 508,765 9.62
Mortgage 17,156,866 1,243,252 7.25 12,603,602 1,055,111 8.37
Installment 14,278,193 1,047,597 7.34 10,111,899 805,729 7.97
---------- --------- ---- ---------- ------- ----
Total loans 37,277,984 2,824,634 7.58 28,003,307 2,369,605 8.46
Allowance for loan losses 330,895 260,099
------- -------
Total loans, net of allowance 36,947,089 2,824,634 7.65 27,743,208 2,369,605 8.54
---------- --------- ---- ---------- --------- ----
Total interest-earning assets 59,955,133 3,766,095 6.28 48,329,854 3,456,944 7.15
---------- --------- ---- ---------- --------- ----
Noninterest-bearing cash 1,737,089 2,197,622
Premises and equipment 1,758,886 1,756,152
Other assets 901,183 983,036
------- -------
Total assets $64,352,291 $3,766,095 5.85 $53,266,664 $3,456,944 6.49
============ =========== ============ ===========
Liabilities and Stockholders' Equity
Interest-bearing Deposits
Savings and NOW deposits $10,320,302 $87,873 0.85 $8,936,254 $139,305 1.56
Money market and super NOW 8,211,172 69,791 0.85 5,878,011 79,610 1.35
Other time deposits 25,176,433 1,144,434 4.55 20,828,397 1,155,256 5.55
---------- --------- ---- ---------- --------- ----
Total interest-bearing deposits 43,707,907 1,302,098 2.98 35,642,662 1,374,171 3.86
Borrowed funds 4,000,000 194,835 4.87 4,000,000 195,076 4.88
--------- ------- ---- --------- -------- ----
Total interest-bearing liabilities 47,707,907 1,496,933 3.14 39,642,662 1,569,247 3.96
Noninterest-bearing deposits 10,839,966 7,914,338
---------- ---------
58,547,873 1,496,933 2.56 47,557,000 1,569,247 3.30
Other liabilities 525,924 477,104
Stockholders' equity 5,278,484 5,232,560
--------- ---------
Total Liabilities and Stockholders' Equity $64,352,281 $53,266,664
============ ===========
Net interest spread 3.14 3.19
Net interest income $2,269,162 3.78% $1,887,697 3.91%
=========== ===== ===========
|
Interest on tax-exempt securities is reported on a fully taxable equivalent
basis.
We had no non-accruing loans for the periods presented.
The following table describes the impact on our interest income and
expense resulting from changes in average balances and average rates for the
periods indicated. The change in interest income due to both volume and rate is
reported with the rate variance.
Rate/Volume Variance Analysis
Three Months Ended March 31, Years Ended December 31,
------------------------------- -----------------------------
2003 compared to 2002 2002 compared to 2001
------------------------------- -----------------------------
Variance due to: Variance due to:
Total Rate Volume Total Rate Volume
----- ---- ------ ----- ---- ------
(Dollars in thousands)
Interest Earning Assets:
Interest bearing deposits $ 4,812 $ 4,812 $ - $ 8,297 $ 8,297 $ -
Federal Funds (4,030) (4,061) 31 (196,122) (174,288) (21,834)
Sold
Investment Securities
U.S. Treasuries - - - - - -
U.S. Agency (84,927) 59,687 (144,614) (148,175) (84,477) (63,698)
State, county, municipals 25,814 25,814 31,966 31,966 -
Other (725) (1,104) 379 (2,342) (3,344) 1,002
Loans:
Demand and time 18,942 (40,023) 58,965 25,020 (28,382) 53,402
Mortgage 60,313 (365,852) 426,165 188,141 (192,967) 381,108
Installment 45,904 (319,299) 365,203 241,868 (90,186) 332,054
------ --------- ------- ------- -------- -------
Total interest revenue 66,103 (640,026) 706,129 148,653 (533,381) 682,034
------ --------- ------- ------- --------- -------
Interest Bearing Liabilities:
Savings and Now deposits (3,845) (31,647) 27,802 (51,432) (73,008) 21,576
Money market and super 2,594 ( 30,845) 33,439 (9,819) (41,419) 31,600
NOW
Other time deposits (38,202) (182,558) 144,356 (10,822) (251,988) 241,166
Other borrowed funds 365 (6,961) 7,326 (241) (241)
------ --------- ------- ------- ---------
-
---
Total interest expense (39,088) (252,011) 212,923 (72,314) (366,656) 294,342
------ --------- ------- ------- --------- -------
Net interest income $105,191 $(388,015) $493,206 $220,967 $(166,725) $387,692
======== ========== ======== ======== ========== ========
|
Interest on tax-exempt securities is reported on fully taxable equivalent basis.
Provision for Loan Losses
We charge the provision for loan losses to earnings to maintain the total allowance for loan losses at a level considered by management to represent its best estimate of the losses known and inherent in the portfolio that are both probable and reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, industry standards, economic conditions (particularly as such conditions relate to Old Line Bank's market area), regulatory guidance and past due loans in the loan portfolio. On a quarterly basis, management reviews the prior 18 months' delinquency trends for installment and other consumer loans (other than boat loans), boat loans, mortgage loans (commercial real estate, residential real estate and real estate construction) and commercial loans. Management further segments commercial loans by risk rating. We then apply a risk ratio based on this analysis and industry standards to the total outstanding balance for each segment of the portfolio. We also identify and make any necessary reserve adjustments for any specific concentrations of credit in the portfolio that in management's estimation increase the risk inherent in the portfolio. If necessary, we make an additional adjustment for economic considerations in our market area that may impact the quality of the portfolio. Our policies require a review of assets on a regular basis, and we believe that we appropriately classify loans as well as other assets if warranted. We believe that we use the best information available to make a determination with respect to the allowance for loan losses, recognizing that the determination is inherently subjective and that future adjustments may be necessary depending upon, among other factors, a change in economic conditions of specific borrowers or generally in the economy, and new information that becomes available to us. However, there are no assurances that the allowance for loan losses will be sufficient to
absorb losses on non-performing assets, or that the allowance will be sufficient to cover losses on non-performing assets in the future.
The provision for loan losses was $36,000 for the three months ended March 31, 2003, as compared to $30,000 for the three months ended March 31, 2002, an increase of $6,000. The increase was primarily the result of growth in loan balances outstanding in all segments of the portfolio.
The provision for loan losses was $144,000 for the year ended December 31, 2002, as compared to $78,000 for the year ended December 31, 2001, an increase of $66,000. The increase was primarily the result of growth in loan balances outstanding in all segments of the portfolio.
The allowance for loan losses represents 0.89% of total loans at March 31, 2003 and 0.90% and 0.79% of total loans at December 31, 2002 and December 31, 2001, respectively. Old Line Bank has no exposure to foreign countries or foreign borrowers. Management believes that the allowance for loan losses is adequate for each period presented.
The following table represents an analysis of the allowance for loan losses for the periods indicated:
Allowance for Loan Losses
Three Months Ended Year Ended
March 31, December 31,
--------- ------------
2003 2002 2002 2001
--------------------------------------------------------
Balance, beginning of period $389,553 $268,806 $268,806 $251,631
Provision for loan losses 36,000 30,000 144,000 78,000
--------- --------- -------- ---------
Chargeoffs:
Commercial - - - -
Mortgage - - - -
Consumer (746) (13,895) (35,748) (68,731)
--------- --------- -------- ---------
Total chargeoffs (746) (13,895) (35,748) (68,731)
Recoveries:
Commercial - - - -
Mortgage - - - -
Consumer 1,600 3,996 12,495 7,906
--------- --------- -------- ---------
Total recoveries 1,600 3,996 12,495 7,906
--------- --------- -------- ---------
Net chargeoffs 854 (9,899) (23,253) (60,825)
Balance, end of period $426,407 $288,907 $389,553 $268,806
======== ======== ======== ========
Allowance for loan losses to total loans .89% .81% .90% .79%
Ratio of net-chargeoffs during period to
average loans outstanding during period .002% (.029%) (.062%) (.217%)
|
The following table provides a breakdown of the allowance for loan losses.
Allocation of Allowance for Loan Losses
March 31 December 31
-------- -----------
2003 2002 2002 2001
---- ---- ---- ----
% of Loans % of Loans % of Loans % of Loans in
in Each in Each in Each Each
Amount Category Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ -------- ------ --------
Installment & others $18,011 2.50% $51,805 4.58% $29,512 3.08% $58,561 5.60%
Boat 127,406 35.36 66,347 31.93 114,282 35.43 57,899 32.08
Mortgage 199,299 48.84 112,584 46.31 172,277 47.27 97,464 45.65
Commercial 81,691 13.30 58,171 17.18 73,482 14.22 54,882 16.67
-------- -------- ------ -------- ------ -------- ------ --------
Total $426,407 100.00% $288,907 100.00% $389,553 100.00% $268,806 100.00%
======== ======= ======== ======= ======== ======= ======== =======
|
Non-interest Revenue
Non-interest revenue consisted primarily of gains on securities sales, fee income from service charges on deposit accounts, mortgage origination fees from a third party processor, credit card fees and ATM fees. Non-interest revenues amounted to $146,218 for the three months ended March 31, 2003, an increase of $31,514 over the 2002 level of $114,704. In general, the increase resulted from realized gains on the sale of securities of $41,102 during the first three months of 2003 compared to none in 2002, which was offset by a decline in loan fees of approximately $15,000 during the first three months of 2003 as compared to the same period of 2002. Loan fees declined primarily because inclement weather caused a decline in construction starts in the first quarter of 2003.
Non-interest revenue consisted primarily of gains on securities sales, fee income from service charges on deposit accounts, mortgage origination fees from a third party processor, credit card fees and ATM fees. Revenues amounted to $471,553 for the year ended December 31, 2002, or 46.96% higher than the 2001 amount of $320,880. As part of our business strategy, efforts were focused during 2002 to increase the levels of non-interest income. As a result, we were successful in increasing processing fee revenue related to loans. Additionally, ATM machine activity increased, which resulted in enhanced "foreign" ATM fees, and we received increased mortgage origination fees from a third party processor. We also realized gains on the sale of securities of $38,346 during 2002 as compared to $18,180 during 2001.
Non-interest Expense
Non-interest expense in the first three months of 2003 amounted to $543,905 compared to the 2002 level of $464,508. The increase is directly related to the opening of the Clinton, Maryland branch in September 2002. The staff for this location was hired during the months of May, June and July of 2002. Additionally, we entered into a lease agreement and equipped the facility during the second and third quarters of 2002. The largest component of non-interest expense is salaries and benefits. Salary and benefits expense for the three months ended March 31, 2003 was $316,674, or $60,577 higher than the March 31, 2002 level of $256,097. Occupancy and furniture and equipment costs totaled $78,517 through March 2003, or $12,573 over the 2002 level of $65,944. Other operating expenses increased $6,247 during the period.
Non-interest expense was $2.1 million in 2002, which was $424,436 greater than the 2001 level of $1.7 million. Salaries and benefit costs amounted to $1.2 million in 2002, as compared to $939,068 in 2001. Staffing of the Clinton, Maryland branch in 2002 and the addition of an executive officer in late 2001 caused the increase in salaries and benefits.
Occupancy expenses increased $24,255 in 2002 due to the opening of the Clinton, Maryland branch during the year.
Other operating expenses increased $156,924 or 35.20% from $445,858 for the year ended December 31, 2001 to $602,782 for the year ended December 31, 2002. The opening of the Clinton, Maryland branch coupled with the increased volume of new customers added to processing costs. In particular, data processing expenses increased by approximately $30,000. Additionally, during 2002, the Accokeek and Old Line Centre branches experienced robbery related losses. As a result, during the year, we increased security at all branch locations which increased other operating expenses during 2002 by approximately $40,000. In 2002, we also incurred approximately $40,000 of additional expenses associated with the conversion from a national to a state bank charter.
Income Taxes
Income tax expense was $60,550 (32.36% of pre-tax income) for the three months ended March 31, 2003 as compared to $38,000 (30.72% of pre-tax net income) for the same period in 2002.
Income tax expense was $164,884 (32.80% of pre-tax income) for 2002 as compared to $155,582 (33.04% of pre-tax income) for 2001.
Net Income
Net income was $126,541 or $0.44 basic earning per common share and $0.43 diluted earnings per common share for the three month period ending March 31, 2003, an increase of $40,844 or 47.66%, compared to net income of $85,697 for the same period during 2002. The increase in net income was the result of increases in net interest income of $117,277 and non-interest income of $31,514, offset by increases in the provision of loan losses of $6,000, income tax expense of $22,550, and non-interest expense of $79,397.
Net income was $337,869 or $1.18 basic earnings per common share and $1.16 diluted earnings per common share for the year ended December 31, 2002, an increase of $22,638 or 7.18%, compared to net income of $315,231 for the same period during 2001. The increase in net income was the result of increases in net interest income of $371,703 and non-interest income of $150,673, offset by increases in the provision of loan losses of $66,000, income tax expense of $9,302, and non-interest expense of $424,436.
Analysis of Financial Condition
Investment Securities
Old Line Bank's portfolio consists primarily of U.S. government agency securities, securities issued by states, counties and municipalities, mortgage-backed securities, and certain equity securities,
including Federal Reserve Bank Stock and Federal Home Loan Bank Stock. The portfolio provides a source of liquidity, collateral for repurchase agreements as well as a means of diversifying Old Line Bank's earning asset portfolio. While we generally intend to hold the investment portfolio assets until maturity, we classify a significant portion of the portfolio as available for sale. We account for securities so classified at fair value and report the unrealized appreciation and depreciation as a separate component of stockholders' equity, net of income tax effects. We account for securities classified in the held to maturity category at amortized cost. Old Line Bank invests in securities for the yield they produce and not to profit from trading the securities. There are no trading securities in the portfolio.
The investment portfolio at March 31, 2003 amounted to $17.9 million, a decrease of $859,653, or 4.59%, from the amount at December 31, 2002. Available for sale investment securities decreased to $12.0 million at March 31, 2003, from $13.4 million at December 31, 2002. Held to maturity securities increased to $5.9 million at March 31, 2003 from $5.4 million at December 31, 2002. The decrease in the investment portfolio occurred because we sold some of these assets or they matured or were called and we deployed the proceeds into loans. The carrying value of available for sale securities includes unrealized gains of $16,038 at March 31, 2003 (reflected as unrealized appreciation of $11,836 in stockholders' equity after deferred taxes) as compared to net unrealized appreciation of $141,192 ($93,187 net of taxes) as of December 31, 2002. In general, this decline was the result of recognizing gains on of the sale of investment securities, the maturity of securities or the fact that some of the securities were called.
The investment portfolio at December 31, 2002 amounted to $18.7 million, an increase of $3.0 million, or 18.92%, from the December 31, 2001 amount of $15.8 million. Available for sale investment securities increased to 13.4 million at December 31, 2002 from $11.1 million at December 31, 2001. Held to maturity securities increased to $5.4 million at December 31, 2002 from $4.7 million at December 31, 2001. The carrying value of available for sale securities included net unrealized appreciation of $141,192 at December 31, 2002 (reflected as unrealized appreciation of $93,187 in stockholders' equity after deferred taxes) as compared to net unrealized appreciation of $57,194 ($37,176 net of taxes) as of December 31, 2001.
The following table sets forth a summary of the investment securities portfolio as of the periods indicated. Available for sale securities are reported at estimated fair value; held to maturity securities are reported at amortized cost.
Investment Securities
(Dollars in thousands)
March 31, December 31,
2003 2002 2001
---- ---- ----
Available For Sale Securities
U.S. government agency $7,024 $8,075 $11,057
State, county and municipal 1,751 1,472 -
Mortgage backed 3,201 3,841 -
--------- ---------
Total Available for Sale Securities $11,976 $13,388 $11,057
======= ======= =======
Held To Maturity Securities
U.S. government agency 4,999 5,000 4,700
State, county and municipal 904 352 -
--------- --------- --------
Total Held to Maturity Securities $5,903 $5,352 $4,700
====== ====== ======
Equity Securities $375 $374 $367
===== ==== ====
|
The following table shows the maturities for the securities portfolio
at December 31, 2002 and 2001.
Amortized Cost, Carrying Value and Average Yield
December 31, 2002
-------------------------------------------------------------------------------------
Available for Sale Held to Maturity
-------------------------------------------------------------------------------------
Amortized Market Value Average Amortized Market Value Average
Cost Yield Cost Yield
-------------------------------------------------------------------------------------
Maturing
3 Months or less $ 1,073,640 $ 1,078,252 2.62% $ - $ - -
> 3 Months through 1 Yr 423,328 437,394 4.10% - - -
> 1 Year through 5 Yrs 8,145,105 8,269,934 3.88% 2,500,000 2,529,575 3.44%
> 5 Years through 10 Yrs 3,100,543 3,120,359 5.13% 2,851,588 2,935,873 5.16%
> 10 Yrs 503,745 481,614 3.43% - - -
$13,246,361 $13,387,553 $5,351,588 $5,465,448
=========== =========== ========== ==========
Pledged Securities $3,000,000 $3,042,987 $1,500,000 $1,578,819
========== ========== ========== ==========
|
December 31, 2001
-------------------------------------------------------------------------------------
Available for Sale Held to Maturity
-------------------------------------------------------------------------------------
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
-------------------------------------------------------------------------------------
Maturing
3 Months or less $ - $ - - $ 200,000 $ 200,500 5.30%
> 3 Months through 1 Yr 500,000 489,530 4.00% - - -
> 1 Year through 5 Yrs 3,000,000 3,029,170 5.68% 1,500,000 1,508,411 6.07%
> 5 Years through 10 Yrs 7,500,000 7,538,494 5.75% 3,000,000 3,043,440 6.11%
> 10 Yrs - - - - - -
---------- ----------- ---------- -----------
$11,000,000 $11,057,194 $4,700,000 $ 4,752,351
=========== =========== ========== ===========
Pledged Securities $4,500,000 $4,513,175 $1,200,000 $ 1,210,655
========== ========== ========== ===========
|
Contractual maturities of mortgage-backed securities are not reliable indicators of their expected life because mortgage borrowers have the right to prepay mortgages at any time. Additionally, the issuer may call the callable agency securities listed above prior to the contractual maturity.
Loan Portfolio
The loan portfolio, net of allowance, unearned fees and origination costs increased $4.7 million or 10.9% to $47.8 million at March 31, 2003 from $43.1 million at December 31, 2002. Commercial business loans increased by $227,749 (3.70%), commercial real estate loans (generally owner-occupied) increased by $2.2 million (13.20%), residential real estate loans (generally home equity and fixed rate home improvement loans) increased by $583,280 (20.22%), real estate construction loans increased by $185,182 (21.08%) and installment loans increased by $1.5 million (9.03%) from their respective balances at December 31, 2002.
The loan portfolio, net of allowance, unearned fees and origination costs increased $9.3 million or 27.65% to $43.1 million at December 31, 2002 from $33.7 million at December 31, 2001. Commercial
business loans increased by $499,734 (8.83%), commercial real estate loans (generally owner-occupied) increased by $5.1 million (44.12%), residential real estate loans (generally home equity and fixed rate home improvement loans) increased by $140,809 (5.10%), real estate construction loans decreased by $275,974 (23.90%) and installment loans increased by $3.9 million (30.41%) from their respective balances at December 31, 2001.
Loans secured by real estate or luxury boats comprise the majority of the loan portfolio. Old Line Bank's loan customers are generally located in the greater Washington, D.C. metropolitan area.
The following table summarizes the composition of the loan portfolio by dollar amount and percentages:
Loan Portfolio
(Dollars in thousands)
March 31, December 31,
--------- ------------
2003 % 2002 % 2001 %
Real Estate
Commercial $18,902 39.39 $16,698 38.58 $11,586 34.16
Construction 1,064 2.22 879 2.03 1,155 3.40
Residential 3,468 7.23 2,884 6.66 2,744 8.09
Commercial 6,384 13.30 6,156 14.22 5,656 16.67
Installment 18,171 37.86 16,666 38.51 12,780 37.68
------ ----- ------ ----- ------ -----
$47,989.00 100.00 $43,283.00 100.00 $33,921.00 100.00
---------- ====== ---------- ====== ---------- ======
Allowance for loan losses 426 390 269
Net deferred loan fees and (costs) (190) (166) (81)
---------- ---------- ----------
236 224 188
---------- ---------- ----------
$47,753 $43,059 $33,733
======= ======= =======
|
The following table presents the maturities or repricing periods of selected loans outstanding at December 31, 2002.
Loan Maturity Distribution at December 31, 2002
-----------------------------------------------------------------
1 year or less 1-5 years After 5 years Total
-----------------------------------------------------------------
(Dollars in thousands)
Real Estate
Commercial $3,518 $9,798 $3,382 $16,698
Construction 879 - - 879
Residential 2,154 223 507 2,884
Commercial 3,506 1,973 677 6,156
Installment 290 1,293 15,083 16,666
----------- --- ----- ------ ------
Total loans $10,347 $13,287 $19,649 $43,283
======= ======= ======= =======
Fixed Rates 7,836 8,948 13,580 30,364
Variable Rates 2,511 4,339 6,069 12,919
-------------- ----- ----- ----- ------
Total loans $10,347 $13,287 $19,649 $43,283
======= ======= ======= =======
|
Asset Quality
Management performs reviews of all delinquent loans and relationship officers are charged with working with customers to resolve potential credit issues in a timely manner. Management generally classifies loans as non-accrual when collection of full principal and interest under the original terms of the loan is not expected or payment of principal or interest has become 90 days past due. Classifying a loan as non-accrual results in Old Line Bank no longer accruing interest on such loan and reversing any interest previously accrued but not collected. We will generally restore a non-accrual loan to accrual status when delinquent principal and interest payments are brought current and we expect to collect future monthly principal and interest payments. Old Line Bank recognizes interest on non-accrual loans only when received. As of March 31, 2003, December 31, 2002 and December 31, 2001, Old Line Bank did not have any non-accrual loans. As of March 31, 2003, December 31, 2002 and December 31, 2001, the balance on accruing loans that were past due more than 90 days was $970, $643 and $15,976, respectively.
We classify any property acquired as a result of foreclosure on a mortgage loan as "real estate owned" and record it at the lower of the unpaid principal balance or fair value at the date of acquisition and subsequently carry the loan at the lower of cost or net realizable value. We charge any required write-down of the loan to its net realizable value against the allowance for credit losses at the time of foreclosure. We charge to expense any subsequent adjustments to net realizable value. Upon foreclosure, Old Line Bank generally requires an appraisal of the property and, thereafter, appraisals of the property on at least an annual basis and external inspections on at least a quarterly basis. As of March 31, 2003, December 31, 2002 and December 31, 2001, Old Line Bank held no real estate acquired as a result of foreclosure.
Old Line Bank applies the provisions of Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"), "Accounting by Creditors for Impairment of a Loan," as amended by Statement of Financial Accounting Standards No. 118 ("SFAS No. 118"), "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure." SFAS No. 114 and SFAS No. 118 require that impaired loans, which consist of all modified loans and other loans for which collection of all contractual principal and interest is not probable, be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, an impairment is recognized through a valuation allowance and corresponding provision for credit losses. Old Line Bank considers consumer loans as homogenous loans and thus does not apply the SFAS No. 114 impairment test to these loans. We write off impaired loans when collection of the loan is doubtful.
We had no impaired loans as of March 31, 2003, December 31, 2002, or December 31, 2001.
Deposits
We seek deposits within our market area by paying competitive interest rates, offering high quality customer service and using technology to deliver deposit services effectively. At March 31, 2003, the deposit portfolio had grown to $73.1 million, a $10.8 million or 17.37% increase over the December 31, 2002 level of $62.3 million. We have seen growth in several key categories over the period. Demand deposits, NOW, super NOW, money market and certificates of deposit have all grown. The addition of the Clinton branch in September 2002 and key personnel expanded our deposit base.
At December 31, 2002, deposits were $62.3 million, an $11.4 million increase over the December 31, 2001 level of $50.8 million. Non-interest bearing deposits grew $3.9 million during the period to $12.6 million from $8.8 million, and interest-bearing deposits grew $7.6 million to $49.6 million from $42.1 million.
As a general practice, we do not purchase brokered deposits. During the periods reported, we had no brokered deposits. As market conditions warrant and balance sheet needs dictate, we may participate in the wholesale certificates of deposit market.
The following is a summary of the maturity distribution of certificates
of deposit as of March 31, 2003.
Certificate of Deposit Maturity Distribution
March 31, 2003
-----------------------------------------------------------------------
Three Months or Three Months to Over
Less Twelve Months Twelve Months Total
-----------------------------------------------------------------------
(Dollars in thousands)
Certificates of deposit:
Less than $100,000 $1,394 $7,049 $9,937 $18,380
Greater than or equal to $100,000 1,433 2,121 4,725 8,279
----- ----- ----- -----
Total $2,827 $9,170 $14,662 $26,659
====== ====== ======= =======
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Borrowings
Old Line Bank may obtain advances from the Federal Home Loan Bank of Atlanta upon the security of the common stock it owns in that bank and certain of its loans and investment securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank of Atlanta advances are generally made to permit increased lending.
At March 31, 2003, Old Line Bank was permitted to borrow up to $12.4 million from the Federal Home Loan Bank of Atlanta. As of that date, Old Line Bank had borrowed $4.0 million from the Federal Home Loan Bank of Atlanta. Old Line Bank borrowed the $4.0 million from the Federal Home Loan Bank in January 2001, currently pays interest only at 4.80%, and must repay the $4.0 million in January 2011. Old Line Bank may not prepay the loan prior to maturity without incurring a significant prepayment penalty.
Interest Rate Sensitivity Analysis and Interest Rate Risk Management
A principal objective of Old Line Bank's asset/liability management policy is to minimize exposure to changes in interest rates by an ongoing review of the maturity and re-pricing of interest-earning assets and interest-bearing liabilities. The Asset and Liability Committee of the Board of Directors oversees this review.
The Asset and Liability Committee establishes policies to control interest rate sensitivity. Interest rate sensitivity is the volatility of a bank's earnings resulting from movements in market interest rates. Management monitors rate sensitivity in order to reduce vulnerability to interest rate fluctuations while maintaining adequate capital levels and acceptable levels of liquidity. Monthly financial reports supply management with information to evaluate and manage rate sensitivity and adherence to policy. Old Line Bank's asset/liability policy's goal is to manage assets and liabilities in a manner that stabilizes net interest income and net economic value within a broad range of interest rate environments. Adjustments to the mix of assets and liabilities are made periodically in an effort to achieve dependable, steady growth in net interest income regardless of the behavior of interest rates in general.
As part of the interest rate risk sensitivity analysis, the Asset and Liability Committee examines the extent to which Old Line Bank's assets and liabilities are interest rate sensitive and monitors the interest rate sensitivity gap. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. The interest rate
sensitivity gap is the difference between interest-earning assets and interest-bearing liabilities scheduled to mature or re-price within such time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of declining interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. If re-pricing of assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income would be minimal.
Old Line Bank currently has a negative gap over the short term, which suggests that the net yield on interest earning assets may decrease during periods of rising interest rates. However, a simple interest rate "gap" analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types may lag behind changes in general market rates. In the event of a change in interest rate, prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest-rate gap. The ability of many borrowers to service their debts also may decrease in the event of an interest rate increase.
The table below presents Old Line Bank's interest rate sensitivity at March 31, 2003. Because certain categories of securities and loans are prepaid before their maturity date even without regard to interest rate fluctuations, we have made certain assumptions to calculate the expected maturity of securities and loans.
Interest Sensitivity Analysis
March 31, 2003
-------------------------------------------------------------------
Maturing or Repricing
-------------------------------------------------------------------
Within 4 - 12 1 -5 Over
3 Months Months Years 5 Years Total
-------------------------------------------------------------------
(Dollars in thousands)
Interest Earning Assets:
Investment securities $ 5,000 $ - $ 5,600 $7,654 $18,254
Loans 9,070 2,408 15,487 21,024 47,989
Interest bearing deposits - 200 400 - 600
Federal funds sold 11,894 - - - 11,894
------ ------- -------- ------- ------
Total interest earning assets 25,964 2,608 21,487 28,678 78,737
------ ------- -------- ------- ------
Interest bearing liabilities:
Interest-bearing transaction deposits 12,410 6,030 - - 18,440
Savings accounts 3,261 3,261 3,260 - 9,782
Time deposits 2,827 9,170 14,661 - 26,658
------ ------- -------- ------- ------
Total interest-bearing deposits 18,498 18,461 17,921 - 54,880
FHLB Advances - - 4,000 - 4,000
Other borrowings - - - - -
------ ------- -------- ------- ------
Total interest-bearing 18,498 18,461 21,921 - 58,880
liabilities ------ ------- -------- ------- ------
Period Gap $7,466 $ (15,853) $ (434) $ 28,678 $ 19,857
====== ========== ======= ======== ========
Cumulative Gap $7,466 $ (8,387) $(8,821) $ 19,857 $ 19,857
====== ========= ======== ======== ========
Cumulative Gap / Total Assets 8.99% (10.10)% (10.62)% 23.91% 23.91%
===== ======== ======== ====== ======
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Liquidity
Our overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff. Our management monitors the liquidity position daily in conjunction with Federal Reserve guidelines. We have credit lines unsecured and secured available from several correspondent banks totaling $2.5 million. Additionally, we may borrow funds from the Federal Home Loan Bank of Atlanta. The credit facilities can be used in conjunction with the normal deposit strategies, which include pricing changes to increase deposits as necessary. We can also sell or pledge investment securities to create additional liquidity. From time to time we may sell or participate out loans to create additional liquidity as required. Additional sources of liquidity include funds held in time deposits and cash from the investment and loan portfolios.
Our immediate sources of liquidity are cash and due from banks and federal funds sold. As of March 31, 2003, we had $1.8 million in cash and due from banks, and $11.9 million in federal funds sold and other overnight investments. As of December 31, 2002 and 2001, we had $1.4 million and $2.0 million in cash and due from banks, and $5.6 million and $6.3 million in federal funds sold and other overnight investments.
Old Line Bank has sufficient liquidity to meet its loan commitments as well as fluctuations in deposits. We usually retain maturing certificates of deposit as we offer competitive rates on certificates of deposit. Management is not aware of any demands, trends, commitments, or events that would result in Old Line Bank's inability to meet anticipated or unexpected liquidity needs.
Capital
Our stockholders' equity amounted to $5.7 million at March 31, 2003, $5.7 million at December 31, 2002 and $5.4 million at December 31, 2001. We are considered "well capitalized" under the risk-based capital guidelines adopted by the Federal Reserve.
The following table shows Old Line Bank's regulatory capital ratios and the minimum capital ratios currently required by its banking regulator to be "well capitalized." For a discussion of these capital requirements, see "Supervision and Regulation - Capital Adequacy Guidelines."
Risk Based Capital Analysis
March 31, December 31,
----------------------------------------------------------
2003 2002 2001
---------------------------------------------------------
(Dollars in thousands)
Tier 1 Capital:
Common stock $ 2,866 $2,866 $2,866
Capital surplus 2,600 2,600 2,563
Retained earnings 173 127 (105)
Less: disallowed assets - - (23)
------- -------- -------
Total Tier 1 Capital 5,639 5,593 5,301
Tier 2 Capital:
Allowance for loan losses 426 390 269
------- -------- -------
Total Risk Based Capital $6,065 $5,983 $5,570
====== ====== ======
Risk weighted assets $56,717 $50,971 $40,410
======= ======= =======
Regulatory
Capital Ratios: Minimum
--------------
Tier 1 risk based capital ratio 9.9% 10.9% 13.1% 4.0%
Total risk based capital ratio 10.7% 11.7% 13.7% 8.0%
Leverage ratio 7.8% 7.9% 9.2% 4.0%
Equity to assets ratio 6.8% 7.7% 8.8% 4.0%
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Return on Average Assets and Average Equity
The ratio of net income to average equity and average assets and
certain other ratios are as follows:
March 31, December 31,
---------------------------------------------------------------
2003 2002 2002 2001
----------------------------------------------------------------
(Dollars in thousands)
Average total assets $72,404 $58,003 $64,352 $53,267
======= ======= ======= =======
Average equity $5,561 $5,324 $5,278 $5,232
====== ====== ====== ======
Net income $ 127 $ 86 $ 338 $ 315
====== ====== ====== ======
Cash dividends declared $ 80 $ 69 $ 69 $ 57
====== ====== ====== ======
Divided payout ratio for period 63.42% 80.27% 20.36% 18.19%
====== ====== ====== ======
Return on average assets .70% .59% .53% .59%
====== ====== ====== ======
Return on average equity 9.10% 6.44% 6.40% 6.02%
====== ====== ====== ======
Average stockholders' equity to
average total assets 7.68% 9.18% 8.20% 9.82%
====== ====== ====== ======
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Impact of Inflation and Changing Prices and Seasonality
The financial statements and related data presented 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 changes in the relative purchasing power of money over time due to inflation.
Unlike industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods and services, and may frequently reflect government policy initiatives or economic factors not measured by price index. As discussed above, Old Line Bank strives to manage its interest sensitive assets and liabilities in order to offset the effects of rate changes and inflation.
Application Of Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates,
assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.
The most significant accounting policies followed by Old Line Bank are presented in Note 1 to the financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the provision for loan losses as the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.
The provision for loan losses represents management's estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the provision for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheets. Note 1 to the financial statements describes the methodology used to determine the provision for loan losses and a discussion of the factors driving changes in the amount of the provision for loan losses is included in the "Provision for Loan Losses" section of this financial review.
Recent Accounting Pronouncements
Accounting pronouncements that have been approved by the Financial Accounting Standards Board that have not become effective as of December 31, 2002 follow. These Statements will not have any impact on the financial statements of Old Line Bank at this time except for Statement No. 148, which requires additional disclosure of the option plans of Old Line Bank.
