sv4
As filed with the U.S. Securities and Exchange Commission on November 8, 2010
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Old Line Bancshares, Inc.
(Exact name of registrant as specified in its charter)
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Maryland
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6022
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20-0154352 |
(State or other jurisdiction of
incorporation or organization)
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(Primary Standard
Industrial
Classification Code
Number)
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(I.R.S. Employer
Identification Number) |
1525 Pointer Ridge Place
Bowie, Maryland 20716
(301) 430-2544
(Address, including zip code, and telephone number, including area code, of registrants principal
executive offices)
James W. Cornelsen
President and Chief Executive Officer
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
(301) 430-2544
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
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Frank E. Bonaventure, Esq.
Ober, Kaler, Grimes &
Shriver, P.C.
120 E. Baltimore Street
Baltimore, Maryland 21202
(410) 685-1120
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Thomas B. Watts
Chairman and Chief
Executive Officer
Maryland Bankcorp, Inc.
46930 South Shangri La Drive
Lexington Park, Maryland
20653
(301) 645-5644
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Leonard J. Rubin, Esq.
Nelson Mullins Riley &
Scarborough LLP
101 Constitution Avenue, NW
Suite 900
Washington, DC 20001
(202) 712-2885 |
Approximate date of commencement of the proposed sale of the securities to the public: As soon
as practicable after this Registration Statement becomes effective and upon completion
of the merger described in the enclosed proxy statement/prospectus.
If the securities being registered on this Form are being offered in connection with the
formation of a holding company and there is compliance with General Instruction G, check the
following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, as amended, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for
the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Nonaccelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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If applicable, place an X in the box to designate the appropriate rule provision relied upon
in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o
CALCULATION OF REGISTRATION FEE
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Proposed |
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Proposed |
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maximum |
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maximum |
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Title of each class of |
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Amount to be |
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offering price |
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aggregate |
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Amount of |
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securities to be registered |
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registered |
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per share |
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offering price |
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registration fee |
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Common Stock, par value $0.01 per
share |
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2,618,835 (1) |
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N/A |
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$25,210,349(2) |
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$1,797.50 |
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(1) |
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Represents the maximum number of shares of Old Line Bancshares, Inc. common stock estimated to
be issuable upon the completion of the merger described herein. In accordance with Rule 416
under the Securities Act of 1933, this Registration Statement shall also register any
additional shares of the Registrants common stock that may become issuable pursuant to
dilution resulting from stock splits, stock dividends, and similar transactions. |
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In accordance with Rule 457(f) under the Securities Act of 1933, and solely for the purpose of
calculating the registration fee, the proposed maximum aggregate offering price is equal to
the aggregate book value of the estimated maximum number of shares of Maryland Bankcorp, Inc.
common stock to be exchanged by the Registrant in the merger. Based on the book value per
share of $38.9875 as of June 30, 2010. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such dates as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this joint proxy statement/prospectus is not complete and may be changed. We
may not sell the securities offered by this joint proxy statement/prospectus until the registration
statement filed with the Securities and Exchange Commission is effective. This joint proxy
statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction where an offer or solicitation is not permitted.
PRELIMINARYSUBJECT TO COMPLETIONDATED NOVEMBER 8, 2010
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OLD LINE BANCSHARES, INC.
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MARYLAND BANKCORP, INC. |
Joint Proxy Statement/Prospectus
Merger Proposal Your Vote is Very Important
The boards of directors of Old Line Bancshares, Inc. and Maryland Bankcorp, Inc. have agreed
to a strategic combination of the two companies under the terms of an Agreement and Plan of Merger,
dated as of September 1, 2010, as amended. Under the terms of the merger agreement, Maryland
Bankcorp will be merged with and into Old Line Bancshares, with Old Line Bancshares surviving the
merger.
If the merger is completed, Maryland Bankcorp stockholders will have the right to receive for
each share of Maryland Bankcorp stock they own, at their election, shares of common stock of Old
Line Bancshares or cash (subject to proration) with a value generally equal to the aggregate
consideration to be paid in the merger ($20 million, subject to adjustment) divided by the number
of outstanding shares of common stock of Maryland Bankcorp on the closing date of the merger. The
number of shares of Maryland Bankcorp common stock for which the holders may elect cash is subject
to proration to account for the fact that the aggregate cash consideration to be paid to holders of
Maryland Bankcorp common stock in the merger will not exceed 5% of the aggregate merger
consideration (not including cash paid for fractional shares), unless increased by Old Line
Bancshares in its sole discretion. Cash will be paid in lieu of any fractional shares. The value
of the per-share merger consideration will fluctuate with the average price of shares of Old Line
Bancshares common stock, as calculated under the merger agreement, which takes into account market
prices and the price of stock issuance by Old Line Bancshares, as further described in the attached
joint proxy statement/prospectus. Such fluctuations may also affect the total consideration to be
paid to stockholders of Maryland Bankcorp in the merger.
After the merger, Old Line Bancshares stockholders will continue to own their existing shares
of Old Line Bancshares common stock. Old Line Bancshares common stock is traded on the NASDAQ
Capital Market under the symbol OLBK.
Stockholders of each of Old Line Bancshares and Maryland Bankcorp will be asked to vote on
approval of the merger agreement and the merger at the applicable special meeting for each company.
We cannot complete the merger unless we obtain the required approval of the stockholders of each
of Old Line Bancshares and Maryland Bankcorp. The merger agreement and the merger must be approved
by the affirmative vote of holders of two-thirds of the outstanding shares of common stock of
Maryland Bankcorp and by holders of a majority of the outstanding shares of common stock of Old
Line Bancshares.
The Boards of Directors of Maryland Bankcorp, Inc. and Old Line Bancshares, Inc. recommend
that you vote FOR approval of the merger agreement and the merger.
You should read this document and all annexes carefully. Before making a decision on how to
vote, you should consider the Risk Factors discussion beginning on page 18 of this document.
Neither the Securities and Exchange Commission, nor any bank regulatory agency, nor any state
securities commission has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this document. Any representation to the contrary is a criminal offense. The
securities offered through this document are not savings accounts, deposits or other obligations of
a bank or savings association and are not insured by the Federal Deposit Insurance Corporation or
any other government agency.
This joint proxy statement/prospectus is dated ______ __, 2010 and is first being mailed to
Old Line Bancshares, Inc. stockholders and Maryland Bankcorp, Inc. stockholders on or about
_________ __, 2010.
OLD LINE BANCSHARES, INC.
1525 Pointer Ridge Place
Bowie, Maryland 20716
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________ AT ____
A Special Meeting of Stockholders of Old Line Bancshares, Inc., a Maryland corporation, will
be held on ______________, at ____, local time, at Old Line Bancshares, Inc.s office located at
1525 Pointer Ridge Place, Bowie, Maryland for the purpose of considering and voting upon the
following:
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A proposal to approve the Agreement and Plan of Merger dated September 1,
2010, as amended, by and between Old Line Bancshares, Inc. and Maryland Bankcorp,
Inc., pursuant to which Maryland Bankcorp, Inc. will merge with and into Old Line
Bancshares, Inc., with Old Line Bancshares, Inc. as the surviving entity, and the
merger contemplated by the merger agreement, as more fully described in the
accompanying joint proxy statement/prospectus. |
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A proposal to adjourn the meeting to a later date or dates, if necessary, to
permit further solicitation of additional proxies in the event there are not
sufficient votes at the time of the meeting to approve the matters to be considered by
the stockholders at the meeting, as more fully described in the accompanying joint
proxy statement/prospectus. |
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To act upon any other matter that may properly come before the special
meeting or any adjournment or postponement thereof. |
Only stockholders of record at the close of business on _____________ will be entitled to
notice of and to vote at the meeting or any adjournment or postponement thereof.
Whether or not you plan to attend the special meeting, we urge you to return the enclosed
proxy form in order to indicate your vote as soon as possible. To complete the merger, the merger
agreement and the merger must be approved by the holders of a majority of the issued and
outstanding common stock of Old Line Bancshares, Inc. Abstentions, the failure to vote and shares
that you have not authorized your broker to vote will have the same effect as votes against
approval of the merger agreement and the merger. Whether or not you intend to attend the special
meeting, please vote as promptly as possible by signing, dating and mailing the proxy card, by
telephone by calling 1-800-690-6903 and following the voice mail prompts or over the Internet by
following the instructions at www.proxyvote.com. You will need information from your proxy card or
electronic delivery notice to submit your proxy.
If your shares are held in the name of a broker, bank or other fiduciary, please follow the
instructions on the voting instruction card provided by such person.
You may revoke your proxy at any time prior to or at the meeting by written notice to Old Line
Bancshares, Inc., by executing a proxy bearing a later date, or by attending the meeting and voting
in person.
If you wish to attend the special meeting and vote in person and your shares are held in the
name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the
broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.
You are cordially invited to attend the meeting in person.
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By |
Order of the Board of Directors,
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/s/ Christine M. Rush
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Christine M. Rush, Secretary |
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Bowie, Maryland
___________ __, 201_
MARYLAND BANKCORP, INC.
46930 South Shangri La Drive
Lexington Park, Maryland 20653
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________ AT ____
A Special Meeting of Stockholders of Maryland Bankcorp, Inc., a Maryland corporation, will be
held on ______________, at ____, local time, at Maryland Bankcorp, Inc.s main office located at
46930 South Shangri La Drive, Lexington Park, Maryland for the purpose of considering and voting
upon the following:
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A proposal to approve the Agreement and Plan of Merger dated September 1,
2010, as amended, by and between Old Line Bancshares, Inc. and Maryland Bankcorp,
Inc., pursuant to which Maryland Bankcorp, Inc. will merge with and into Old Line
Bancshares, Inc., with Old Line Bancshares, Inc. as the surviving entity, and the
merger contemplated by the merger agreement, as more fully described in the
accompanying joint proxy statement/prospectus. |
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A proposal to adjourn the meeting to a later date or dates, if necessary, to
permit further solicitation of additional proxies in the event there are not
sufficient votes at the time of the meeting to approve the matters to be considered by
the stockholders at the meeting, as more fully described in the accompanying joint
proxy statement/prospectus. |
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To act upon any other matter that may properly come before the special
meeting or any adjournment or postponement thereof. |
Only stockholders of record at the close of business on __________ will be entitled to notice
of and to vote at the meeting or any adjournment or postponement thereof.