FASB Statement No. 143, Accounting for Asset Retirement Obligations, applies to legal obligations associated with retirement of a tangible long-lived asset. The statement requires that management recognize the fair value of an asset retirement obligation in the period incurred, adding capitalization of this cost to the cost of the asset. Annually the asset, including the capitalized cost, should be reviewed for impairment. The effective date of the Statement is for years beginning after June 15, 2002.
FASB Statement No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections, rescinds those pronouncements referred to in the title and amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The Statement amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement are effective for years beginning after May 15, 2002.
FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when a liability is incurred, recognizing that a company's commitment to an exit plan may not create a liability. The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002.
FASB Statement No. 147, Acquisitions of Certain Financial Institutions, addresses guidance on accounting for the acquisition of a financial institution and applies to all acquisitions except those between two or more mutual enterprises. The Statement requires that the excess of fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired in a business combination represents goodwill that should be accounted for under FASB Statement No. 142, Goodwill and Other Intangible Assets. The provisions of this Statement are effective for acquisitions occurring after October 1, 2002.
FASB Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation plans. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The effective dates of parts of the Statement are for years ending after December 15, 2002 and parts for years beginning after December 15, 2002.
Item 3. Description of Property
We acquired our headquarters, which is a full service banking branch and office facility located at 2995 Crain Highway in Waldorf, Maryland, in 1998 for $750,000, renovated the space at a cost of approximately $716,000, and moved our main office into it from our branch office located at 12080 Old Line Centre in Waldorf, Maryland. As an accommodation to the seller, we purchased this facility subject to a 99-year lease that we have paid in full, and we have the option to purchase the facility for $1.00 plus any applicable closing costs. We intend to exercise the purchase option during 2003. For financial reporting purposes, the facility is considered owned by Old Line Bank.
We continue to maintain a branch operation at the Old Line Centre location, and have done so since 1989. The lease, which commenced in August 1999, is a ten-year lease with two, five-year options. Payment terms on the lease are "triple net," at $4,383 monthly with 1.5% annual increases.
In 1995, we opened a branch at 15808 Livingston Road in Accokeek, Maryland in Prince George's County in leased facilities. In March 2003, we purchased the Accokeek location for $155,877.
Our Clinton, Maryland, Prince George's County branch, located at 7801 Old Branch Avenue, was opened in September 2002 in leased space. Exclusive of the $825 in monthly rent, we pay no utilities or other expenses associated with this facility. The lease incorporates increases in monthly rent beginning in October 2006 to $2,301, in October 2008 to $2,685 and 1.5% every year thereafter. The lease term is for a period of ten years, with three, five-year options.
Item 4. Security Ownership of Certain Beneficial Owners and Management
Stock Ownership of Management and Principal Holders
The following table sets forth information with respect to the expected beneficial ownership of Old Line Bancshares, Inc.'s common stock by each director, by our executive officers and by all of our directors and executive officers as a group, as well as information regarding each other person that we believe will own in excess of 5% of the outstanding common stock. Unless otherwise noted below, we believe that each person named in the table has or will have the sole voting and sole investment power with respect to each of the securities reported as owned by such person.
Total Number of
Name and Address of Options to Shares
------------------- Common Purchase Beneficially Percentage of
Beneficial Owner(1) Stock Common Stock Owned(2) Ownership(3)
------------------- ----- ------------ -------- ------------
Charles A. Bongar, Jr. 2,225 1,500 3,725 0.63%
Joseph E. Burnett 3,500 0 3,500 0.60
Craig E. Clark(4) 20,100 1,500 21,600 3.68
James W. Cornelsen 8,439 10,750 19,189 3.22
Daniel D. Deming(5) 4,500 1,500 6,000 1.02
James F. Dent 7,025 1,500 8,525 1.45
Nancy L. Gasparovic 1,750 1,500 3,250 .55
Samuel V. Goekjian 26,162 1,500 27,662 4.71
Randy A. Lakes 1,225 1,500 2,725 .46
Frank Lucente(6) 16,525 250 16,775 2.86
Gail D. Manuel (7) 1,750 1,500 3,250 0.55
John D. Mitchell 2,618 1,500 4,118 .70
Christine M. Rush(8) 500 0 500 0.09
All directors & executive officers as a group
(13 people) 96,319 24,500 120,819 19.75%
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(1) Unless otherwise indicated, the address of each person listed in the foregoing table is the address of Old Line Bank.
(2) The total number of shares beneficially owned includes shares of common stock owned by the named persons as of the date of this Registration Statement and shares of common stock subject to options held by the named persons that are exercisable as of, or within 60 days of, the date of this Registration Statement.
(3) The shares of common stock subject to options are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
(4) Includes 16,101 shares of common stock held jointly with his spouse; 50 shares of common stock which he is holding for the benefit of his adult son, Craig Clark, Jr., under a custodial arrangement, and 50 shares of common stock which he is holding for the benefit of his adult daughter, Susan Clark, under a custodial arrangement.
(5) Holds 1,900 shares of common stock jointly with his spouse, and 2,500 shares of common stock in Deming Associates, Inc. of which Mr. Deming is President and majority owner.
(6) Includes 8,150 shares of common stock held by Lucente Enterprises, Inc., of which Mr. Lucente is the President, and 250 shares of common stock held by Chesapeake Custom Homes, LLC, of which Lucente Enterprises, Inc. is a manager and the majority member.
(7) Includes 280 shares of common stock held jointly with her spouse.
(8) Includes 100 shares of common stock held jointly with Mark O. Posten.
Item 5. Directors, Executive Officers, Promoters and Control Persons
MANAGEMENT
The Board of Directors of Old Line Bancshares, Inc. consists of those persons who presently serve as directors of Old Line Bank. Furthermore, all of Old Line Bancshares, Inc.'s executive officers also serve as executive officers of Old Line Bank. All of the members of Old Line Bancshares, Inc.'s Board of Directors have served since the incorporation of Old Line Bancshares, Inc. in April 2003.
Set forth below are the names, ages and recent business experience of the members of our Board of Directors and our executive officers.
Directors
Charles A. Bongar, Jr., 58, is a lawyer with an office in Waldorf, Maryland and specializes in real estate transactions, estate probate and personal injury cases. Since 1977, he has been a principal of Andrew, Bongar, Starkey & Clagett, P.A. Mr. Bongar resides in LaPlata, Maryland. He has been a member of the Board of Directors of Old Line Bank since 1993.
Craig E. Clark, 61, is President of Waldorf Carpets, a wholesale and retail flooring company. He has served as its President since 1991. Mr. Clark is a founder of Old Line Bank. He has served as Chairman of the Board of Directors of Old Line Bank since 1994 and served as a member of the Board of Directors of Old Line Bank since 1988. He is the Chairman of the Board of Directors of Old Line Bancshares, Inc. Mr. Clark resides in Lusby, Maryland.
James W. Cornelsen, 48, is the President and Chief Executive Officer of Old Line Bancshares, Inc. and Old Line Bank. He joined Old Line Bank and became a member of its Board of Directors in 1994. He has 27 years of commercial banking experience. Prior to joining Old Line Bank, Mr. Cornelsen was a Senior Vice President at Sequoia National Bank and Vice President of Commercial Lending at Citizens Bank of Maryland. Mr. Cornelsen resides in LaPlata, Maryland.
Daniel D. Deming, 54, is President of Deming Associates, Inc., in Accokeek, Maryland, and has served in that capacity since 1979. He also serves as a Director of Kanawha Roxalana Company, in West Virginia and is a Director of Livingston, Ltd. All three of these companies are engaged in various aspects of real estate. Mr. Deming resides in Accokeek, Maryland. He has been a member of the Board of Directors of Old Line Bank since 1992.
James F. Dent, 66, is owner and operator of a State Farm Insurance Agency that he established in 1961. Mr. Dent resides in LaPlata, Maryland. Mr. Dent is a founder of Old Line Bank and has served as a member of its Board of Directors since 1988.
Nancy L. Gasparovic, 56, is President of Title Professionals, Ltd., a real estate settlement company in LaPlata, Maryland, and has served in that capacity since 1989. Ms. Gasparovic resides in Issue, Maryland. She has been a member of the Board of Directors of Old Line Bank since 1993.
Samuel V. Goekjian, 75, is Chairman and Chief Executive Officer of Intracon Associates, LLC, a financial consulting firm in Washington, D.C., and has served in that capacity since 1995. Mr. Goekjian is a founder of Old Line Bank, served as Chairman of the Board of Directors of Old Line Bank from 1988 to 1991 and as a Director of Old Line Bank in 1992, and has served as a member of the Board of Directors of Old Line Bank since 1995. Mr. Goekjian resides in Washington, D.C.
Randy A. Lakes, 51, is a Certified Public Accountant and Personal Financial Specialist and owner of Lakes & Company, an accounting firm in Waldorf, Maryland since 2000. From 1990 to 2000, Mr. Lakes was Vice President of Robinson, Lakes & Associates, an accounting firm. Since 1995, Mr. Lakes has been a registered representative with IFG Network Securities, Inc. He resides in Port Tobacco, Maryland. He has been a member of the Board of Directors of Old Line Bank since 1991.
Frank Lucente, Jr., 61, is President of Lucente Enterprises, Inc., a land development consulting company, and has served in that capacity since 1989. Lucente Enterprises, Inc. is the majority member and a manager of Chesapeake Custom Homes, LLC, a suburban Maryland residential homebuilder and developer. Mr. Lucente resides in Edgewater, Maryland. He has been a member of the Board of Directors of Old Line Bank since 2002.
Gail D. Manuel, 47, is Owner and Director of Trinity Memorial Gardens and Mausoleum in Waldorf, Maryland. She has held these positions since 1986. She is a past Board of Director of the Charles County Chamber of Commerce and past President of Charles County Zonta Club. She resides in Welcome, Maryland. She has been a member of the Board of Directors of Old Line Bank since 1994.
John D. Mitchell, Jr., 54, is President of JCV, Inc. a petroleum equipment company located in Hughesville, Maryland, and has served in that capacity since 1985. Mr. Mitchell resides in LaPlata, Maryland. He has been a member of the Board of Directors of Old Line Bank since 1992.
The directors of Old Line Bancshares, Inc. are divided into three classes, with each class containing one-third of the total number of directors, as near as is possible, and one of the three classes expiring each year.
Messrs. Cornelsen, Deming, Dent and Mitchell's terms as directors expire at the 2004 annual meeting of the stockholders of Old Line Bancshares, Inc.
Messrs. Clark and Lakes and Ms. Manuel's terms as directors expire at the 2005 annual meeting of the stockholders of Old Line Bancshares, Inc.
Messrs. Bongar, Goekjian and Lucente and Ms. Gasparovic's terms as directors expire at the 2006 annual meeting of the stockholders of Old Line Bancshares, Inc.
Executive Officers Who are Not Directors and Key Employees
Joseph E. Burnett, 57, joined Old Line Bank as a Senior Vice President and Chief Lending Officer in August 2001. He is also a Senior Vice President of Old Line Bancshares, Inc. He has over 37 years of banking experience in the Washington, D.C. metropolitan area specializing in commercial transactions. Prior to joining Old Line Bank, Mr. Burnett was a Senior Vice President in Commercial Lending at Farmers Bank for two years (1999-2001) and at Suburban Bank for twelve years (1987-1999). Mr. Burnett resides in Dunkirk, Maryland.
Christine M. Rush, 47, joined Old Line Bank in 1998. She is a Senior Vice President, the Chief Financial Officer, the Chief Credit Officer and the Secretary of Old Line Bank. She is also a Senior Vice President, Chief Financial Officer and the Secretary of Old Line Bancshares, Inc. Prior to joining Old Line Bank, Ms. Rush was a Vice President in Commercial Lending and Cash Management at Signet Bank. She has over 25 years banking and financial management experience. Ms. Rush resides in LaPlata, Maryland.
Jeffrey Franklin, 37, has been a Vice President of Old Line Bank in charge of branch operations since March 2002. Prior to joining Old Line Bank, he was a Vice President at The Columbia Bank where he was responsible for various aspects of branch operations for six years. Prior to his tenure at The Columbia Bank, he held various positions at First Virginia Banks. Mr. Franklin has over 13 years of banking experience. He resides in Crofton, Maryland.
Erin G. Lyddane, 29, has been the Treasurer and an Assistant Vice President of Old Line Bank since February 2000. She is responsible for the daily operations of the bank and financial reporting. She joined Old Line Bank in 1992 and previously worked in various positions within the bank, including Branch Manager, Assistant Treasurer and Cashier. She resides in LaPlata, Maryland.
The officers of Old Line Bancshares, Inc. and Old Line Bank are elected annually by the respective Boards of Directors following the annual meeting of stockholders and serve for terms of one year or until their successors are duly elected and qualified except where a longer term is expressly
provided in an employment contract duly authorized and approved by the Board of Directors. See "Executive Compensation - Employment Agreements."
Item 6. Executive Compensation
Director Compensation
Non-employee Directors of Old Line Bank, other than the Chairman of the Board, receive $150 for each attended meeting of the Board of Directors, and $75 for each attended meeting of the Asset & Liability Committee and the Loan/Loan Review Committee of the Board of Directors. Currently, Directors are not separately compensated for attendance at other committee meetings. However, upon reorganizing into a holding company structure, we anticipate that Old Line Bank will compensate the members of its audit committee. Each non-employee Director, other than the Chairman of the Board, also receives a $250 quarterly retainer. The Chairman of the Board receives annual compensation of $20,000.
In addition, beginning in December 1997 and continuing each December thereafter (except as described in the next sentence), Old Line Bank has granted each non-employee member of its Board of Directors options to purchase 250 shares of common stock. Options to purchase 500 shares were granted in May 2001 as the stock option plan in effect in 1999 and 2000 did not have sufficient options available to make the necessary grants in 1999 or 2000. These options are granted at fair market value, are exercisable immediately, and expire on the tenth anniversary of the grant date. Also, these options terminate (if not exercised) on the first anniversary of the termination of the Director's service on the Board of Directors. Old Line Bank (or Old Line Bancshares, Inc. upon formation of the holding company structure) intends to continue making these option grants to its Directors. See "- Employer Benefit Plans - Stock Option Plans."
Old Line Bancshares, Inc. has paid no remuneration, direct or otherwise, to its officers and/or directors since its incorporation. It is expected that unless and until Old Line Bancshares, Inc. becomes actively involved in additional businesses, no separate compensation will be paid to the directors and officers of Old Line Bancshares, Inc. in addition to that paid to them by Old Line Bank in their capacities as officers and/or directors of Old Line Bank. However, Old Line Bancshares, Inc. may determine in the future that such separate compensation is appropriate.
Executive Compensation
The following table sets forth the compensation paid by Old Line Bank to its Chief Executive Officer and to any other executive officer who received compensation in excess of $100,000 during 2002.
Summary Compensation Table
Annual Compensation Long-term Compensation
------------------------------- ------------------------------------
Name and Principal Securities
Position Underlying All Other
-------- Year Salary ($) Bonus ($) Options (#) Compensation
---- ---------- --------- ----------- ------------
James W. Cornelsen, President &
CEO(1) 2002 $120,000 $0 1,250 $4,195
2001 $105,000 $10,000 1,250 $3,434
Joseph E. Burnett, Senior Vice
President & Chief Lending
Officer(2) 2002 $100,000 $0 0 $2,722
2001 $ 36,378 $0 0 $1,450
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(1) Other compensation includes $2,400 and $2,300 of contributions to Old Line Bank's 401(k) retirement plan for 2002 and 2001, respectively; $990 and $885 of term life insurance payments paid by Old Line Bank on Mr. Cornelsen's behalf for 2002 and 2001, respectively, and auto reimbursement of $805 and $249 in 2002 and 2001, respectively.
(2) Mr. Burnett joined Old Line Bank in August 2001. Other compensation includes $2,000 and $728 of contributions to Old Line Bank's 401(k) retirement plan for 2002 and 2001, respectively; and $722 and $722 of term life insurance payments paid by Old Line Bank on Mr. Burnett's behalf for 2002 and 2001, respectively.
The following table contains information concerning the grant of stock options made during the last completed fiscal year to Mr. Cornelsen.
Individual Grants
Number of % of Total
Securities Options Granted
Underlying Options to Employees in Exercise or Base
Name Granted Fiscal Year Price ($/Share)(2) Expiration Date
---- ------- ----------- ------------------ ---------------
James W. Cornelsen(1) 1,250 100% $17.80 12/31/2012
(1) Mr. Cornelsen received options to purchase 1,250 shares of common stock in
December 2002 pursuant to his employment agreement. All of the options are
exercisable.
(2) The exercise price is equal to the fair market value on the date of grant.
The following table sets forth information on the aggregate number of
shares of common stock underlying unexercised options held as of December 31,
2002 by Mr. Cornelsen and the aggregate dollar value of in-the-money unexercised
options held as of December 31, 2002 by Mr. Cornelsen.
Aggregate Options Table
Number of Securities Underlying Value of Unexercised in-the-Money
Unexercised Options at Options at
Name December 31, 2002 December 31, 2002(1)
------------------------------------ ------------------------------------------ --------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
James W. Cornelsen 10,750(2) 0 $52,470 $0
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(1) Represents the total gain which would be realized if all in-the-money options held at December 31, 2002 were exercised, determined by multiplying the number of shares underlying the options by the difference between the per share option exercise price and the fair market value of the shares at December 31, 2002 of $17.80.
(2) The exercise price of these options is $10.12 per share with respect to 5,000 of these options, $14.28 per share with respect to 1,000 of these options, $17.00 per share with respect to 1,000 of these options, $12.00 with respect to 1,250 of these options, $15.80 with respect to 1,250 of these options and $17.80 with respect to 1,250 of these options.
Employment Agreements
Old Line Bank has entered into employment agreements with each of James W. Cornelsen, Joseph W. Burnett and Christine M. Rush.
On March 31, 2003, Old Line Bank entered into a new employment agreement with Mr. Cornelsen, which supersedes the agreement he entered into with Old Line Bank in 1999. Pursuant to the new agreement, Mr. Cornelsen will continue to serve as the President and Chief Executive Officer of Old Line Bank. The new agreement has an initial term of five years and thereafter may be extended by the
Board of Directors, in their sole discretion, for one additional year or such greater term as the Board of Directors deems appropriate.
The agreement provides for an initial annual salary of $135,000, subject to annual increases as may be determined by the Board of Directors. Mr. Cornelsen also may receive an annual bonus to be determined by the Board of Directors. In addition, Mr. Cornelsen is entitled to receive an annual grant of options to purchase at least 1,250 shares of common stock (from either Old Line Bank or Old Line Bancshares, Inc. if Old Line Bank is reorganized into a holding company structure).
The agreement terminates upon Mr. Cornelsen's death, permanent disability or by mutual written agreement. In addition, Mr. Cornelsen may terminate the agreement within six months following a "change in control," as described below, or for good reason as described in the agreement. Old Line Bank may terminate the agreement for certain events constituting cause as described in the agreement. Old Line Bank may also terminate the agreement without cause provided that it provides sixty days prior written notice to Mr. Cornelsen.
If Mr. Cornelsen terminates the agreement for good reason, or if Old Line Bank terminates Mr. Cornelsen's employment without cause or because of permanent disability, Mr. Cornelsen will receive severance pay for the remaining term of the agreement in an amount equal to his average annual compensation over the prior five years.
If Mr. Cornelsen is terminated or terminates his employment in anticipation of or within six months following a change in control, he is entitled to a single payment equal to 2.99 times his average annual compensation over the prior five years.
Pursuant to the employment agreement, a "change in control" will occur if:
o any person or persons acting in concert acquires, whether by purchase, assignment, transfer, pledge or otherwise (including as a result of a redemption of securities), then outstanding voting securities of Old Line Bank, if, after the transaction, the acquiring person (or persons) owns, controls or holds with power to vote twenty-five percent (25%) or more of any class of voting securities of Old Line Bank, as the case may be;
o within any twelve-month period (beginning on or after the effective date of the employment agreement) the persons who were directors of Old Line Bank immediately before the beginning of such twelve-month period (the "Incumbent Directors") cease to constitute at least a majority of such Board of Directors; provided that any director who was not a director as of the effective date of the employment agreement will be deemed to be an Incumbent Director if that director was elected to such Board of Directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors;
o the stockholders of Old Line Bank approve a reorganization, merger or consolidation with respect to which persons who were the stockholders of Old Line Bank immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities (other than in connection with the formation of the holding company); or
o all or substantially all of the assets of Old Line Bank are sold, transferred or assigned to any third party.
If Old Line Bank is reorganized into a holding company structure, the employment agreement will be amended such that the foregoing events would also apply with respect to a transaction involving Old Line Bancshares, Inc.
On March 31, 2003, Old Line Bank entered into employment agreements with Mr. Burnett and Ms. Rush to serve as Senior Vice Presidents of Old Line Bank. Each agreement has an initial term of two years and thereafter will automatically be extended for periods of one year unless either party terminates the automatic renewal by giving written notice ninety days prior to the renewal date.
Mr. Burnett's agreement provides for an initial salary of $107,000 and Ms. Rush's agreement provides for an initial salary of $90,000. Mr. Burnett and Ms. Rush each may receive an annual bonus to be determined by the chief executive officer of Old Line Bank. In addition, Mr. Burnett and Ms. Rush are each entitled to receive an annual grant of options to purchase at least 750 shares of common stock (from either Old Line Bank or Old Line Bancshares, Inc. if Old Line Bank is reorganized into a holding company structure).
Each agreement terminates upon the employee's death or physical or mental incapacitation that has left the employee unable to perform his or her duties for a period of sixty consecutive days. In addition, the employee may terminate his or her agreement by giving Old Line Bank sixty days written notice. Old Line Bank may terminate each agreement for certain events constituting cause as described in the agreements. Each employee is entitled to receive the remaining balance of his or her unused vacation and personal leave at the termination of employment unless the employee is terminated for cause.
Employer Benefit Plans
Old Line Bank currently provides employees a 1% discount on the then prevailing market interest rate on loans made by Old Line Bank to the employee, subject to satisfaction with Old Line Bank's underwriting standards for such loans. Additionally, all employees receive free checking.
Old Line Bank currently provides health care benefits, including medical, disability and group life insurance, subject to certain deductibles and copayments, for its full time employees.
Old Line Bank maintains a 401(k) profit sharing plan for employees who meet the eligibility requirements set forth in the plan. Pursuant to the plan, which was amended in March 2003, Old Line Bank matches the first 3% of employee contributions to the plan and 50% of the next 2% of employee contributions, for a maximum required contribution of 4% of employee eligible compensation. This plan, which covers substantially all employees, allows for elective employee deferrals. Old Line Bank's contributions to the plan for 2002, 2001 and 2000, were $14,255, $10,947 and $11,070, respectively.
The stock option plan established by Old Line Bank described below will be transferred to Old Line Bancshares, Inc. following the reorganization without material modification.
General. The stockholders of Old Line Bank approved the 2001 Incentive Stock Option Plan (the "Stock Option Plan") at the 2001 annual meeting of stockholders. The Stock Option Plan provides for the issuance of options to purchase shares of Old Line Bank common stock with the exercise price for such options to equal the fair market value of the common stock on the date of grant. Old Line Bank has also made grants of options prior to the Stock Option Plan pursuant to a prior stock options plans. As of the date of this Registration Statement, options to purchase an aggregate of 11,500 shares are outstanding pursuant to such grants.
Administration of the Stock Option Plan; Eligibility of Participants. The Stock Option Plan provides that it shall be administered by a committee (the "Committee") appointed by the Board of Directors. The Committee is authorized to determine and designate from time to time those "key employees" of Old Line Bank, which is defined to include officers, directors, executives and supervisory
personnel of Old Line Bank, to whom options are to be granted. Options may be "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or nonqualified options.
Shares Subject to the Stock Option Plan. The Stock Option Plan provides for the reservation of 25,000 shares of Old Line Bank common stock for issuance upon the exercise of options granted under the Stock Option Plan. Shares may be newly issued, or may be reacquired by Old Line Bank. The number of shares reserved for the grant of options and the number of shares which are subject to outstanding options under the Stock Option Plan are subject to adjustment in the event of stock splits, reclassifications or other changes in Old Line Bank's capitalization. If an option expires or is terminated, the shares that were subject to the unexercised portion of the option are available for future options granted under the Stock Option Plan.
Terms of Options. The Stock Option Plan became effective on May 24, 2001 and has a ten-year term. Each option granted under the Stock Option Plan will expire on the tenth anniversary of the date the option was granted or such other date as the Committee provides. In the event of the termination of employment of an optionee, other than for death or disability, all unexercised options will terminate unless the optionee exercises such options within three months after the optionee's employment with Old Line Bank is terminated or a shorter or longer period as the Committee may determine from time to time. Notwithstanding the foregoing, all unexercised options immediately lapse upon termination of employment during the two-year period after the most recent date upon which an option was granted if the termination is for cause or as a result of the voluntary act of the optionee which is not approved by Old Line Bank. Options are exercisable for one year after the death or disability of an optionee who is an employee.
The purchase price of each share subject to an option shall be fixed by the Committee at the time the option is granted; provided, however, that in no event shall the purchase price be less than 100% of the fair market value of the common stock on the date of grant. In addition, with respect to any option intended to be an incentive stock option, in the event the optionee would otherwise be ineligible to receive an incentive stock option by reason of the provisions of the Internal Revenue Code of 1986, as amended (the "Code") relating to stock ownership of more than 10%, the purchase price of each share subject to an option shall be not less than 110% of the fair market value of a share of common stock at the time such option is granted.
Options granted under the Stock Option Plan are not transferable by an optionee other than by will or the laws of descent and distribution. Options shall be exercisable only by the optionee during his lifetime; any attempt to transfer an option, or to assign, pledge, hypothecate or otherwise dispose of an option in violation of the terms of the Stock Option Plan, or to levy any attachment or similar process upon such option, results in the immediate termination of such option.
Summary of Certain Federal Tax Consequences. Under current provisions of the Code, the federal income tax treatment of incentive stock options and nonqualified stock options is different. A holder of incentive stock options will not recognize compensation income for purposes of the regular income tax at the time the option is granted or at any time thereafter, provided that certain holding period requirements are met with respect to the stock after the option is exercised, and a federal income tax deduction generally will not be available to us at any time as a result of such grant or exercise. However, the excess of the fair market value of the common stock at the time an incentive stock option is exercised over the purchase price payable pursuant to the option is included in income for purposes of the alternative minimum tax. With respect to nonqualified stock options, the difference between the fair market value on the date of exercise and the option exercise price generally will be treated as compensation income upon exercise, and we will be entitled to a deduction in the amount of income so recognized by the optionee.
Item 7. Certain Relationships and Related Transactions
Old Line Bank has had in the past, and expects to have in the future, banking transactions with directors and executive officers and the business and professional organizations in which they are associated in the ordinary course of business. Any loans and loan commitments are made in accordance
with all applicable laws. In the opinion of management, these transactions do not and will not involve more than the normal risk of collectibility or present other unfavorable features. Directors or officers with any personal interest in any loan application are excluded from considering any such loan application. The aggregate amount of loans outstanding at May 1, 2003 to Old Line Bank's directors, officers and their affiliates was approximately $2.4 million.
Old Line Bank has entered into various transactions with firms in which owners are also members of the Board of Directors. Fees charged for these services are at similar rates charged by unrelated parties for similar work. We paid to these parties a total of $18,175 and $3,704 during the years ended December 31, 2002 and 2001, respectively.
Item 8. Description of Securities
Our authorized capital stock consists of 5,000,000 shares of common stock, $0.01 par value, and 1,000,000 shares of preferred stock, $0.01 par value.
In general, stockholders or subscribers for our stock have no personal liability for the debts and obligations of Old Line Bancshares, Inc. because of their status as stockholders or subscribers, except to the extent that the subscription price or other agreed consideration for the stock has not been paid.
As a Maryland corporation, the rights of Old Line Bancshares, Inc.'s stockholders currently will be governed by the provisions of the Maryland General Corporation Law (the "MGCL") and its charter and bylaws.
The following summary of certain terms of our common stock and preferred stock is necessarily general and reference should be made in each case to our charter and bylaws, copies of which are included as exhibits to this Registration Statement.
Common Stock
We are authorized to issue 5,000,000 shares of common stock, par value $0.01 per share.
Subject to all rights of holders of any other class or series of stock, holders of common stock are entitled to receive dividends if and when the Board of Directors of Old Line Bancshares, Inc. declares dividends from funds legally available. In addition, holders of common stock share ratably in the net assets of Old Line Bancshares, Inc. upon the voluntary or involuntary liquidation, dissolution or winding up of Old Line Bancshares, Inc., after distributions are made to anyone with more senior rights.
In general, each outstanding share of common stock entitles the holder to vote for the election of directors and on all other matters requiring stockholder action, and each share is entitled to one vote. Holders of common stock have no conversion, sinking fund, redemption rights or preemptive rights to subscribe to any securities of Old Line Bancshares, Inc.
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock, par value $0.01 per share. The Board of Directors may issue shares of preferred stock in one or more series from time to time. Prior to issuance of shares of each series of preferred stock, the Board of Directors is required to fix for each series the designation, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption. The Board of Directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of discouraging a takeover or other transaction which some of our stockholders might believe to be in their best interests or in which they might receive a premium for their shares of common stock over the market price of such shares. As of the date hereof, we have no present plans to issue any preferred stock.
Anti-Takeover Provisions in our Charter and Bylaws
General. A number of provisions of our charter and bylaws deal with matters of corporate governance and certain rights of stockholders. The following discussion is a general summary of certain provisions of our charter and bylaws that might be deemed to have a potential "anti-takeover" effect. The following description of certain of the provisions of our charter and bylaws is necessarily general and reference should be made in each case to the charter and bylaws.
Extraordinary Transactions. Our charter provides that certain "business combination" (as defined in the charter) transactions between us and any person who is the beneficial owner, directly or indirectly, of more than fifteen percent (15%) of the shares of our capital stock entitled to vote in the election of directors (an "interested stockholder") (or between us and an affiliate of the interested stockholder) require a supermajority vote of 80% of the total outstanding shares of capital stock of Old Line Bancshares, Inc. unless a majority of the "disinterested directors" (as defined in the charter) of Old Line Bancshares, Inc. approve the business combination or unless certain fair price provisions are satisfied. In general, the charter defines "business combination" as:
o any merger or consolidation of Old Line Bancshares, Inc. with an interested stockholder;
o any sale, lease, license, exchange, mortgage, pledge, transfer or other disposition to or with any interested stockholder or any affiliate of any interested stockholder of any assets of Old Line Bancshares, Inc. having an aggregate fair market value equal to or greater than ten percent of the assets of Old Line Bancshares, Inc.;
o the issuance or transfer by Old Line Bancshares, Inc. of any securities of Old Line Bancshares, Inc. to any interested stockholder or any affiliate of any interested stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value equal to or greater than ten percent of the combined assets of Old Line Bancshares, Inc., except pursuant to an employee benefit plan of Old Line Bancshares, Inc.;
o any reclassification or recapitalization of Old Line Bancshares, Inc. or any other transaction (whether or not with or into or otherwise involving an interested stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of Old Line Bancshares, Inc. which are directly or indirectly owned by any interested stockholder or any affiliate of any interested stockholder; or
o the adoption of any plan or proposal for the liquidation or dissolution of Old Line Bancshares, Inc. proposed by or on behalf of an interested stockholder or any affiliate of any interested stockholder.
In general, the charter defines the term "disinterested director" as any person who is not an affiliate or associate of the interested stockholder and who was a member of the Board of Directors prior to the time that the interested stockholder became an interested stockholder.
Classification of the Board of Directors. Our charter and bylaws provide that we shall have not less than five nor more than 25 directors, the exact number to be fixed by the Board of Directors, and that the number of directors may be increased or decreased by the Board of Directors. Our directors are divided into three classes - Class A, Class B and Class C - each class consisting of an equal number of directors, or as nearly equal as possible and each director (after an initial phase in period) serves for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. A classified Board of Directors promotes continuity and stability of management but makes it more difficult for stockholders to change a majority of the directors because it generally takes at least two annual elections of directors for this to occur. We believe that classification of the Board of Directors will help to assure the continuity and stability of Old Line Bancshares, Inc.'s business strategies and policies as determined by the Board of Directors.
Absence Of Cumulative Voting. There is no cumulative voting in the election of our directors. Cumulative voting means that holders of stock of a corporation are entitled, in the election of directors, to cast a number of votes equal to the number of shares that they own multiplied by the number of directors to be elected. Because a stockholder entitled to cumulative voting may cast all of his votes for one nominee or disperse his votes among nominees as he chooses, cumulative voting is generally considered to increase the ability of minority stockholders to elect nominees to a corporation's board of directors. The absence of cumulative voting means that the holders of a majority of our shares can elect all of the directors then standing for election and the holders of the remaining shares will not be able to elect any directors.
Removal of Directors. Our charter and bylaws provide that a director may only be removed by the affirmative vote of at least 80% of the votes entitled to be cast in the election of directors and only for cause.
Amendment Of Charter and Bylaws. Our charter and bylaws generally provides that amendments to the charter or bylaws that would impact anti-takeover provisions must be approved by the holders of at least 80% of the shares entitled to be voted on the matter.
Authorized Shares. As indicated above, our charter will authorize the issuance of 5,000,000 shares of common stock and authorizes the issuance of 1,000,000 shares of preferred stock. The authorization of shares of Common and preferred stock in excess of the amount issued provides our Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and stock options or other stock based compensation. The unissued authorized shares may also be used by the Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of Old Line Bancshares, Inc. Also, as indicated above, the Board of Directors' right to set the terms of one or more series of preferred stock has anti-takeover effects.