Whether or not you plan to attend the special meeting, we urge you to return the enclosed
proxy form in order to indicate your vote as soon as possible. To complete the merger, the merger
agreement and the merger must be approved by the holders of two-thirds of the issued and
outstanding common stock of Maryland Bankcorp. Abstentions, the failure to vote and shares that
you have not authorized your broker to vote will have the same effect as votes against approval of
the merger agreement and the merger. Whether or not you intend to attend the special meeting,
please vote as promptly as possible by signing and returning the enclosed proxy card in the
postage-paid envelope provided. If your shares are held in the name of a broker, bank or other
fiduciary, please follow the instructions on the voting instruction card provided by such person.
You may revoke your proxy at any time prior to or at the meeting by written notice to Maryland
Bankcorp, Inc., by executing a proxy bearing a later date, or by attending the meeting and voting
in person.
If you wish to attend the special meeting and vote in person and your shares are held in the
name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the
broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.
You are cordially invited to attend the meeting in person.
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By |
Order of the Board of Directors,
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/s/ Lawrence H. Wright
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Lawrence H. Wright, Secretary |
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Lexington Park, Maryland
_________ __, 201_
TABLE OF CONTENTS
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F-1 |
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A-1 |
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS
The following are some questions that you, as a stockholder of Old Line Bancshares or Maryland
Bankcorp, may have regarding the merger agreement, the merger and the other matters being
considered at the special meetings and the answers to those questions. Old Line Bancshares and
Maryland Bankcorp urge you to read carefully the remainder of this document because the information
in this section does not provide all the information that might be important to you with respect to
the merger and the other matters being considered at the special meetings. Additional important
information is also contained in the annexes to this document.
Q: |
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Why am I receiving this document? |
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A: |
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Old Line Bancshares and Maryland Bankcorp have agreed to the merger of
Maryland Bankcorp with and into Old Line Bancshares, which we refer to as the
merger, pursuant to the terms of a merger agreement that is described in
this document. A copy of the merger agreement and the amendment thereto
(which we refer to, collectively, as the merger agreement), is attached to
this document as Annex A. |
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In order to complete the merger, Maryland state law requires that
stockholders of Old Line Bancshares and Maryland Bankcorp vote to approve the
merger agreement and the merger. In addition, the rules of the NASDAQ Stock
Market LLC require that Old Line Bancshares stockholders approve the merger
since the shares it will issue to Maryland Bankcorp stockholders in the
merger will be in excess of 20% of its current outstanding shares of common
stock and voting power. |
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In addition, both Old Line Bancshares and Maryland Bankcorp stockholders will
be asked to vote on a proposal to adjourn their special meetings to a later
date or dates, if necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the meetings to approve
the matters to be considered by the stockholders. |
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Old Line Bancshares and Maryland Bankcorp will hold separate special meetings
to obtain these approvals. This document contains important information
about the merger and the meetings of the stockholders of Old Line Bancshares
and Maryland Bankcorp, and you should read it carefully. The enclosed voting
materials allow you to vote your shares without actually attending your
respective stockholder meeting. |
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Your vote is important. We encourage you to vote as soon as possible. |
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Q: |
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When and where will the stockholder meetings be held? |
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A: |
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The Old Line Bancshares special meeting will be held at its office located at
1525 Pointer Ridge Place, Bowie, Maryland, on at . The
Maryland Bankcorp special meeting will be held at its main office located at
46930 South Shangri La Drive, Lexington Park, Maryland, on at
. |
Q: |
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How do I vote? |
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A: |
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Old Line Bancshares. If you are a stockholder of record of Old Line
Bancshares as of the record date, you may vote in person by attending the Old
Line Bancshares special meeting or by signing and returning the enclosed
proxy card in the postage-paid envelope provided. You may also vote by
telephone by calling 1-800-690-6903 and following the voice mail prompts or
over the Internet by following the instructions at www.proxyvote.com. |
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Maryland Bankcorp. If you are a stockholder of record of Maryland Bankcorp
as of the record date, you may vote in person by attending the Maryland
Bankcorp special meeting or by signing and returning the enclosed proxy card
in the postage-paid envelope provided. |
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If you hold shares of common stock of Old Line Bancshares or Maryland
Bankcorp in the name of a bank, broker or other nominee, please follow the
voting instructions provided by your bank, broker or other nominee to ensure
that your shares are represented and voted at your stockholder meeting. |
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Q: |
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What vote is required to approve each proposal? |
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A: |
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Old Line Bancshares. The proposal at the Old Line Bancshares special meeting
to approve the merger agreement and the merger requires the affirmative vote
of holders of a majority of the outstanding shares of Old Line Bancshares
common stock entitled to vote on the proposal. |
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As of the record date directors and executive officers of Old Line Bancshares
and their affiliates are entitled to vote _.__% of the shares of the Old Line
Bancshares common stock outstanding. |
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Maryland Bankcorp. The proposal at the Maryland Bankcorp special meeting to
approve the merger agreement and the merger requires the affirmative vote of
holders of two-thirds of the outstanding shares of Maryland Bankcorp common
stock entitled to vote on the proposal. |
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As of the record date directors and executive officers of Maryland Bankcorp
and their affiliates are entitled to vote _.__% of the shares of the Maryland
Bankcorp common stock outstanding. In addition, directors of Maryland Bank &
Trust who are not executive officers or directors of Maryland Bankcorp (all
of whom have agreed to vote their shares for approval of the merger) are
entitled to vote an additional ____% of the outstanding shares. Finally,
Maryland Bank & Trust holds ______ shares (____%) for its employee stock
plan, which will be voted for approval of the merger agreement and the
merger. |
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Each of the special meetings may be adjourned, if necessary, to solicit
additional proxies in the event there are not sufficient votes at the time of
the special meeting to approve the proposal. The affirmative vote of the
holders of a majority of the common shares cast on the matter at these
special meetings is required to adjourn such special meeting. |
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How do the boards of directors of each of Old Line Bancshares and Maryland
Bankcorp recommend that I vote on the merger agreement and the merger? |
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The boards of directors of each of Old Line Bancshares and Maryland Bankcorp
recommend that you vote FOR approval of the merger agreement and the
merger. |
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How many votes do I have? |
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Old Line Bancshares. You are entitled to one vote for each share of Old Line
Bancshares common stock that you owned as of the record date. |
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Maryland Bankcorp. You are entitled to one vote for each share of Maryland
Bankcorp common stock that you owned as of the record date. |
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What will happen if I fail to vote or I abstain from voting? |
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If you fail to vote, fail to instruct your bank, broker or other nominee to
vote or abstain from voting, it will have the same effect as a vote against
the proposal to approve the merger agreement and the merger. Assuming a
quorum (that is, holders of at least a majority of the outstanding |
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shares of
common stock of the applicable company as of the record date) is present, an
abstention or the failure to vote, however, will have no effect on the
proposal to approve the adjournment of the respective special meetings, if
necessary, to solicit additional proxies. |
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If my shares are held in street name by my broker, bank or other nominee,
will my broker, bank or other nominee automatically vote my shares for me? |
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No. If you hold your shares in a stock brokerage account or if your shares
are held by a bank or other nominee (that is, in street name), your broker,
bank or other nominee will not vote your shares of Old Line Bancshares or
Maryland Bankcorp common stock unless you provide instructions to your
broker, bank or other nominee on how to vote. You should instruct your
broker, bank or other nominee to vote your shares by following the
instructions provided by the broker, bank or nominee with this joint proxy
statement/prospectus. Please note that you may not vote shares held in
street name by returning a proxy card directly to Old Line Bancshares or
Maryland Bankcorp or by voting in person at your special meeting unless you
provide a legal proxy, which you must obtain from your bank, broker or
nominee. |
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What will happen if I return my proxy card without indicating how to vote? |
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A: |
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If you sign and return your proxy card without indicating how to vote on any
particular proposal, the Old Line Bancshares common stock or Maryland
Bankcorp common stock represented by your proxy will be voted in favor of
that proposal. |
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What if I fail to submit my proxy card or to instruct my broker, bank or
other nominee to vote? |
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A: |
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If you fail to properly submit your proxy card or otherwise vote as
instructed on the proxy card, or fail to properly instruct your broker, bank
or other nominee to vote your shares of Old Line Bancshares common stock or
Maryland Bankcorp common stock and you do not attend the applicable special
meeting and vote your shares in person, your shares will not be voted. This
will have the same effect as a vote against approval of the merger agreement
and the merger. |
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Can I change my vote after I have returned a proxy or voting instruction card? |
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Yes. You can change your vote at any time before your proxy is voted at your
special meeting. You can do this in one of three ways: |
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you can send a signed notice of revocation; |
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you can grant a new, valid proxy bearing a later date; or |
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if you are a holder of record, you can attend your special meeting
and vote in person, which will automatically cancel any proxy previously
given, or you may revoke your proxy in person, but your attendance alone will
not revoke any proxy that you have previously given. |
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If you choose either of the first two methods, you must submit your notice of
revocation or your new proxy to the Secretary of Old Line Bancshares or
Secretary of Maryland Bankcorp, as appropriate, no later than the beginning
of the applicable special meeting. If your shares are held in street name by
your bank, broker or other nominee, you should follow the directions you
receive from your bank, broker or other nominee to change your voting
instructions, or contact your broker, bank or other nominee if no such
instructions are provided. |
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Am I entitled to dissenters rights or similar rights? |
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Yes, if you are a Maryland Bankcorp stockholder. Under Maryland law,
Maryland Bankcorp stockholders may exercise their rights as objecting
stockholders to demand the payment of the fair value of their shares of
Maryland Bankcorp common stock in connection with the merger. These rights
are occasionally referred to as dissenters rights in this joint proxy
statement/prospectus. The provisions of Maryland law governing dissenters
rights are complex, and you should study |
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them carefully if you wish to
exercise these rights. Multiple steps must be taken to properly exercise and
perfect such rights. A copy of Sections 3-201 through 3-213 of the Maryland
General Corporation Law (MGCL) is included with this joint proxy
statement/prospectus as Annex D. |
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If you are an Old Line Bancshares stockholder, you are not entitled to
dissenters rights in connection with the merger. |
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What are the material United States federal income tax consequences of the
merger to stockholders? |
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In general, for United States federal income tax purposes, Maryland Bankcorp
stockholders are not expected to recognize a gain or loss on the exchange of
their Maryland Bankcorp common stock for Old Line Bancshares common stock.
Maryland Bankcorp stockholders that receive only cash in exchange for their
Maryland Bankcorp common stock will recognize gain or loss on the
transaction, and Maryland Bankcorp stockholders that receive a combination of
cash and Old Line Bancshares common stock in exchange for their Maryland
Bankcorp common stock will typically recognize gain (but not loss) on the
transaction. Maryland Bankcorp stockholders will have to recognize a gain in
connection with cash received in lieu of fractional shares of Old Line
Bancshares common stock. Old Line Bancshares stockholders will have no tax
consequences as a result of the merger. |
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Maryland Bankcorp stockholders are urged to consult their tax advisor for a
full understanding of the tax consequences of the merger to them since tax
matters are very complicated and in many cases, tax consequences of the
merger will depend on your particular facts and circumstances. See The
Merger Agreement and the Merger Certain Federal Income Tax Consequences
beginning at page 96. |
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When do you expect the merger to be completed? |
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Old Line Bancshares and Maryland Bankcorp are working to complete the merger
by March 31, 2011. However, the merger is subject to various federal and
state regulatory approvals and other conditions, in addition to approval by
the stockholders of both companies, and it is possible that factors outside
the control of both companies could result in the merger being completed at a
later time, or not at all. There may be a substantial amount of time between
the respective Old Line Bancshares and Maryland Bankcorp special meetings and
the completion of the merger. Old Line Bancshares and Maryland Bankcorp hope
to complete the merger as soon as reasonably practicable. |
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What do I need to do now? |
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Carefully read and consider the information contained in this document,
including its annexes. After you have carefully read these materials, as
soon as possible either (i) indicate on the attached proxy card how you want
your shares to be voted, then sign, date and mail the proxy card in the
enclosed postage-paid envelope (or, if you are an Old Line Bancshares
stockholder, you may also vote by phone or via the Internet as otherwise
instructed in this document, or (ii) if you hold your shares in street name,
follow the voting instructions provided by your bank, broker or other nominee
to direct it how to vote your shares, so that your shares may be represented
and voted at the Old Line Bancshares or Maryland Bankcorp special meeting. |
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What will I receive in the merger? |
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Old Line Bancshares. You will continue to hold your shares of common stock
in Old Line Bancshares after the merger. |
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Maryland Bankcorp. In exchange for your shares of common stock in Maryland
Bankcorp, you will receive, at your election and subject to proration as
described herein, shares of common stock of Old Line Bancshares and/or cash,
as further described in this joint proxy statement/prospectus. |
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Do I need to do anything with my shares of Maryland Bankcorp or Old Line
Bancshares common stock now? |
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No. Please do not send in your Maryland Bankcorp stock certificates with
your proxy card. If the merger is approved, then you will be sent a
letter of transmittal that will include instructions for sending in your
Maryland Bankcorp stock certificates. This letter of transmittal is
separate from the election form included with this document sent to
Maryland Bankcorp stockholders, which includes instructions regarding
making an election with respect to the consideration you will receive in
the merger. |
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Each share of common stock of Old Line Bancshares outstanding will
continue to remain outstanding as a share of Old Line Bancshares common
stock after the merger. As a result, if you are an Old Line Bancshares
stockholder, you are not required to take any action with respect to your
Old Line Bancshares common stock certificates. |
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Whom should I call if I have any questions? |
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Old Line Bancshares or Maryland Bankcorp stockholders who have questions
about the merger or the other matters to be voted on at the special
stockholder meetings or desire additional copies of this document or
additional proxy cards should contact: |
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If you are an Old Line Bancshares stockholder:
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If you are a Maryland Bankcorp stockholder: |
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Christine M. Rush
Executive Vice President
& Chief Financial
Officer
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
Phone: (301) 430-2544
Fax: (301) 430-2545
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Lawrence H. Wright
Senior Vice President & Secretary
Maryland Bankcorp, Inc.
46930 South Shangri La Drive
Lexington Park, Maryland 20653
Phone: (301) 861-0324
Fax: (301) 866-9204
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SUMMARY
This summary highlights selected information from this joint proxy statement/ prospectus. It
does not contain all of the information that may be important to you. We urge you to read
carefully the entire document to fully understand the merger and the related transactions. Each
item in this summary refers to the page of this joint proxy statement/prospectus on which that
subject is discussed in more detail. Unless otherwise indicated in this joint proxy
statement/prospectus or the context otherwise requires, all references in this joint proxy
statement/prospectus to Old Line Bancshares refer to Old Line Bancshares, Inc., all references to
Maryland Bankcorp refer to Maryland Bankcorp, Inc. and all references to Maryland Bank & Trust
refer to Maryland Bank & Trust Company, N.A.
The Companies
Old Line Bancshares, Inc. (see page 110)
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
Telephone: (301) 430-2544
Old Line Bancshares was incorporated under the laws of the State of Maryland on April 11, 2003
to serve as the holding company of Old Line Bank. On May 22, 2003, the stockholders of Old Line
Bank approved the reorganization of Old Line Bank into a holding company structure pursuant to
which Old Line Bank became a subsidiary of Old Line Bancshares. The reorganization became
effective on September 15, 2003. Old Line Bancshares also owns an approximately $1.1 million
investment in a Maryland limited liability company named Pointer Ridge Office Investment, LLC
(Pointer Ridge), which owns the commercial office building in which Old Line Bancshares leases
and operates its main headquarters as well as a branch of Old Line Bank. Old Line Bancshares owns
62.50% of Pointer Ridge.
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. Old Line Bank engages in a general
commercial banking business, making various types of loans and accepting deposits. Old Line Bank
markets its financial services to small to medium sized businesses, entrepreneurs, professionals,
consumers and high net worth clients. Its current primary market area is the suburban Maryland
(Washington, D.C. suburbs) counties of Prince Georges, Charles, Anne Arundel and northern St.
Marys.
As of June 30, 2010, Old Line Bancshares had consolidated assets, deposits and stockholders
equity of approximately $408.2 million, $318.8 million and $37.6 million, respectively.
Old Line Bancshares common stock is listed and traded on the NASDAQ Capital Market under the
symbol OLBK.
Maryland Bankcorp, Inc. (see page 188)
Maryland Bankcorp, Inc.
46930 South Shangri La Drive
Lexington Park, Maryland 20653
Telephone: (301) 645-5644
Maryland Bankcorp was organized on September 28, 2001 to become the holding company for
Maryland Bank & Trust, and pursuant to a stock exchange between Maryland Bankcorp and Maryland Bank
& Trust, Maryland Bank & Trust became a wholly-owned subsidiary of Maryland Bankcorp on that date.
6
Maryland Bank & Trust was originally incorporated in 1959 as a Maryland state chartered bank,
and became a national bank in 1997. Maryland Bank & Trust is a member of the Federal Reserve
System and the Federal Deposit Insurance Corporation insures its deposits.
Maryland Bank & Trust provides a full range of banking services to individuals and corporate
customers primarily in its market area. Deposit accounts include savings, checking, money market,
individual retirement accounts and certificates of deposit. Lending products include real estate
loans, personal loans and commercial loans. Maryland Bank & Trusts primary market area is
Southern Maryland.
As of June 30, 2010, Maryland Bankcorp had consolidated assets, deposits and stockholders
equity of approximately $348.1 million, $297.0 million and $25.2 million, respectively.
The Special Meetings
Date, Time and Place of Special Meetings (see page 29)
Old Line Bancshares will hold a special meeting of stockholders on at ,
local time at its office located at 1525 Pointer Ridge Place, Bowie, Maryland. The Old Line
Bancshares board of directors has set the close of business on as the record date for
determining stockholders entitled to notice of, and to vote at, the special meeting. On the record
date, there were
shares of Old Line Bancshares common stock outstanding.
Maryland Bankcorp will hold a special meeting of stockholders on at , local
time, at its main office located at 46930 South Shangri La Drive, Lexington Park, Maryland. The
Maryland Bankcorp board of directors has set the close of business on as the record
date for determining stockholders entitled to notice of, and to vote at, the special meeting. On
the record date, there were
shares of Maryland Bankcorp common stock outstanding.
Matters to be Considered at the Special Meetings (see page 29)
At the meeting, you will be asked to vote on a proposal to approve the merger agreement and
the merger pursuant to which Maryland Bankcorp will merge with and into Old Line Bancshares, and on
a proposal to adjourn the meeting to solicit additional proxies, if necessary, in the event there
are not sufficient votes at the time of the special meeting to approve the merger agreement and the
merger and any other business that properly arises during the special meeting or any adjournment or
postponement thereof.
Under the terms of the merger agreement, Old Line Bancshares will acquire Maryland Bankcorp by
merging Maryland Bankcorp with and into Old Line Bancshares. Maryland Bankcorp will cease to exist
as a separate entity. Old Line Bancshares will pay consideration of $20 million, subject to
adjustment for certain operating losses, asset quality changes and merger-related expenses incurred
by Maryland Bankcorp.