Procedures For Stockholder Nominations. Our bylaws provide that any stockholder desiring to make a nomination for the election of directors must submit written notice to us prior to the meeting. This advance notice requirement may give management time to solicit its own proxies in an attempt to defeat any dissident slate of nominations should management determine that doing so is in the best interest of stockholders generally.
Anti-Takeover Provisions in the MGCL
In addition to the provisions contained in our charter and bylaws, the MGCL includes certain provisions applicable to Maryland corporations that may have an anti-takeover effect, including, but not limited to, the provisions discussed below.
Business Combinations. Under the MGCL, certain "business combinations"
between a Maryland corporation and an "Interested Stockholder" (as described in
the MGCL) 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 a business combination must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at least:
(i) 80% of the votes entitled to be cast by holders of outstanding voting shares
of the corporation and (ii) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares of the corporation other than shares held
by the Interested Stockholder with whom the business combination is to be
effected, unless the corporation's stockholders receive a minimum price (as
described in the MGCL) 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. They
also do not apply if the company has fewer than 100 beneficial owners of stock.
Control Share Acquisitions. The MGCL 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 acquirer
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 acquirer, or in respect of which the acquirer is able to exercise or direct the exercise of voting power except solely by virtue of a revocable proxy, would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-tenth 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 acquirer 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 acquirer in the control share acquisition.
Summary of Anti-Takeover Provisions
The foregoing provisions of our charter and bylaws and Maryland law could have the effect of discouraging an acquisition of Old Line Bancshares, Inc. or stock purchases in furtherance of an acquisition, and could accordingly, under certain circumstances, discourage transactions that might otherwise have a favorable effect on the price of our common stock. In addition, such provisions may make Old Line Bancshares, Inc. less attractive to a potential acquiror and/or might result in stockholders receiving a lesser amount of consideration for their shares of common stock than otherwise could have been available.
Our Board of Directors believes that the provisions described above are prudent and will reduce vulnerability to takeover attempts and certain other transactions that are not negotiated with and approved by our Board of Directors. Our Board of Directors believes that these provisions are in Old Line Bancshares, Inc.'s best interests and the best interests of its stockholders. In the Board of Directors' judgment, the Board of Directors is in the best position to determine our true value and to negotiate more effectively for what may be in the best interests of the stockholders. Accordingly, the Board of Directors believes that it is in Old Line Bancshares, Inc.'s best interests and in the best interests of its stockholders to encourage potential acquirors to negotiate directly with the Board of Directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts.
Despite the Board of Directors' belief as to the benefits to Old Line Bancshares, Inc. of the foregoing provisions, these provisions also may have the effect of discouraging a future takeover attempt in which stockholders might receive a substantial premium for their shares over then current market prices and may tend to perpetuate existing management. As a result, stockholders who might desire to participate in such a transaction may not have an opportunity to do so. The Board of Directors, however, believes that the potential benefits of these provisions outweigh their possible disadvantages.
Transfer Agent
American Stock Transfer & Trust Company serves as our transfer agent.
Item 1. Market Price of Dividends on the Registrant's Common Equity and Other Shareholder Matters.
Our common stock is quoted for trading on the OTC Bulletin Board operated by the National Association of Securities Dealers under the symbol "OLBK." In the past, our common stock has traded only sporadically.
The following table reflects the high and low sales information as reported on the OTC Bulletin Board for the periods presented. The quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not represent actual transactions. The prices quoted were adjusted to reflect our one for two stock exchange in June 2002.
Sale Price Range
High Low
2000
----
First Quarter $ 10.50 $ 10.50
Second Quarter 12.50 10.00
Third Quarter 12.50 11.25
Fourth Quarter 12.70 11.25
2001
----
First Quarter 12.50 11.25
Second Quarter 12.00 11.25
Third Quarter 13.50 12.30
Fourth Quarter 16.00 12.60
2002
----
First Quarter 21.00 15.80
Second Quarter 20.00 16.60
Third Quarter 20.00 19.00
Fourth Quarter 19.00 17.40
2003
----
First Quarter 19.50 17.41
Second Quarter 27.25 17.85
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As of the date of this Registration Statement, there were 585,631.5 shares of common stock issued and outstanding, which were held by approximately 337 stockholders of record. There were 24,500 shares of common stock issuable on the exercise of outstanding stock options, all of which were exercisable.
We plan to apply to have our common stock qualified for listing on the Nasdaq SmallCap Market and to take the actions necessary to have such listing effective by the fall of 2003. However, there can be no assurance that this will be the case.
Dividends
Old Line Bank has paid three dividends since its inception. In March 2001, Old Line Bank paid a dividend of $0.20 per share, in March 2002 Old Line Bank paid a dividend of $0.24 per share and in
February 2003 Old Line Bank paid a dividend of $0.28 per share. These dividend amounts have been adjusted to reflect our one for two stock exchange in June 2002.
Our ability to pay dividends in the future will depend on the ability of Old Line Bank to pay dividends to us. Old Line Bank's ability to continue paying dividends will depend on Old Line Bank's compliance with certain dividend regulations imposed upon us by bank regulatory authorities. In addition, we will consider a number of other factors, including our income and financial condition, tax considerations, general business conditions and other factors before deciding to pay additional dividends in the future. There can be no assurance that dividends will continue to be paid to our stockholders.
Item 2. Legal Proceedings.
From time to time, Old Line Bank may be involved in litigation relating to claims arising out of its normal course of business. As of June 30, 2003, we had no pending legal matters or litigation for Old Line Bank or Old Line Bancshares, Inc.
Item 3. Changes In and Disagreements with Accountants
There has been no occurrence requiring a response to this Item.
Item 4. Recent Sales of Unregistered Securities
As a newly formed corporation, Old Line Bancshares, Inc. has had no
unregistered sales of its securities. Old Line Bancshares, Inc. will acquire all
of the outstanding securities of Old Line Bank upon receiving regulatory
approval and the satisfaction of the other conditions of the reorganization.
Shares issued by Old Line Bancshares, Inc. in the reorganization of Old Line
Bank will be issued in reliance upon the exemption from registration found in
Section 3(a)(12) of the Securities Act of 1933, as amended.
Old Line Bank sold 299,000 shares of common stock, at a price of $25.00 per share, in a offering that ended on June 9, 2003. Old Line Bank sold the shares in a "best efforts" offering managed by McKinnon & Company, Inc. All of the shares offered in the offering were sold. The aggregate offering price was $7,475,000 and Old Line Bank paid underwriting commissions of $373,750. These shares were sold in reliance upon an exemption from registration under Section 3(a)(2) of the Securities Act of 1933, as amended.
Item 5. Indemnification of Directors and Officers.
Our charter provides that the personal liability of our directors and officers for monetary damages is eliminated except:
o To the extent that it is proved that the person 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;
o 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; and
o To the extent an administrative proceeding or action is instituted by an appropriate bank regulatory agency which proceeding or actions results in a final order requiring affirmative action by an individual or individuals in the form of payment to Old Line Bancshares, Inc.
Our charter also provides that we will indemnify our officers and directors against liabilities and, in certain circumstances, will advance expenses to such persons prior to a final disposition of an action.
Also, the rights of indemnification provided in our charter are not exclusive of any other rights which may be available under any insurance or other agreement, by resolution of stockholders or disinterested directors or otherwise.
These provisions are designed to reduce, in appropriate cases, the risks incident to serving as a director, officer, employee or agent and to enable us to attract and retain the best personnel available.
Old Line Bancshares, Inc. is a newly incorporated entity and as such has no financial information other than those costs associated with its formation, the filing of its holding company application and this Registration Statement. The audited financial statements of Old Line Bank for the years ended December 31, 2002, and 2001 and the unaudited financial statements for the three months ended March 31, 2003 and March 31, 2002, are attached hereto as Exhibit 99.2.
Item 1. Index to Exhibits.
Exhibit No. Description of Exhibits
3.1 Articles of Amendment and Restatement of Old Line
Bancshares, Inc.
3.2 Amended and Restated Bylaws of Old Line Bancshares,
Inc.
4 Specimen Stock Certificate for Old Line Bancshares,
Inc.
10.1 Employment Agreement of James W. Cornelsen
10.2 Employment Agreement of Joseph E. Burnett
10.3 Employment Agreement of Christine M. Rush
10.4 2001 Stock Option Plan
10.5 Form of Non-Qualified Stock Option Agreement
10.6 Form of Incentive Stock Option Agreement
21 Subsidiaries of Registrant
23.1 Consent of Rowles & Company, LLP
99.1 Agreement and Plan of Reorganization between Old Line
Bank and Old Line Bancshares, Inc., including
Articles of Share Exchange attached as Exhibit A
thereto
99.2 Financial Statements of Old Line Bank
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In accordance with Section 12 of the Securities Exchange Act of 1933, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Old Line Bancshares, Inc.
By: /s/ James W. Cornelsen --------------------------- James W. Cornelsen, President and Chief Executive Officer |
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
OLD LINE BANCSHARES, INC.
Old Line Bancshares, Inc. a Maryland corporation (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:
The Corporation desires to amend and restate its Charter as currently in effect pursuant to these Articles of Amendment and Restatement. 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.
The Charter of the Corporation is hereby amended by striking in their entirety Articles FIRST through FIFTEENTH, inclusive, and by substituting the following in lieu thereof:
FIRST: The name of the corporation (the "Corporation") is
OLD LINE BANCSHARES, INC.
SECOND: The purposes for which the Corporation is formed are as follows:
(a) to own and hold the stock of financial institutions and otherwise operate as a financial institution holding company and to carry on any and all business activities permitted by law; and
(b) to engage in any other lawful act or activity which may be carried on by a corporation under the Maryland General Corporation Law, whether or not related to the business described elsewhere in this Article or to any other business at the time or theretofore engaged in by the Corporation.
The foregoing enumerated purposes and objects shall be in no way 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, and each shall be regarded as independent; and they are intended to be and shall be construed as powers as well as purposes and objects of the Corporation and shall be in addition to and not in limitation of the general powers of corporations under the Maryland General Corporation Law.
THIRD: The post office address of the principal office of the Corporation in the State of Maryland is 2995 Crain Highway, Waldorf, Maryland 21061. The name and post office address of the resident agent of the Corporation in the State of Maryland are James W. Cornelsen, 2995 Crain Highway, Waldorf, Maryland 21061. Said resident agent is a citizen of the State of Maryland who resides in the State of Maryland.
FOURTH: (a) Directors: Mandate and Number. The business and affairs of the Corporation shall be managed under the direction of the board of directors, the number of which shall be not less than five nor more than twenty-five who shall be stockholders, the exact number to be fixed and determined from time to time by resolution of a majority of the full board of directors, subject to the rights of the holders of any preferred stock of the Corporation to elect directors. At any time that the Corporation has stock outstanding, each director, during the full term of his or her directorship, shall own a minimum of 100 shares of Common Stock of the Corporation. The names and addresses of the individuals who currently serve as directors until their successors are elected and qualify are:
Name Address
---- -------
Charles A. Bongar, Jr. 2995 Crain Highway
Waldorf, Maryland 21061
Craig E. Clark 2995 Crain Highway
Waldorf, Maryland 21061
James W. Cornelsen 2995 Crain Highway
Waldorf, Maryland 21061
Daniel W. Deming 2995 Crain Highway
Waldorf, Maryland 21061
James F. Dent 2995 Crain Highway
Waldorf, Maryland 21061
Nancy L. Gasparovic 2995 Crain Highway
Waldorf, Maryland 21061
Samuel V. Goekjian 2995 Crain Highway
Waldorf, Maryland 21061
Randy A. Lakes 2995 Crain Highway
Waldorf, Maryland 21061
Frank Lucente 2995 Crain Highway
Waldorf, Maryland 21061
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Gail D. Manuel 2995 Crain Highway
Waldorf, Maryland 21061
John D. Mitchell, Jr. 2995 Crain Highway
Waldorf, Maryland 21061
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(b) Term. Subject to the rights of the holders of any series of Preferred Stock then outstanding, the directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the second annual meeting of stockholders and the term of office of the third class to expire at the third annual meeting of stockholders. At each Annual Meeting of Stockholders or special meeting in lieu thereof following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Stockholders or special meeting in lieu thereof after their election and until their successors are duly elected and qualified.
(c) Newly Created Directorships and Vacancies. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority vote of the entire Board of Directors. Subject to
the rights of the holders of any series of Preferred Stock then outstanding,
vacancies in the board of directors resulting from death, resignation,
retirement or disqualification may be filled only by a majority vote of the
directors then in office even though less than a quorum, or by a sole remaining
director. In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as
director of the class of which he is a member until the expiration of his
current term or his prior death, retirement, resignation or disqualification and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the board of directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and any newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the event of a vacancy in the board of directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full board of directors until the vacancy is filled.
(d) Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire board of directors, may be removed from office at any time (i) only for cause and (ii) only by the affirmative vote of the holders of at least 80 percent of the voting power of all of the then outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. A director may be removed for cause only after a reasonable notice and opportunity to be heard before the body proposing to remove him.
(e) Amendment, Repeal, etc. Notwithstanding anything contained in the charter of the corporation to the contrary, the affirmative vote of the holders of at least 80 percent of the total voting power of all of the outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal this Article or adopt any provision in the charter of the corporation or the bylaws inconsistent with this Article.
FIFTH: There shall be an annual meeting of the stockholders to elect directors and transact whatever other business may be brought before the meeting. It shall be held at the principal office or any other convenient place the board of directors may designate, on the date of each year specified therefore in the bylaws, but if no election is held on that day, it may be held on any subsequent day according to such lawful rules as may be prescribed by the board of directors, in accordance with the bylaws.
Nominations for election to the board of directors may be made by the board of directors (or a committee thereof) or by any stockholder of any outstanding class of capital stock of the Corporation entitled to vote for election of directors, subject to any requirements set forth in the bylaws or as may be required by applicable law.
SIXTH: The total number of shares and the par value of each class of capital stock which the Corporation is authorized to issue is as follows:
Class of Stock Number of Shares Par Value
-------------- ---------------- ---------
Preferred 1,000,000 $0.01
Common 5,000,000 $0.01
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Any and all shares of stock issued, and for which the full consideration has been paid or delivered, shall be deemed fully paid stock; and the holder of such shares shall not be liable for any further call or assessment of any other payment thereon. The aggregate par value of all shares of all classes of stock is $60,000.
(a) Each holder of Common Stock shall at every meeting of stockholders be entitled to one vote in person or by proxy for each share of Common Stock held by him. The holders of the Common Stock shall be entitled to such dividends as may from time to time be declared by the board of directors out of any funds legally available for the declaration of dividends, subject to any provision of the charter of the corporation, as amended from time to time, and subject to the relative rights and preferences of any shares of Preferred Stock authorized and issued hereunder. No share of Common Stock shall entitle its holder to have any preemptive right in or preemptive right to subscribe to any additional shares of Common Stock or any shares of any other class of stock which may at any time be authorized or issued, or any bonds, debentures or other securities convertible into shares of stock of any class of the Corporation, or options or warrants carrying rights to purchase such shares or securities.
(b) The board of directors is authorized, subject to such limitations prescribed by law and the provisions of this Article SIXTH, to provide for the issuance of the shares of Preferred Stock, with or without series, and, by filing articles supplementary (the "Articles Supplementary"), to establish from time to time the number of shares to be included in each such series and to fix the designation, preferences, voting powers, qualifications and special or relative rights or privileges of the shares of each such series. In the event that at any time the board of directors shall have established and designated one or more series of Preferred Stock consisting of a number of shares less than all of the authorized number of shares of Preferred Stock, the remaining authorized shares of Preferred Stock shall be deemed to be shares of an undesignated series of Preferred Stock until designated by the board of directors as being a part of a series previously established or a new series then being established by the board of directors. Notwithstanding the fixing of the number of shares constituting a particular series, the board of directors may at any time thereafter authorize the issuance of additional shares of the same series except as set forth in the Articles Supplementary.
The authority of the board of directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following:
(1) the number of shares constituting that series and the distinctive designation of that series, and whether additional shares of that series may be issued;
(2) whether any dividends shall be paid on shares of that series, and, if so, the dividend rate on the shares of that series; whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(3) whether shares of that series shall have voting rights in addition to the voting rights provided by law and, if so, the terms of such voting rights;
(4) whether shares of that series shall be convertible into shares of Common Stock or another security and, if so, the terms and conditions of such conversion, including provisions for adjustment of the conversion rate in such events as the board of directors shall determine;
(5) whether or not the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund;
(6) whether, in the event of purchase or redemption of the shares of that series, any shares of that series shall be restored to the status of authorized but unissued shares or shall have such other status as shall be set forth in the Articles Supplementary;
(7) the rights of the shares of that series in the event of the sale, conveyance, exchange or transfer of all or substantially all of the property and assets of the Corporation, or the merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of shares of that series to payment in any such event;
(8) whether the shares of that series shall carry any preemptive right in or preemptive right to subscribe for any additional shares of Preferred Stock or any shares of any other class of stock which may at any time be authorized or issued, or any bonds, debentures or other securities convertible into shares of stock of any class of the Corporation, or options or warrants carrying rights to purchase such shares or securities; and
(9) any other designation, preferences, voting powers, qualifications, and special or relative rights or privileges of the shares of that series.
The Corporation, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, including debt obligations convertible into shares of Common Stock of the Corporation, without the approval of the stockholders.
(1) Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or the charter of the corporation, and except as otherwise expressly provided in paragraph (b) of this Article:
(i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or
(ii) any sale, lease, license, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) equal to or greater than ten percent of the combined assets of the Corporation and its Subsidiaries; or
(iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equal to or greater than ten percent of the combined assets
of the Corporation and its Subsidiaries, except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or
(iv) any reclassification of securities of the Corporation (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which are directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; or
(v) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder.
shall require the affirmative vote of the holders of at least eighty percent (80 percent) of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote in the election of directors (the "Voting Stock"), voting together as a single class (it being understood that for purposes of this Article, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article SIXTH). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of the charter of the corporation or any Articles Supplementary (as defined in Article SIXTH), or in any agreement with any national securities exchange or otherwise. Notwithstanding anything to the contrary contained herein, any transaction the effect of which is to cause the Corporation to be the holding company for Old Line Bank shall not be subject to the voting requirements of this Article and shall not be considered a "Business Combination."
(2) Definition of "Business Combination". The term "Business Combination" as used in this Article shall mean any transaction which is referred to in any one or more of clauses (i) through (v) of subparagraph (1) of this paragraph (a).
(b) When Higher Vote Is Not Required. The provisions of paragraph (a) of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provisions of the charter of the corporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following subparagraph (b)(1) is met, or, in the case of any other Business Combination, all of the conditions specified in either of the following subparagraphs (b)(1) or (b)(2) are met:
(1) Approval by Disinterested Directors. The Business Combination shall have been approved by a majority of the members of the board of directors (the "Board") who are Disinterested Directors (as hereinafter defined), it being understood that this condition shall not be capable of satisfaction unless there is at least one Disinterested Director.
(2) Price and Procedural Requirements. All of the following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock of the Corporation in such Business Combination shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder or any of its Affiliates for any shares of Common Stock of the Corporation acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; or
(B) an amount equal to two and one-half times the Book Value per Share of Common Stock of the Corporation as of the end of the month preceding the Announcement Date.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share
by holders of shares of any class of outstanding Voting Stock other
than Common Stock shall be at least equal to the higher of the
following (it being intended that the requirements of this subparagraph
(b)(2)(ii) shall be required to be met with respect to every class of
such outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular class of
Voting Stock):
(A) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder or any of its Affiliates for any shares of such class of Voting Stock acquired or beneficially owned by it that were acquired (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; or
(B) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary liquidation, dissolution or winding up of the Corporation.
(iii) The price determined in accordance with subparagraphs (i) and (ii) of this subparagraph (b)(2) shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.
(iv) The holders of all outstanding shares of Voting
Stock not beneficially owned by the Interested Stockholder immediately
prior to the consummation of any Business Combination shall be entitled
to receive in such Business Combination cash or other consideration for
their shares meeting all of the terms and conditions of this paragraph
(2) (provided, however, that the failure of any stockholders who are
exercising their statutory rights to dissent from such Business
Combination and receive payment of the fair value of their shares to
exchange their shares in such Business Combination shall not be deemed
to have prevented the condition set forth in this subparagraph (2)(iv)
from being satisfied) .
(v) The consideration to be received by holders of any particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder.
(vi) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (A) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock of the Corporation; (B) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock of the Corporation (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to increase such annual rate is approved by a majority of the Disinterested Directors; and (C) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.
(vii) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation or any Subsidiary, whether in anticipation of or in connection with such Business Combination or otherwise.
(viii) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder
(or any subsequent provisions replacing the Exchange Act or such rules or regulations) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to the Exchange Act or subsequent provisions). Such proxy or information statement shall contain, if a majority of the Disinterested Directors so requests, an opinion of a reputable investment banking firm which shall be selected by a majority of the Disinterested Directors, furnished with all information such investment banking firm reasonably requests and paid a reasonable fee for its services by the Corporation upon the Corporation's receipt of such opinion, as to the fairness (or lack of fairness) of the terms of the proposed Business Combination from the point of view of the holders of shares of Voting Stock (other than the Interested Stockholder).
(c) Certain Definitions. For the purposes of this Article and Article FOURTEENTH:
(1) A "person" shall include any individual, group acting in concert, corporation, partnership, association, joint venture, pool, joint stock company, trust, unincorporated organization or similar company, syndicate, or any group formed for the purpose of acquiring, holding or disposing of securities.
(2) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than fifteen percent (15 percent) of the voting power of the then outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than fifteen percent (15 percent) of the voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended.
(3) A person shall be a "beneficial owner" of any shares of Voting Stock:
(i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 of the Exchange Act, as in effect on March 31, 1988; or
(ii) which such person or any of its Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage
of time), pursuant to an agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise; provided, however, that a person shall not be
deemed the beneficial owner of securities tendered pursuant to a tender
or exchange offer made by or on behalf of such person or any of such
person's Affiliates or Associates until such tendered securities are
accepted for purchase; or (B) the right to vote pursuant to any
agreement, arrangement, understanding or otherwise; provided, however,
that a person shall not be deemed the beneficial owner of any security
if the agreement, arrangement or understanding to vote such security
(I) arises solely from a revocable proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (II) is not
also then reportable on Schedule 13D under the Exchange Act (or a
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Exchange Act, as in effect on March 31, 1988, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except to the extent permitted by the proviso of subparagraph (c)(3)(ii)(B) above) or disposing of any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote (or direct the vote of) any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan.
(4) For the purposes of determining whether a person is an Interested Stockholder pursuant to subparagraph (c)(2), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (c)(3), but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(5) "Affiliate" and "Associate" shall have the meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on March 31, 1988.
(6) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in subparagraph (c)(2), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.
(7) "Disinterested Director" means any Director of the Corporation who is not an Affiliate or Associate of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any Director who
is thereafter chosen to fill any vacancy on the Board or who is elected and who, in either event, is not an Affiliate or Associate of the Interested Stockholder and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then serving on the Board. Notwithstanding anything to the contrary contained in this Article, no director of the Corporation shall be considered the beneficial owner of any Voting Stock held by any other director solely as a result of their status as directors of the Corporation.
(8) "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding and including the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding and including the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Disinterested Directors; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Disinterested Directors.
(9) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subparagraphs (b)(2)(i) and (ii) of this Article shall include the shares of Common Stock of the Corporation and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.
(10) For the purposes of determining the "Announcement Date", in the event that the first public announcement of the proposal of the Business Combination is made after the close on such date of any securities exchange registered under the Exchange Act on which any shares of the Voting Stock of the Corporation are traded, or of the National Association of Securities Dealers, Inc. Automated Quotations System or any other system on which any shares of the Voting Stock of the Corporation are listed, then the Announcement Date shall be deemed to be the next day on which such exchange or quotations system is open.
(11) "Book Value per Share of Common Stock" means the value determined by: (i) subtracting the liabilities of the Corporation from its assets; (ii) multiplying that amount by the proportion that the Common Stock bears to the total capitalization of the Corporation; and (iii) dividing that amount by the number of shares of Common Stock (A) issued and outstanding and (B) subject to options, warrants, grants or conversion rights which could have been exercised as of the Announcement Date.
(d) Powers of the Board of Directors. A majority of the Board shall have the power and duty to determine for the purposes of this Article, on the basis of information known to them after reasonable inquiry, whether a person is an Interested Stockholder, which determination
shall be conclusive. Once the Board has made a determination, pursuant to the
preceding sentence, that a person is an Interested Stockholder, then a majority
of Disinterested Directors shall have the power and duty to determine for the
purposes of this Article, on the basis of information known to them after
reasonable inquiry, (i) the number of shares of Voting Stock beneficially owned
by any person, (ii) whether a person is an Affiliate or Associate of another,
(iii) whether the assets which may be the subject of any Business Combination
have, or the consideration which may be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business Combination has,
an aggregate Fair Market Value equal to or greater than ten percent of the
combined assets of the Corporation and its Subsidiaries and (iv) whether all of
the applicable conditions set forth in subsection (b)(2) shall have been met
with respect to any Business Combination, any of which determinations by a
majority of the Disinterested Directors shall be conclusive. A majority of the
Disinterested Directors shall have the further power to interpret all of the
terms and provisions of this Article, which interpretation shall be conclusive.
(e) No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article shall be construed to relieve any Interested Stockholder of any fiduciary obligation imposed by law.
(f) Amendment, Repeal, etc. Notwithstanding any other provisions of the charter of the corporation or the bylaws of the Corporation (and notwithstanding the fact that a lesser percentage or no vote may be specified by law, the charter of the corporation or the bylaws of the Corporation), and in addition to any affirmative vote of the holders of Preferred Stock or any other class of capital stock of the Corporation or any series of the foregoing then outstanding which is required by law or by or pursuant to the charter of the corporation, the affirmative vote of the holders of eighty percent (80 percent) or more of the voting power of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article.
EIGHTH: Except as provided in Article SEVENTH of, or as otherwise provided in, the charter of the corporation, the Corporation may authorize, by a vote of a majority of the shares of each class of stock outstanding and entitled to vote thereon, (a) the sale, lease or exchange of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions as it deems expedient, and (b) the merger or consolidation of the Corporation with or into any other corporation, provided, however, that such sale, lease, exchange, merger or consolidation shall have been approved by a majority of the members of the board of directors.
NINTH: The board of directors shall appoint one of its members president of this Corporation, who shall be chairperson of the board, unless the board appoints another director to be the chairperson. The board of directors shall have the power to appoint one or more vice presidents and such other officers and employees as may be required to transact the business of this Corporation.
The board of directors shall have the power to: define the duties of the officers and employees of the Corporation; fix the salaries to be paid to them; dismiss them; require bonds from them and to fix the penalty thereof; regulate the manner in which any increase of the capital
of the Corporation shall be made; manage and administer the business and affairs of the Corporation; make all bylaws that it may be lawful for the board to make; and generally to perform all acts that it may be legal for a board of directors to perform.
TENTH: The board of directors shall have the power to change the location of the principal office to within thirty miles of its office in Waldorf, Maryland, without the approval of the stockholders.
ELEVENTH: The Corporation's existence shall be perpetual unless earlier terminated in accordance with Maryland law.
TWELFTH: The board of directors or the chairperson of the board of this Corporation, or any one or more stockholders owning, in the aggregate, not less than 20 percent of the stock of this Corporation, may call a special meeting of stockholders at any time. Unless otherwise provided by the Maryland General Corporation Law ("the "MGCL"), a notice of the time, place and purpose of every annual and special meeting of the stockholders shall be given at least 10 days prior to the date of the meeting to each stockholder of record at his/her address as shown upon the books of this Corporation.
THIRTEENTH: (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation, including, without limitation, any corporation or other entity of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation (a "subsidiary") or any affiliate of the Corporation as such term is defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the MGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties, costs of investigation and preparation of defense and amounts paid or to be paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in section (c) hereof with respect to proceedings to enforce rights of indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation.
(b) Advance of Expenses. The right to indemnification conferred in section (a) of this Article shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer shall be made only upon delivery to the Corporation of an undertaking whose terms are satisfactory to the board of directors without the vote of any indemnitee (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise. The rights to indemnification and to the advancement of expenses conferred in sections (a) and (b) of this Article shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators.
(c) Right of Indemnitee to Bring Suit. If a claim under section (a) or
(b) of this Article is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the MGCL. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the MGCL, nor an actual determination by the Corporation
(including its board of directors, independent legal counsel or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
(d) Rights Not Exclusive. The rights to indemnification and to the advancement of expenses conferred in this Article shall not be exclusive of any other rights, by indemnification or otherwise, which any person may have or hereafter acquire under any statute, the charter of the corporation, the Corporation's bylaws, or any agreement, vote of stockholders or disinterested directors or otherwise.
(e) Regulatory Agency Enforcement Actions. The Corporation may not under this Article indemnify any director, officer or employee of the Corporation against expenses, penalties or other payments incurred in an administrative proceeding or action instituted by an appropriate bank regulatory agency which proceeding or action results in a final order assessing civil money penalties or requiring affirmative action by an individual or individuals in the form of payments to the Corporation.
(f) Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any subsidiary or affiliate or any employee benefit plan, against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the MGCL, except that such insurance shall explicitly exclude coverage for a formal order assessing civil money penalties against any director, officer, employee or agent of the Corporation. The Corporation's obligation to provide indemnification under this Article shall be offset to the extent of any payment received by the indemnitee from any other source of indemnification or pursuant to any otherwise applicable insurance coverage under a policy maintained by the Corporation or any other person.
(g) Employees and Agents. The Corporation may, to the extent authorized from time to time by the board of directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation or any subsidiary or affiliate to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the Corporation.
(h) Agreements. The Corporation may, to the extent authorized from time to time by the board of directors, enter into agreements with any director, officer, employee or agent of the Corporation or any subsidiary or affiliate to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to such person.
(i) Amendment. Without the consent of a person entitled to the indemnification and other rights provided in this Article (unless otherwise required by the MGCL), no amendment modifying or terminating such rights shall adversely affect such person's rights under this Article with respect to the period prior to such amendment.
(j) Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each indemnitee as to any liabilities and expenses with respect to any proceeding to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
(k) Limitation of Liability of Officers and Directors. No officer or director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as an officer or director notwithstanding any provision of law imposing such liability; provided, however, that this Article shall not eliminate or limit any liability of an officer or director (i) to the extent that it is proved that the person 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, (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, or (iii) in an administrative proceeding or action instituted by an appropriate bank regulatory agency which proceeding or action results in a final order requiring affirmative action by an individual or individuals in the form of payments to the Corporation.
No amendment or repeal of this section shall adversely affect the rights and protection afforded to an officer or director of this Corporation under this section for acts or omissions occurring while this section is in effect.
If the MGCL is subsequently amended to further eliminate or limit the personal liability of officers or directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the officers or directors of this Corporation shall, without any further action of the board of directors or the stockholders of this Corporation, be eliminated or limited to the fullest extent permitted by the MGCL as so amended.
FOURTEENTH: (a) Unless otherwise provided in the charter of the corporation, these articles of amendment and restatement may be amended only if such amendment is first approved by an affirmative vote of a majority of the board of directors then in office and thereafter approved by the affirmative vote of at least two-thirds of the total votes eligible to be cast at any regular or special meeting of the stockholders of this Corporation; provided, however, that if there has been an Interested Stockholder at any time within the sixty-day period immediately preceding the stockholder meeting at which such vote is to be taken, such amendment shall also require the affirmative vote of a majority of the Disinterested Directors then in office prior to approval by the stockholders.
(b) The directors of the Corporation shall have power to make, alter, amend and repeal the bylaws of the Corporation in whole or in part except with respect to any provision thereof which by law or the charter of the corporation or such bylaws requires action by the stockholders, who shall also have power to make, alter, amend and repeal the bylaws of the Corporation. Any bylaws made by the directors under the powers conferred hereby may be altered, amended, or repealed by the directors or the stockholders. Notwithstanding the foregoing and anything contained in the charter to the contrary, Articles II and VII and Sections 2 and 3 of Article I of the bylaws, and this Article FOURTEENTH, shall not be altered, amended or repealed, and no provision inconsistent therewith or herewith shall be adopted, without the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Prior to the filing of these Articles of Amendment and Restatement, the Corporation had the authority to issue Two Million (2,000,000) shares of capital stock, comprised of One Million
(1,000,000) shares of preferred stock, $0.01 par value per share, and One Million (1,000,000) shares of common stock, $10.00 par value per share, for an aggregate par value of $10,010,000.
Subsequent to the filing of these Articles of Amendment and Restatement, the Corporation will have the authority to issue Six Million (6,000,000) shares of capital stock, comprised of One Million (1,000,000) shares of preferred stock, $0.01 par value per share, and Six Million (6,000,000) shares of common stock, $0.01 par value per share, for an aggregate par value of $60,000. A description of each class of capital stock, including preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and terms and conditions of redemption, appears in Article SECOND above.
Upon the acceptance for record by the SDAT of these Articles of Amendment and Restatement, the shares of the Voting Common Stock which were issued and outstanding immediately prior to the acceptance for record by the SDAT of these Articles of Amendment and Restatement shall be deemed for all purposes to be the same number of shares of the Common Stock. There are currently no shares of Non-Voting Common Stock issued or outstanding and, upon the acceptance for record by the SDAT of these Articles of Amendment and Restatement, all of the Non-Voting Common Stock shall be canceled.
The Board of Directors of the Corporation, pursuant to and in accordance with the Charter and Bylaws of the Corporation and the MGCL, approved the foregoing amendment and restatement of the Charter of the Corporation. No stock entitled to be voted on the matter was outstanding or subscribed for at the time of approval.