Pursuant to a separate agreement, it is anticipated that immediately after the merger,
Maryland Bank & Trust, the bank operating subsidiary of Maryland Bankcorp, will merge with and into
Old Line Bank, with Old Line Bank being the surviving bank.
A copy of the merger agreement is attached to this document as Annex A.
Maryland Bankcorp Stockholders May Elect to Receive Cash, Shares of Old Line Bancshares Common
Stock or a Combination of Cash and Stock (see page 74).
If you are a Maryland Bankcorp stockholder, you may choose to exchange some or all of your
shares for cash and some or all of your shares for Old Line Bancshares common stock, subject to the
limitations described below. An election form is included with this joint proxy
statement/prospectus, which asks your preference for cash and/or stock. You will have until
, 2011 to make your election and return your election form, unless you are notified in
writing of an earlier election deadline.
If you do not return a properly completed and executed election form by the election deadline,
you will be deemed to have elected to receive Old Line Bancshares common stock for your Maryland
Bankcorp shares. Complete information on the election procedure can be found in the section
entitled The Merger Agreement and the Merger Terms of the Merger
7
Election and Exchange Procedures. You should note that, in general, the value of the
consideration you will receive for each share of Maryland Bankcorp common stock that you own will
equal the $20 million aggregate consideration to be paid in the merger, as adjusted pursuant to the
merger agreement, divided by the number of shares of Maryland Bankcorp common stock outstanding on
the closing date of the merger, which should be 646,626 shares. Assuming no adjustments to the
aggregate merger consideration or changes in the number of shares of Maryland Bankcorp common stock
outstanding, the value of the per-share merger consideration will be $30.9298 (any cash due will be
rounded down to the nearest whole cent). The value of the per-share cash consideration and the
per-share stock consideration will generally be equal, although the value of the per-share stock
consideration may be slightly higher in some limited circumstances, and the value of the per-share
stock consideration may not be based solely on recent trading prices of Old Line Bancshares common
stock.
In addition, the holders of not more than 5% of the outstanding shares of Maryland Bankcorp
common stock will receive cash consideration and the holders of up to 100% but not less than 95% of
the outstanding shares of Maryland Bankcorp common stock will receive shares of Old Line Bancshares
common stock. If the holders of more than 5% of the outstanding shares of Maryland Bankcorp common
stock elect to receive cash or exercise their dissenters rights (see Maryland Bankcorp
Stockholders Have Dissenters Rights in Connection with the Merger), those persons who elected to
receive cash will receive a portion of their merger consideration in the form of shares of Old Line
Bancshares common stock instead. However, all the holders of Maryland Bankcorp common stock who
elect to receive shares of Old Line Bancshares common stock will receive Old Line Bancshares common
stock.
Thus, you may not receive exactly the form of consideration that you elect, and you may
receive a pro rata portion of cash and Old Line Bancshares common stock even if you elect to
receive all cash. See The Merger Agreement and the Merger Terms of the Merger Election and
Exchange Procedures and The Merger Agreement and the Merger Terms of the Merger Allocation
Procedures and Proration.
Each of the Old Line Bancshares and Maryland Bankcorp Boards of Directors Recommend Stockholder
Approval (see page 29).
Each of the Old Line Bancshares and Maryland Bankcorp boards of directors believes that the
merger is in the best interests of its respective stockholders and Old Line Bancshares and Maryland
Bankcorp, respectively, and recommends that you vote FOR approval of the merger agreement and the
merger.
Consideration is Fair from a Financial Point of View According to Old Line Bancshares Financial
Advisor (see page 48).
Danielson Associates, LLC (Danielson) delivered a written opinion to the Old Line Bancshares
board of directors that, as of September 1, 2010, and subject to the qualifications and limitations
on the review by Danielson in rendering its opinion, the terms of the merger agreement are fair,
from a financial point of view, to Old Line Bancshares stockholders. The opinion is attached to
this document as Annex B. You should read the entire opinion carefully in connection with your
consideration of the proposed merger. Pursuant to an engagement letter, Old Line Bancshares has
agreed to pay Danielson an advisory fee, including the provision of its fairness opinion, of
$115,000. Old Line Bancshares paid Danielson an initial non-refundable retainer fee of $15,000
upon execution of the engagement letter. Old Line Bancshares paid to Danielson $35,000 upon
signing the merger agreement and $10,000 upon Danielsons presentation of its opinion to the board.
Old Line Bancshares will pay Danielson an additional $55,000 upon the closing of the merger. Old
Line Bancshares has also agreed to reimburse Danielsons out-of-pocket expenses incurred in
connection with its engagement and to indemnify Danielson against certain liabilities arising out
of the performance of its obligations under the engagement letter. The opinion is directed at Old
Line Bancshares board of directors and does not constitute a recommendation to any holder of Old
Line Bancshares common stock as to how any stockholder should vote on any of the proposals to be
considered at the special meeting.
Consideration is Fair from a Financial Point of View According to Maryland Bankcorps Financial
Advisor (see page 61).
Monocacy Financial Advisors, LLC (Monocacy) delivered a written opinion to the Maryland
Bankcorp board of directors that, as of September 1, 2010, and subject to the qualifications and
limitations on the review by Monocacy in rendering its opinion, the consideration to be received by
stockholders of Maryland Bankcorp pursuant to the terms of the merger agreement is fair, from a
financial point of view, to Maryland Bankcorp stockholders. The opinion is attached to this
document as Annex C. You should read the entire opinion carefully in connection with your
consideration of the proposed merger. Pursuant to an engagement letter, Maryland Bankcorp has
agreed to pay Monocacy an aggregate advisory fee in an
8
amount up to 1.5% of the aggregate merger consideration (including holding company debt assumed and
other items of value), or approximately $390,000 (assuming no adjustments to the aggregate merger
consideration pursuant to the merger agreement). Maryland Bankcorp has already paid Monocacy an
initial non-refundable retainer fee of $15,000 upon the execution of the engagement letter, $25,000
upon Monocacys delivery of its fairness opinion, and approximatley $78,000 (20% of the total fee)
upon the execution of the merger agreement. Maryland Bankcorp will pay Monocacy the balance of its
fee upon completion of certain milestones as follows: 10% of the total fee upon mailing of this
joint proxy statement/ prospectus; 10% of the total fee upon the receipt of approval of the merger
agreement and the merger by Maryland Bankcorps stockholders; and the remaining balance
(approximately 60% of the total fee) upon the closing of the merger. Maryland Bankcorp has also
agreed to reimburse certain of Monocacys reasonable out-of-pocket expenses up to $10,000 (or more
with Maryland Bankcorps consent) incurred in connection with its engagement and to indemnify
Monocacy against certain liabilities arising out of rendering its opinion. The opinion is directed
at Maryland Bankcorps board of directors and does not constitute a recommendation to any holder of
Maryland Bankcorp common stock as to how any stockholder should vote on any of the proposals to be
considered at the special meeting.
Approval of at Least 66 2/3% of the Outstanding Shares of Maryland Bankcorp Common Stock on the
Record Date of is Required for the Merger (see page 32).
Approval of holders of at least 66 2/3% of the outstanding shares of Maryland Bankcorp common
stock on the record date is required to approve the merger agreement and the merger.
Each holder of shares of Maryland Bankcorp common stock outstanding on the record date will be
entitled to one vote for each share held. The vote required for approval of the merger agreement
and the merger is a percentage of all outstanding shares of Maryland Bankcorp common stock.
Therefore, abstentions, a failure to vote and broker non-votes will have the same effect as a vote
against approval of the merger agreement and the merger.
The affirmative vote of a majority of the shares voted at the special meeting is required to
approve the adjournment of the meeting to solicit additional proxies. Therefore, abstentions, the
failure to vote and broker non-votes will have no effect on the outcome of the proposal to adjourn
the special meeting, if necessary.
Approval of a Majority of the Outstanding Shares of Old Line Bancshares Common Stock on the Record
Date of is Required for the Merger (see page 29).
Pursuant to Old Line Bancshares articles of incorporation, because the merger agreement and
the merger have been approved by Old Line Bancshares board of directors, holders of a majority of
the outstanding shares of Old Line Bancshares common stock on the record date must approve the
merger agreement and the merger. Each holder of shares of Old Line Bancshares common stock
outstanding on the record date will be entitled to one vote for each share held.
The vote required for approval of the merger agreement and the merger is a percentage of all
outstanding shares of Old Line Bancshares common stock. Therefore, abstentions, a failure to vote
and broker non-votes will have the same effect as a vote against approval of the merger agreement
and the merger.
The affirmative vote of a majority of the shares voted on the matter at the special meeting is
required to approve the adjournment of the meeting to solicit additional proxies. Therefore,
abstentions, the failure to vote and broker non-votes will have no effect on the outcome of the
proposal to adjourn the special meeting, if necessary.
Maryland Bankcorp and Maryland Bank & Trust Directors have Agreed to Vote in Favor of the Merger
(see page 93).
Directors and executive officers of Maryland Bankcorp have voting power over _______ shares of
Maryland Bankcorp common stock, or approximately __.__% of the shares of Maryland Bankcorp common
stock outstanding as of the record date. Directors of Maryland Bank & Trust who are not directors
or executive officers of Maryland Bankcorp have voting power over shares of Maryland
Bankcorp common stock, or approximately ___% of the shares outstanding on the record date. The
directors of Maryland Bankcorp and Maryland Bank & Trust have agreed, in writing, to vote all
shares of Maryland Bankcorp common stock for which they are the record or beneficial owner for
approval of the merger agreement and the merger. In addition, Maryland Bank & Trust holds
shares of Maryland Bankcorp common stock, or approximately % of the shares of Maryland
Bankcorp common stock outstanding as of the record date, for its employee stock plan, which will be
voted for approval of the merger agreement and the merger.