[Signature Appears On The Following Page]
IN WITNESS WHEREOF, OLD LINE BANCSHARES, INC. has caused these Articles of Amendment and Restatement to be signed and acknowledged in its name and on its behalf by its President and attested to by its Secretary on this 26th day of June, 2003, and its President acknowledges that these Articles of Amendment and Restatement are the act of Old Line Bancshares, Inc. and he further acknowledges that, as to all matters or facts set forth herein which are required to be verified under oath, such matters and facts are true in all material respects to the best of his knowledge, information and belief, and that this statement is made under the penalties for perjury.
ATTEST: OLD LINE BANCSHARES, INC. /s/ Christine M. Rush By:/s/ James W. Cornelsen ---------------------------- ------------------------------ Christine M. Rush, Secretary James W. Cornelsen, President |
The undersigned hereby agrees to serve as resident agent in the State of Maryland for Old Line Bancshares, Inc.
/s/ James W. Cornelsen ----------------------------- James W. Cornelsen |
EXHIBIT 3.2
Amended and Restated Bylaws
OLD LINE BANCSHARES, INC.
TABLE OF CONTENTS
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Page
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ARTICLE I.........................................................................................................1
STOCKHOLDERS............................................................................................1
ARTICLE II........................................................................................................4
BOARD OF DIRECTORS......................................................................................4
ARTICLE III.......................................................................................................7
OFFICERS................................................................................................7
ARTICLE IV........................................................................................................9
CAPITAL STOCK...........................................................................................9
ARTICLE V........................................................................................................11
CORPORATE SEAL.........................................................................................11
ARTICLE VI.......................................................................................................12
MISCELLANEOUS PROVISIONS...............................................................................12
ARTICLE VII......................................................................................................13
BYLAWS INSPECTION AND AMENDMENTS.......................................................................13
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Bylaws
OLD LINE BANCSHARES, INC.
ARTICLE I
STOCKHOLDERS
1. Place of Meetings. All meetings of the stockholders shall be held either at the principal office of the Company or at such other place within the United States as is determined by the Board of Directors or the Chairperson of the Board of Directors and stated in the notice of the meeting.
2. Annual Meetings. The annual meeting of the stockholders entitled to vote shall be held on a day and time duly designated by the Board of Directors in May of each year. The purposes for which an annual meeting is to be held, in addition to those prescribed by law, by the Articles of Incorporation and by these Bylaws, may be specified by the Board of Directors or the Chairperson of the Board. If no annual meeting is held on the date fixed, or by adjournment therefrom, a special meeting of the stockholders may be held in lieu thereof, and any action taken at such special meeting shall have the same force and effect as if taken at the annual meeting.
3. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Company, special meetings of the stockholders entitled to vote may be called by the Board of Directors or the Chairperson of the Board of Directors, and shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more stockholders who are entitled to vote and who hold at least one-fifth part is interest of the capital stock entitled to vote at the meeting.
4. Notice of Meetings. Notice of all meetings of stockholders, stating the place, date and hour thereof and, in the case of special meetings and meetings at which an action proposed to be taken requires advance notice of the purpose of the action, the purpose or purposes for which the meeting is called, shall be given by the Secretary. Notice must be given in writing and such writing shall be sufficient if given personally or by postage-prepaid mailing, or by any other means permitted by law. Notice must be given at least ten (10) days before the meeting, to each stockholder entitled to vote thereat and to each stockholder who, by law, the Articles of Incorporation or these Bylaws, is entitled to such notice, such notice addressed to his usual place of business or residence as it appears upon the books of the Company. Notice shall be deemed given when it is received, if hand delivered, or when dispatched, if delivered through the mails or by courier, telegraph, telex, telecopy or cable. No notice of a meeting of the stockholders need be given to any stockholder if such stockholder, by a writing (including, without limitation, by telegraph, telex, telecopy or cable filed with the records of the meeting (and whether executed before or after such meeting)) waives such notice, or if such stockholder attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Every stockholder who is present at a meeting (whether in person or by proxy) shall be deemed to have waived notice thereof.
5. Quorum. At any meeting of stockholders, the holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum, except that, if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class, a quorum shall consist of the holders of a majority in interest of the stock of that class issued, outstanding and entitled to vote.
6. Adjournments. Any meeting of the stockholders may be adjourned to any other time and to any other place by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as Secretary of such meeting if no stockholder is present in person or by proxy. It shall not be necessary to notify any stockholder of any adjournment. Any business which could have been transacted at any meeting of the stockholders as originally called may be transacted at any adjournment thereof.
7. Nominations of Directors. Nominations for election to the board of directors may be made by the board of directors or by any stockholder of any outstanding class of capital stock of the Company entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the board of directors or a committee of the board of directors, shall be made in writing and shall be delivered or mailed to the President of the Company not less than 14 days nor more than 50 days prior to any meeting of stockholders called for the election of directors, provided, however, that if less than 21 days notice of the meeting is given to stockholders, such nomination shall be mailed or delivered to the President not later than the close of business on the fifth day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying stockholder:
o The name and address of each proposed nominee.
o The principal occupation of each proposed nominee.
o The names of any associate or affiliate (as those terms are
defined in rule 12b-2 under the Securities Exchange Act of 1934,
as amended) of each proposed nominee which own shares of capital
stock of the Company or are beneficial owners of options or
parties to agreements in respect to the capital stock of the
Company.
o The total number of shares of capital stock of the Company that
will be voted for each proposed nominee.
o The name and residence address of the notifying stockholder.
o The number of shares of capital stock of the Company owned by the
notifying stockholder and each proposed nominee.
Nominations not made in accordance herewith may, in his discretion, be disregarded by the chairperson of the meeting, and upon his instructions, the vote tellers may disregard all votes cast for each such nominee.
8. Votes and Proxies. At all meetings of the stockholders, each stockholder shall have one vote for each share of stock having voting power registered in such stockholder's name, and a proportionate vote for any fractional shares, unless otherwise provided or required by law, the Articles of Incorporation or these Bylaws. Scrip shall not carry any right to vote unless otherwise provided therein, but if scrip provides for the right to vote, such voting shall be on the same basis as fractional shares.
Each stockholder entitled to vote at any meeting of stockholders of the Company may authorize another person or persons to act for him as proxy by (i) signing a writing authorizing the other person to act as proxy in the manner permitted by Maryland law or (ii) transmitting, or authorizing the transmission of, an authorization for the person to act as proxy to (a) the person authorized to act as proxy or (b) any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation or proxy support service organization. The authorization may be transmitted by a telegram, cablegram, datagram, electronic mail, or any other electronic or telephonic means. Further, to the extent permitted by Maryland law, the placing of a stockholder's name on a proxy pursuant to telephonic or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such stockholder shall constitute execution of such proxy by or on behalf of such stockholder. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder authorizing it, except in those cases in which the proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. A proxy purporting to be by or on behalf of the stockholder authorizing it shall be deemed valid unless challenged at or prior to its exercise.
9. Conduct of Business. The Chairperson of the Board of Directors or his designee, or, if there is no Chairperson of the Board or such designee, then a person appointed by a majority of the Board of Directors, shall preside at any meeting of stockholders. The Chairperson of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order.
10. Action at a Meeting. When a quorum is present, the holders of a majority of the stock present or represented and entitled to vote and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and entitled to vote and voting on a matter), except where a larger vote is required by law, the Articles of Incorporation or these Bylaws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The Company shall not directly or indirectly vote any share of its stock. Nothing in this section shall be construed to limit the right of the Company to vote any shares of stock held directly or indirectly by it in a fiduciary capacity.
11. Inspectors. The Board of Directors may, in advance of any meeting of stockholders of the Company, appoint one or more inspectors to act at the meeting or at any adjournment of the meeting. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall, if required by the Board of Directors or the chairman, as the case may be, take and sign an oath to execute faithfully the duties of inspector at the meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each share, the number of shares represented at the meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do those acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No Director or candidate for the office of Director shall act as inspector of an election of Directors. Inspectors need not be stockholders of the Company.
ARTICLE II
1. Powers. The Board of Directors may exercise all the powers of the Company except such as are required by law or by the Articles of Incorporation or these Bylaws to be otherwise exercised, and the business and affairs of the Company shall be managed under the direction of the Board of Directors. Without limiting the generality of the foregoing, the Board of Directors shall have power, unless otherwise provided by law, to purchase and to lease, pledge, mortgage and sell such property (including the stock of the Company) and to make such contracts and agreements as they deem advantageous, to fix the price to be paid for or in connection with any property or rights purchased, sold, or otherwise dealt with by the Company, to borrow money, issue bonds, notes and other obligations of the Company, and to secure payment thereof by the mortgage or pledge of all or any part of the property of the Company. The Board of Directors may determine the compensation of directors. The Board of Directors or such officer or committee as the Board of Directors shall designate, may determine the compensation and duties, in addition to those prescribed by these Bylaws, of all officers, agents and employees of the Company.
2. Number. The Company shall have a Board of Directors, which shall consist of not less than five and not more than twenty-five directors, which number, subject to the rights of the holders of any preferred stock of the Company to elect Directors, shall be determined from time to time by the Board of Directors. Such number may be enlarged or reduced by a vote of a majority of the entire Board of Directors.
Subject to the rights of the holders of any series of Preferred Stock then outstanding, the directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the first annual meeting of stockholders, the term of office of the second class to expire at the second annual meeting of stockholders and the term of office of the third class to expire at the third annual meeting of stockholders. At each annual meeting of stockholders or special meeting in lieu thereof following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders or special meeting in lieu thereof after their election and until their successors are duly elected and qualified.
Subject to the provisions of these Bylaws, each of the following persons, who are the initial members of the Board of Directors of the Company, shall serve as directors of the Company: (i) until the first annual meeting of stockholders and until his successor is elected
and qualified or until such person sooner dies, resigns, is removed or becomes disqualified: James W. Cornelsen, Daniel D. Deming, James F. Dent and John D. Mitchell, Jr.; (ii) until the second annual meeting of stockholders and until his successor is elected and qualified or until such person sooner dies, resigns, is removed or becomes disqualified: Craig E. Clark, Randy A. Lakes and Gail D. Manuel; and (iii) until the third annual meeting of stockholders and until his successor is elected and qualified or until such person sooner dies, resigns, is removed or becomes disqualified: Charles A. Bongar, Jr., Nancy L. Gasparovic, Samuel V. Goekjian and Frank Lucente, Jr.
3. Tenure. Except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws, each director, including the Chairperson of the Board, shall hold office until the annual meeting of stockholders at which his term expires and until his successor is elected and qualified or until he sooner dies, resigns, is removed or becomes disqualified. Any director may resign by giving written notice of his resignation to the Chairperson of the Board, the President, or the Secretary, if any, or to the Board of Directors at a meeting of the Board, and such resignation shall become effective at the time specified therein.
4. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time (i) only for cause and (ii) only by the affirmative vote of the holders of at least 80 percent of the voting power of all of the shares of the Company entitled to vote generally in the election of directors, voting together as a single class. A director may be removed for cause only after a reasonable notice and opportunity to be heard before the body proposing to remove him.
5. Vacancies. Subject to the Articles of Incorporation, any vacancy in the office of director (other than a vacancy created by an increase in the number of directors) may be filled by a majority vote of the directors then in office even though less than a quorum, or by a sole remaining director. Subject to the Articles of Incorporation, newly created directorships resulting from an increase in the authorized number of directors may be filled by a majority vote of the entire Board of Directors.
6. Meetings. Meetings of the directors need not be held in the state of the principal office of the Company.
(a) Organization Meeting. The Secretary, upon receiving the result of any election, shall notify the directors-elect of their election and of the time at which they are required to meet at the principal office of the Company to organize the new Board and elect and appoint officers of the Company for the succeeding year. Such meeting shall be held on the day of the election, or as soon thereafter as practicable, and, in any event, within 30 days thereof. If, at the time fixed for such meeting, there shall not be a quorum, the directors present may adjourn the meeting, from time to time, until a quorum is obtained.
(b) Regular Meetings. Regular meetings of the Board of Directors may be held without call or notice at such places and at such times as may be fixed by the Board of Directors from time to time, provided that any director who is absent when such determination is made shall be given notice of the determination. When any regular meeting of the Board falls
upon a holiday, the meeting shall be held on the next banking business day unless the Board shall designate another day.
(c) Special Meetings. Special meetings of the Board of Directors may be called by the Chairperson of the Board, the Chief Executive Officer, or three or more directors. Notice of the time and place of all special meetings shall be given by the Secretary or the officer or directors calling the meeting. Notice must be given orally, by telephone, or by telegraph, telex, telecopy, electronic transmission or cable or in writing, and such notice shall be sufficient if given in time to enable the director to attend, or in any case if sent by mail, by courier or telegraph, telex, telecopy, electronic transmission or cable at least three days before the meeting, addressed to a director's usual or last known place of business or residence. No notice of any meeting of the Board of Directors need be given to any director if such director, by a writing (including, without limitation, by telegraph, telex, telecopy or cable) or by an electronic transmission filed with the records of the meeting (and whether executed or delivered before or after such meeting), waives such notice, or if such director attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice need not specify the purpose of any special meeting.
7. Quorum of Directors. At any meeting of the Board of Directors, a majority of the number of directors then consisting a full Board of Directors then serving shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board of Directors until the vacancy is filled.
8. Action at a Meeting. Unless otherwise provided by law, the Articles of Incorporation or these Bylaws, action on any matter brought before any meeting at which there is a quorum may be taken by vote of a majority of the directors then present at the meeting, unless a different vote is required by law, the Articles of Incorporation or these Bylaws.
9. Action Without a Meeting. Unless otherwise provided by law, the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the directors may be taken without a meeting if all the directors then in office consent to the action in writing or by electronic transmission and the written consents and/or electronic transmissions are filed with the records of the meetings of directors. Such consents shall be treated for all purposes as a vote at a meeting.
10. Conduct of Meetings. Meetings of Directors shall be presided over by the Chairman of the Board of Directors, or, in his absence or inability to act, the Vice Chairman of the Board of Directors, or, in his absence or inability to act, the Chief Executive Officer, or, in the absence or inability of the Chief Executive Officer to act, another Director chosen by a majority of the Directors present, shall act as chairman of the meeting and preside at the meeting. The Secretary of the Company, 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.
11. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the entire Board, designate an executive and one or more other committees. Each committee shall consist of one or more of the Directors of the Company, which, to the extent provided in the resolution and as permitted by law, shall have and may exercise the powers of the Board of Directors. Such committee or committees shall have such names as may be determined from time to time by resolution adopted by the Board of Directors.
Notice of committee meetings shall be given in the same manner as notice
for regular and special meetings of directors. A majority of the members of a
committee, if there are three (3) or more members of the committee, or all of
the members of the committee, if there are less than three (3) members, shall
constitute a quorum for the transaction of any business at any meeting of the
committee. The act of a majority of the committee members, if there are three
(3) or more committee members present, or all of the committee members, if there
are less than three (3) committee members present, shall be the act of the
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two (2) members of the committee, if the committee has at
least two (2) members, or the sole member of the committee, if the committee has
one (1) member, may fix the time and place of its meeting unless the Board shall
otherwise provide. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required. The members of a
committee present at any meeting, whether or not they constitute a quorum, may
appoint a Director to act in the place of an absent member. Committees may act
without a meeting in the same manner as the Board of Directors and as provided
by Section 9 of this Article II.
12. Telephone Conference Meetings. The Board of Directors or any committee thereof may participate in a meeting of such Board of Directors or committee thereof by means of a conference telephone (or other communications equipment) if all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting.
ARTICLE III
1. Election. The officers of the Company shall be a Chairperson of the Board, a Chief Executive Officer, a President, a Chief Financial Officer, a Secretary and a Treasurer. Except as provided in Section 4 of this Article III, the officers shall be elected annually by the Board of Directors at its first meeting following the annual meeting of the stockholders.
2. Qualification. The Chairperson of the Board, and any vice Chairperson appointed to act in the absence of the Chairperson, shall be elected by and from the Board of Directors, but no other officer, other than the Chief Executive Officer, need be a director. Any two (2) or more 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 Bylaws to be executed, acknowledged or verified by any two (2) or more officers. If required by vote of the Board of Directors, an officer shall give bond to the Company for the faithful performance of his duties, in such form and amount and
with such sureties as the Board of Directors may determine. The premiums for such bonds shall be paid by the Company.
(a) Chairperson of the Board. The Board of Directors shall appoint one of its members to be the Chairperson of the Board to serve at its pleasure. Such person shall preside at all meetings of the Board of Directors. The Chairperson of the Board shall supervise the carrying out of the policies adopted or approved by the Board; shall have general executive powers, as well as the specific powers conferred by these Bylaws; and shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned by the Board of Directors.
(b) Chief Executive Officer. The Board of Directors shall appoint one of its members to be the Chief Executive Officer of the Company who may, but need not be, the President. In the absence of the Chairperson or any vice Chairperson, the Chief Executive Officer shall preside at any meeting of the Board. The Chief Executive Officer shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice, to the office of Chief Executive Officer, or imposed by these Bylaws. The Chief Executive Officer shall also have and may exercise such further powers and duties as from time to time may be conferred, or assigned by the Board of Directors.
(c) President. The Board of Directors shall appoint a President who, if not also the Chief Executive Officer, shall have and exercise such duties as from time to time may be conferred or assigned by the Chief Executive Officer or the Board of Directors.
(d) Vice Presidents. The Board of Directors may appoint one or more Vice Presidents, including one or more Executive Vice Presidents and Senior Vice Presidents. Each Vice President shall have such powers and duties as may be assigned by the Chief Executive Officer, the President or the Board of Directors. The Executive Vice President, if one is appointed, or if not, a Vice President, shall be designated by the Board of Directors, in the absence of the President, to perform all the duties of the President.
(e) Secretary. The Board of Directors shall appoint a Secretary or other designated officer who shall be Secretary of the Board and of the Company, and shall keep accurate minutes of all meetings. The Secretary shall attend to the giving of all notices required by these Bylaws, shall be custodian of the corporate seal, records, documents and papers of the Company; and shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, to the office of Secretary, or imposed by these Bylaws; and shall also perform such other duties as may be assigned from time to time, by the Chief Executive Officer, the President or the Board of Directors.
(f) Treasurer. The Board of Directors shall appoint a Treasurer. The Treasurer shall have and may exercise any and all powers and duties pertaining by law, regulation or practice, to the office of Treasurer, or imposed by these Bylaws; and shall also perform such other duties as may be assigned from time to time, by the Chief Executive Officer, the President or the Board of Directors.
(g) Chief Financial Officer. The Board of Directors shall appoint a Chief Financial Officer. The Chief Financial Officer shall have and may exercise any and all powers and duties pertaining by law, regulation or practice, to the office of Chief Financial Officer, or imposed by these Bylaws; and shall also perform such other duties as may be assigned from time to time, by the Chief Executive Officer or the Board of Directors.
(h) Other Officers. The Board of Directors may appoint one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers and attorneys in fact as from time to time may appear to the Board of Directors to be required or desirable to transact the business of the Company. Such officers shall respectively exercise such powers and perform such duties as pertain to their several offices, or as may be conferred upon, or assigned to, them by the Board of Directors, the Chairperson of the Board, or the President.
4. Tenure. Each officer elected or appointed by the Board of Directors shall hold office until the first meeting of the Board of Directors following the next annual meeting of the stockholders or special meeting in lieu thereof and until his successor is elected or appointed and qualified, or until he dies, resigns, is removed or becomes disqualified, unless a shorter term is specified in the vote electing or appointing said officer or a longer term is specified in an employment agreement approved by the Board of Directors or a committee of the Board of Directors. Any officer may resign by giving written notice of his resignation to the Chairperson of the Board, the President, or the Secretary, if any, or to the Board of Directors at a meeting of the Board, and such resignation shall become effective at the time specified therein.
5. Removal. Any officer elected or appointed by the Board of Directors may be removed from office with or without cause by vote of a majority of the directors then in office.
ARTICLE IV
1. Certificates of Stock. Unless the Board of Directors authorizes the issuance of certificateless shares and such issuance is not otherwise prohibited by the Corporation's Articles of Incorporation, each stockholder shall be entitled to a certificate or certificates representing in the aggregate the shares of the capital stock of the Company owned by him. All certificates for shares of stock of the Company shall state the number and class of shares evidenced thereby (and designate the series, if any), shall be signed by the Chairperson of the Board or the President and either the Secretary or Treasurer, may (but need not) bear the seal of the Company and shall contain such further statements as shall be required by law. The Board of Directors may determine the form of certificates of stock except insofar as prescribed by law or by these Bylaws, and may provide for the use of facsimile signatures thereon to the extent permitted by law. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer at the time of its issue. Every certificate for shares which are subject to any restrictions on transfer pursuant to the Articles of Incorporation, these Bylaws or any agreement to which the Company is a party, shall have the
restrictions noted conspicuously on the certificate and shall also set forth upon the face or back thereof either the full text of the restrictions or a statement of the existence of such restrictions and a statement that the Company will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every stock certificate issued while the Company is authorized to issue more than one class or series of stock, shall set forth on the face or back thereof either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series, if any, authorized to be issued as set forth in the Articles of Incorporation, or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the Company will furnish a copy thereof to the holder of such certificate upon written request and without charge.
2. Transfers of Stock. The transfer of all shares of stock of the Company, so as to affect the rights of the Company, shall be effected only by transfer recorded on the books of the Company, in person or by duly authorized attorney, and upon the surrender of the certificate properly endorsed or assigned. The transfer of all shares of stock of the Company shall be subject to the restrictions, if any, imposed by the Articles of Incorporation, these Bylaws or any agreement to which the Company is a party.
3. Holders of Record. The person registered on the books of the Company as the owner of the shares shall have the exclusive right to receive dividends thereon and to vote thereon as such owner, shall be held liable for such calls and assessments as may lawfully be made thereon, and except only as may be required by law, may in all respects be treated by the Company as the exclusive owner thereof. It shall be the duty of each stockholder to notify the Company of his post office address. The Company shall not be bound to recognize any equitable or other claim to or interest in shares of stock of the Company on the part of any other person except as may be otherwise expressly provided by law.
Notwithstanding anything to the contrary contained in these Bylaws, the Board of Directors may adopt by resolution a procedure by which a stockholder of the Company may certify in writing to the Company that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification; the purpose for which the certification may be made; the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Company; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of a certification which complies with the requirements established by the Board's resolution, the person specified in the certification shall be, for the purpose set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification.
4. Lost or Destroyed Certificates. The directors of the Company may determine the conditions upon which a new certificate of stock may be issued in place of any certificate alleged to have been lost, destroyed or mutilated.
5. Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and/or registrar of transfers and may require that all stock certificates representing shares
of any class to bear the signatures of such transfer agent or registrar of transfers, or the signature of both.
6. Stock Ledger. The Company shall maintain a stock ledger that contains the name and address of each stockholder and the number of shares of stock of each class registered in the name of each stockholder. The stock ledger may be in written form or in any other form that can be converted within a reasonable time into written form for visual inspection. The original or a duplicate of the stock ledger shall be kept at the offices of a transfer agent for the particular class of stock, within or without the State of Maryland, or, if none, at the principal office or the principal executive offices of the Company in the State of Maryland.
7. Record Date. The Board of Directors may fix in advance a date not more than sixty days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof, or the right to receive such dividend or distribution, or the right to give such consent or dissent. In such case, only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock or the books of the Company after the record date. Without fixing such record date the Board of Directors may, for any such purposes, close the transfer books for a period of up to 20 days. If no record date is fixed and the transfer books are not closed, the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be the later of the close of business on the day on which the notice of meeting is mailed or the thirtieth day before the meeting, and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto.
8. Issue of Stock. Subject to the Articles of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the Company or the whole or any part of any capital stock of the Company held in its treasury may be issued or disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.
ARTICLE V
The Chief Executive Officer, the President, the Treasurer, the Secretary or any Assistant Treasurer, or other officer thereunto designated by the Board of Directors, shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. 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".
ARTICLE VI
1. Fiscal Year. Except as otherwise determined by the Board of Directors from time to time, the fiscal year of the Company shall end on December 31 of each year.
2. Records. The Articles of Incorporation, the Bylaws and the proceedings of all meetings of the shareholders, the Board of Directors, and standing committees of the Board, shall be recorded in appropriate minutes books provided for that purpose. The minutes of each meeting shall be signed by the Secretary, Treasurer or other officer appointed to act as Secretary of the meeting.
3. Contributions. The Board of Directors shall have authority to make donations from the funds of the Company, in such amounts as the Board of Directors or officers to which such authority is delegated may determine to be reasonable and irrespective of corporate benefit, for the public welfare or for community fund, hospital, charitable, religious, educational, scientific, civic or similar purposes, and in time of war or other natural emergency in aid thereof.
4. Evidence of Authority. A certificate by the Secretary or Treasurer as to any action taken by the stockholders, Board of Directors, any committee of the Board of Directors or any officer or representative of the Company shall, as to all persons who rely thereon in good faith, be conclusive evidence of such action.
5. Ratification. Any action taken on behalf of the Company by the directors or any officer or representative of the Company which requires authorization by the stockholders or the directors of the Company shall be deemed to have been authorized if subsequently ratified by the stockholders entitled to vote or by the directors, as the case may be, at a meeting held in accordance with these Bylaws.
6. Reliance upon Books, Records and Reports. Each director or officer of
the Company shall be entitled to rely on information, opinions, reports or
records, including financial statements, books of account and other financial
records, in each case presented by or prepared by or under the supervision of
(1) one or more officers or employees of the Company whom the director or
officer reasonably believes to be reliable and competent in the matters
presented, or (2) counsel, public accountants or other persons as to matters
which the director or officer reasonably believes to be within such person's
professional or expert competence, or (3) in the case of director, a duly
constituted committee of the Board of Directors upon which he does not serve, as
to matters within its delegated authority, which committee the director
reasonably believes to merit confidence, but he shall not be considered to be
acting in good faith if he has knowledge concerning the matter in question that
would cause such reliance to be unwarranted. The fact that a director or officer
so performed his duties shall be a complete defense to any claim asserted
against him, except as expressly provided by statute, by reason of his being or
having been a director or officer of the Company.
7. Articles of Incorporation. All references in the Bylaws to the Articles of Incorporation shall be deemed to refer to the Articles of Incorporation of the Company, as amended, supplemented and restated and in effect from time to time.
8. Interpretation. The Board of Directors shall have the power to interpret all of the terms and provisions of these Bylaws and the Articles of Incorporation, which interpretation shall be conclusive.
9. Gender. Whenever the masculine gender is used in these Bylaws, it shall include the feminine and the neuter wherever appropriate.
10. Annual Statement of Affairs. There shall be prepared annually a full and correct statement of the affairs of the Company, to include a balance sheet and a financial statement of operations for the preceding fiscal year. The statement of affairs shall be submitted at the annual meeting of the stockholders and, within twenty (20) days after the meeting, placed on file at the Company's principal office. Such statement shall be prepared or caused to be prepared by such executive officer of the Company as may be designated in an additional or supplementary bylaw adopted by the Board of Directors. If no other executive officer is so designated, it shall be the duty of the President to prepare or cause to be prepared such statement.
ARTICLE VII
1. Inspection. A copy of the Bylaws, with all amendments, shall at all times be kept in a convenient place at the main office of the Company, and shall be open for inspection to all stockholders during business hours.
2. Amendments. These Bylaws may be altered, amended or repaired, in whole or in part, by vote of a majority of the Board of Directors, except with respect to any provisions thereof which by law, the Articles of Incorporation, or these Bylaws requires action by the stockholders, in which case these Bylaws may be amended in whole or in part by the stockholders at any annual or special meeting by vote of the holders of a majority in interest of all stock issued and outstanding and entitled to vote, except as otherwise provided in the Articles of Incorporation. The nature or substance of the proposed alterations, amendment or repeal shall be stated in the notice of the meeting.
Adopted: June 26, 2003
EXHIBIT 4
OLD LINE BANK
INCORPORATED UNDER THE LAWS OF
THE STATE OF MARYLAND
PAR VALUE: $10.00 PER SHARE
NUMBER SHARES
THIS CERTIFIES That is the owner of shares of the Common Stock of Old Line Bank, a Maryland Banking corporation, transferable by the holder hereof on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
The Certificate of Incorporation, as from time to time amended, the Bylaws of the Corporation, as from time to time amended, and the laws of Maryland, as from time to time amended, are by reference incorporated herein and the holder hereof by accepting this Certificate consents to the provisions hereof and agrees to be bound hereby.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed in facsimile by its duly authorized officers and its facsimile corporate seal to be hereunto affixed.
Dated: __________________________ ______________________ Secretary President |
Countersigned and Registered:
American Stock Transfer & Trust Company
(New York, NY)
Transfer Agent and Registrar
By
Authorized Signature
REVERSE SIDE
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -....Custodian....
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants- Act........................
in common (State)
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Additional abbreviations may also be used though not in the above list.
For value received, _________ hereby sell, assign and transfer unto
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_________________________________ Shares of the Common Stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint
_____________________________Attorney to transfer the said Stock on the books of
the within named Corporation, with full power of substitution in the premises.
Dated _______________________
NOTICE: ___________________________________
THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
The Corporation has the authority to issue more than one class of stock. The
Corporation will furnish without charge to any stockholder upon request a full
statement of the (1) designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption, if any, of each class of stock which the
Corporation is authorized to issue; (2) relative rights and preferences between
shares of each series of preferred stock to the extent they have been set; and
(3) authority of the board of directors to set the relative rights and
preferences of any subsequent series of preferred stock. Inquiries should be
made to the Corporation's Secretary at the Corporations principal office.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 31st day of March, 2003, between Old Line Bank (the "Bank" or "Employer"), a Maryland-chartered commercial bank , and James W. Cornelsen, a resident of the State of Maryland (the "Employee").
RECITALS:
The Employer desires to employ the Employee as the President and Chief Executive Officer of the Employer and the Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements hereinafter set forth, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and their variant forms will have the meaning set forth below:
1.1 "Agreement" means this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this
Agreement.
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1.2 "Affiliate" means any business entity which controls the Employer, is controlled by or is under common control with the Employer.
1.3 "Area" means the geographic area within a radius of 25 miles of any office or facility maintained by the Employer. It is the express intent of the parties that the Area as defined herein is the area where the Employee performs or performed services on behalf of the Employer under this Agreement as of, or within a reasonable time prior to, the termination of the Employee's employment hereunder.
1.4 "Board" means the board of directors of the Bank.
1.5 "Business of the Employer" means the business conducted by the Employer, which is community banking.
1.6 "Cause" means, any of the following events or conduct preceding a termination of employment initiated by the Employer:
(a) any act that constitutes, on the part of the Employee, fraud or dishonesty toward the Employer;
(b) the conviction of the Employee of a felony or crime involving moral turpitude;
(c) the Employee's entering into any transaction or contractual relationship (other than this Agreement) with, or diversion of business opportunity from, the Employer (other than on behalf of the Employer or with the prior written consent of the Board); provided, however, that in the case of this Clause (c), such conduct will not constitute Cause unless the Board delivers to the Employee written notice setting forth (1) the conduct deemed to qualify as Cause, (2) reasonable remedial action that might remedy such objection, and (3) a reasonable time (not less than thirty (30) days) within which the Employee may take such remedial action, and the Employee has not taken the specified remedial action with the specified reasonable time;
(d) the Employee breaches the covenants contained in Sections 6, 7 or 8 hereof;
(e) conduct by the Employee that results in removal of the Employee as an officer or employee of the Employer pursuant to a written order by any regulatory agency with authority or jurisdiction over the Employer; or
1.7 "Company Information" means Confidential Information and Trade Secrets.
1.8 "Confidential Information" means data and information relating to the business of the Employer (which does not rise to the status of a Trade Secret) which is or has been disclosed to the Employee or of which the Employee became aware as a consequence of or through the Employee's relationship to the Employer and which has value to the Employer and is not generally known to its competitors. Confidential Information does not include any data or information that has been voluntarily disclosed to the public by the Employer (except where such public disclosure has been made by the Employee without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means.
1.9 "Change in Control" means any one of the following events first to occur after the completion of the initial public offering of the common stock of the Bank:
(a) the acquisition by any person or persons acting in concert of the then outstanding voting securities of either the Bank or the Company, if, after the transaction, the acquiring person (or persons) owns, controls or holds with power to vote twenty-five percent (25%) or more of any class of voting securities of the Bank or the Company, as the case may be, or such other transaction as may be described under 12 C.F.R. Section 225.41(b)(1) or any successor thereto;
(b) within any twelve-month period (beginning on or after the Effective Date) the persons who were directors of either the Bank or the Company immediately before the beginning of such twelve-month period (the "Incumbent Directors") cease to constitute at least a majority of such board of directors; provided that any director who was not a director as of the Effective Date will be deemed to be an Incumbent Director if that director was elected to such board of directors by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors;
(c) the approval by the stockholders of either the Bank or the Company of a reorganization, merger or consolidation, with respect to which persons who were the stockholders of either the Bank or the Company, as the case may be, immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities; or
(d) the sale, transfer or assignment of all or substantially all of the assets of the Company or the Bank to any third party.
1.10 "Effective Date" means March 31, 2003.
1.11 "Good Reason" means, any of the following events or conduct preceding a termination of employment initiated by the Employee:
(a) a material diminution in the powers, responsibilities or duties of the Employee hereunder or a material change as to whom Employee reports and who reports to Employee;
(b) the failure of the Board to elect the Employee as the President and Chief Executive Officer of the Bank and the Company;
(c) a material breach of the terms of this Agreement by the Employer;
(d) the failure of the Board to nominate the Employee for re-election following expiration of each of the Employee's terms of service on the Board that arises during the Term (as defined below);
(e) a change in the location of the principal office of Employee more than thirty five (35) miles from its existing location.
provided, however, that no termination of employment which is triggered by any conduct or event described in this Section 1.11 shall constitute a termination of employment for Good Reason unless the Employee has first provided the Employer with the opportunity to cure the event or conduct by giving the Employer a written notice describing in sufficient detail the Employee's belief that a Good Reason exists and the Employee defers resigning until the expiration of a thirty (30) day cure period, beginning with the date such notice is received by the Employer.
1.12 "Permanent Disability" means the total inability of the Employee to perform the Employee's duties under this Agreement for a period of one hundred and eighty (180) consecutive days as certified by a physician chosen by the Employer and reasonably acceptable to the Employee.
1.13 "Trade Secrets" means information including, but not limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers which:
(a) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
1.14 "Company" means any entity that, on or after the Effective Date, controls the Bank.
2.1 The Employee is employed as the President and Chief Executive Officer of the Bank and the Company, subject to the direction of the Board or its designee, must perform and discharge well and faithfully the duties which may be assigned to him from time to time by the Employer in connection with the conduct of its business. The duties and responsibilities of the Employee are set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically assigned to the Employee pursuant to Section 2.1 hereof, the Employee must:
(a) devote substantially all of the Employee's time, energy and skill during regular business hours to the performance of the duties of the Employee's employment (reasonable vacations and reasonable absences due to illness excepted) and faithfully and industriously perform such duties;
(b) diligently follow and implement all management policies and decisions communicated to him by the Board; and
(c) timely prepare and forward to the Board all reports and accounting as may be requested of the Employee.
2.3 The Employee must devote the Employee's entire business, time, attention and energies to the Business of the Employer and must not during the Term of this Agreement be engaged (whether or not during normal business hours) in any other business or professional activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage; but this will not be construed as preventing the Employee from:
(a) investing the Employee's personal assets in businesses which are not in competition with the Business of the Employer and which will not require any services on the part of the Employee in their operation or affairs and in which the Employee's participation is solely that of an investor;
(b) purchasing securities in any corporation whose securities are regularly traded provided that such purchase will not result in him collectively owning beneficially at any time five percent (5%) or more of the equity securities of any business in competition with the Business of the Employer; and
(c) participating in civic and professional affairs and organizations and conferences, preparing or publishing papers or books or teaching so long as the Board approves of such activities prior to the Employee's engaging in them.
2.4 Directorship. Employee will also be appointed to and serve as a member of the Board of Directors of the Bank.
3.1 Term. The term of this Agreement will initially be set at five (5) years commencing on the date hereof. On or before the first anniversary of the Effective Date and on or before each succeeding consecutive anniversary of the Effective Date, the Board may, in its sole discretion, extend the term of this Agreement for one additional year or such greater term as the Board deems appropriate. The initial term and any extensions thereof made pursuant to this Section 3.1 are referred to herein as the "Term".
3.2 Termination. The employment of the Employee under this Agreement may be terminated prior to the expiration of the Term only as follows, subject to the conditions set forth below:
3.2.1 By the Employer:
(a) for Cause at any time, upon written notice to the Employee, in which event the Employer will have no further obligation to the Employee except for the payment of any amounts due and owing under Section 4 on the effective date of the termination; or
(b) without Cause or upon the Permanent Disability of Employee at any time, provided that the Employer gives the Employee sixty (60) days' prior written notice of its intent to terminate, in which event the Employer will be required to make the termination payments under Section 3.7.
3.2.2 By the Employee:
(a) for Good Reason at any time, in which event the Employer will be required to make the termination payments under Section 3.7; or
(b) without Good Reason or upon the Permanent Disability of
the Employee, provided that the Employee gives the Employer sixty
(60) days' prior written notice of the Employee's intent to
terminate, in which event the Employer will have no further
obligation to the Employee except for future payment of any
amounts due and owing under Section 4 on the effective date of
the termination.
3.2.3 By the Employee:
(a) within six (6) months following a Change in Control; provided that the Employee gives at least thirty (30) days' prior written notice to the Employer of the Employee's intention to terminate this Agreement with such resignation to be effective immediately, in which event the Employer will be required to make a termination payment under Section 3.7; or
(b) prior to the date on which a Change in Control occurs if the Employee can demonstrate that a third party has taken steps reasonably calculated to effect a Change in Control or in connection with or anticipation of a Change in Control, in which event the Employer will be required to make a termination payment under Section 3.7.
3.2.4 At any time upon mutual, written agreement of the parties,
in which event the Employer will have no further obligation to the
Employee except for the payment of any amounts due and owing under
Section 4 on the effective date of termination unless otherwise set
forth in the written agreement.
3.2.5 Immediately upon the Employee's death, in which event the Employer will have no further obligation to the Employee except for the payment of any amounts due and owing under Section 4 on the effective date of termination.
3.3 Effect of Termination. Termination of the employment of the Employee pursuant to Section 3.2 will be without prejudice to any right or claim which may have previously accrued to either the Employer or the Employee hereunder and will not terminate, alter, supersede or otherwise affect the terms and covenants and the rights and duties prescribed in this Agreement.
3.4 Suspension With Pay. Nothing contained herein will preclude the Employer from releasing the Employee of the Employee's normal duties and suspending Employee, with pay, during the pendency of any investigation or examination to determine whether or not Cause exists for termination of employee.
3.5 Suspension Without Pay. If Employee is suspended and/or temporarily prohibited from participating in the conduct of the Employer's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, the Employer's obligations under this Agreement will be suspended as of the date of service thereof, unless stayed by appropriate proceedings. If the charges in such notice are dismissed, the Employer may in its discretion:
(a) pay Employee all or part of the compensation withheld while its contract obligations were suspended; and/or
(b) reinstate (in whole or in part) any of its obligations which were suspended.
3.6 Other Regulatory Requirements. If the Bank is in default, as defined in Section (3)(x)(1) of the Federal Deposit Insurance Act, all obligations under this Agreement will terminate as the date of such default, but no vested rights of the Employee will be affected.
Further, all obligations under this Agreement will be terminated, except, to the extent determined that continuation of the Agreement is necessary for the continued operation of the Bank:
(a) by the Director (the "Director") of the Federal Deposit Insurance Corporation ("FDIC") or his or her designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority of the Federal Deposit Insurance Act; or
(b) by the Director or his or her designee, at the time the Director or his or her designee approves a supervisory merger to resolve problems relating to the operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.
3.7 Termination Payments. In the event this Agreement is terminated by
the Employer pursuant to Section 3.2.1(b) or by the Employee pursuant to
Section 3.2.2(a) and a Change in Control has not occurred, then commencing
with the first payroll date immediately following the effective date of
such termination, the Employer will pay to the Employee as severance pay
and liquidated damages an amount equal to the Average Annual Compensation
(as defined below) for a period equal to the remaining Term. In the event a
Change in Control has occurred or in anticipation thereof and this
Agreement is terminated by Employer or by Employee pursuant to Section
3.2.3, the Employee shall be entitled to a lump sum payment equal to the
excess of (a)2.99 times his Average Annual Compensation over (b) the
aggregate present value, as determined for federal income tax purposes, of
all other payments to the Employee in the nature of compensation that are
treated for federal income tax purposes as contingent on the Change in
Control, and shall be paid such lump sum payment by Employer within 24
hours of the effective date of termination of this Agreement. As used
herein, the term "Average Annual Compensation" means the Employee's average
annual taxable compensation paid by the Employer during the most recent
five (5) taxable years ending before the date the Change in Control occurs
(or such portion of such period during which the Employee was employed by
the Employer.
Notwithstanding any other provisions to this Agreement to the contrary, if the aggregate of the payments provided for in this Agreement and other payments and benefits which the Employee has the right to receive from the Employer (the "Total Payments") would constitute a "parachute payment," as defined in Section 280G(b)(2) of the Internal Revenue Code, the Employee shall receive the Total Payments unless (a) the after-tax amount that would be retained by the Employee (after taking into account all federal, state and local income taxes payable by the Employee and the amount of any excise taxes payable by the Employee under Section 4999 of the Internal Revenue Code that would be payable by the Employee (the "Excise Taxes")) if the Employee were to receive the Total Payments has an aggregate value less than (b) the after-tax amount that would be retained by the Employee (after taking into account all federal, state and local income taxes payable by the Employee) if the Employee were to receive the Total Payments reduced to the largest amount as would result in no portion of the Total Payments being subject to Excise Taxes (the "Reduced Payments"), in which case the Employee shall be entitled only to the Reduced Payments. If the Employee is to receive the Reduced Payments, the Employee shall be entitled to determine which of the Total Payments, and the relative portions of each, are to be reduced.
4.1 Compensation. The Employee will receive the following salary and benefits:
(a) Base Salary. During the Term, the Employee will receive a base salary at the rate of $135,000 per annum, payable in substantially equal installments in accordance with the Bank's regular payroll practices ("Base Salary"). The Employee's Base Salary will be reviewed by the Board annually, and the Employee will be entitled to receive annually an increase in such amount, if any, as may be determined by the Board.
(b) Incentive Compensation.
(i) In addition to Employee's Base Salary under Section 4.1(a), within ninety (90) days following the end of each fiscal year of the Employer's operations, the Employer may pay the Employee a bonus as determined each year by the Board.
(ii) Provided that sufficient options are available for grant under a stockholder approved stock option plan, on the 31st of December of each year, the Bank or the Company (if an entity then controls the Bank) shall grant options to Employee to purchase not less than 1250 shares of stock in the Bank or the Company or such greater amount as may be approved by the Board. The exercise price for the options shall be the fair market value of the Bank's or Company's stock on the date the options were granted. The options must be exercised within ten (10) years of the date such options were granted. Notwithstanding anything to the contrary contained in this Section 4.1(b)(ii), the options to be granted pursuant to this Section 4.1(b)(ii) will only be evidenced by, and will be subject to the terms and conditions of, a stock option agreement to be entered into between the Bank and Employee.
(iii) The Employee will also be entitled to participate in such other bonus, incentive and other executive compensation programs as are made available to senior management of the Employer from time to time.
The bonus amounts which may be payable to the Employee pursuant to this Section 4.1(b) is referred to herein as "Incentive Compensation".
4.2 Compensation as a Director. The Employee will not be compensated for attendance at regular and special Board meetings.
4.3 Automobile. The Bank will make available to the Employee an automobile equivalent in value to the vehicle provided to Employee immediately prior to the date of this Agreement to be utilized by Employee for business and personal use as is customary for presidents of financial institutions in the Area.
4.4 Business Expenses; Memberships. The Employer specifically agrees to reimburse the Employee for (a) reasonable business (including travel) expenses incurred by the Employee in the performance of the Employee's duties hereunder, as approved from time to time by the Board, and (b) the dues and business related expenditures, including initiation fees, associated with membership in professional associations which are commensurate with the Employee's position; provided, however, that the Employee must, as a condition of reimbursement, submit verification of the nature and amount of such expenses in accordance with reimbursement
policies from time to time adopted by the Employer and in sufficient detail to comply with rules and regulations promulgated by the Internal Revenue Service.
4.5 Vacation. On a non-cumulative basis the Employee will be entitled to vacation in each year of this Agreement in accordance with the Bank's vacation policy as then in effect, during which the Employee's Base Salary will be paid in full.
4.6 Benefits. In addition to the Base Salary and Incentive Compensation, the Employee will be entitled to such benefits as may be available from time to time for executives of the Employer similarly situated to the Employee or for Employee individualy. All such benefits will be awarded and administered in accordance with the Employer's standard policies and practices. Such benefits may include, by way of example only, profit-sharing plans, retirement, life and disability insurance benefits and such other benefits as the Employer deems appropriate.
4.7 Withholding. The Employer may deduct from each payment of compensation hereunder all amounts required to be deducted and withheld in accordance with applicable federal and state income, FICA and other withholding requirements.
5.1 Ownership of Information. All Company Information received or developed by the Employee while employed by the Employer will remain the sole and exclusive property of the Employer.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Company Information in strictest confidence, and (b) not to use, duplicate, reproduce, distribute, disclose or otherwise disseminate Company Information or any physical embodiments thereof and may in no event take any action causing or fail to take any action necessary in order to prevent any Company Information from losing its character or ceasing to qualify as Confidential Information or a Trade Secret. In the event that the Employee is required by law to disclose any Company Information, the Employee will not make such disclosure unless (and then only to the extent that) the Employee has been advised by the Company's legal counsel that such disclosure is required by law and then only after prior written notice is given to the Employer when the Employee becomes aware that such disclosure has been requested and is required by law. This Section 5 will survive the termination of this Agreement with respect to Confidential Information for so long as it remains Confidential Information, but for no longer than three (3) years following termination of this Agreement, and this Section 5 will survive termination of this Agreement with respect to Trade Secrets for so long as is permitted by the then-current Maryland Trade Secrets Act.
5.3 Delivery upon Request or Termination. Upon request by the Employer, and in any event upon termination of employment with the Employer, the Employee will promptly deliver to the Employer all property belonging to the Employer, including without limitation, all Company Information then in the Employee's possession or control.
6. NON-COMPETITION. The Employee agrees that during the Term hereunder and, in the event of the Employee's termination of employment for any reason, thereafter for a period equal
to the greater of (a) six (6) months; or (b) the period during which the
Employee is to be paid monthly termination payments, if any, in accordance with
Section 3.7 hereof, the Employee will not (except on behalf of or with the prior
written consent of the Employer), within the Area, either directly or
indirectly, on the Employee's own behalf or in the service or on behalf of
others, as a principal, partner, officer, director, manager, supervisor,
administrator, consultant, executive employee or in any other capacity which
involves duties and responsibilities similar to those undertaken for the
Employer, engage in any business which is the same as or essentially the same as
the Business of the Employer.
7. NON-SOLICITATION OF CUSTOMERS. The Employee agrees that during the Term hereunder and, in the event of the Employee's termination of employment for any reason, thereafter for a period equal to the greater of (a) twelve (12) months; or (b) the period during which the Employee is to be paid monthly termination payments, if any, in accordance with Section 3.7 hereof, the Employee will not (except on behalf of or with the prior written consent of the Employer), within the Area, on the Employee's own behalf or in the service or on behalf of others, solicit, divert or appropriate or attempt to solicit, divert or appropriate, directly or by assisting others, any business from any of the Employer's customers, including actively sought prospective customers, with whom the Employee has or had material contact during the last two (2) years of the Employee's employment, for purposes of providing products or services that are competitive with those provided by the Employer.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during the Term hereunder and, in the event of the Employee's termination of employment for any reason, thereafter for a period equal to the greater of (a) twelve (12) months; or (b) the period during which the Employee is to be paid monthly termination payments, if any, in accordance with Section 3.7 hereof, the Employee will not, except for Employee's Administrative Assistant, within the Area, on the Employee's own behalf or in the service or on behalf of others, solicit, or recruit or attempt to solicit or recruit, directly or by assisting others, any employee of the Employer or its Affiliates, whether or not such employee is a full-time employee or a temporary employee of the Employer or its Affiliates and whether or not such employment is pursuant to written agreement and whether or not such employment is for a determined period or is at will.
9. REMEDIES. The Employee agrees that the covenants contained in Sections 5 through 8 of this Agreement are of the essence of this Agreement; that each of the covenants is reasonable and necessary to protect the business, interests and properties of the Employer; and that irreparable loss and damage will be suffered by the Employer should the Employee breach any of the covenants. Therefore, the Employee agrees and consents that, in addition to all the remedies provided by law or in equity, the Employer will be entitled to a temporary restraining order and temporary and permanent injunctions to prevent a breach or contemplated breach of any of the covenants. The Employer and the Employee agree that all remedies available to the Employer or the Employee, as applicable, will be cumulative.
10. SEVERABILITY. The parties agree that each of the provisions included in this Agreement is separate, distinct and severable from the other provisions of this Agreement and that the invalidity or unenforceability of any Agreement provision will not affect the validity or enforceability of any other provision of this Agreement. Further, if any provision of this Agreement is ruled invalid or unenforceable by a court of competent jurisdiction because of a
conflict between the provision and any applicable law or public policy, the provision will be redrawn to make the provision consistent with and valid and enforceable under the law or public policy.
11. NO SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or cause of action by the Employee against the Employer, or any Affiliate of the Employer, whether predicated upon this Agreement or otherwise, will not constitute a defense to the enforcement by the Employer of any of its rights hereunder.
12. NOTICE. All notices and other communications required or permitted under this Agreement will be in writing and, if mailed by prepaid first-class mail or certified mail, return receipt requested, will be deemed to have been received on the earlier of the date shown on the receipt or three (3) business days after the postmarked date thereof. In addition, notices hereunder may be delivered by hand, facsimile transmission or overnight courier, in which event the notice will be deemed effective when delivered or transmitted. All notices and other communications under this Agreement must be given to the parties hereto at the following addresses:
(i) If to the Employer, to it at:
2995 Crain Highway Waldorf, Maryland 20604 Attn: Chairman of the Board
(ii) If to the Employee, to the Employee at:
4825 Hawksbury Court LaPlata, Maryland 20646
13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or any of its rights and obligations hereunder without the written consent of the other party hereto.
14. WAIVER. A waiver by the Employer of any breach of this Agreement by the Employee will not be effective unless in writing, and no waiver will operate or be construed as a waiver of the same or another breach on a subsequent occasion.
15. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, will be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the arbitration panel will be final and binding on the parties, and judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof.
16. ATTORNEYS' FEES. In the event that the parties have complied with this Agreement with respect to arbitration of disputes and litigation ensues between the parties concerning the enforcement of an arbitration award and the Employee must employ separate legal counsel, the
Employer shall advance to the Employee, within thirty (30) days after receiving copies of invoices submitted by Employee, any and all reasonable attorneys' fees and expenses incurred with preparing, investigating and litigating such action, proceeding or suit. The Employee must reimburse the Employer for any and all advances that exceed the first $5,000 advanced to the Employee for such legal expenses only if and to the extent that a final decision by a court of competent jurisdiction has determined that the Employee is not entitled to receive any amounts due or to enforce any of the rights under this Agreement.
17. APPLICABLE LAW. This Agreement will be construed and enforced under and in accordance with the laws of the State of Maryland. The parties agree that any appropriate state court located in Baltimore County, Maryland, will have jurisdiction of any case or controversy arising under or in connection with this Agreement and will be a proper forum in which to adjudicate such case or controversy. The parties consent to the jurisdiction of such courts.
18. INTERPRETATION. Words importing the singular form shall include the plural and vice versa. The terms "herein", "hereunder", "hereby", "hereto", "hereof" and any similar terms refer to this Agreement. Any captions, titles or headings preceding the text of any article, section or subsection herein are solely for convenience of reference and will not constitute part of this Agreement or affect its meaning, construction or effect.
19. ENTIRE AGREEMENT. This Agreement embodies the entire and final agreement of the parties on the subject matter stated in the Agreement. No amendment or modification of this Agreement will be valid or binding upon the Employer or the Employee unless made in writing and signed by both parties. All prior understandings and agreements relating to the subject matter of this Agreement are hereby expressly terminated.
20. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or will be construed to confer upon or give to any person, firm or other entity, other than the parties hereto and their permitted assigns, any rights or remedies under or by reason of this Agreement.
21. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 will survive the termination of the employment of the Employee hereunder for the period designated under each of those respective sections.
22. JOINT AND SEVERAL. The obligation of the Bank and the Company to Employee hereunder will be joint and several.
IN WITNESS WHEREOF, the Employer and the Employee have executed and delivered this Agreement as of the date first shown above.
THE EMPLOYER:
OLD LINE BANK
By: /s/ Craig E. Clark
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Name: Craig E. Clark
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Title: Chairman
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|
THE EMPLOYEE:
By: /s/ James W. Cornelsen
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Name: James W. Cornelsen
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|
OLD LINE BANK
JOB DESCRIPTION
JOB TITLE: PRESIDENT/CHIEF EXECUTIVE OFFICER FSLA: EXEMPT REPORTS TO: BOARD OF DIRECTORS |
SUMMARY:
Plans, develops, and establishes policies and objectives of business organization in accordance with Board directives and corporation charter by performing the following duties personally or through subordinate managers.
ESSENTIAL DUTIES AND RESPONSIBILITIES: The primary duty and responsibility of this position is quality service to both internal and external customers. Specific duties are listed below. Other duties may be assigned.
Confers with corporate managers to plan business objectives, to develop organizational policies, to coordinate functions and operations between divisions and departments, and to establish responsibilities and procedures for attaining objectives.
Provides leadership representations for the bank and holding company board of directors and its committees. Contributes to the effective, profitable operation of the corporation by participation in Liquidity and Asset/Liability Management, Loan Committee, Public Relations /Marketing Committee, and Asset Review Committee activities.
Ensures that the spirit and intent of regulatory and supervisory trusts and concerns are met or exceeded.
Keeps the Board informed concerning major developments and consults with same regarding major decisions affecting the bank or holding company.
Represents the bank and provides leadership in key community activities, including business, charitable, civic, and social organizations to maintain a proper responsible citizen stature for the bank.
Reviews activity reports and financial statements to determine progress and status in attaining objectives and revises objectives and plans in accordance with current conditions.
Directs and coordinates formulation of financial programs to provide funding for new or continuing operations to maximize returns on investments and to increase productivity.
Plans and develops labor and public relations policies designed to improve company's image and relations with customers, employees, and the public.
Evaluates performance of executives for compliance with established policies and objectives of bank.
SUPERVISORY RESPONSIBILITY:
Manages subordinate supervisors in the Lending/Deposit function, Finance and Operations function, Human Resources, and Quality Services and Sales function. Also, responsible for the direct supervision of the Corporate Secretary. Is responsible for the overall direction, coordination, and evaluation of these units.
Provides direct guidance on personnel activities which affect the key bank management team, including salary administration, management incentive, performance objectives, and compliance with established policies to ensure solid team efforts toward the attainment of department, bank, and corporation goals.
Carries out supervisory responsibilities in accordance with the organization's policies and applicable laws. Responsibilities include interviewing, hiring, and training employees; planning, assigning, and directing work; appraising performance; rewarding and disciplining employees; and addressing complaints and resolving problems.
CRA REQUIREMENT:
Expected to understand the bank's obligations under the Community Reinvestment Act and how to fulfill them. Expected to cooperate with and support the bank's CRA program. Will be held accountable for any lack of cooperation that weakens the bank's CRA performance, as reflected in internal audits, agency examinations, and/or community projects.
PRODUCT AND KNOWLEDGE REQUIREMENT:
Should know and understand the products and services that are provided by Bank and give quality service at all times to our customers.
QUALIFICATION REQUIREMENTS:
To perform this job successfully, an individual must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or
ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.
EDUCATION AND/OR EXPERIENCE:
College graduate and graduate of recognized graduate banking school or equivalent; ten years related experience and/or training; or equivalent combination of education and experience.
LANGUAGE SKILLS:
Ability to read, analyze, and interpret common technical journals, financial reports, and legal documents. Ability to respond to common inquiries or complaints from customers, regulatory agencies, or members of the community. A high level of interpersonal skills to effectively communicate policies, procedures, staff objectives, and information to top management, public groups, and/or boards of directors.
ANALYTICAL SKILLS:
A high level of analytical, mathematical and reasoning skills to assess and evaluate the operation of subordinate areas of responsibility, participate in establishing bank-wide financial goals, and draft operational reports to the board.
PHYSICAL DEMANDS:
Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.
WORK ENVIRONMENT:
Good. There is little discomfort from noise, heat, dust, or other adverse factors.
PERFORMANCE EXPECTATIONS:
ORGANIZATIONAL EXPECTATIONS:
Understands that the position exists to ultimately serve the customer either directly or indirectly through assisting front-line personnel to answer customer inquiries quickly.
Practices a high degree of professionalism and sets an example for others to follow.
Demonstrates commitment to and understanding of continuous quality improvement. Uses creativity and initiative to recommend quality enhancements when relevant and appropriate.
Has satisfactory attendance within policy guidelines and is punctual.
Manages time effectively. Completes assigned duties within required deadlines.
FINANCIAL EXPECTATIONS:
Makes recommendations to the Board of Directors concerning budgetary needs of the bank.
Within parameters of job, uses good judgment related to Bank income opportunities and expense control.
Is financially responsible.
RELATIONSHIP EXPECTATIONS:
Conducts in-bank and public relationships in a manner that enhances the image and marketing efforts of the Bank.
Participates in community organizations, activities, and projects.
Contributes to an overall team effort by being an effective team player.
This job description is not intended to be and should not be construed as an all-inclusive list of the responsibilities, skills, or working conditions associated with the position. While this job description is intended to accurately reflect the position's activities and requirements, management reserves the right to modify, add, or remove duties and assign other duties as necessary.
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made as of this 31st day of March, 2003, by and between OLD LINE BANK, a Maryland-chartered commercial bank (the "Bank" or "Employer") and JOSEPH BURNETT (the "Employee").
The Bank desires to employ the Employee as the Senior Vice President on the terms and conditions herein set forth, and the Employee has agreed to accept employment with the Bank on the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the premises and the mutual promises made herein, the parties agree as follows:
1. Employment. The Bank hereby employs the Employee as a Senior Vice President and agrees to continue to employ the Employee in that position (or in any position approved by the Bank) during the term of this Agreement, except as otherwise provided below.
2. Term. The term of this Agreement will initially be set at two (2) years commencing on the date hereof and will automatically be extended for periods of one (1) year on the first anniversary hereof (calculated based on the date hereof) and on each consecutive anniversary thereafter; provided however that the automatic renewals as set forth in this paragraph 2 may be terminated by either party hereto giving notice to the other party of such termination not less than ninety (90) days prior to any anniversary date hereof, in which event the term will end on the second anniversary of the initial term or at the end of any extensions hereof. The initial term and any extensions thereof are referred to herein as the "Term".
A. The Employee's base salary for the first year under this Agreement shall be $107,000.00 per annum, payable on a bi-weekly basis. Employee may receive a bonus at the end of each calendar year but such bonus is payable in the sole discretion of the CEO. Provided that sufficient options are available for grant under a stockholder approved stock option plan, on the 31st of December of each year, the Bank (or such entity (the "Company") that then may control the Bank) shall grant options to Employee to purchase not less than 750 shares of stock in the Bank or the Company or such greater amount as may be approved by the Board of Directors or an appropriate committee of the Board of Directors. The exercise price for the options shall be the fair market value of the Bank's or Company's stock on the date the options were granted. The options must be exercised within ten (10) years of the date such options were granted. Notwithstanding anything to the contrary contained in this Section 3(A), the options to be granted pursuant to this Section 3(A) will only be evidenced by, and will be subject to the
terms and conditions of, a stock option agreement to be entered into between the Bank and Employee.
A. During the term of this Agreement, the Employee shall serve as the Senior Vice President. He shall have such powers and shall perform such duties that are incident and customary to this office, and as granted and assigned to him by the Chief Executive Officer ("CEO") and/or the Board of Directors.
B. The Employee shall devote his full time, attention, skill, and energy to the performance of his duties under this Agreement, and shall comply with all reasonable professional requests of the Bank; provided, however, that the Employee will be permitted to engage in and manage personal investments and to participate in community and charitable affairs, so long as such activities in the judgment of the Bank's CEO do not create a conflict of interest or interfere with the performance of his duties under this Agreement. In furtherance of this commitment, the Employee shall disclose all positions he holds with other organizations and any ownership interests he has in other business entities which he may influence or control management decisions. Such disclosures shall be made at the commencement of the Employee's employment and from time-to-time throughout his employment when his circumstances have changed to make such a disclosure appropriate.
C. The Employee shall immediately notify the Company of (i) his own illness and consequent absence from work or (ii) any intended significant change in his plans to work for the Company.
A. The Employee shall be entitled to a total of twenty (20) days of paid vacation each calendar year, which he may use in accordance with the Bank's announced policy that is in effect from time-to-time. The Employee may take his vacation at such times that do not interfere with the performance of his duties under this Agreement.
B. The Employee shall be entitled to eight (8) days of paid sick leave each calendar year, which he may use in accordance with the Bank's announced policy that is in effect from time-to-time.
6. Expenses. The Bank shall reimburse the Employee for all reasonable expenses incurred in connection with his duties on behalf of the Bank, provided that the Employee shall keep and present to the Bank records and receipts relating to reimbursable expenses incurred by his. Such records and receipts shall be maintained and presented in a format, and with such regularity, as the Bank reasonably may require in order to substantiate the Bank's right to claim income tax deductions for such expenses. For any expenditure in excess of $500.00, the Employee must obtain written approval from the CEO if he is to be reimbursed for the expense. Without limiting the generality of the foregoing, the Employee shall be entitled to reimbursement
for any business-related travel, business-related entertainment and other costs and expenses reasonably incident to the performance of his duties on behalf of the Bank.
A. Insurance. The Employee shall receive health insurance, consistent with the terms set forth in the plan established by the Bank for its employees. The Bank shall also pay the premiums for Employee to receive the following insurance, consistent with the terms set forth in the plans established by the Bank for its employees: dental; life; short-term disability; and long-term disability.
B. Banking. The Bank shall not charge the Employee for use of a savings account, checking account or debit card issued by the Bank. The Bank also shall offer discounted interest rates on loans to the Employee. The Employee is eligible to have his paychecks deposited directly in any account he has with the Bank or elsewhere.
A. This Agreement shall terminate prior to the expiration of its Term only upon the occurrence of one or more of the following events: (i) death of the Employee; (ii) if the Bank reasonably determines that the Employee is physically or mentally incapacitated and has been unable to perform his duties under this Agreement for a period of sixty (60) consecutive days and, in order to assist the Bank in making such determination, the Employee agrees to make himself available for medical examination by one or more physicians chosen by the Bank and grants to the Bank and such physicians access to all relevant medical information, including copies of the Employee's medical records and access to the Employee's own physicians; (iii) if the Employee gives sixty (60) days written notice of his resignation to the Bank's CEO; or (iv) if the Bank terminates the Employee for "cause" as defined below. In the event that the Bank terminates this Agreement for "cause" as defined below, the Employee shall use his best efforts to assist the Bank, as requested, in the orderly transition of the Employee's duties to the Bank and his successor, if any.
B. Termination for Cause. Notwithstanding the provisions of
Section 2 above, the Employee's employment (and all of his rights and benefits
under this Agreement) shall terminate immediately after written notice upon the
happening of any one or more of the following events, which constitute "cause":
(i) the Employee has breached, in any material respect, a provision of this
Agreement; (ii) the Employee refuses to perform the duties of his employment
under this Agreement in any material respect; (iii) the Employee has committed
any act or omission materially and adversely affecting his reputation or that of
the Bank or any of its affiliates or materially and adversely affecting any
product, policy, program or service offered through or developed by the Bank or
any of its affiliates; (iv) the Employee is convicted of or pleads guilty to a
charge of any felony or of any lesser crime involving fraud or moral turpitude
or directed against the Bank, its affiliates or any of their shareholders,
employees, agents or contractors; (v) the Employee commits any other act which
is inconsistent with the good faith fulfillment of his responsibilities as an
employee of the Bank or is done with the intent to harm the Bank, its affiliates
or any of their shareholders, employees, agents or contractors; (vi)
the Employee violates any material statute, rule or regulation of any federal, state or local governmental authority pertaining to the marketing, sale, solicitation or offer of any product, policy or program of the Bank or its affiliates; and (vii) the Employee commits any other act or omission which an arbitrator or a court of competent jurisdiction justifies as grounds for dismissal for cause.
C. Unused Vacation, Sick and Personal Leave. The Employee shall be eligible to receive the remaining balance of his unused vacation and personal leave at the termination of his employment only if he is not terminated for "cause" as defined above and he returns all Bank property to the Bank prior to his final day of employment. Employee shall have no right to receive any unused sick leave. If the Employee fails to return any Bank property prior to his last day of employment, the Employee authorizes the Bank to deduct from his final paycheck the reasonable cost (not value) of that item. In the event that the Employee elects to terminate his employment, he must provide the Company with 60 days notice as provided above in order to receive the remaining balance of his unused vacation and sick leave.
A. The Employee agrees that, for one (1) year following termination from the Bank, regardless of reason, he will not, as an individual, stockholder, officer, director, partner, agent, employee, consultant, or representative, act for or on behalf of or have any interest, direct or indirect, in any business similar to or competitive with the Bank's business within a 25-mile radius of any location where the Bank operates.
B. The Employee agrees, during the period of employment and for one (1) year following the termination of employment, not to solicit or sell or attempt to solicit or sell, for his own account or on behalf of any person or corporation other than the Bank, services or products that are competitive with the services or products of the Bank to any customer or client to which the Employee (or employees under his managerial control) has solicited or sold any services or products on behalf of the Bank during any part of the two (2) years immediately preceding the termination of his employment. This restriction shall, in the case of a multi-location customer or client, apply to the location or locations where Employee (or employees under his managerial control) solicited or sold services or products, as well as any offices of that customer or client within a 25-mile radius of the location or locations where Employee (or employees under his managerial control) solicited or sold services or products.
C. Employee agrees, during the period of employment and for one (1) year following termination, not to perform or render services or attempt to perform or render services, for his own account or on behalf of any person or corporation other than the Bank, for any customer or client of the Bank for which the Employee (or employees under his managerial control) has performed any services, during any part of the two (2) years immediately preceding the termination of his employment. This restriction shall, in the case of a multi-location customer or client, apply to the location or locations where the Employee (or employees under his managerial control) performed or rendered services, as well as any offices of that customer or client within a 25-mile radius of the location or locations where the Employee (or employees under his managerial control) performed or rendered services.