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Old Line Bancshares Directors have Approved the Merger Agreement and are Expected to Vote in Favor
of the Merger (see page 30).
Directors of Old Line Bancshares have sole or shared voting power over shares of Old
Line Bancshares common stock or approximately % of the shares of Old Line Bancshares common
stock outstanding as of the record date. The Old Line Bancshares directors have approved the
merger agreement and the merger and are expected to vote for approval the merger agreement and the
merger.
Maryland Bankcorp Directors and Management may have Interests in the Merger that Differ from your
Interests (see page 92).
The directors and executive officers of Maryland Bankcorp have interests in the merger as
directors and employees that are different from yours as a Maryland Bankcorp stockholder. These
interests include, among others, provisions in the merger agreement regarding the Old Line
Bancshares board positions, payments to be made to Maryland Bankcorp directors and executive
officers pursuant to non-competition agreements they will enter into with Old Line Bancshares and
continuation of Maryland Bankcorps obligations under executive supplemental retirement plans and a
director supplemental retirement plan, as well as indemnification and insurance provisions of the
merger agreement.
Maryland Bankcorps board of directors was aware of these interests and considered them in
approving and recommending the merger.
Regulatory Approval or No Objection Must be Obtained and Other Conditions Must be Satisfied Before
the Merger Will be Completed (see page 89).
Old Line Bancshares and Maryland Bankcorps obligations to complete the merger are subject to
various conditions that are usual and customary for this kind of transaction, including obtaining
approval from the Board of Governors of the Federal Reserve System (the Federal Reserve Board)
and the Maryland Commissioner of Financial Regulation (the Maryland Commissioner) for the merger,
approval of the Maryland Commissioner of the bank merger and no objection of the Office of the
Comptroller of the Currency (the OCC) to the bank merger (which is included in any references to
regulatory approvals in this document). As of the date of this document, appropriate
applications for approval have not been filed but Old Line Bancshares expects to file them before
November 15, 2010. In addition to the required regulatory approvals, the merger will only be
completed if certain conditions, including the following, are met:
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Old Line Bancshares and Maryland Bankcorp stockholders approve the merger agreement
and the merger at the special meetings; |
|
|
|
|
Each party receives an opinion from its counsel or independent certified public
accountants that: |
|
|
|
The merger constitutes a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the Internal Revenue Code); and |
|
|
|
|
With respect to the opinion received by Maryland Bankcorp, any gain realized
in the merger will be recognized only to the extent of cash or other property
(other than Old Line Bancshares common stock) received in the merger, including
cash received in lieu of fractional share interests; and |
|
|
|
Neither party has breached any of its representations or obligations under the
merger agreement. |
The merger agreement attached to this document as Annex A describes other conditions that must
be met before the merger may be completed.
Amendment or Termination of the Merger Agreement is Possible (see page 87).
Maryland Bankcorp and Old Line Bancshares may agree to terminate the merger agreement and not
complete the merger at any time before the merger is completed. Each company also may unilaterally
terminate the merger agreement in certain circumstances including:
|
|
|
The merger is not completed on or prior to May 31, 2011, if the failure to complete
the transaction by that date is not due to a material breach of the merger agreement by
the party seeking to terminate it. |
10
|
|
|
A definitive written denial of a required regulatory approval, if the failure to
obtain regulatory approval is not due to a breach of the merger agreement by the party
seeking to terminate it. |
|
|
|
|
The other party has materially breached any representation, warranty, covenant or
other agreement in the merger agreement, and such breach remains uncured 30 days after
receipt by such party of written notice of such breach (provided that if such breach
cannot reasonably be cured within such 30-day period but may reasonably be cured within
60 days and cure is being diligently pursued, then termination can occur only after
expiration of such 60-day period). |
|
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|
|
Old Line Bancshares or Maryland Bankcorps stockholders do not approve the merger
agreement at their respective special meetings. |
|
|
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|
The conditions to closing have not been satisfied or waived. |
|
|
|
|
The other partys board of directors withdraws its recommendation to stockholders to
approve the merger agreement and the merger. |
|
|
|
|
If Maryland Bankcorp or any Maryland Bankcorp subsidiary enters into a definitive
term sheet, letter of intent or similar agreement with a view to being acquired by any
other person other than Old Line Bancshares, or to sell a material portion of its
assets. |
In addition, Maryland Bankcorp may terminate the merger agreement:
|
|
|
If the average price (as defined in the merger agreement) of Old Line Bancshares
common stock is less than $6.00, unless Old Line Bancshares increases the aggregate
merger consideration as set forth in the merger agreement. |
|
|
|
|
If Old Line Bancshares or any Old Line Bancshares subsidiary enters into a
definitive term sheet, letter of intent or similar agreement to merge, as a result of
which Old Line Bancshares is not the surviving entity or Old Line Bancshares directors
as of September 1, 2010 do not comprise the majority of the surviving entitys board of
directors, with any person other than Maryland Bankcorp, and the Maryland Bankcorp
board of directors determines, with written advice of counsel, that such transaction is
not in the best interests of Maryland Bankcorps stockholders. |
Old Line Bancshares and Maryland Bankcorp can agree to amend the merger agreement in any way.
Either company can waive any of the requirements of the other company in the merger agreement,
except that neither company can waive any required regulatory approval, stockholder approval or the
absence of any order, decree or injunction preventing the transactions contemplated by the merger
agreement.
Maryland Bankcorp Must Pay a Termination Fee to Old Line Bancshares if the Merger Agreement is
Terminated Under Certain Circumstances (see page 88).
Maryland Bankcorp must pay Old Line Bancshares a termination fee in the amount of $750,000 if
the merger agreement is terminated in connection with:
|
|
|
The entry by Maryland Bankcorp or any Maryland Bankcorp subsidiary into a definitive
term sheet, letter of intent or similar agreement to be acquired by someone else or to
sell a material portion of its assets (an alternative transaction), provided that Old
Line Bancshares is not in material breach of any material representation, warranty,
covenant or other agreement of the merger agreement. |
|
|
|
|
Maryland Bankcorps material breach of the merger agreement (provided that Old Line
Bancshares is not then in material breach of any representation, warranty, covenant or
other agreement contained in the merger agreement). |
|
|
|
|
The Maryland Bankcorp board of directors withdrawing, changing or modifying its
recommendation to stockholders to approve the merger agreement and the merger. |
11
|
|
|
The failure of the merger to close by May 31, 2011 or receive all necessary
regulatory approvals or consents and the failure to so close or receive such approvals
or consents was directly caused by the knowing, willful and intentional actions or
inactions of Maryland Bankcorp (provided Old Line Bancshares is not then in material
breach of any material representation, warranty, covenant or other agreement contained
in the merger agreement). |
In addition, Maryland Bankcorp has agreed to pay a fee of $1,000,000 to Old Line Bancshares if
Maryland Bankcorp terminates the merger agreement after it enters into an alternative transaction
after receipt of written advice from its counsel that the failure to do so shall constitute a
breach of Maryland Bankcorps directors fiduciary duty under Maryland law.
Old Line Bancshares Must Pay a Termination Fee to Maryland Bankcorp if the Merger Agreement is
Terminated Under Certain Circumstances (see page 89)
Old Line Bancshares has agreed to pay a fee of $750,000 to Maryland Bankcorp if Maryland
Bankcorp terminates the merger agreement in connection with:
|
|
|
Old Line Bancshares material breach of the merger agreement (provided that Maryland
Bankcorp is not then in material breach of any representation, warranty, covenant or
other agreement contained in the merger agreement). |
|
|
|
|
The Old Line Bancshares board of directors withdrawing, changing or modifying its
recommendation to stockholders to approve the merger agreement and the merger. |
|
|
|
|
The failure of the merger to close by May 31, 2011 or receive all necessary
regulatory approvals or consents and the failure to so close or receive such approvals
or consents was directly caused by the knowing, willful and intentional actions or
inactions of Old Line Bancshares (provided Maryland Bankcorp is not then in material
breach of any material representation, warranty, covenant or other agreement contained
in the merger agreement). |
Rights of Old Line Bancshares Stockholders Differ from those of Maryland Bankcorp Stockholders (see
pages 105).
When the merger is completed, Maryland Bankcorp stockholders who receive Old Line Bancshares
common stock as consideration in the merger will become Old Line Bancshares stockholders. The
rights of Old Line Bancshares stockholders differ from the rights of Maryland Bankcorp stockholders
in certain important ways. Most of these have to do with provisions in Old Line Bancshares
articles of incorporation and bylaws that differ from those of Maryland Bankcorp.
Maryland Bankcorp Stockholders Have Dissenters Rights in Connection with the Merger (see page
100).
Maryland Bankcorp stockholders are entitled to exercise dissenters rights with respect to the
merger and, if the merger is completed and they perfect their dissenters rights, to receive
payment in cash for the fair value of their shares of Maryland Bankcorp common stock instead of
their share of the aggregate merger consideration. In general, to preserve their dissenters
rights, Maryland Bankcorp stockholders who wish to exercise these rights must:
|
|
|
Deliver a written objection to the merger to Maryland Bankcorp at or before Maryland
Bankcorps special meeting of stockholders; |
|
|
|
|
Not vote their shares for approval of the merger agreement and the merger; |
|
|
|
|
Within 20 days after the merger is consummated, deliver a written demand to Old Line
Bancshares stating the number of shares of Maryland Bankcorp common stock for which
they demand payment; and |
|
|
|
|
Comply with the other procedures set forth in Sections 3-201 through 3-213 of the
MGCL. |
The text of Sections 3-201 through 3-213 of the MGCL governing dissenters rights is included
with this joint proxy statement/prospectus as Annex D. Failure to comply with the procedures
described in Annex D will result in the loss of
12
dissenters rights under the MGCL. We urge you to carefully read the text of Sections 3-201
through 3-213 of the MGCL governing dissenters rights.