D. The Employee agrees, during the period of employment and for one (1) year following termination, not to solicit or hire, either directly or indirectly, any current employee of the Bank to work or perform services for his own account or on behalf of any person or corporation other than the Bank, or attempt to induce any employee to leave the employ of the Bank to work for the Employee or any other person, firm or corporation.
E. The Employee acknowledges that any breach of these provisions will cause irreparable harm to the Bank and entitle the Bank to injunctive or other equitable relief, as well as damages. In the event of a breach of Paragraphs A through C of this Section, the Employee shall pay to the Bank liquidated damages equal to any money received by the Employee due to violation of these Paragraphs, as well as court costs and reasonable attorneys' fees incurred by the Bank to enforce this Agreement. In the event of a breach of Paragraph D of this Section, the Employee shall pay to the Bank liquidated damages equal to any money received by the Employee due to violation of this Paragraph or the equivalent of the most recent one (1) year's salary (at the company) of the hired solicited employee, whichever is greater. Additionally, the Employee agrees to pay the Bank court costs and reasonable attorneys' fees incurred by the Bank to enforce this Agreement.
10. Trade Secrets, Confidential Information and Intellectual Property. The Employee acknowledges that and as a result of his employment with the Bank, the Employee has, is and will be making use of, acquiring, and adding to information of a special and unique nature and value relating to the Bank's intellectual property, trade secrets and other confidential information. In that regard, the Employee agrees to the following:
A. The Employee shall not, at any time during or following his employment with the Bank, divulge or disclose, or employ for any purpose whatsoever, any of the Bank's trade secrets or other confidential information that have been obtained by or disclosed to the Employee as a result of the Employee's employment by the Bank. For purposes of this Agreement, "trade secrets or other confidential information" shall mean all information which is used in the Bank's business and which gives the Bank the opportunity to obtain advantage over its competitors who do not know or use such information, regardless of whether written or otherwise, including, but not limited to, trade secrets, business methods, business plans, financial data, customer lists and contracts, pricing plans, marketing plans or strategies, security devices, product information, billing procedures, employee lists, salaries and other personnel information, and other business arrangements. The term "trade secrets or other confidential information" is not meant to include any information which, at the time of disclosure, is generally known by the public or any competitors of the Bank. If the Employee has any questions regarding the confidential status of information, he should contact the CEO.
B. All notes, data, reference items, sketches, drawings, memoranda, records, and other materials in any way relating to any of the information referred to in the Paragraph above or to the Bank's business shall belong exclusively to the Bank and the Employee agrees to turn over to the Bank all copies of such materials in the Employee's possession or control (whether hard copy or electronic) at the Bank's request or upon the termination of the Employee's employment.
C. All intellectual property, including, but not limited to, all software (including, without limitation, computer programs, object code, source code, documentation, notes, records, work papers, and all other materials associated therewith), and all copyrights, trademarks, patents, trade secrets and other proprietary rights related thereto shall be deemed (1) the sole and exclusive property of the Bank (and/or the Bank's clients or customers if the Bank so determines), and (2) "trade secrets or other confidential information." The Employee also agrees that any work prepared for the Bank or its customers or clients that are susceptible of copyright protection shall be a work-made-for-hire for the Bank. If any such work is deemed for any reason not to be a work-made-for-hire, the Employee hereby agrees to irrevocably assign to the Bank all of the Employee's right, title and interest in and to the copyright in such work and the Employee further agrees to execute all such documents and assurances, and to take all such action, as the Bank shall request, in order to cause the rights assigned hereby fully to vest in the Bank. The Employee hereby waives all so-called "moral rights" relating to all work developed or produced by the Employee hereunder, including, without limitation, any and all rights of attribution, rights of approval, restriction or limitation of use or subsequent modifications. In furtherance of the foregoing, and not in limitation thereof, the Employee agrees to assign the Bank all of the Employee's right, title and interest in and to any and all ideas, concepts, know-how, techniques, processes, methods, inventions, discoveries, developments, innovations and improvements conceived or made by the Employee, whether alone or with others, during the Employee's employment with the Bank, and which either (i) involve or are reasonably related to the Bank's business or (ii) incorporate or are based on, in whole or in part, any of the Bank's trade secrets or other confidential information. (all of the aforesaid sometimes referred to herein as the "Inventions"). The Employee agrees to disclose all Inventions to the Bank promptly, and to provide all assistance reasonably requested by the Bank in the preservation of the Bank's interest in the Inventions, such as by executing documents, testifying and the like, which assistance shall be provided at the Bank's expense but without any additional compensation to the Employee. The Employee shall, at the Bank's expense, assist the Bank or its nominee to obtain patent protection for such Inventions in any countries the Bank may elect in its sole discretion throughout the world. All Inventions shall be the property of the Bank or its nominees, whether patentable or not. The Employee hereby assigns and agrees to assign to the Bank, all of the Employee's right title and interest in and to all patent applications, patents and reissues related to any Inventions. The Employee agrees to execute, acknowledge and deliver all documents, and to provide other assistance, at the Bank's request and expense, during and subsequent to the Employee's employment by the Bank, confirming the complete ownership by the Bank of any and all Inventions, enabling the Bank or its nominees to apply for and maintain patent protection (if applicable), and/or any other legal protection that may then be available for the Inventions.
D. The Employee acknowledges that any breach of this Section will cause irreparable harm to the Bank and entitle the Bank to injunctive or other equitable relief, as well as damages. Damages shall include, but are not limited to, the Employee's payment of the court costs and reasonable attorneys' fees incurred by the Bank to enforce this Agreement.
11. Governing Law. This Agreement shall be governed by, and enforceable by, the laws of the State of Maryland.
12. Other Agreements. Any earlier employment agreements between the Employee and the Bank are hereby terminated and shall be of no further effect after the effective date himself.
A. Any notices required by this Agreement shall (i) by made in writing and mailed by certified mail, return receipt requested, with adequate postage repaid; (ii) be deemed given when so mailed; (iii) be deemed received by the addressee within ten (10) days after given or when the certified mail receipt of such mail is executed, whichever if earlier; and (iv) in the case of the Bank, be mailed to its principal office, or in the case of the Employee, be mailed to the last address that the Employee has given to the Bank.
B. This Agreement may not be modified orally. Any changes, amendments, or modifications to this Agreement must be made in writing and signed by both parties.
C. Except as otherwise provided in this Agreement, if any term or provision of this Agreement is held to be illegal or invalid, said illegality or invalidity shall not affect the remaining terms or provisions hereof and each term and provision of this Agreement shall be enforced to the fullest extent permitted by law.
D. This Agreement shall extend to, and be binding upon the Employee, and upon the Bank and its successors and assigns and the term "Bank" as used herein shall include its successors and assigns whether by merger, consolidation, combination or otherwise.
IN WITNESS WHISEOF, the parties hereto have duly executed this Agreement, under seal, as of the day and year first hereinabove written.
ATTEST:
OLD LINE BANK.
/s/ Christine M. Rush By:/s/ James W. Cornelsen (SEAL)
------------------------------- -----------------------------
Christine M. Rush, Secretary James W. Cornelsen, President and
Chief Executive Officer
WITNESS:
/s/ Christine M. Rush /s/ Joseph Burnett (SEAL)
------------------------------- -----------------------------
Joseph Burnett
|
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT is made as of this 31st day of March, 2003, by and between OLD LINE BANK, a Maryland-chartered commercial bank (the "Bank" or "Employer") and CHRISTINE RUSH (the "Employee").
The Bank desires to employ the Employee as the Senior Vice President on the terms and conditions herein set forth, and the Employee has agreed to accept employment with the Bank on the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the premises and the mutual promises made herein, the parties agree as follows:
1. Employment. The Bank hereby employs the Employee as a Senior Vice President and agrees to continue to employ the Employee in that position (or in any other position approved by the Bank) during the term of this Agreement, except as otherwise provided below.
2. Term. The term of this Agreement will initially be set at two (2) years commencing on the date hereof and will automatically be extended for periods of one (1) year on the first anniversary hereof (calculated based on the date hereof) and on each consecutive anniversary thereafter; provided however that the automatic renewals as set forth in this paragraph 2 may be terminated by either party hereto giving notice to the other party of such termination not less than ninety (90) days prior to any anniversary date hereof, in which event the term will end on the second anniversary of the initial term or at the end of any extensions hereof. The initial term and any extensions thereof are referred to herein as the "Term".
A. The Employee's base salary for the first year under this Agreement shall be $90,000.00 per annum, payable on a bi-weekly basis. Employee may receive a bonus at the end of each calendar year but such bonus is payable in the sole discretion of the CEO. Provided that sufficient options are available for grant under a stockholder approved stock option plan, on the 31st of December of each year, the Bank (or such entity (the "Company") that then may control the Bank) shall grant options to Employee to purchase not less than 750 shares of stock in the Bank or the Company or such greater amount as may be approved by the Board of Directors or an appropriate committee of the Board of Directors. The exercise price for the options shall be the fair market value of the Bank's or Company's stock on the date the options were granted. The options must be exercised within ten (10) years of the date such options were granted. Notwithstanding anything to the contrary contained in this Section 3(A), the options to be granted pursuant to this Section 3(A) will only be evidenced by, and will be subject to the terms and conditions of, a stock option agreement to be entered into between the Bank and Employee.
A. During the term of this Agreement, the Employee shall serve as the Senior Vice President. She shall have such powers and shall perform such duties that are incident and customary to this office, and as granted and assigned to her by the Chief Executive Officer ("CEO") and/or the Board of Directors.
B. The Employee shall devote her full time, attention, skill, and energy to the performance of her duties under this Agreement, and shall comply with all reasonable professional requests of the Bank; provided, however, that the Employee will be permitted to engage in and manage personal investments and to participate in community and charitable affairs, so long as such activities in the judgment of the Bank's CEO do not create a conflict of interest or interfere with the performance of her duties under this Agreement. In furtherance of this commitment, the Employee shall disclose all positions she holds with other organizations and any ownership interests she has in other business entities where she may influence or control management decisions. Such disclosures shall be made at the commencement of the Employee's employment and from time-to-time throughout her employment where her circumstances have changed to make such a disclosure appropriate.
C. The Employee shall immediately notify the Company of (i) her own illness and consequent absence from work or (ii) any intended significant change in her plans to work for the Company.
A. The Employee shall be entitled to a total of twenty (20) days of paid vacation each calendar year, which she may use in accordance with the Bank's announced policy that is in effect from time-to-time. The Employee may take her vacation at such times that do not interfere with the performance of her duties under this Agreement.
B. The Employee shall be entitled to eight (8) days of paid sick leave each calendar year, which she may use in accordance with the Bank's announced policy that is in effect from time-to-time.
6. Expenses. The Bank shall reimburse the Employee for all reasonable expenses incurred in connection with her duties on behalf of the Bank, provided that the Employee shall keep and present to the Bank records and receipts relating to reimbursable expenses incurred by her. Such records and receipts shall be maintained and presented in a format, and with such regularity, as the Bank reasonably may require in order to substantiate the Bank's right to claim income tax deductions for such expenses. For any expenditure in excess of $500.00, the Employee must obtain written approval from the CEO if she is to be reimbursed for the expense. Without limiting the generality of the foregoing, the Employee shall be entitled to reimbursement for any business-related travel, business-related entertainment and other costs and expenses reasonably incident to the performance of her duties on behalf of the Bank.
A. Insurance. The Employee shall receive health insurance, consistent with the terms set forth in the plan established by the Bank for its employees. The Bank shall also pay the premiums for Employee to receive the following insurance, consistent with the terms set
forth in the plans established by the Bank for its employees: dental; life; short-term disability; and long-term disability.
B. Banking. The Bank shall not charge the Employee for use of a savings account, checking account or debit card issued by the Bank. The Bank also shall offer discounted interest rates on loans to the Employee. The Employee is eligible to have her paychecks deposited directly in any account she has with the Bank or elsewhere.
A. This Agreement shall terminate prior to the expiration of its Term only upon the occurrence of one or more of the following events: (i) death of the Employee; (ii) if the Bank reasonably determines that the Employee is physically or mentally incapacitated and has been unable to perform her duties under this Agreement for a period of sixty (60) consecutive days and, in order to assist the Bank in making such determination, the Employee agrees to make herself available for medical examination by one or more physicians chosen by the Bank and grants to the Bank and such physicians access to all relevant medical information, including copies of the Employee's medical records and access to the Employee's own physicians; (iii) if the Employee gives sixty (60) days written notice of her resignation to the Bank's CEO; or (iv) if the Bank terminates the Employee for "cause" as defined below. In the event that the Bank terminates this Agreement for "cause" as defined below, the Employee shall use her best efforts to assist the Bank, as requested, in the orderly transition of the Employee's duties to the Bank and her successor, if any.
B. Termination for Cause. Notwithstanding the provisions of
Section 2 above, the Employee's employment (and all of her rights and benefits
under this Agreement) shall terminate immediately after written notice upon the
happening of any one or more of the following events, which constitute "cause":
(i) the Employee has breached, in any material respect, a provision of this
Agreement; (ii) the Employee refuses to perform the duties of her employment
under this Agreement in any material respect; (iii) the Employee has committed
any act or omission materially and adversely affecting her reputation or that of
the Bank or any of its affiliates or materially and adversely affecting any
product, policy, program or service offered through or developed by the Bank or
any of its affiliates; (iv) the Employee is convicted of or pleads guilty to a
charge of any felony or of any lesser crime involving fraud or moral turpitude
or directed against the Bank, its affiliates or any of their shareholders,
employees, agents or contractors; (v) the Employee commits any other act which
is inconsistent with the good faith fulfillment of her responsibilities as an
employee of the Bank or is done with the intent to harm the Bank, its affiliates
or any of their shareholders, employees, agents or contractors; (vi) the
Employee violates any material statute, rule or regulation of any federal, state
or local governmental authority pertaining to the marketing, sale, solicitation
or offer of any product, policy or program of the Bank or its affiliates; and
(vii) the Employee commits any other act or omission which an arbitrator or a
court of competent jurisdiction justifies as grounds for dismissal for cause.
C. Unused Vacation, Sick and Personal Leave. The Employee shall be eligible to receive the remaining balance of her unused vacation and personal leave at the termination of her employment only if she is not terminated for "cause" as defined above and she
returns all Bank property to the Bank prior to her final day of employment. Employee shall have no right receive any unused sick leave. If the Employee fails to return any Bank property prior to her last day of employment, the Employee authorizes the Bank to deduct from her final paycheck the reasonable cost (not value) of that item. In the event that the Employee elects to terminate her employment, she must provide the Company with 60 days notice as provided above in order to receive the remaining balance of her unused vacation and sick leave.
A. The Employee agrees that, for one (1) year following termination from the Bank, regardless of reason, she will not, as an individual, stockholder, officer, director, partner, agent, employee, consultant, or representative, act for or on behalf of or have any interest, direct or indirect, in any business similar to or competitive with the Bank's business within a 25-mile radius of the main office of the Bank exclusive of the State of Virginia or Washington, D.C.
B. The Employee agrees, during the period of employment and for one (1) year following the termination of employment, not to solicit or sell or attempt to solicit or sell, for her own account or on behalf of any person or corporation other than the Bank, services or products that are competitive with the services or products of the Bank to any customer or client to which the Employee (or employees under her managerial control) has solicited or sold any services or products on behalf of the Bank during any part of the two (2) years immediately preceding the termination of her employment. This restriction shall, in the case of a multi-location customer or client, apply to the location or locations where Employee (or employees under her managerial control) solicited or sold services or products, as well as any offices of that customer or client within a 25-mile radius of the main office of the Bank.
C. Employee agrees, during the period of employment and for one (1) year following termination, not to perform or render services or attempt to perform or render services, for her own account or on behalf of any person or corporation other than the Bank, for any customer or client of the Bank for which the Employee (or employees under her managerial control) has performed any services, during any part of the two (2) years immediately preceding the termination of her employment. This restriction shall, in the case of a multi-location customer or client, apply to the location or locations where the Employee (or employees under her managerial control) performed or rendered services, as well as any offices of that customer or client within a 25-mile radius of the main office of the Bank.
D. The Employee agrees, during the period of employment and for one (1) year following termination, not to solicit or hire, either directly or indirectly, any current employee of the Bank to work or perform services for her own account or on behalf of any person or corporation other than the Bank, or attempt to induce any employee to leave the employ of the Bank to work for the Employee or any other person, firm or corporation.
E. The Employee acknowledges that any breach of these provisions will cause irreparable harm to the Bank and entitle the Bank to injunctive or other equitable relief, as well as damages. In the event of a breach of Paragraphs A through C of this Section, the Employee shall pay to the Bank liquidated damages equal to any money received by the Employee due to violation of these Paragraphs, as well as court costs and reasonable attorneys'
fees incurred by the Bank to enforce this Agreement. In the event of a breach of Paragraph D of this Section, the Employee shall pay to the Bank liquidated damages equal to any money received by the Employee due to violation of this Paragraph or the equivalent of the most recent one (1) year's salary (at the company) of the hired solicited employee, whichever is greater. Additionally, the Employee agrees to pay the Bank court costs and reasonable attorneys' fees incurred by the Bank to enforce this Agreement.
10. Trade Secrets, Confidential Information and Intellectual Property. The Employee acknowledges that and as a result of her employment with the Bank, the Employee has, is and will be making use of, acquiring, and adding to information of a special and unique nature and value relating to the Bank's intellectual property, trade secrets and other confidential information. In that regard, the Employee agrees to the following:
A. The Employee shall not, at any time during or following her employment with the Bank, divulge or disclose, or employ for any purpose whatsoever, any of the Bank's trade secrets or other confidential information that have been obtained by or disclosed to the Employee as a result of the Employee's employment by the Bank. For purposes of this Agreement, "trade secrets or other confidential information" shall mean all information which is used in the Bank's business and which gives the Bank the opportunity to obtain advantage over its competitors who do not know or use such information, regardless of whether written or otherwise, including, but not limited to, trade secrets, business methods, business plans, financial data, customer lists and contracts, pricing plans, marketing plans or strategies, security devices, product information, billing procedures, employee lists, salaries and other personnel information, and other business arrangements. The term "trade secrets or other confidential information" is not meant to include any information which, at the time of disclosure, is generally known by the public or any competitors of the Bank. If the Employee has any questions regarding the confidential status of information, she should contact the CEO.
B. All notes, data, reference items, sketches, drawings, memoranda, records, and other materials in any way relating to any of the information referred to in the Paragraph above or to the Bank's business shall belong exclusively to the Bank and the Employee agrees to turn over to the Bank all copies of such materials in the Employee's possession or control (whether hard copy or electronic) at the Bank's request or upon the termination of the Employee's employment.
C. All intellectual property, including, but not limited to, all software (including, without limitation, computer programs, object code, source code, documentation, notes, records, work papers, and all other materials associated therewith), and all copyrights, trademarks, patents, trade secrets and other proprietary rights related thereto shall be deemed (1) the sole and exclusive property of the Bank (and/or the Bank's clients or customers if the Bank so determines), and (2) "trade secrets or other confidential information." The Employee also agrees that any work prepared for the Bank or its customers or clients that are susceptible of copyright protection shall be a work-made-for-hire for the Bank. If any such work is deemed for any reason not to be a work-made-for-hire, the Employee hereby agrees to irrevocably assign to the Bank all of the Employee's right, title and interest in and to the copyright in such work and the Employee further agrees to execute all such documents and assurances, and to take all such action, as the Bank shall request, in order to cause the rights assigned hereby fully to vest in the
Bank. The Employee hereby waives all so-called "moral rights" relating to all
work developed or produced by the Employee hereunder, including, without
limitation, any and all rights of attribution, rights of approval, restriction
or limitation of use or subsequent modifications. In furtherance of the
foregoing, and not in limitation thereof, the Employee agrees to assign the Bank
all of the Employee's right, title and interest in and to any and all ideas,
concepts, know-how, techniques, processes, methods, inventions, discoveries,
developments, innovations and improvements conceived or made by the Employee,
whether alone or with others, during the Employee's employment with the Bank,
and which either (i) involve or are reasonably related to the Bank's business or
(ii) incorporate or are based on, in whole or in part, any of the Bank's trade
secrets or other confidential information. (all of the aforesaid sometimes
referred to herein as the "Inventions"). The Employee agrees to disclose all
Inventions to the Bank promptly, and to provide all assistance reasonably
requested by the Bank in the preservation of the Bank's interest in the
Inventions, such as by executing documents, testifying and the like, which
assistance shall be provided at the Bank's expense but without any additional
compensation to the Employee. The Employee shall, at the Bank's expense, assist
the Bank or its nominee to obtain patent protection for such Inventions in any
countries the Bank may elect in its sole discretion throughout the world. All
Inventions shall be the property of the Bank or its nominees, whether patentable
or not. The Employee hereby assigns and agrees to assign to the Bank, all of the
Employee's right title and interest in and to all patent applications, patents
and reissues related to any Inventions. The Employee agrees to execute,
acknowledge and deliver all documents, and to provide other assistance, at the
Bank's request and expense, during and subsequent to the Employee's employment
by the Bank, confirming the complete ownership by the Bank of any and all
Inventions, enabling the Bank or its nominees to apply for and maintain patent
protection (if applicable), and/or any other legal protection that may then be
available for the Inventions.
D. The Employee acknowledges that any breach of this Section will cause irreparable harm to the Bank and entitle the Bank to injunctive or other equitable relief, as well as damages. Damages shall include, but are not limited to, the Employee's payment of the court costs and reasonable attorneys' fees incurred by the Bank to enforce this Agreement.
11. Governing Law. This Agreement shall be governed by, and enforceable by, the laws of the State of Maryland.
12. Other Agreements. Any earlier employment agreements between the Employee and the Bank are hereby terminated and shall be of no further effect after the effective date hereof.
A. Any notices required by this Agreement shall (i) by made in writing and mailed by certified mail, return receipt requested, with adequate postage repaid; (ii) be deemed given when so mailed; (iii) be deemed received by the addressee within ten (10) days after given or when the certified mail receipt of such mail is executed, whichever if earlier; and (iv) in the case of the Bank, be mailed to its principal office, or in the case of the Employee, be mailed to the last address that the Employee has given to the Bank.
B. This Agreement may not be modified orally. Any changes, amendments, or modifications to this Agreement must be made in writing and signed by both parties.
C. Except as otherwise provided in this Agreement, if any term or provision of this Agreement is held to be illegal or invalid, said illegality or invalidity shall not affect the remaining terms or provisions hereof and each term and provision of this Agreement shall be enforced to the fullest extent permitted by law.
D. This Agreement shall extend to, and be binding upon the Employee, and upon the Bank and its successors and assigns and the term "Bank" as used herein shall include its successors and assigns whether by merger, consolidation, combination or otherwise.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, under seal, as of the day and year first hereinabove written.
ATTEST:
OLD LINE BANK.
/s/ Joseph E. Burnett By: /s/ James W. Cornelsen (SEAL)
------------------------------- -----------------------------
Joseph Burnett, Secretary James W. Cornelsen, President and
Chief Executive Officer
WITNESS:
/s/ Joseph E. Burnett /s/ Christine M. Rush (SEAL)
------------------------------- -----------------------------
Christine M. Rush
|
EXHIBIT 10.4
OLD LINE BANK
2001 INCENTIVE STOCK OPTION PLAN,
as amended May 22, 2003
WHEREAS, at the 2001 annual meeting of stockholders, the stockholders of Old Line National Bank (n/k/a Old Line Bank) approved the 2001 stock option plan (the "2001 Plan"); and
WHEREAS, the 2001 Plan authorized the issuance of options to purchase an aggregate of 50,000 shares of Old Line National Bank's common stock; and
WHEREAS, on June 28, 2002, Old Line National Bank converted from a federally chartered national bank to a Maryland state chartered bank known as Old Line Bank (the "Bank"); and
WHEREAS, on the effective date of the conversion, each two shares of Old Line National Bank common stock issued and outstanding, par value $5.00 per share, were converted into one share of Old Line Bank common stock, par value $10.00 per share (the "Stock Exchange"); and
WHEREAS, as a result of the Stock Exchange, pursuant to Section 6 of the 2001 Plan, the number of shares of common stock reserved for issuance under the 2001 Plan was automatically reduced to 25,000 shares; and
WHEREAS, the Board of Directors of the Bank desires to amend the 2001
Plan in certain respects as contained herein, including to adjust the number of
shares of common stock reserved for issuance under the 2001 Plan and to clarify
certain provisions of the 2001 Plan, all in accordance with the requirements of
Section 12 of the 2001 Plan (the 2001 Plan, as amended herein, is referred to as
the "Plan").
NOW, THEREFORE, the Plan is hereby amended to state, in its entirety, the following:
The Plan provides that an aggregate of twenty five thousand (25,000) shares of the Bank's common stock, $10.00 par value per share (the "Common Stock"), may be granted to officers and other "key employees" (as defined by the Plan). The Plan provides authority for a Stock Option Plan Committee to select the persons to whom stock options will be granted.
Following the statutory requirements of the Internal Revenue Code ss. 422, the Plan provides that the Stock Option Plan Committee may establish the purchase price of the stock at the time an option is granted. However, the purchase price may not be less than 100 percent of the fair market value of the Common Stock.
The Plan terminates ten years from its effective date. All options to be granted are nontransferable except upon the death of the optionee. The Bank is to receive no cash consideration for granting options under the Plan.
OLD LINE BANK
2001 INCENTIVE STOCK OPTION PLAN,
as amended May 22, 2003
This 2001 Incentive Stock Option Plan (hereinafter called the "Plan")
for Old Line Bank (hereinafter called the "Bank") is intended to advance the
interests of the Bank by providing officers and other "key employees" (as
defined below) who have substantial responsibility for the direction and
management of the Bank with additional incentive for them to promote the success
of the Bank, to increase their proprietary interest in the success of the Bank,
and to encourage them to remain in its employ. The above aims will be
effectuated through the granting of certain stock options. It is intended that
options granted under the Plan to employees of the Bank and any subsidiaries
will qualify as incentive stock options (hereinafter called "ISO's) under
Section 422 of the Internal Revenue Code of 1986 and the terms of the Plan shall
be interpreted in accordance with this intention.
The Board of Directors shall appoint a Stock Options Plan Committee
(hereinafter called the "Committee") which shall consist of not less than three
(3) members, at least one of whom shall be a Director of the Bank. Subject to
the provisions of the Plan, the Committee shall have the authority, in its
discretion: (a) to determine the employees and "key employees" of the Bank and
any subsidiaries to whom options shall be granted; (b) to determine the time or
times at which options shall be granted; (c) to determine the option price of
the shares subject to each option, which price shall not be less than the
minimum specified in Section 5; (d) to determine (subject to Section 7) the time
or times when each option shall become exercisable and the duration of the
exercise period; and (e) to interpret the Plan and to prescribe, amend, and
rescind rules and regulations relating to it. The Board of Directors may from
time to time appoint members of the Committee in substitution for members
previously appointed and may fill vacancies, however caused, in the Committee;
provided, however, that at all times at least one member shall be a Director of
the Bank. The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it shall deem advisable. All
actions of the Committee shall be taken by majority vote of its members. Any
actions may be taken by a written instrument signed by all the members of the
Committee, and actions so taken shall be fully as effective as if it had been
taken by a unanimous vote of the members at a meeting duly called and held. The
Committee may appoint a secretary to keep minutes of its meetings and shall make
such rules and regulations for the conduct of its business as it shall deem
advisable. In addition, the full Board of Directors, may take any actions
granted to the Committee hereunder except to the extent such actions are not
permitted by any law applicable
to the Bank or any listing standards of any organization on which the Bank's Common Stock is listed.
(a) Options will be granted only to persons who are "key employees" of the Bank or a subsidiary corporation of the Bank. The term "key employees" shall include officers, directors, executives, and supervisory personnel, as well as other employees of the Bank or a subsidiary corporation of the Bank designated as such by the Committee. The term "subsidiary corporation" shall, for the purposes of this Plan, be defined in the same manner as such term is defined in Section 425(f) of the Internal Revenue Code.
(b) No option granted to any employee, who, at the time of such grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Bank or of any of its subsidiaries, will be an ISO unless, at the time of such grant, the option price is fixed at not less than 110 percent of the fair market value of the stock subject to the option, and exercise of such option is prohibited by its terms after the expiration of five (5) years from the date such option is granted.
(c) The aggregate fair market value (determined at the time the option is granted) of Common Stock subject to an ISO that is first exercisable in any calendar year shall not exceed $100,000.
There will be reserved for use upon the exercise of options to be granted from time to time under the Plan subject to the provisions of Section 12 an aggregate of twenty five thousand (25,000) shares of Common Stock, which shares may be in whole or in part, as the Board of Directors of the Bank shall from time to time determine, authorized but unissued shares of Common Stock or issued shares of the Common Stock which shall have been reacquired by the Bank. Any shares subject to an option under the Plan, which option for any reason expires or is terminated unexercised as to such shares, may again be subjected to an option under the Plan.
The purchase price under each option issued shall be determined by the Committee at the time the option is granted, but in no event shall such purchase price be less than 100 percent of the fair market value of the Bank's Common Stock on the date of grant.
In the event that the Common Stock is listed on an established national or regional stock exchange, is quoted on a quotation system of The Nasdaq Stock Market, Inc., or is publicly traded in an established securities market, in determining the "fair market value" of the Common Stock, the Committee shall use the closing price of the Common 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 date the option is granted or, if such date was not a trading date, on the trading date immediately preceding the date 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 prices on such date). If there is no established market for the Common Stock, then the fair market value shall be established by the Committee in good faith.
In the event that additional shares of Common Stock are issued pursuant to a stock split or a stock dividend, the number of shares of Common Stock then covered by each outstanding option granted hereunder shall be increased proportionately with no increase in the total purchase price of the shares then so covered, and the number of shares of Common Stock reserved for the purpose of the Plan shall be increased by the same proportion. In the event that the shares of Common Stock of the Bank from time to time issued and outstanding are reduced by a combination of shares, the number of shares of Common Stock then covered by each outstanding option granted hereunder shall be reduced proportionately with no reduction in the total price of the shares then so covered, and the number of shares of Common Stock reserved for the purposes of the Plan shall be reduced by the same proportion. In the event that the Bank should transfer assets to another corporation and distribute the stock of such other corporation without the surrender of Common Stock of the Bank, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the Internal Revenue Code of 1986, or some similar section, then the total purchase price of the shares covered by each outstanding option shall be reduced by an amount which bears the same ratio to the total purchase price then in effect as the market value of the stock distributed in respect of a share of the Common Stock of the Bank, immediately following the distribution, bears to the aggregate of the market value at such time of a share of the Common Stock of the Bank and the stock distributed in respect thereof. All such adjustments shall be made by the Committee, whose determination upon the same shall be final and binding upon the optionees. No fractional shares shall be issued, and any fractional shares resulting from the computations pursuant to this Section shall be eliminated from the respective option. No adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional Common Stock or other securities.
(a) All options issued under the Plan shall be for such period as the Committee shall determine, but for not more than ten (10) years from the date of grant thereof.
(b) The period of the option, once it is granted, may be reduced only as provided for in Section 9 in connection with the termination of employment or death of the optionee or in Section 7(c) in the case of less than satisfactory performance.
(c) Notwithstanding the foregoing, the Committee may, in its sole discretion, (i) prescribe additional requirements with respect to the exercise of an option and (ii) terminate in whole or in part such portion of any option as has not yet become exercisable at the time of termination of the optionee's employment if it determines that the optionee is not performing satisfactorily the duties to which he was assigned on the date the option was granted or duties of at least equal responsibility. Except as provided in Section 9, no option may be exercised by an employee unless the optionee is at the time of such exercise in the employ of the Bank or of a
subsidiary corporation of the Bank and shall have been continuously so employed since the grant of his option. Absence or leave approved by the management of the Bank shall not be considered an interruption of employment for any purpose under the Plan.
(d) Unless otherwise determined by the Committee, the exercise of any option shall also be contingent upon receipt by the Bank of cash or certified bank check to its order, in an amount equal to the full option price of the shares being purchased.
(e) No optionee or his legal representative, legatees, or distributes, as the case may be, will be, or will be deemed to be, a holder of any share subject to an option unless and until certificates for such shares are issued to him or them under the terms of the Plan. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
(f) In no event may an option be exercised after the expiration of its term.
(g) Exercise of an option in any manner shall result in a decrease in the number of shares of Common Stock which thereafter may be available under the Plan by the number of shares as to which the option is exercised.
Each option granted under this Plan shall be transferable only by will or the laws of descent and distribution and shall be exercisable, during this lifetime, only by the person to whom the option is granted. Except as permitted by the proceeding sentence, no option granted under the Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and no such option, right or privilege shall be subject to execution, attachment, or similar process. Upon any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of the option, or of any right or privilege conferred thereby, contrary to the provisions hereof, or upon the levy of any attachments or similar process upon such option, right or privilege, the option and such rights and privileges shall immediately become null and void.
(a) In the event of the termination of employment of an optionee during the two (2) year period after the date of issuance of an option to him either by reason of (i) a discharge for cause or (ii) voluntary separation on the part of the optionee and without consent of his employing company or companies, any option or options theretofore granted to him under this Plan to the extent not theretofore exercised by him shall forthwith terminate.
(b) In the event of the termination of employment of an optionee (otherwise than by reason of death, disability or retirement of the optionee at his Retirement Date (as hereinafter defined)), any option or options granted to him under the Plan to the extent not theretofore exercised shall be deemed cancelled and terminated forthwith, except that, subject to the provisions of section (a) of this Section, such optionee may exercise any options theretofore granted to him, which have not then expired, and which are otherwise exercisable within three (3) months after such termination. If the employment of an optionee shall be terminated by
reason of the optionee's retirement at his Retirement Date, the optionee shall have the right to exercise such option or options held by him to the extent such options have not expired, at any time within three (3) months after such retirement. Upon retirement at an optionee's Retirement Date, all options held by the optionee shall be immediately exercisable in full. The transfer of an optionee from the employ of the Bank to a subsidiary corporation of the Bank or vice versa, or from one subsidiary corporation of the Bank to another, shall not be deemed to constitute a termination of employment for the purposes of this Plan.