MARKET PRICE AND DIVIDEND INFORMATION, RELATED STOCKHOLDER MATTERS
Old Line Bancshares common stock is listed and trades on the NASDAQ Capital Market of the
NASDAQ Stock Market LLC under the symbol OLBK. As of September 30, 2010, there were 3,880,005
shares of Old Line Bancshares common stock outstanding, which were held by 245 holders of record,
and outstanding options that were exercisable on that date (or within 60 days of that date) for
285,914 additional shares of Old Line Bancshares common stock.
There is no established trading market for the Maryland Bankcorp common stock; Maryland
Bankcorp common stock trades only sporadically under the symbol MBKP. As of September 30, 2010,
there were 646,626 shares of Maryland Bankcorp common stock outstanding, which were held by 357
holders of record.
The number of stockholders for each of Old Line Bancshares and Maryland Bankcorp noted above
does not reflect the number of individuals or institutional investors holding stock in nominee name
through banks, brokerage firms and others.
The following table shows, for the indicated periods, the high and low sales prices per share
for Old Line Bancshares common stock, as reported on the NASDAQ Capital Market, and dividends
declared and paid per share of Old Line Bancshares and Maryland Bankcorp common stock.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line Bancshares |
|
Maryland Bankcorp |
|
|
|
|
|
|
|
|
|
|
Dividend |
|
|
|
|
|
|
|
|
|
Dividend |
|
|
High |
|
Low |
|
Declared |
|
High(1) |
|
Low(1) |
|
Declared |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
11.05 |
|
|
$ |
9.80 |
|
|
$ |
0.03 |
|
|
$ |
44.00 |
|
|
$ |
42.75 |
|
|
$ |
|
|
Second Quarter |
|
|
11.09 |
|
|
|
9.60 |
|
|
|
0.03 |
|
|
|
49.50 |
|
|
|
41.00 |
|
|
|
|
|
Third Quarter |
|
|
10.25 |
|
|
|
8.50 |
|
|
|
0.03 |
|
|
|
45.50 |
|
|
|
43.00 |
|
|
|
|
|
Fourth Quarter |
|
|
9.60 |
|
|
|
7.50 |
|
|
|
0.03 |
|
|
|
47.00 |
|
|
|
45.00 |
|
|
|
0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
9.35 |
|
|
|
7.51 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
8.75 |
|
|
|
6.71 |
|
|
|
0.03 |
|
|
|
42.00 |
|
|
|
40.00 |
|
|
|
|
|
Third Quarter |
|
|
8.00 |
|
|
|
6.01 |
|
|
|
0.03 |
|
|
|
40.00 |
|
|
|
30.00 |
|
|
|
|
|
Fourth Quarter |
|
|
8.00 |
|
|
|
5.50 |
|
|
|
0.03 |
|
|
|
30.50 |
|
|
|
25.00 |
|
|
|
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
6.60 |
|
|
|
4.03 |
|
|
|
0.03 |
|
|
|
22.50 |
|
|
|
21.50 |
|
|
|
|
|
Second Quarter |
|
|
6.98 |
|
|
|
5.21 |
|
|
|
0.03 |
|
|
|
16.00 |
|
|
|
10.00 |
|
|
|
|
|
Third Quarter |
|
|
7.25 |
|
|
|
5.90 |
|
|
|
0.03 |
|
|
|
16.00 |
|
|
|
16.00 |
|
|
|
|
|
Fourth Quarter |
|
|
6.77 |
|
|
|
6.00 |
|
|
|
0.03 |
|
|
|
15.50 |
|
|
|
13.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
7.65 |
|
|
|
7.44 |
|
|
|
0.03 |
|
|
|
14.50 |
|
|
|
13.00 |
|
|
|
|
|
Second Quarter |
|
|
8.09 |
|
|
|
7.44 |
|
|
|
0.03 |
|
|
|
14.60 |
|
|
|
14.60 |
|
|
|
|
|
Third Quarter |
|
|
8.99 |
|
|
|
7.0215 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Source: Bloomberg Businessweek. Based on sporadic trades during the relevant time period. |
13
On August 25, 2010, the last full trading day before public announcement of the execution of
the merger agreement on which shares of Old Line Bancshares common stock were traded on the NASDAQ
Capital Market, and October 26, 2010, the last practicable trading date before the date of this
document on which shares of Old Line Bancshares common stock were traded, the high, low and closing
sales prices for Old Line Bancshares common stock were as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 25, 2010 |
|
|
October 26, 2010 |
|
High |
|
Low |
|
|
Closing |
|
|
High |
|
|
Low |
|
|
Closing |
|
$ 7.95 |
|
$ |
7.94 |
|
|
$ |
7.95 |
|
|
$ |
8.75 |
|
|
$ |
8.05 |
|
|
$ |
8.05 |
|
On April 30, 2010, the last day prior to public announcement of the execution of the merger
agreement and the date of this joint proxy statement/prospectus on which trades in Maryland
Bankcorp common stock were reported, the high, low and closing prices for Maryland Bankcorp common
stock was $14.60.
MARKET VALUE OF SECURITIES
The following table sets forth the market value per share of Old Line Bancshares common stock,
the market value per share of Maryland Bankcorp common stock and the equivalent market value per
share of Maryland Bankcorp common stock on August 25, 2010 (the last business day preceding public
announcement of the merger on which shares of Old Line Bancshares common stock were traded on the
NASDAQ Capital Market) and October 26, 2010 (the latest practicable trading day before the date of
this document on which shares of Old Line Bancshares common stock were traded). The equivalent
market value per share of Maryland Bankcorp common stock indicated in the tables is shown assuming
both a cash election and a stock election and at various assumed average prices of Old Line
Bancshares common stock based on recent trading prices and stock issuances of Old Line Bancshares
as defined in the merger agreement. The figures also assume that (i) there are no adjustments to
the aggregate merger consideration for certain operating losses, asset quality changes and
merger-related expenses as provided in the merger agreement, and (ii) 646,626 shares of Maryland
Bankcorp common stock are outstanding on the closing date. See The Merger Agreement and the
Merger Terms of the Merger What Maryland Bankcorp Stockholders Will Receive in the Merger.
14
The historical market values per share of Old Line Bancshares common stock and the historical
market value of Old Line Bancshares common stock used to determine the equivalent market value per
share of Maryland Bankcorp common stock are the per-share closing sales prices on August 25, 2010
and October 26, 2010, respectively, as reported by the NASDAQ Stock Market LLC. The historical
market values per share of Maryland Bankcorp common stock are the per-share closing sales prices on
April 30, 2010, the last date on which shares of Maryland Bankcorp were traded and reported as of
the applicable dates, as reported by Bloomberg Businessweek.
August 25, 2010
|
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|
|
|
|
|
|
Maryland Bankcorp |
|
|
Old Line |
|
Maryland |
|
Equivalent Market |
|
Equivalent Market |
|
|
Bancshares |
|
Bankcorp |
|
Value for Stock |
|
Value for Cash |
Average Price of: |
|
Historical |
|
Historical |
|
Election (1) |
|
Election |
$12.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
24.66 |
|
|
$ |
31.97 |
|
$12.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
24.31 |
|
|
$ |
31.47 |
|
$11.45 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
23.92 |
|
|
$ |
30.92 |
|
$11.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
24.82 |
|
|
$ |
30.92 |
|
$10.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
25.82 |
|
|
$ |
30.92 |
|
$10.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
24.77 |
|
|
$ |
30.92 |
|
$9.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
26.27 |
|
|
$ |
30.92 |
|
$9.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
27.77 |
|
|
$ |
30.92 |
|
$8.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
29.27 |
|
|
$ |
30.92 |
|
$8.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
30.77 |
|
|
$ |
30.92 |
|
$7.63 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.20 |
|
|
$ |
30.92 |
|
$7.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.20 |
|
|
$ |
30.40 |
|
$7.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.17 |
|
|
$ |
28.37 |
|
$6.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.14 |
|
|
$ |
26.35 |
|
$6.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.12 |
|
|
$ |
24.32 |
|
$5.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.09 |
|
|
$ |
22.30 |
|
$5.00 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.06 |
|
|
$ |
20.28 |
|
$4.50 |
|
$ |
7.95 |
|
|
$ |
14.60 |
|
|
$ |
32.03 |
|
|
$ |
18.25 |
|
|
|
|
(1) |
|
Includes value of cash that would be paid in lieu of fractional shares of Old Line Bancshares
common stock. |
15
October 26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland Bankcorp |
|
|
Old Line |
|
Maryland |
|
Equivalent Market |
|
Equivalent Market |
|
|
Bancshares |
|
Bankcorp |
|
Value for Stock |
|
Value for Cash |
Average Price of: |
|
Historical |
|
Historical |
|
Election (1) |
|
Election |
$12.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
24.86 |
|
|
$ |
30.92 |
|
$12.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
24.51 |
|
|
$ |
30.92 |
|
$11.45 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
24.12 |
|
|
$ |
30.92 |
|
$11.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
25.02 |
|
|
$ |
30.92 |
|
$10.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
26.02 |
|
|
$ |
30.92 |
|
$10.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
25.07 |
|
|
$ |
30.92 |
|
$9.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
26.57 |
|
|
$ |
30.92 |
|
$9.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
28.07 |
|
|
$ |
30.92 |
|
$8.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
29.57 |
|
|
$ |
30.92 |
|
$8.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
31.07 |
|
|
$ |
30.92 |
|
$7.63 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.60 |
|
|
$ |
30.92 |
|
$7.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.60 |
|
|
$ |
30.40 |
|
$7.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.57 |
|
|
$ |
28.37 |
|
$6.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.54 |
|
|
$ |
26.35 |
|
$6.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.52 |
|
|
$ |
24.32 |
|
$5.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.49 |
|
|
$ |
22.30 |
|
$5.00 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.46 |
|
|
$ |
20.28 |
|
$4.50 |
|
$ |
8.05 |
|
|
$ |
14.60 |
|
|
$ |
32.44 |
|
|
$ |
18.25 |
|
|
|
|
(1) |
|
Includes value of cash that would be paid in lieu of fractional shares of Old Line
Bancshares common stock. |
COMPARATIVE PER SHARE DATA
The Old Line Bancshares and Maryland Bankcorp historical and the unaudited pro forma combined
Old Line Bancshares and Maryland Bankcorp equivalent per share financial data for the six months
ended June 30, 2010 is presented below. This information should be considered together with the
financial statements and related notes of Old Line Bancshares and Maryland Bankcorp and with the
unaudited pro forma combined financial data included under Consolidated Pro Forma Financial
Information found elsewhere in this joint proxy statement/prospectus.
Unaudited Pro Forma Comparative Per Share Data
For The Six Months Ended June 30, 2010
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland |
|
|
Old Line |
|
Maryland |
|
Proforma |
|
Bankcorp |
|
|
Bancshares |
|
Bankcorp |
|
Combined |
|
Share1 |
For the six months ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.26 |
|
|
$ |
(1.76 |
) |
|
$ |
0.08 |
|
|
$ |
0.31 |
|
Diluted earnings (loss) per common share |
|
|
0.26 |
|
|
|
(1.76 |
) |
|
|
0.08 |
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010 |
|
$ |
0.06 |
|
|
$ |
|
|
|
$ |
0.06 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010 |
|
$ |
9.54 |
|
|
$ |
38.99 |
|
|
$ |
8.97 |
|
|
$ |
34.44 |
|
|
|
|
1) |
|
Pro forma equivalent per share amount is calculated by multiplying the
pro forma combined per share amount by an assumed exchange ratio of 3.84 as
outlined in Footnote 1 to the unaudited pro forma combined balance sheet
and statement of income. |
16
Unaudited Pro Forma Comparative Per Share Data
For The Year Ended June 30, 2010
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland |
|
|
Old Line |
|
Maryland |
|
Proforma |
|
Bankcorp |
|
|
Bancshares |
|
Bankcorp |
|
Combined |
|
Share1 |
For the year ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.40 |
|
|
$ |
(5.93 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.65 |
) |
Diluted earnings (loss) per common share |
|
|
0.40 |
|
|
|
(5.93 |
) |
|
|
(0.17 |
) |
|
|
(0.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009 |
|
$ |
0.12 |
|
|
$ |
|
|
|
$ |
0.12 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
$ |
9.31 |
|
|
$ |
40.36 |
|
|
$ |
8.72 |
|
|
$ |
33.48 |
|
|
|
|
1) |
|
Pro forma equivalent per share amount is calculated by
multiplying the pro forma combined per share amount by an assumed exchange
ratio of 3.84 as outlined in Footnote 1 to the unaudited pro forma combined
balance sheet and statement of income. |
17
RISK FACTORS
In addition to the other information contained in this joint proxy statement/prospectus,
including the matters addressed under the caption Caution Regarding Forward-Looking Statements,
you should carefully consider the following risk factors in deciding whether to vote for approval
of the merger agreement and the merger.
Risk Factors Related to the Merger in General
Old Line Bancshares may fail to realize all of the anticipated benefits of the merger. The
success of the merger will depend, in part, on Old Line Bancshares ability to realize the
anticipated benefits and cost savings from combining the businesses of Old Line Bancshares and
Maryland Bankcorp. To realize these anticipated benefits and cost savings, however, Old Line
Bancshares must successfully combine the businesses of Old Line Bancshares and Maryland Bankcorp.
If Old Line Bancshares is unable to achieve these objectives, the anticipated benefits and cost
savings of the merger may not be realized fully or at all or may take longer to realize than
expected.
Old Line Bancshares and Maryland Bankcorp have operated and, until the completion of the
merger, will continue to operate, independently. It is possible that the integration process could
result in the loss of key employees, the loss of key depositors or other bank customers, the
disruption of each companys ongoing businesses or inconsistencies in standards, controls,
procedures and policies that adversely affect Old Line Bancshares and Maryland Bankcorps ability
to maintain their relationships with their respective clients, customers, depositors and employees
or to achieve the anticipated benefits of the merger. Integration efforts between the two
companies may, to some extent, also divert management attention and resources. These integration
matters could have an adverse effect on each of Old Line Bancshares and Maryland Bankcorp during
such transition period.
The market price of Old Line Bancshares common stock after the merger may be affected by
factors different from those affecting the shares of Old Line Bancshares or Maryland Bankcorp
currently. The businesses of Old Line Bancshares and Maryland Bankcorp differ and, accordingly,
the results of operations of the combined company and the market price of the combined companys
shares of common stock may be affected by factors different from those currently affecting the
independent results of operations and market prices of common stock of each of Old Line Bancshares
and Maryland Bankcorp. For a discussion of the businesses of Old Line Bancshares and Maryland
Bankcorp and of certain factors to consider in connection with those businesses, see Business of
Old Line Bancshares, Inc., Business of Old Line Bank, Business of Maryland Bankcorp, Inc. and
Business of Maryland Bank & Trust Company, N.A.
If the merger is not completed, Old Line Bancshares and Maryland Bankcorp will have incurred
substantial expenses without realizing the expected benefits. Old Line Bancshares and Maryland
Bankcorp have incurred substantial expenses in connection with the execution of the merger
agreement and the merger. The completion of the merger depends on the satisfaction of specified
conditions, including the approval of the stockholders of Old Line Bancshares and Maryland Bankcorp
and the receipt of regulatory approvals. There is no guarantee that these conditions will be met.
If the merger is not completed, these expenses could have a material adverse impact on the
financial condition of Old Line Bancshares and/or Maryland Bankcorp because they would not have
realized the expected benefits.
The merger must be approved by multiple governmental agencies. Before the merger may be
completed, various approvals, consents or no-objections must be obtained from the Federal Reserve
Board, the OCC and the Maryland Commissioner. These governmental entities may impose conditions on
the completion of the merger or require changes to the terms of the merger. Although Old Line
Bancshares and Maryland Bankcorp do not currently expect that any such conditions or changes would
be imposed, there can be no assurance that they will not be, and such conditions or changes could
have the effect of delaying completion of the merger or imposing additional costs on or limiting
the revenues of Old Line Bancshares following the merger, any of which might have a material
adverse effect on Old Line Bancshares following the merger. Old Line Bancshares is not obligated
to complete the merger if the regulatory approvals received in connection with the completion of
the merger include any conditions or requirements that, in the reasonable opinion of its board of
directors, would so materially and adversely impact the economic or business benefits to Old Line
Bancshares following the merger as to render consummation of the merger inadvisable, but Old Line
Bancshares could choose to waive this condition.
Failure to complete the merger could negatively impact the stock prices and future businesses
and financial results of Old Line Bancshares and Maryland Bankcorp. If the merger is not
completed, the ongoing businesses of Old Line Bancshares and Maryland Bankcorp may be adversely
affected and Old Line Bancshares and Maryland Bankcorp will be subject to several risks, including
the following:
18
|
|
|
Maryland Bankcorp may be required, under certain circumstances, to pay Old Line
Bancshares a termination fee of either $750,000 or $1,000,000 under the merger
agreement; |
|
|
|
|
Old Line Bancshares may be required, under certain circumstances, to pay Maryland
Bankcorp a termination fee of $750,000 under the merger agreement; |
|
|
|
|
Old Line Bancshares and Maryland Bankcorp will be required to pay certain costs
relating to the merger, whether or not the merger is completed, such as legal,
accounting, financial advisor and printing fees; |
|
|
|
|
Under the merger agreement, Maryland Bankcorp is subject to certain restrictions on
the conduct of its business prior to completing the merger, which may adversely affect
its ability to execute certain of its business strategies; and |
|
|
|
|
Matters relating to the merger may require substantial commitments of time and
resources by Old Line Bancshares and Maryland Bankcorp management that could otherwise
have been devoted to other opportunities that may have been beneficial to Old Line
Bancshares and Maryland Bankcorp as independent companies, as the case may be; and
Maryland Bankcorp and Maryland Bank & Trust will still be subject to the provisions of
the agreement with the OCC described in the section headed Additional Risk Factors
Relating to Maryland Bankcorp Maryland Bank & Trust has entered into a written
agreement with the OCC which may result in adverse results to Maryland Bankcorps
operations. |
In addition, if the merger is not completed, Old Line Bancshares and/or Maryland Bankcorp may
experience negative reactions from the financial markets and from their respective customers and
employees. Old Line Bancshares and/or Maryland Bankcorp also could be subject to litigation
related to any failure to complete the merger or to enforcement proceedings commenced against Old
Line Bancshares or Maryland Bankcorp to perform their respective obligations under the merger
agreement. If the merger is not completed, Old Line Bancshares and Maryland Bankcorp cannot assure
their stockholders that the risks described above will not materialize and will not materially
affect the business, financial results and stock prices of Old Line Bancshares and/or Maryland
Bankcorp.
Old Line Bancshares and Maryland Bankcorp may choose not to proceed with the merger if it is
not completed by May 31, 2011. Either Old Line Bancshares or Maryland Bankcorp may terminate the
merger agreement if the merger has not been completed by May 31, 2011. See The Merger Agreement
and the Merger Terms of the Merger Termination. There can be no assurance that all conditions
to the merger will have been satisfied by May 31, 2011. See The Merger Agreement and the Merger
Terms of the Merger Conditions to the Merger.
Risk Factors Relating to Old Line Bancshares Business
This section discusses risks relating to Old Line Bancshares business and includes risks we
will continue to face after the merger. References in this subsection to we and our refer to
Old Line Bancshares, Inc. and its subsidiaries.