(c) In the event that an optionee shall die while employed by the Bank or by any subsidiary corporation of the Bank or shall die within three (3) months after retirement at his Retirement Date, any option or options granted to him under his Plan and not therefore exercised by him or expired shall be exercisable by the estate of the optionee or by any person who acquired such option by bequest or inheritance from the optionee in full, at any time within one (1) year after the death of the optionee. References hereinabove to the optionee shall be deemed to include any person entitled to exercise the option after the death of the optionee under the terms of this section.
(d) In the event of the termination of employment of an optionee by reason of the optionee's disability, the optionee shall have the right, to exercises all options held by him, to the extent that options have not previously expired or been exercised, at any time within one (1) year after such termination. The term "disability" shall, for the purposes of this Plan, be defined in the same manner as such term is defined in Section 22(e)(3) of the Internal Revenue Code of 1986.
(e) For the purposes of this Plan, "Retirement Date" shall mean any date an employee is otherwise entitled to retire under the Bank's retirement plans and shall include normal retirement at age 65, early retirement at age 62, and retirement at age 60 after 30 years of service.
Each option shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration, or qualification of the shares covered thereby upon any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of shares thereunder, such option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
Options may be granted under the Plan at any time or from time to time as long as the total number of shares optioned or purchased under this Plan does not exceed twenty five thousand (25,000) shares of Common Stock. The Plan may be abandoned or terminated at any time by the Board of Directors of the Bank except with respect to any options then outstanding
under the Plan. No option shall be granted pursuant to the Plan after ten (10) years from the effective date of the Plan.
The Board of Directors may at any time and from time to time modify and
amend the Plan (including any form of option agreement) in any respect;
provided, however, that no such amendment shall: (a) increase (except in
accordance with Section 6) the maximum number of shares for which options may be
granted under the Plan either in the aggregate or to any individual employee;
(b) reduce (except in accordance with Section 6) the minimum option prices which
may be established under the Plan; (c) extend the period or periods during which
options may be granted or exercised; (d) change the provisions relating to the
determination of persons to whom options shall be granted and the number of
shares to be covered by such options; (e) change the provisions relating to
adjustments to be made upon changes in capitalization; or (f) change the method
for the selection of the Committee as provided by Section 2 hereof. The
termination or any modification or amendment of the Plan shall not, without the
consent of any employee, affect his rights under an option theretofore granted
to him.
This Plan shall become effective on the later of the date of its adoption by the Board of Directors of the Bank or its approval by the vote of the holders of a majority of the outstanding shares of the Bank's Common Stock. This Plan shall not become effective unless such shareholder approval shall be obtained within twelve (12) months after the adoption of the Plan by the Board of Directors.
(a) No Employment Right. Neither this Plan nor any action taken hereunder shall be construed as giving any right to any individual to be retained as a director, officer, or employee of the Bank or to receive a grant of options hereunder.
(b) Tax Withholding. The Bank shall have the right to deduct from all options granted any federal, state, local or employment taxes which it deems are required by law to be withheld with respect to such grants. In addition, the Bank shall have the right to require an optionee, upon grant or exercise of an option, to pay to the Bank the minimum amount of any federal or state taxes, including payroll taxes, if any, that the Bank is required to withhold.
(c) Governing Law. All matters relating to this Plan or to options granted hereunder shall be governed by the laws of the State of Maryland, without regard to the principles of conflict of laws thereof, except to the extent preempted by the laws of the United States.
(d) Relationship to Other Benefits. Except to the extent required by applicable law, no options granted under this Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company.
(e) Titles and Headings. The titles and headings of the Sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings, shall control.
(f) Use of Proceeds. Proceeds from the sale of Common Stock pursuant to options granted under the Plan shall constitute general funds of the Bank, to be used or allocated by the Bank as it deems appropriate, in its sole and absolute subjective discretion.
(g) Nonexclusivity of Plan. Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Bank for approval shall be construed as creating any limitations on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
EXHIBIT 10.5
OLD LINE BANK
STOCK OPTION AGREEMENT
This Stock Option Agreement is entered into as of the ___ day of _____, 2003 by and between Old Line Bank (the "Bank"), a Maryland commercial bank, and _________________________ ("Grantee").
ARTICLE 1
DEFINITIONS
Definitions. As used in this Agreement, in addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters:
(a) "Agreement" shall mean this Stock Option Agreement and shall include the applicable provisions of any Plan which are hereby incorporated into and made a part of the Agreement.
(b) "Common Stock" shall mean Shares of common stock of the Bank, par value $10.00 per share, or any security into which such common stock may be changed by reason of any transaction or event of the type referred to in Section 6 of the Plan.
(c) "Exercise Date" shall mean the date on which the Bank receives the written notice required under Section 3.2 of this Agreement that Grantee has exercised the Option.
(d) "Option" shall mean an option to acquire Common Stock that is granted pursuant to, as contemplated by or is evidenced by this Agreement.
(e) "Option Price" shall mean the price per share of Common Stock at which the Option may be exercised.
(f) "Plan" shall means the Old Line Bank 1990 Incentive Stock Option Plan (the "1990 Plan") and/or the 2001 Old Line Bank Incentive Stock Option Plan, as amended (the "2001 Plan"), copies of which are attached hereto as Exhibit B.
ARTICLE 2
GRANT OF OPTION
Section 2.1 Grant of Nonqualified Stock Options.
(a) The Bank, pursuant to the 1990 Plan, has granted the Grantee the following Options:
Grant Date Number of Options Exercise Price First Exercisable
(b) The Bank, pursuant to the 2001 Plan, has granted the Grantee the following Options:
Grant Date Number of Options Exercise Price First Exercisable
(c) In addition, the Bank hereby grants to Grantee, as of December 31 of each year, beginning December 31, 2003, assuming Grantee is a director of the Bank on such date and assuming options are available for issuance under the 2001 Plan on such date, Options to purchase 250 shares of Common Stock. The Option Price shall be set forth on Exhibit C, and a copy of Exhibit C, as updated, shall be sent to the Grantee no less than annually. Notwithstanding the foregoing, prior to any December 31, the Board of Directors of the Bank may amend or remove this Section 2.1(c) in its sole discretion and the Grantee shall have no rights with respect to this Section 2.1(c) with respect to any Options which have not then been granted.
Section 2.2 Term of Option. The Option granted pursuant to Sections 2.1 shall expire on the tenth anniversary of their grant date, unless such Option terminates earlier pursuant to other provisions of this Agreement. Notwithstanding the foregoing, all Options granted on May 25, 2001 shall terminate on December 31, 2010.
ARTICLE 3
EXERCISE OF OPTION
Section 3.1 Manner of Exercise. The Option may be exercised, in whole or in part, by delivering written notice to the Board of Directors in such form as the Board of Directors may require from time to time. Such notice shall specify the number of shares of Common Stock subject to the Option as to which the Option is being exercised, and shall be accompanied by full payment of the Option Price of the shares of Common Stock as to which the Option is being exercised. In addition, for so long as the shares subject to the Plan are not registered under the Securities Act of 1933, as amended, or otherwise exempt from such registration, such notice shall be accompanied by a written statement that the shares are purchased for investment and not with a view to distribution and acknowledgment of restrictions on the transferability of the shares. Payment of the Option Price shall be made as provided in the Plan. The Option may be exercised only in multiples of whole shares and no partial shares shall be issued. A form of notice is attached hereto as Exhibit A.
Section 3.2 Issuance of Shares and Payment of Option Price Upon Exercise. Upon exercise of the Option, in whole or in part, in accordance with the terms of this Agreement and upon payment of the Option Price for the shares of Common Stock as to which the Option is exercised, the Bank shall issue to Grantee the number of shares of Common Stock paid for, in the form of fully paid and non-assessable Common Stock.
ARTICLE 4
TERMINATION OF OPTION
All Options shall terminate on the first anniversary of the effective date of termination of the Grantee's service on the Board of Directors.
In the event of the death of the Grantee while a director of the Bank or if the Grantee shall die within three (3) months after ceasing to be a director of the Bank, all Options granted to him as contemplated by this Agreement and not theretofore exercised by him or expired shall be exercisable by the estate of the Grantee or by any person who acquired such option by bequest or inheritance from the Grantee, at any time within one (1) year after the death of the Grantee. References hereinabove to the Grantee shall be deemed to include any person entitled to exercise the option after the death of the Grantee under the terms of this section.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or this Agreement shall be construed as a contract of employment between the Bank or any affiliate and Grantee, or as a contractual right of Grantee to continue in the employ or as a director of the Bank or any affiliate, or as a limitation of the right of the Bank or an affiliate to remove Grantee at any time.
Section 5.2 No Rights of Stockholder. Grantee shall not have any of the rights of a stockholder with respect to the shares of Common Stock that may be issued upon the exercise of the Option until such shares of Common Stock have been issued to him or her upon the due exercise of the Option.
Section 5.3 Agreement Subject to Charter and By-Laws. This Agreement is subject to the Charter and By-Laws of the Bank, and any applicable federal or state laws, rules or regulations.
Section 5.4 Gender. As used herein the masculine shall include the feminine as the circumstances may require.
Section 5.5 Headings. The headings in the Agreement are for reference purposes only and shall not affect the meaning or interpretation of the Agreement.
Section 5.6 Notices. All notices and other communications made or given pursuant to the Agreement shall be in writing and shall be sufficiently made or given if hand delivered or mailed by certified mail, addressed to Grantee at the address contained in the records of the Bank or an affiliate, and to the Bank for the attention of its Secretary at its principal office.
Section 5.7 Tax Withholding. The Bank shall have the right to deduct from all Options granted any federal, state, local or employment taxes which it deems are required by law to be withheld with respect to such grants. In addition, the Bank shall have the right to require a Grantee, upon grant or exercise of an option, to pay to the Bank the minimum amount of any federal or state taxes, including payroll taxes, if any, that the Bank is required to withhold.
ARTICLE 6
SCOPE OF AGREEMENT
Section 6.1 Entire Agreement; Modification. The Agreement, along with the Plan, contains the entire agreement between the parties with respect to the subject matter contained herein and supersedes are prior agreements or understandings between the parties with respect to Options described in this Agreement. This Agreement may not be modified or amended except as provided in the Plan or in a written document signed by each of the parties hereto.
Section 6.2 Conformity with Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. In the event of any inconsistencies between this Agreement and the Plan, the Plan shall control.
Section 6.3 Counterparts. The Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.
Section 6.4 Acknowledgment. BEFORE SIGNING HEREUNDER, THE GRANTEE
SHOULD READ AND THOROUGHLY REVIEW THE PLAN ATTACHED HERETO AS EXHIBIT B. BY
SIGNING HEREUNDER, THE GRANTEE ACKNOWLEDGES RECEIPT OF THE PLAN AND REPRESENTS
THAT GRANTEE HAS READ AND THOROUGHLY REVIEWED THE PLAN.
Section 6.5 Holding Company Formation. In the event the Bank is reorganized into a holding company structure, all Options granted hereunder shall, to the extent permitted by applicable law, become options of the holding company, and the Grantee agrees to execute such documents and take such actions as the Bank may reasonably request in connection with any such transaction.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first above written.
ATTEST: OLD LINE BANK
By:
-------------------------- ---------------------------
WITNESS: GRANTEE
-------------------------- --------------------------
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EXHIBIT A
Old Line Bank
2995 Crain Highway
P.O. Box 1890
Waldorf, Maryland 20604
Ladies and Gentlemen:
I hereby exercise the Option granted to me on , by Old Line Bank (the "Bank"), subject to all the terms and provisions thereof and of the Old Line Bank ____ Incentive Stock Option Plan, as amended (the "Plan"), and notify you of my desire to purchase shares of Common Stock of the Bank at a price of $ ___________ per share pursuant to the exercise of said Option.
Date: (Optionee)
----------------------- ----------------------------
Received by Old Line Bank on
-----.
By:
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EXHIBIT B
COPY OF PLAN
EXHIBIT C
Date of Grant Option Price No. of Options
EXHIBIT 10.6
OLD LINE BANK
STOCK OPTION AGREEMENT
This Stock Option Agreement is entered into as of the ___ day of _________, 2003 by and between Old Line Bank (the "Bank"), a Maryland commercial bank, and _________________________ ("Grantee").
ARTICLE 1
DEFINITIONS
Definitions. As used in this Agreement, in addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters:
(a) "Agreement" shall mean this Stock Option Agreement and shall include the applicable provisions of any Plan which are hereby incorporated into and made a part of the Agreement.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any regulations issued thereunder.
(c) "Common Stock" shall mean Shares of common stock of the Bank, par value $10.00 per share, or any security into which such common stock may be changed by reason of any transaction or event of the type referred to in Section 6 of the Plan.
(d) "Exercise Date" shall mean the date on which the Bank receives the written notice required under Section 3.2 of this Agreement that Grantee has exercised the Option.
(e) "Fair Market Value" of a share of Common Stock on the Grant Date shall mean the fair market value of shares of Common Stock determined in accordance with the Plan.
(f) "Grant Date" shall mean the date on which the Board of Directors (or a committee thereof) formally acts to grant an Option to Grantee or the date on which a grant is deemed to be made automatically pursuant to the terms of this Agreement.
(g) "Incentive Stock Option" shall mean an Option that is intended to qualify as an "incentive stock option" under ss.422(b) of the Code or any successor provision.
(h) "Option" shall mean an option to acquire Common Stock that is granted pursuant to, as contemplated by or is evidenced by this Agreement.
(i) "Option Price" shall mean the price per share of Common Stock at which the
Option may be exercised.
(j) "Plan" shall means the 2001 Old Line Bank Incentive Stock Option Plan, as amended (the "2001 Plan"), a copy of which is attached hereto as Exhibit B.
ARTICLE 2
GRANT OF OPTION
Section 2.1 Grant of Incentive Stock Options.
(a) The Bank, pursuant to the 2001 Plan, hereby grants to Grantee, as of December 31 of each year, beginning December 31, 2003, assuming Grantee is the __________ of the Bank on such date and assuming options are available for issuance under the 2001 Plan on such date, Options (which are intended to be Incentive Stock Options) to purchase ____ shares of Common Stock. The Option Price per share shall be equal to the Fair Market Value on the Grant Date.
(b) The Bank may grant such additional Options to Grantee as the Bank (acting through its Board of Directors or a committee thereof may deem to be appropriate from time to time).
(c) The Options granted to Grantee, and the Option Price, shall be sent forth on Exhibit C, and a copy of Exhibit C, as updated, shall be sent to Grantee no less than annually.
Section 2.2 Term of Option. The Options granted pursuant to Sections 2.1 shall expire on the tenth anniversary of their grant date, unless such Option terminates earlier pursuant to other provisions of this Agreement or the Plan.
ARTICLE 3
EXERCISE OF OPTION
Section 3.1 Manner of Exercise. The Option may be exercised, in whole or in part, by delivering written notice to the Board of Directors in such form as the Board of Directors may require from time to time. Such notice shall specify the number of shares of Common Stock subject to the Option as to which the Option is being exercised, and shall be accompanied by full payment of the Option Price of the shares of Common Stock as to which the Option is being exercised. In addition, for so long as the shares subject to the Plan are not registered under the Securities Act of 1933, as amended, or otherwise exempt from such registration, such notice shall be accompanied by a written statement that the shares are purchased for investment and not with a view to distribution and acknowledgment of restrictions on the transferability of the shares. Payment of the Option Price shall be made as provided in the Plan. The Option may be exercised only in multiples of whole shares and no partial shares shall be issued. A form of notice is attached hereto as Exhibit A.
Section 3.2 Issuance of Shares and Payment of Option Price Upon Exercise. Upon exercise of the Option, in whole or in part, in accordance with the terms of this Agreement and upon payment of the Option Price for the shares of Common Stock as to which the Option is
exercised, the Bank shall issue to Grantee the number of shares of Common Stock paid for, in the form of fully paid and non-assessable Common Stock.
ARTICLE 4
TERMINATION OF OPTION
Unless the Option has earlier terminated pursuant to the provisions of this Agreement, all Options granted to Grantee shall terminated as provided in the Plan, including, but not limited to, the provisions of Section 9 of the Plan.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or this Agreement shall be construed as a contract of employment between the Bank or any affiliate and Grantee, or as a contractual right of Grantee to continue in the employ or as a director of the Bank or any affiliate, or as a limitation of the right of the Bank or an affiliate to remove Grantee at any time.
Section 5.2 No Rights of Stockholder. Grantee shall not have any of the rights of a stockholder with respect to the shares of Common Stock that may be issued upon the exercise of the Option until such shares of Common Stock have been issued to him or her upon the due exercise of the Option.
Section 5.3 Agreement Subject to Charter and By-Laws. This Agreement is subject to the Charter and By-Laws of the Bank, and any applicable federal or state laws, rules or regulations.
Section 5.4 Gender. As used herein the masculine shall include the feminine as the circumstances may require.
Section 5.5 Headings. The headings in the Agreement are for reference purposes only and shall not affect the meaning or interpretation of the Agreement.
Section 5.6 Notices. All notices and other communications made or given pursuant to the Agreement shall be in writing and shall be sufficiently made or given if hand delivered or mailed by certified mail, addressed to Grantee at the address contained in the records of the Bank or an affiliate, and to the Bank for the attention of its Secretary at its principal office.
Section 5.7 Tax Withholding. The Bank shall have the right to deduct from all Options granted any federal, state, local or employment taxes which it deems are required by law to be withheld with respect to such grants. In addition, the Bank shall have the right to require a Grantee, upon grant or exercise of an option, to pay to the Bank the minimum amount of any federal or state taxes, including payroll taxes, if any, that the Bank is required to withhold.
Section 5.8 Notice of Disqualifying Disposition. If Grantee makes a disposition (as that term is defined in ss.424(c) of the Code) of any shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option within two (2) years of the Grant Date or within one (1) year after the shares of Common Stock are transferred to Grantee, Grantee shall notify the Board
of Directors of such disposition in writing.
ARTICLE 6
SCOPE OF AGREEMENT
Section 6.1 Entire Agreement; Modification. The Agreement, along with the Plan, contains the entire agreement between the parties with respect to the subject matter contained herein and supersedes are prior agreements or understandings between the parties with respect to Options described in this Agreement. This Agreement may not be modified or amended except as provided in the Plan or in a written document signed by each of the parties hereto.
Section 6.2 Conformity with Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan, which is incorporated herein by reference. In the event of any inconsistencies between this Agreement and the Plan, the Plan shall control.
Section 6.3 Counterparts. The Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.
Section 6.4 Acknowledgment. BEFORE SIGNING HEREUNDER, THE GRANTEE
SHOULD READ AND THOROUGHLY REVIEW THE PLAN ATTACHED HERETO AS EXHIBIT B. BY
SIGNING HEREUNDER, THE GRANTEE ACKNOWLEDGES RECEIPT OF THE PLAN AND REPRESENTS
THAT GRANTEE HAS READ AND THOROUGHLY REVIEWED THE PLAN.
Section 6.5 Holding Company Formation. In the event the Bank is reorganized into a holding company structure, all Options granted hereunder shall, to the extent permitted by applicable law, become options of the holding company, and the Grantee agrees to execute such documents and take such actions as the Bank may reasonably request in connection with any such transaction.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first above written.
ATTEST: OLD LINE BANK
By:
-------------------------------- --------------------------------
WITNESS: GRANTEE
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EXHIBIT A
Old Line Bank
2995 Crain Highway
P.O. Box 1890
Waldorf, Maryland 20604
Ladies and Gentlemen:
I hereby exercise the Option granted to me on , by Old Line Bank (the "Bank"), subject to all the terms and provisions thereof and of the Old Line Bank 2001 Incentive Stock Option Plan, as amended (the "Plan"), and notify you of my desire to purchase shares of Common Stock of the Bank at a price of $ ___________ per share pursuant to the exercise of said Option.
Date: (Optionee)
--------------------------------- ------------------------------------
Received by Old Line Bank on
--------
By: _______________________________
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EXHIBIT B
COPY OF PLAN
EXHIBIT C
Date of Grant Option Price No. of Options
EXHIBIT 21
SUBSIDIARIES OF OLD LINE BANCSHARES, INC.
Old Line Bank, a Maryland-chartered trust company exercising the powers of a commercial bank, will be a wholly-owned subsidiary of Old Line Bancshares, Inc. upon completion of the reorganization.
Exhibit 23.1
[Rowles & Company, LLP letterhead]
The Board of Directors and Shareholders
Old Line Bancshares, Inc.
Waldorf, Maryland
Consent of Independent Auditors
We hereby consent to the inclusion in this registration statement filed by Old Line Bancshares, Inc. on Form 10-SB under the Securities Exchange Act of 1934, as amended, of our report dated January 15, 2003, on our audit of the financial statements of Old Line Bank as of December 31, 2002 and 2001 and for the years then ended.
/s/ Rowles & Company
Rowles & Company, LLP
Towson, Maryland
July 15, 2003
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EXHIBIT 99.1
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Plan of Reorganization") is dated as of April 11, 2003 by and between Old Line Bank, a Maryland trust company exercising the powers of a commercial bank (the "Bank"), and Old Line Bancshares, Inc., a Maryland corporation (the "Holding Company").
A. The Holding Company has filed or will file an application under The Bank Holding Company Act of 1956, as amended, to become a bank holding company.
B. The Bank and the Holding Company desire to enter into this Plan of Reorganization, pursuant to which the corporate structure of the Bank will be reorganized into the holding company form of ownership in a manner that is fair and equitable to all stockholders of the Bank. The result of such reorganization (the "Reorganization") will be that, at and after the Effective Date (as that term is defined in Article IV below), all of the issued and outstanding shares of the Bank's common stock, par value $10.00 per share (the "Bank Common Stock"), will be held by the Holding Company, and the holders of the issued and outstanding shares of Bank Common Stock, except for those stockholders exercising the rights of dissenting stockholders pursuant to Title 3, Subtitle 2 of the Corporations and Associations Article of the Code of Maryland (the "Corporations Article"), will become the holders of all of the issued and outstanding shares of the Holding Company's common stock, par value $0.01 per share (the "Holding Company Common Stock").
C. The Bank and the Holding Company have agreed that the Holding Company will acquire all of the issued and outstanding shares of Bank Common Stock in exchange for shares of Holding Company Common Stock pursuant to the Corporations Article and this Plan of Reorganization.
D. This Plan of Reorganization has been determined to be fair and equitable to all stockholders of the Bank and has been adopted and approved by the favorable vote of all of the members of the Board of Directors of the Bank and by the favorable vote of all of the members of the Board of Directors of the Holding Company.
E. The parties hereto intend that the Reorganization constitute a reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF STOCK
The manner and basis of exchanging shares of Bank Common Stock for shares of Holding Company Common Stock, and the treatment of any Bank Common Stock not to be exchanged on the Effective Date, shall be as follows:
1.1 Bank Common Stock. On the Effective Date, the holders of the then issued and outstanding shares of Bank Common Stock (other than shares held by stockholders exercising the rights of dissenting stockholders pursuant to Title 3, Subtitle 2 of the Corporations Article, if any), shall, without any further action on their part or on the part of the Holding Company, automatically and by operation of law, cease to own such shares, and instead each holder of shares of Bank Common Stock shall become an owner of one (1) share of Holding Company Common Stock for each share of Bank Common Stock theretofore held by him. Thereafter, such persons shall have full and exclusive power to vote such shares of Holding Company Common Stock, to receive dividends thereon, and to exercise all rights of an owner thereof.
1.2 Holding Company Common Stock. On the Effective Date, the Holding Company shall, without any further action on its part or on the part of the holders of Bank Common Stock, automatically and by operation of law, acquire and become the owner for all purposes of all of the then issued and outstanding shares of Bank Common Stock (other than shares held by stockholders exercising the rights of dissenting stockholders pursuant to Title 3, Subtitle 2 of the Corporations Article, if any). Thereafter, the Holding Company shall have full and exclusive power to vote such shares of Bank Common Stock, to receive dividends thereon, and to exercise all rights of an owner thereof.
(a) On the Effective Date, all previously issued and outstanding certificates representing shares of Bank Common Stock (the "Bank Stock Certificates") shall automatically and by operation of law cease to represent shares of Bank Common Stock or any interest therein and each Bank Stock Certificate (other than Bank Stock Certificates which represented shares held by stockholders exercising the rights of dissenting stockholders pursuant to Title 3, Subtitle 2 of the Corporations Article, if any), shall instead represent the ownership by the holder thereof of the number of shares of Holding Company Common Stock as contemplated pursuant to Section 1.1 hereof. Thereafter, no holder of a Bank Stock Certificate shall be entitled to vote the shares of Bank Common Stock formerly represented by such certificate, or to receive dividends thereon, or to exercise any other rights of ownership in respect thereof. Each such holder of a Bank Stock Certificate may exchange such certificate, after the Effective Date, for new certificates for the appropriate number of shares and bearing the name of the Holding Company. The Holding Company shall provide instructions to such holders as to the time and method of surrendering Bank Stock Certificates.
(b) On the Effective Date, the Holding Company shall be entitled to have the Bank issue to it certificates representing shares of Bank Common Stock as contemplated pursuant to Section 1.2 hereof.
1.4 Dividends. No dividend, except if and to the extent permitted by the Board of Directors of the Holding Company, payable by the Holding Company as of any date subsequent to the Effective Date, shall be payable to any holder of Bank Stock Certificates, unless and until such certificates shall have been surrendered to the Holding Company in exchange for a certificate or certificates evidencing shares of Holding Company Common Stock (unless this provision is waived by the Holding Company). Upon the surrender of any such Bank Stock Certificate for a new certificate or certificates evidencing shares of Holding Company Common Stock, there shall be paid to the holder of the certificate, without interest, the amount of dividends (if any) payable by the Holding Company as of a date subsequent to the Effective Date and not theretofore paid on such shares of Holding Company Common Stock.
ARTICLE II
CLOSING CONDITIONS
The obligations of the Bank and the Holding Company to consummate the Reorganization shall be subject to the satisfaction of the following conditions on or prior to the Effective Date:
2.1 Regulatory Approval. The Commissioner of Financial Regulation of the State of Maryland shall have approved the Holding Company's becoming an "affiliate" (as such term is defined in Section 5-401 the Financial Institutions Article of the Annotated Code of Maryland) of the Bank, and the Holding Company's acquisition of 100% of the outstanding voting stock of the Bank pursuant to Section 5-901 et seq. of the Financial Institutions Article, and shall have issued any other applicable approvals. In addition, the Board of Governors of the Federal Reserve shall have approved the Holding Company's acquisition of 100% of the outstanding voting stock of the Bank and shall have issued any other applicable approvals pursuant to the Bank Holding Company Act of 1956, as amended. Furthermore, all approvals from any other state or federal governmental agency having jurisdiction necessary for the lawful consummation of the Reorganization as contemplated by this Plan of Reorganization shall have been obtained, and all waiting periods imposed in connection with any such regulatory approvals shall have expired.
2.2 Stockholder Approval. The holders of the outstanding shares of Bank Common Stock shall, at a meeting of the stockholders of the Bank duly called, have adopted this Plan of Reorganization and the Articles of
Share Exchange to be filed by the Holding Company and the Bank in connection with the Reorganization (the "Articles of Share Exchange") by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter. The form of Articles of Share Exchange is attached hereto as Exhibit A.
2.3 Tax Status. The exchange of shares shall not be subject to Maryland or federal income taxation. The Bank shall have received a favorable opinion from its counsel, satisfactory in form and substance to the Bank, with respect to the federal and Maryland income tax consequences of the Plan of Reorganization and the Reorganization contemplated thereby.
2.4 Other Consents. The Bank and the Holding Company shall have obtained all other consents, permissions and approvals and shall have taken all actions required by law or agreement or deemed necessary by the Bank or the Holding Company, prior to the consummation of the Reorganization.
2.5 Dissenters' Rights. The holders of no more than five percent (5%) of the outstanding shares of Bank Common Stock shall have filed with the Bank a written objection to the Reorganization pursuant Section 3-203 of the Corporations Article, unless this condition is waived by the parties hereto.
ARTICLE III
TERMINATION
This Plan of Reorganization may be terminated by the Board of Directors of the Bank or the Board of Directors of the Holding Company at any time prior to the Effective Date.
ARTICLE IV
EFFECTIVE DATE
The Reorganization contemplated by this Plan of Reorganization shall become effective at the time the State Department of Assessments and Taxation of Maryland accepts for record the Articles of Share Exchange. Such date is referred to herein as the "Effective Date."
ARTICLE V
BENEFIT PLANS
5.1 Stock Option Plan. By adopting and approving this Plan of Reorganization, the Holding Company shall be deemed to have approved adoption of the Bank's stock option plans (the "Stock Option Plans") as the stock option plans of the Holding Company. As of the Effective Date, the Stock Option Plans shall automatically be continued as and become the stock option plans of the Holding Company. Subject to such other terms as may be provided in the Stock Option Plan, each option to purchase shares of Bank Common Stock under the Stock Option Plans outstanding on the Effective Date shall automatically be converted into an identical option, with identical price, terms and conditions, to purchase an identical number of shares of Holding Company Common Stock in lieu of shares of Bank Common Stock. The Holding Company and the Bank may make appropriate amendments to the Stock Option Plans to reflect the adoption of the Stock Option Plans as the stock option plans of the Holding Company, without adverse effect upon the options outstanding as of the Effective Date under the Stock Option Plan.
5.2 Other Benefit Plans. After the Effective Date, the Holding Company shall cause the Bank to continue to observe its obligations with respect to all other employee benefit plans of the Bank in existence immediately prior to the Effective Date. Where the terms of any such plan so require, the Holding Company shall execute any and all documentation as may be necessary or appropriate.
ARTICLE VI
MISCELLANEOUS
6.1 Rules of Construction. Unless the context clearly indicates to the contrary, the following rules apply to the construction of this Plan of Reorganization: (i) references to the singular include the plural, and references to the plural include the singular; (ii) words of the masculine gender include correlative words of the feminine and neuter genders, and vice versa; (iii) the headings or captions used in this Plan of Reorganization are for
convenience of reference only and do not constitute a part of this Plan of Reorganization, nor affect its meaning, construction, or effect; and (iv) the term "person" means any individual, corporation, partnership (whether general or limited), limited liability company, joint venture, estate, trust, association, organization, or other entity or governmental body.
6.2 Governing Law. This Plan of Reorganization shall be governed by and construed in accordance with the internal laws of the State of Maryland, without giving effect to its conflicts of laws provisions.
6.3 Severability. If any provision (or any part of any provision) contained in this Plan of Reorganization shall for any reason be held to be invalid, illegal, or unenforceable in any respect, then such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Plan of Reorganization, and this Plan of Reorganization shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had never been contained herein, but only to the extent such provision (or part thereof) is invalid, illegal, or unenforceable.
6.4 Entire Agreement; Amendment; Waiver. This Plan of Reorganization contains the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes all prior discussions, understandings, and agreements (whether oral or written) between them with respect thereto. No amendment to, or modification or waiver of, any of the terms of this Plan of Reorganization shall be valid unless in writing and signed by the party against whom enforcement of such amendment, modification or waiver is sought.
6.5 Further Assurances. Each of the parties hereto agrees to furnish such information, to do all acts and things, and to execute and deliver such agreements, documents, certificates, and instruments as shall from time to time be reasonably required to effectuate the terms and provisions of this Plan of Reorganization.
6.6 Counterparts. This Plan of Reorganization may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Plan of Reorganization under seal as of the date first above written.
ATTEST: Bank:
Old Line Bank,
A Maryland Trust Company
/s/ Christine M. Rush By: /s/ James W. Cornelsen
------------------------------ ------------------------------
Christine M. Rush, Secretary James W. Cornelsen, President
ATTEST: Holding Company:
---------------
Old Line Bancshares, Inc.,
A Maryland Corporation
/s/ Christine M. Rush By: /s/ James W. Cornelsen
------------------------------ ------------------------------
Christine M. Rush, Secretary James W. Cornelsen, President
|
Exhibit A
(Articles of Share Exchange)
ARTICLES OF SHARE EXCHANGE
Between
OLD LINE BANK
(A Maryland Commercial Bank)
And
OLD LINE BANCSHARES, INC.
(A Maryland Corporation)
OLD LINE BANK, a Maryland commercial bank (the "Bank"), and OLD LINE BANCSHARES, INC., a Maryland corporation (the "Holding Company"), hereby certify to the State Department of Assessments and Taxation of Maryland as follows:
FIRST: The Holding Company agrees to acquire all of the issued and outstanding stock of the Bank, and the Bank agrees to have such stock acquired by the Holding Company, in a statutory share exchange.
SECOND: The name and place of incorporation of each party to these Articles of Share Exchange are: Old Line Bank, a Maryland trust company exercising the powers of a commercial bank, and Old Line Bancshares, Inc., a Maryland corporation. The Holding Company is acquiring the stock of the Bank in the share exchange.
THIRD: The principal office of each of the Bank and the Holding Company in the State of Maryland is located in Charles County.
FOURTH: The terms and conditions of the transaction described in these Articles of Share Exchange were advised, authorized, and approved by the Bank in the manner and by the vote required by its Charter and the laws of the State of Maryland. The manner of approval was as follows:
(a) the Board of Directors of the Bank, at a meeting held on March 27, 2003, adopted a resolution which declared that the share exchange was advisable on substantially the terms and conditions set forth or referred to in the resolution and directed that the share exchange be submitted for consideration at the 2003 annual meeting of the Bank's stockholders; and
(b) the share exchange was approved by the stockholders of the Bank at the 2003 annual meeting of the Bank's stockholders held on May 22, 2003, by the affirmative vote of _____________ percent (%____) of all votes entitled to be cast on the matter.
FIFTH: The terms and conditions of the transaction described in these Articles of Share Exchange were advised, authorized, and approved by the Holding Company in the manner and by the vote required by its Charter and the laws of the State of Maryland. The manner of approval was as follows:
(a) the Board of Directors of the Holding Company, by written consent dated April 11, 2003 signed by all of the directors of the Holding Company and filed with the minutes of proceedings of the Board of Directors of the Holding Company, adopted a resolution which declared that the share exchange was advisable on substantially the terms and conditions set forth or referred to in the resolution; and
(b) no stock of the Holding Company entitled to be voted on these Articles of Share Exchange was outstanding or subscribed for at the time of approval.
SIXTH: The total number of shares of capital stock of all classes that the Bank has authority to issue is 6,000,000 shares, consisting of 5,000,000 shares of common stock, par value $10.00 per share (the "Bank Common Stock") and 1,000,000 shares of preferred stock, par value $0.01 per share. The aggregate par value of all shares of all classes having a par value is ($50,010,000).
SEVENTH: The manner and basis of exchanging the stock to be acquired for stock or other consideration to be issued or delivered by or on behalf of the successor are as follows:
(a) On the effective date of these Articles of Share Exchange, the holders of the then issued and outstanding shares of Bank Common Stock (other than shares held by stockholders exercising the rights of objecting stockholders pursuant to Title 3, Subtitle 2 of the Corporations and Associations Article of the Annotated Code of Maryland, if any), shall, without any further action on their part or on the part of the Holding Company, automatically and by operation of law, cease to own such shares, and instead each holder of shares of Bank Common Stock shall become the owner of one (1) share of the Holding Company's common stock, par value $0.01 per share (the "Holding Company Common Stock"), for each share of Bank Common Stock theretofore held by him.
(b) On the effective date of these Articles of Share Exchange, the Holding Company shall, without any further action on its part or on the part of the holders of Bank Common Stock, automatically and by operation of law, acquire and become the owner for all purposes of all of the then issued and outstanding shares of Bank Common Stock (other than shares held by stockholders exercising the rights of objecting stockholders pursuant to Title 3, Subtitle 2 of the Corporations and Associations Article, if any).
EIGHTH: The share exchange shall become effective upon the filing of these Articles of Share Exchange with the State Department of Assessments and Taxation of Maryland.
IN WITNESS WHEREOF, the Bank and the Holding Company have caused these Articles of Share Exchange to be duly executed and their corporate seals to be hereunto affixed and attested as of _____________, 2003.
ATTEST: Bank:
----
Old Line Bank,
A Maryland Trust Company
___________________________ By: ________________________________
___________________, Secretary ___________________, President
ATTEST: Holding Company:
---------------
Old Line Bancshares, Inc.,
A Maryland Corporation
|
___________________________ By: ________________________________ ___________________, Secretary ___________________, President
THE UNDERSIGNED, President of Old Line Bank, who executed on behalf of said corporation the foregoing Articles of Share Exchange of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Share Exchange to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
THE UNDERSIGNED, President of Old Line Bancshares, Inc., who executed on behalf of said corporation the foregoing Articles of Share Exchange of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Share Exchange to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
Exhibit 99.2
Old Line Bank
Table of Contents
Page
Report of independent auditors F-2
Financial statements
Balance sheets F-3
Statements of income F-4
Statements of changes in stockholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-8
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[GRAPHIC OMITTED]
Report of Independent Auditors
The Board of Directors and Stockholders
Old Line Bank
Waldorf, Maryland
We have audited the accompanying balance sheets of Old Line Bank as of December 31, 2002 and 2001, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Old Line Bank as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Rowles & Company LLP
Baltimore, Maryland
January 15, 2003
|
101 E. Chesapeake Avenue, Baltimore, Maryland 21286 410-583-6990 FAX 410-583-7061 website: www.Rowles.com
Old Line Bank
Balance Sheets
Unaudited
March 31, December 31,
2003 2002 2002 2001
Assets
Cash and due from banks $1,849,288 $2,579,694 $1,409,172 $2,036,267
Federal funds sold 11,893,709 7,001,052 5,622,983 6,305,716
Time deposits in other banks 600,000 - 600,000 -
Securities available for sale 11,976,426 10,886,044 13,387,553 11,057,194
Securities held to maturity 5,903,062 3,500,000 5,351,588 4,700,000
Loans, less allowance for loan losses 47,752,516 35,307,023 43,058,786 33,733,116
Federal Reserve Bank stock 162,850 160,850 161,750 154,800
Atlantic Central Bankers Bank stock 12,000 12,000 12,000 12,000
Federal Home Loan Bank stock 200,000 200,000 200,000 200,000
Bank premises and equipment 2,118,606 1,719,179 1,920,243 1,741,513
Accrued interest receivable 327,736 374,811 305,486 381,216
Deferred income taxes 9,783 29,185 - 13,063
Other assets 259,062 174,861 215,140 134,221
----------- ----------- ----------- -----------
$83,065,038 $61,944,699 $72,244,701 $60,469,106
=========== =========== =========== ===========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $18,192,199 $9,306,258 $12,614,536 $8,759,209
Interest-bearing 54,879,895 43,090,169 49,641,789 42,077,668
----------- ----------- ----------- -----------
Total deposits 73,072,094 52,396,427 62,256,325 50,836,877
Borrowed funds 4,000,000 4,000,000 4,000,000 4,000,000
Accrued interest payable 257,757 253,945 250,259 241,344
Income tax payable 35,735 - - -
Deferred income taxes - - 34,021 -
Other liabilities 47,926 16,426 17,503 29,381
----------- ----------- ----------- -----------
77,413,512 56,666,798 66,558,108 55,107,602
----------- ----------- ----------- -----------
Stockholders' equity
Common stock, par value $10 per share; authorized
1,000,000 shares; issued and outstanding
286,631.5 shares 2,866,315 2,866,315 2,866,315 2,866,315
Surplus 2,600,000 2,563,223 2,600,000 2,563,223
Undivided profits (deficit) 173,375 (88,305) 127,091 (105,210)
----------- ----------- ----------- -----------
5,639,690 5,341,233 5,593,406 5,324,328
Accumulated other comprehensive income 11,836 (63,332) 93,187 37,176
----------- ----------- ----------- -----------
5,651,526 5,277,901 5,686,593 5,361,504
----------- ----------- ----------- -----------
$83,065,038 $61,944,699 $72,244,701 $60,469,106
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
|
Old Line Bank
Statements of Income
Unaudited
Three months ended Year ended
March 31, December 31,
2003 2002 2002 2001
------------------------------------------------------------------------------------------------------------------------------
Interest revenue
Loans, including fees $ 765,947 $ 640,788 $2,824,634 $2,369,605
U. S. government agency securities 129,469 214,396 609,988 758,163
Mortgage backed securities 26,917 6,394 160,498 --
Tax exempt securities 17,377 -- 22,204 --
Federal funds sold 12,339 16,369 109,880 306,002
Other 10,377 6,290 29,129 23,174
---------- ---------- ---------- ----------
Total interest revenue 962,426 884,237 3,756,333 3,456,944
Interest expense
Deposits 293,114 332,567 1,302,098 1,374,171
Borrowed funds 48,534 48,169 194,835 195,076
---------- ---------- ---------- ----------
Total interest expense 341,648 380,736 1,496,933 1,569,247
---------- ---------- ---------- ----------
Net interest income 620,778 503,501 2,259,400 1,887,697
Provision for loan losses 36,000 30,000 144,000 78,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 584,778 473,501 2,115,400 1,809,697
---------- ---------- ---------- ----------
Noninterest revenue
Service charges on deposit accounts 56,621 50,776 217,749 187,057
Other fees and commissions 48,495 63,928 215,458 115,643
Gain on disposal of assets 41,102 -- 38,346 18,180
---------- ---------- ---------- ----------
Total noninterest revenue 146,218 114,704 471,553 320,880
---------- ---------- ---------- ----------
Noninterest expenses
Salaries 269,129 218,200 1,021,878 810,910
Employee benefits 47,545 37,897 157,676 128,158
Occupancy 50,455 41,343 202,478 178,223
Equipment 28,062 24,601 99,386 96,615
Data processing 27,648 23,957 98,904 72,913
Other operating 121,066 118,510 503,878 372,945
---------- ---------- ---------- ----------
Total noninterest expenses 543,905 464,508 2,084,200 1,659,764
---------- ---------- ---------- ----------
Income before income taxes 187,091 123,697 502,753 470,813
Income taxes 60,550 38,000 164,884 155,582
---------- ---------- ---------- ----------
Net income $ 126,541 $ 85,697 $ 337,869 $ 315,231
========== ========== ========== ==========
Basic earnings per common share $ 0.44 $ 0.30 $ 1.18 $ 1.10
Diluted earnings per common share $ 0.43 $ 0.30 $ 1.16 $ 1.09
The accompanying notes are an integral part of these financial statements.
F-4
|
Old Line Bank
Statements of Changes in Stockholders' Equity
Accumulated
other
Common stock Undivided comprehensive Comprehensive
Shares Par value Surplus profits income income
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 573,263.0 2,866,315 2,563,223 (363,115) (31,074)
Net income - - - 315,231 - $ 315,231
Unrealized gain (loss) on
securities available for
sale net of income taxes - - - - 68,250 68,250
---------
Comprehensive income $ 383,481
=========
Cash dividend $.20 per share - - - (57,326) -
---------- ---------- ----------- --------- --------
Balance, December 31, 2001 573,263.0 2,866,315 2,563,223 (105,210) 37,176
Reverse stock split-up (286,631.5) - - - -
Net income - - - 337,869 - $ 337,869
Transfer to surplus - - 36,777 (36,777) -
Unrealized gain (loss) on
securities available for
sale net of income taxes - - - - 56,011 56,011
---------
Comprehensive income $ 393,880
=========
Cash dividend $.24 per share - - - (68,791) -
---------- ---------- ----------- --------- --------
December 31, 2002 286,631.5 2,866,315 2,600,000 127,091 93,187
(Unaudited)
Net income - - - 126,541 - $ 126,541
Unrealized gain (loss) on
securities available for
sale net of income taxes - - - - (81,351) (81,351)
---------
Comprehensive income $ 45,190
=========
Cash dividend $.28 per share - - - (80,257) -
---------- ---------- ----------- --------- --------
March 31, 2003 286,631.5 $2,866,315 $ 2,600,000 $ 173,375 $ 11,836
========== ========== =========== ========= ========
The accompanying notes are an integral part of these financial statements.
F-5
|
Old Line Bank
Statements of Cash Flows
Unaudited
Three months ended Year ended
March 31, December 31,
2003 2002 2002 2001
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Interest received $ 925,523 $ 882,746 $ 3,762,405 $ 3,379,342
Fees and commissions received 105,116 114,704 434,678 302,700
Interest paid (334,150) (368,135) (1,488,018) (1,512,608)
Cash paid to suppliers and employees (541,248) (491,786) (2,038,914) (1,542,040)
Income taxes paid -- -- (170,602) --
------------ ------------ ------------ ------------
155,241 137,529 499,549 627,394
------------ ------------ ------------ ------------
Cash flows from investing activities
Purchase of investment securities
Held to maturity (2,051,678) (500,000) (4,351,767) (4,500,000)
Available for sale (4,788,437) (1,986,646) (14,508,839) (13,500,000)
Proceeds from disposal of investment securities
Held to maturity 1,500,000 1,700,000 2,700,000 3,800,000
Available for sale at maturity or call 5,179,685 2,003,166 12,247,933 7,700,000
Available for sale sold 924,181 -- 1,036,875 818,180
Loans made, net of principal collected (4,703,226) (1,596,011) (9,385,288) (6,903,927)
Purchase of equity securities (1,100) (6,050) (6,950) (16,600)
Purchase of certificates of deposit -- -- (600,000) --
Purchase of premises and equipment and software (239,336) (3,984) (302,498) (80,848)
Proceeds from sale of premises and equipment -- -- 10,500 --
------------ ------------ ------------ ------------
(4,179,911) (389,525) (13,160,034) (12,683,195)
------------ ------------ ------------ ------------
Cash flows from financing activities
Net increase (decrease) in
Time deposits 497,935 65,631 2,365,583 5,318,213
Other deposits 10,317,834 1,493,919 9,053,865 5,373,257
Dividends paid (80,257) (68,791) (68,791) (57,326)
------------ ------------ ------------ ------------
10,735,512 1,490,759 11,350,657 10,634,144
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 6,710,842 1,238,763 (1,309,828) (1,421,657)
Cash and cash equivalents at beginning of period 7,032,155 8,341,983 8,341,983 9,763,640
------------ ------------ ------------ ------------
Cash and cash equivalents at end of perioid $ 13,742,997 $ 9,580,746 $ 7,032,155 $ 8,341,983
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-6
|
Old Line Bank
Statements of Cash Flows
(Continued)
Unaudited
Three months ended Year ended
March 31, December 31,
2003 2002 2002 2001
-----------------------------------------------------------------------------------------------------------------
Reconciliation of net income to net cash
provided by operating activities
Net income $ 126,541 $ 85,697 $ 337,869 $ 315,231
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 37,201 28,215 118,334 110,435
Provision for loan losses 36,000 30,000 144,000 78,000
Gain on disposal of securities (41,102) -- (36,875) (18,180)
Gain on sale of equipment -- -- (1,471) --
Change in deferred loan fees net of costs (26,504) (7,896) (84,382) (46,064)
Amortization of premiums and discounts 11,851 -- 14,724 --
Deferred income taxes -- 38,000 19,098 155,582
Increase (decrease) in
Accrued interest payable 7,498 12,601 8,915 56,639
Other liabilities 66,158 (12,955) (11,879) 7,334
Decrease (increase) in
Accrued interest receivable (22,250) 6,405 75,730 (31,538)
Other assets (40,152) (42,538) (84,514) (45)
--------- --------- --------- ---------
$ 155,241 $ 137,529 $ 499,549 $ 627,394
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-7
|
Notes to Financial Statements
1. Summary of Significant Accounting Policies
The accounting and reporting policies reflected in the financial statements conform to generally accepted accounting principles and to general practices within the banking industry.
Old Line Bank is a full service commercial bank operating in the Maryland suburbs of Washington, D.C. The Bank offers deposit services and loans to individuals, small businesses, associations and government entities. Other services include direct deposit of payroll and social security checks, automatic drafts from accounts, automated teller machine services, cash management services, safe deposit boxes, money orders and travelers cheques. The Bank also offers credit card services.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions may affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
In 2002 Old Line Bank changed from a Federal charter to a State of Maryland charter. To effect the change a reverse stock split was required to increase the par value to $10.00 per share as required by State banking regulations.
Cash equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Investment securities
As securities are purchased, management determines if the securities
should be classified as held to maturity, available for sale or trading.
Securities which management has the intent and ability to hold to
maturity are recorded at amortized cost which is cost adjusted for
amortization of premiums and accretion of discounts to maturity.
Securities which may be sold before maturity are classified as available
for sale and carried at fair value with unrealized gains and losses
included in stockholders' equity on an after tax basis. Management has
not identified any investment securities as trading.
Gains and losses on disposal are determined using the specific-identification method.
Stock options
The Bank accounts for stock options under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25).
This requires an employer to recognize compensation cost for stock
issued through compensatory plans unless the employee pays an amount
that is at least equal to the quoted market price of the stock at the
measurement date.
Bank premises and equipment
Bank premises and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed using the straight-line method.
Foreclosed real estate
Real estate acquired through foreclosure is recorded at the lower of
cost or fair market value on the date acquired. Losses incurred at the
time of acquisition of the property are charged to the allowance for
loan losses. Subsequent reductions in the estimated value of the
property are included in noninterest expense.
Advertising
Advertising costs are expensed over the life of ad campaigns. General
purpose advertising is charged to expense as incurred.
Notes to Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued)
Loans and allowance for loan losses Loans are stated at face value plus deferred origination costs, less deferred origination fees and the allowance for loan losses.
Interest on loans is accrued based on the principal amounts outstanding. Origination fees and costs are amortized to income over the terms of the loans using an approximate interest method. The accrual of interest is discontinued when any portion of the principal or interest is ninety days past due and collateral is insufficient to discharge the debt in full.
Loans are considered impaired when, based on current information, management considers it unlikely that the collection of principal and interest payments will be made according to contractual terms. Generally, loans are not reviewed for impairment until the accrual of interest has been discontinued. If collection of principal is evaluated as doubtful, all payments are applied to principal.
The allowance for loan losses represents an amount which, in management's judgment, will be adequate to absorb probable losses on existing loans and other extensions of credit that may become uncollectible. Management's judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrowers' ability to pay, overall portfolio quality, and review of specific problem areas. If the current economy or real estate market were to suffer a severe downturn, the estimate for uncollectible accounts would need to be increased. Loans which are deemed to be uncollectible are charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously charged off are added to the allowance.
Income taxes
The provision for income taxes includes taxes payable for the current
year and deferred income taxes. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to reverse.
Earnings per share
Basic earnings per common share are determined by dividing net income
by the weighted average number of shares of common stock outstanding
giving retroactive affect to the one for two stock split in 2002.
Diluted earnings per share is calculated including the average dilutive
common stock equivalents outstanding during the period. Dilutive common
equivalent shares consist of stock options, calculated using the
treasury stock method.
2002 2001
--------------------------------------------------------------------
Weighted average number of shares 286,631.5 286,631.5
Dilutive average number of shares 4,725 1,592
|
Comprehensive income
Comprehensive income includes net income and the unrealized gain
(loss) on investment securities available for sale net of related income
taxes.
Notes to Financial Statements (Continued)
2. Cash and Equivalents
The Bank normally carries balances with other banks that exceed the federally insured limit. The average balance in 2002 did not exceed the federally insured limit. The average balance carried in excess of the limit was $933,062 for 2001. The Bank also sells federal funds on an unsecured basis to the same banks. The average balance sold was $5,678,211 and $5,963,820 in 2002 and 2001, respectively.
Banks are required to carry noninterest-bearing cash reserves at specified percentages of deposit balances. The Bank's normal amount of cash on hand and on deposit with other banks is sufficient to satisfy the reserve requirements.
3. Credit Commitments
Outstanding loan commitments, unused lines of credit, and letters of credit were as follows:
2002 2001
-----------------------------------------------------------------------
Commitments to extend credit $2,385,000 $1,107,302
Undisbursed construction lines of credit 3,581,606 254,020
---------- ----------
$5,966,606 $1,361,322
========== ==========
Unused lines of credit $3,891,297 $1,751,804
========== ==========
Standby letters of credit $ 275,290 $ 86,621
========== ==========
|
Loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have variable interest rates, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.
The Bank's exposure to credit loss in the event of nonperformance by the customer is the contractual amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. Management is not aware of any accounting loss it would incur by funding its outstanding commitments.
Notes to Financial Statements (Continued)
4. Investment Securities
Investment securities are summarized as follows:
Amortized Unrealized Unrealized Market
December 31, 2002 cost gains losses value
------------------------------------------------------------------------------------------------------
Available for sale
U. S. government agency $ 8,000,000 $ 74,843 $ -- $ 8,074,843
State, county and municipal 1,485,996 15,527 29,935 1,471,588
Mortgage-backed 3,760,365 82,899 2,142 3,841,122
----------- ----------- ----------- -----------
$13,246,361 $ 173,269 $ 32,077 $13,387,553
=========== =========== =========== ===========
Held to maturity
U. S. government agency $ 5,000,000 $ 104,192 $ -- $ 5,104,192
State, county and municipal 351,588 9,668 -- 361,256
----------- ----------- ----------- -----------
$ 5,351,588 $ 113,860 $ -- $ 5,465,448
=========== =========== =========== ===========
December 31, 2001
------------------------------------------------------------------------------------------------------
Available for sale
U. S. government agency $11,000,000 $ 100,920 $ 43,726 $11,057,194
=========== =========== =========== ===========
Held to maturity
U. S. government agency $ 4,700,000 $ 52,351 $ -- $ 4,752,351
=========== =========== =========== ===========
|
Notes to Financial Statements (Continued)
4. Investment Securities (Continued)
Proceeds from sales of investment securities during 2002 and 2001 were $1,036,875 and $818,180 resulting in gains of $36,875 and $18,180, respectively. The unrealized gain on investment securities included in comprehensive income is reported net of these realized gains.
Contractual maturities and pledged securities at December 31, 2002 and 2001 are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available for Sale Held to Maturity
Amortized Market Amortized Market
December 31, 2002 cost value cost value
-------------------------------------------------------------------------------------------------
Maturing
Within one year $ 1,496,969 $ 1,515,646 $ -- $ --
Over one to five years 8,145,105 8,269,934 2,500,000 2,529,575
Over five years 3,604,287 3,601,973 2,851,588 2,935,873
----------- ----------- ----------- -----------
$13,246,361 $13,387,553 $ 5,351,588 $ 5,465,448
=========== =========== =========== ===========
Pledged securities $ 3,000,000 $ 3,042,987 $ 1,500,000 $ 1,578,819
=========== =========== =========== ===========
December 31, 2001
-------------------------------------------------------------------------------------------------
Maturing
Within one year $ -- $ -- $ 200,000 $ 200,500
Over one to five years 5,000,000 5,028,135 2,000,000 2,015,601
Over five years 6,000,000 6,029,059 2,500,000 2,536,250
----------- ----------- ----------- -----------
$11,000,000 $11,057,194 $ 4,700,000 $ 4,752,351
=========== =========== =========== ===========
Pledged securities $ 4,500,000 $ 4,513,175 $ 1,200,000 $ 1,210,655
=========== =========== =========== ===========
|
Securities are pledged to secure a line of credit from the Federal Home Loan Bank.
Notes to Financial Statements (Continued)
5. Loans
Major classifications of loans are as follows:
2002 2001
-----------------------------------------------------------------------
Real estate
Commercial $ 16,697,757 $ 11,586,143
Construction 878,617 1,154,591
Residential 2,884,431 2,743,622
Commercial 6,156,267 5,656,533
Installment 16,665,758 12,779,906
------------ ------------
43,282,830 33,920,795
------------ ------------
Allowance for loan losses 389,553 268,806
Net deferred loan fees and (costs) (165,509) (81,127)
------------ ------------
224,044 187,679
------------ ------------
$ 43,058,786 $ 33,733,116
============ ============
|
The maturity and rate repricing distribution of the loan portfolio follows:
Maturing within one year $ 10,347,276 $ 9,889,186
Maturing over one to five years 13,287,123 8,093,078
Maturing over five years 19,648,431 15,938,531
------------ ------------
$ 43,282,830 $ 33,920,795
============ ============
|
At December 31, 2001, the principal balance of loans past due 90 days or more, was $643. No loans were 90 days or more past due or considered impaired at December 31, 2002.
Transactions in the allowance for loan losses were as follows:
2002 2001
--------------------------------------------------------------------
Beginning balance $268,806 $251,631
Provisions charged to operations 144,000 78,000
Recoveries 12,495 7,906
-------- --------
425,301 337,537
Loans charged off 35,748 68,731
-------- --------
Ending balance $389,553 $268,806
======== ========
|
The Bank makes loans to customers located in the Maryland suburbs of Washington, D.C. Although the loan portfolio is diversified, its performance will be influenced by the regional economy.
Notes to Financial Statements (Continued)
6. Bank Premises and Equipment
A summary of bank premises and equipment and the related depreciation follows:
Useful lives 2002 2001
--------------------------------------------------------------------------------
Land $ 390,000 $ 390,000
Building 50 years 1,135,350 1,135,350
Leasehold improvements 5-30 years 255,754 107,519
Furniture and equipment 5-7 years 629,953 519,390
---------- ----------
2,411,057 2,152,259
Accumulated depreciation 490,814 410,746
---------- ----------
Net bank premises and equipment $1,920,243 $1,741,513
========== ==========
Depreciation expense $ 98,346 $ 90,406
========== ==========
|
Computer software included in other assets, and related amortization, are as follows:
Cost 5 years $139,826 $122,990
Accumulated amortization 95,821 75,391
-------- --------
Net computer software $ 44,005 $ 47,599
======== ========
Amortization expense $ 19,988 $ 20,029
======== ========
|
7. Deposits
Major classifications of interest bearing deposits are as follows:
2002 2001
------------------------------------------------------------------
Money market and NOW $15,052,542 $11,964,509
Savings 8,428,891 6,318,386
Other time - $100,000 and over 18,836,289 17,863,647
Other time 7,324,067 5,931,126
----------- -----------
$49,641,789 $42,077,668
=========== ===========
Time deposits mature as follows:
Within one year $ 9,946,325 $ 12,621,058
Over one to two years 10,375,593 4,915,569
Over two to three years 4,683,713 5,649,534
Over three to four years 247,247 328,858
Over four to five years 907,478 279,754
------------ ------------
$ 26,160,356 $ 23,794,773
============ ============
|
Notes to Financial Statements (Continued)
7. Deposits (Continued)
Interest on deposits for the years ended December 31, 2002 and 2001 consisted of the following:
2002 2001
------------------------------------------------------------------------
Money market and NOW $ 77,414 $ 97,001
Savings 80,250 121,915
Time deposits - $100,000 and over 295,294 68,579
Other time deposits 849,140 1,086,676
----------- -----------
$ 1,302,098 $ 1,374,171
=========== ===========
8. Lines of Credit
|
The Bank has available lines of credit, including overnight federal funds and reverse repurchase agreements from its correspondent banks totaling $2,500,000 as of December 31, 2002. The Bank has an additional secured line of credit from the Federal Home Loan Bank of $10,840,000.
At December 31, 2002 and 2001, the Bank had $4,000,000 outstanding at
4.8%, due January 3, 2011.
9. Related Party Transactions
|
The Bank has entered into various transactions with firms in which owners are also members of the Board of Directors. Fees charged for these services are at similar rates charged by unrelated parties for similar work. Amounts paid to these related parties totaled $18,175 and $3,704 during the years ended December 31, 2002 and 2001, respectively.
Loans made to officers and directors totaled $1,484,469 and $1,841,670 at December 31, 2002 and 2001, respectively. The directors and officers and their affiliated companies maintained deposits with the Bank of $9,348,805 and $6,619,811 at December 31, 2002 and 2001, respectively. In the opinion of management, these transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties.
10. Income Taxes
The components of income tax are as follows:
2002 2001
------------------------------------------------------------------------
Current
Federal $ 145,786 $ --
State -- --
----------- -----------
145,786 --
Deferred 19,098 155,582
----------- -----------
$ 164,884 $ 155,582
=========== ===========
|
The components of the deferred income taxes are as follows:
Provision for loan losses $(41,054) $ (5,839)
Deferred loan origination fees and cost, net 31,311 18,403
Depreciation (753) 4,746
Operating loss carryover 29,594 138,272
-------- ---------
$ 19,098 $ 155,582
======== =========
|
Notes to Financial Statements (Continued)
10. Income Taxes (Continued)
The components of the net deferred tax assets (liability) are as follows:
2002 2001
----------------------------------------------------------------------------------------
Deferred tax assets
Allowance for loan losses $ 102,470 $ 61,416
Net unrealized loss on securities available for sale -- --
Net operating loss carryforward -- 29,594
--------- ---------
102,470 91,010
--------- ---------
Deferred tax liabilities
Deferred loan origination costs 63,820 32,509
Depreciation 24,666 25,419
Net unrealized gain on securities available for sale 48,005 20,019
--------- ---------
136,491 77,947
--------- ---------
Net deferred tax asset (liability) $ (34,021) $ 13,063
========= =========
|
The differences between the federal income tax rate of 34 percent and the effective tax rate for the Bank are reconciled as follows:
Statutory federal income tax rate 34.0% 34.0%
Increase (decrease) resulting from
State income taxes, net of federal income tax benefit -- --
Tax exempt income (1.3) --
Nondeductible expenses 0.1 --
Other (1.0)
--- ----
3.8% 33.0%
=== ====
|
11. Retirement Plan
In 1997, the Bank established a deferred compensation plan qualifying under Internal Revenue Code Section 401(k). This plan, which covers substantially all employees, allows for elective employee deferrals. The Bank will match 2% of employee compensation of employees who contribute at least 4% of their compensation. The Bank's contributions to the plan for 2002 and 2001 were $14,255 and $10,947, respectively.
Notes to Financial Statements (Continued)
12. Capital Standards
The Federal Deposit Insurance Corporation has adopted risk-based capital standards for banking organizations. These standards require ratios of capital to assets for minimum capital adequacy and to be classified as well capitalized under prompt corrective action provisions. As of December 31, 2002 and 2001, the capital ratios and minimum capital requirements are as follows:
Minimum capital To be well
(in thousands) Actual adequacy capitalized
December 31, 2002 Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $5,983 11.7% $4,091 8.0% $5,114 10.0%
Tier 1 capital (to risk-weighted assets) $5,593 10.9% $2,052 4.0% $3,079 6.0%
Tier 1 capital (to average assets) $5,593 7.9% $2,832 4.0% $3,540 5.0%
December 31, 2001
----------------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $5,570 13.7% $3,245 8.0% $4,056 10.0%
Tier 1 capital (to risk-weighted assets) $5,301 13.1% $1,623 4.0% $2,434 6.0%
Tier 1 capital (to average assets) $5,301 9.2% $2,308 4.0% $2,886 5.0%
|
Tier 1 capital consists of common stock, surplus, and undivided profits. Total capital includes a limited amount of the allowance for loan losses. In calculating risk-weighted assets, specified risk percentages are applied to each category of asset and off-balance sheet items.
Failure to meet the capital requirement could affect the Bank's ability to pay dividends and accept deposits and may significantly affect the operations of the Bank.
In the most recent regulatory report, the Bank was categorized as well capitalized under the prompt corrective action regulations. Management knows of no events or conditions that should change this classification.
Notes to Financial Statements (Continued)
13. Commitments and Contingencies
The Bank leases three branch locations under operating lease agreements expiring through 2012. Each of the leases provide extension options. The approximate future minimum lease commitments under the operating leases as of December 31, 2002, are as follows:
Year Amount
--------------------- -------------------
2003 $ 67,071
2004 64,985
2005 76,144
2006 84,362
2007 85,454
Remaining 238,807
---------
$ 616,823
=========
|
Rent expense was $83,651 and $78,972 for the years ended December 31, 2002 and 2001, respectively.
In the normal course of business the Bank is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Bank's financial statements.
14. Stockholders' Equity
Stock options
The Bank has adopted a stock option plan for directors and officers.
Option prices are equal to the fair market value of the stock on the
date of grant. The total number of shares available for options was
37,500 shares.
The Bank applies APB No. 25 in accounting for the stock options. Accordingly, no compensation has been recognized for the stock options granted. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123) was issued in October, 1995 to establish accounting and reporting standards for stock-based employee compensation plans. SFAS No. 123 requires measurement of compensation expense provided by stock-based plans using a fair value based method of accounting, and recognition of compensation expense in the statement of income or disclosure in the notes to the financial statements.
A summary of the status of the outstanding options follows:
2002 2001
------------------------------------------------------------------------------------------------
Weighted Weighted
Number average Number average
of shares exercise price of shares exercise price
----------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 20,750 $13.52 11,500 $13.58
Options granted 3,750 17.80 9,250 13.44
Options exercised - - - -
Options expired - - - -
Outstanding, end of year 24,500 $13.70 20,750 $13.52
|
Notes to Financial Statements (Continued)
14. Stockholders' Equity (Continued)
Stock options (Continued)
The weighted average fair value of options granted during 2002 and
2001, has been estimated using the Black-Scholes option-pricing model
with the following assumptions:
2002 2001
--------------------------------------------------------------
Dividend yield 1.37% 1.27%
Risk-free interest rate 3.00% 4.50%
Expected volatility 21.37% 17.33%
Expected life in years 10 10
|
Had compensation been determined in accordance with the provisions of SFAS No. 123, the Bank's net income and earning per share would have been reduced to the following pro forma amounts:
Net income As reported $ 337,869 $ 315,231 Pro forma 332,617 297,172 Basic earnings per share As reported $ 1.18 $ 1.10 Pro forma 1.14 1.04 Diluted earnings per share As reported $ 1.16 $ 1.09 Pro forma 1.14 1.04 |
Preferred stock
The Bank is authorized to issue up to 1,000,000 shares of preferred
stock with a par value of one cent per share.
Notes to Financial Statements (Continued)
15. Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments equals the carrying value of the instruments except as noted. The fair values of a portion of these financial instruments are estimates derived using present value techniques prescribed by the Financial Accounting Standards Board (FASB) and may not be indicative of the net realizable or liquidation values. Also, the calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.
December 31, 2002 December 31, 2001
Carrying Fair Carrying Fair
amount value amount value
-----------------------------------------------------------------------------------------------------------------------
Financial assets
Investment securities $ 18,739,141 $ 18,853,001 $ 15,757,194 $ 15,809,545
Financial liabilities
Interest-bearing deposits $ 49,641,789 $ 50,310,718 $ 42,077,668 $ 42,894,808
Borrowed funds 4,000,000 4,085,573 4,000,000 3,543,954
|
The fair values of U.S. Treasury and U. S. government agency securities are determined using market quotations.
The fair value of fixed-maturity time deposits and borrowed funds is estimated based on interest rates currently offered for deposits and borrowings of similar remaining maturities.
It is not practicable to estimate the fair value of fixed rate, long term loans or outstanding credit commitments. The Bank does not presently have available resources to estimate fair values based on quoted prices or discounted cash flows for individual accounts. The average interest rate for fixed-rate accounts at December 31, 2002 and 2001, are not readily determinable. Repricing opportunities are stated in Note 5 for loans.