If economic conditions deteriorate further, our borrowers ability to repay loans declines and
the value of the collateral securing our loans decreases, these conditions could adversely affect
our results of operations and financial condition. Changes in prevailing economic conditions,
including declining real estate values, changes in interest rates which may cause a decrease in
interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the
federal government and other significant external events may adversely affect our financial
results. Because a significant portion of our loan portfolio is comprised of real estate related
loans, continued decreases in real estate values could adversely affect the value of property used
as collateral for loans in our portfolio. Although the adverse economic climate during the past
two years has not severely impacted us due to our strict underwriting standards, further adverse
changes in the economy, including increased unemployment or the economy moving back into a
recession, could have a negative effect on the ability of our borrowers to make timely repayments
of their loans, which would have an adverse impact on our earnings.
If U.S. markets and economic conditions continue to deteriorate, our liquidity could be
adversely affected. Old Line Bank must maintain sufficient liquidity to ensure sufficient cash
flow is available to satisfy current and future financial obligations including demand for loans
and deposit withdrawals, funding of operating costs and other corporate purposes. We obtain
funding through deposits and various short-term and long-term wholesale borrowings, including
federal funds purchased, unsecured borrowings, brokered certificates of deposits and borrowings
from the Federal Home Loan Bank of Atlanta and others. Economic uncertainty and disruptions in the
financial system may adversely affect our liquidity.
Dramatic declines in the housing market during the past three years, falling real estate
prices and increased foreclosures and
19
unemployment, have resulted in significant asset value
write-downs by financial institutions, including government-sponsored entities and investment
banks. These investment write-downs have caused financial institutions to seek additional capital.
Should we experience a substantial deterioration in our financial condition or should disruptions
in the financial markets restrict our funding, it would negatively impact our liquidity. To
mitigate this risk, we closely monitor our liquidity and maintain a line of credit with the Federal
Home Loan Bank and have received approval to borrow from the Federal Reserve Bank of Richmond.
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 Federal Deposit Insurance Corporation (FDIC) insurance
funds, not stockholders. Regulatory requirements affect our lending practices, capital structure,
investment practices, dividend policy, ability to attract and retain personnel 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.
In addition, because federal regulation of financial institutions changes regularly and is the
subject of constant legislative debate, we cannot forecast how federal regulation of financial
institutions may change in the future and impact our operations. In light of the performance of
and government intervention in the financial sector, we fully expect there will be significant
changes to the banking and financial institutions regulatory agencies in the near future. We
further anticipate that additional laws and regulations may be enacted in response to the ongoing
financial crisis that could have an impact on our operations. Changes in regulation and oversight,
including in the form of changes to statutes, regulations or regulatory policies or changes in
interpretation or implementation of statutes, regulations or policies, could affect the service and
products we offer, increase our operating expenses, increase compliance challenges and otherwise
adversely impact our financial performance and condition. In addition, 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.
The recently enacted Dodd-Frank Act may adversely impact our results of operations, liquidity
or financial condition. On July 21, 2010, President Obama signed into law the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). The Dodd-Frank Act
represents a comprehensive overhaul of the U.S. financial services industry. Among other things,
the Dodd-Frank Act establishes the new federal Bureau of Consumer Financial Protection (the
BCFP), includes provisions affecting corporate governance and executive compensation disclosure
at all Securities and Exchange Commission (SEC) reporting companies and that allow financial
institutions to pay interest on business checking accounts, broadens the base for FDIC insurance
assessments, and includes new restrictions on how mortgage brokers and loan originators may be
compensated. The Dodd-Frank Act requires the BCFP and other federal agencies to implement many new
and significant rules and regulations to implement its various provisions, and the full impact of
the Dodd-Frank Act on our business will not be known for years until regulations implementing the
statute are adopted and implemented. As a result, we cannot at this time predict the extent to
which the Dodd-Frank Act will impact our business, operations or financial condition. However,
compliance with these new laws and regulations may require us to make changes to our business and
operations and will likely result in additional costs and a diversion of managements time from
other business activities, any of which may adversely impact our results of operations, liquidity
or financial condition.
Because Old Line Bank serves a limited market area in Maryland, economic downturn in our
market area could more adversely affect us than it affects our larger competitors that are more
geographically diverse. Our current primary market area consists of the suburban Maryland
(Washington, D.C. suburbs) counties of Prince Georges, Anne Arundel, Charles and northern St.
Marys. We have expanded in Prince Georges County and Anne Arundel County, Maryland and may
expand in contiguous northern and western counties, such as Montgomery County and Howard County,
Maryland, and after the merger we will have branches in Calvert and St. Marys Counties as well.
However, broad geographic diversification is not currently part of our community bank focus.
Overall, during 2008, 2009 and the first half of 2010, the business environment negatively impacted
many businesses and households in the United States and worldwide. Although the economic decline
has not impacted the suburban Maryland and Washington D.C. suburbs as adversely as other areas of
the United States, it has caused an increase in unemployment and business failures and a decline in
property values. As a result, if our market area continues to suffer an economic downturn, it may
more severely affect our business and financial condition than it affects larger bank competitors.
Our larger 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. Further, unexpected
changes in the national and local economy may adversely affect our ability to attract deposits and
to make loans. Such risks
20
are beyond our control and may have a material adverse effect on our financial condition and
results of operations and, in turn, the value of our securities.
We depend on the services of key personnel. The loss of any of these personnel could disrupt
our operations and our business could suffer. Our success depends substantially on the skills and
abilities of our senior management team, including James W. Cornelsen, our President and Chief
Executive Officer, Joseph E. Burnett, our Executive Vice President and Chief Lending Officer,
Christine M. Rush, our Executive Vice President, Chief Financial Officer and Chief Credit Officer
and Sandi F. Burnett, our Executive Vice President and College Park Team Leader. They provide
valuable services to us and would be difficult to replace. Although we have entered into
employment agreements with these executives, with the exception of Ms. Burnett, the existence of
such agreements does not assure that we will retain their services. Further, Ms. Burnett is not
party to an employment agreement with us and could terminate her employment at any time.
Also, our growth and success and our future growth and success, in large part, is and we
anticipate will be due to the relationships maintained by our banking executives with our
customers. The loss of services of one or more of these executives or other key employees could
have a material adverse effect on our operations and our business could suffer. The experienced
commercial lenders that we have hired are not a party to any employment agreement with us and they
could terminate their employment with us at any time and for any reason.
The federal agencies that regulate us are currently considering placing restrictions on
executive compensation. This could cause the employment contracts with our management team to no
longer be valid and this may effectively make our senior executive officers employees at will and
could harm our ability to retain these individuals and our ability to attract and retain other key
employees.
Our growth and expansion strategy may not be successful. Our ability to grow depends upon our
ability to attract new deposits, identify loan and investment opportunities and maintain adequate
capital levels. We may also grow through acquisitions of existing financial institutions or
branches thereof. There are no guarantees that our expansion strategies will be successful. Also,
in order to effectively manage our anticipated and/or actual loan growth we have and may continue
to make additional investments in equipment and personnel, which also will increase our
non-interest expense.
We opened a new branch in Crofton in Anne Arundel County, Maryland and a new branch in Bowie
in Prince Georges County, Maryland during 2009. In addition, we will acquire ten new branches
pursuant to the merger. With respect to these branches or any other branches that we may open, we
may not be able to correctly identify profitable or growing markets for such new branches. If we
were to acquire another financial institution or branch thereof, we may not be able to integrate
the institution or branch into our operations. Also, the costs to start up new branch facilities
or to acquire existing financial institutions or branches thereof, and the additional costs to
operate these facilities, will increase our non-interest expense. It may also be difficult to
adequately and profitably manage the anticipated growth from the new branches or acquisitions and
we may not be able to maintain the relatively low levels of charge-offs and nonperforming loans
that we have experienced.
If we grow too quickly and are not able to control costs and maintain asset quality, growth
could materially and adversely affect our financial performance.
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. We secure many of our loans with real
estate (both residential and commercial) in the Maryland suburbs of Washington, D.C. During 2008,
2009 and 2010, property values declined in our market, energy prices were volatile, and there were
rising private sector layoffs and unemployment, which caused consumer lending to slow. Although we
believe our credit underwriting adequately considers these factors, further weakness in the economy
and the real estate market could adversely affect our customers ability to repay their loans,
which in turn could adversely impact us.
Our concentrations of loans in various categories may also increase the risk of credit losses.
We currently invest more than 25% of our capital in various loan types and industry segments,
including commercial real estate loans, marine loans and loans to the hospitality industry
(hotels/motels). While recent declines in the local commercial real estate market have not caused
the collateral securing our loans to exceed acceptable loan to value ratios, a further
deterioration in the commercial real estate market could cause deterioration in the collateral
securing these loans and/or a decline in our customers earning capacity. This could negatively
impact us. Although we have made a large portion of our hospitality loans to long-term, well
established operators in strategic locations, a continued decline in the occupancy rate in these
21
facilities could negatively impact their earnings. This could adversely impact their ability to
repay their loan which would adversely impact our net income.
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, even under normal economic conditions, we cannot predict such losses with certainty.
The unprecedented volatility experienced in the financial and capital markets during the last two
to three years makes this determination even more difficult as processes we use to estimate the
allowance for loan losses may no longer be dependable because they rely on complex judgments,
including forecasts of economic conditions that may not be accurate. As a result, we cannot be
sure that our allowance is or will be adequate in the future. If managements assumptions and
judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future
losses, our earnings will suffer.
As of June 30, 2010, commercial and industrial, construction, and commercial real estate
mortgage loans comprise approximately 86.41% of our loan portfolio. We expect this figure to be
approximately 93.73% after the merger. These types of loans are generally viewed as having more
risk of default than residential real estate or consumer loans and typically have larger balances
than residential real estate loans and consumer loans. A deterioration of one or a few of these
loans could cause a significant increase in non-performing loans. Such an increase could result in
a net loss of earnings from these loans, an increase in the provision for loan losses and an
increase in loan charge-offs, all of which could have a material adverse effect on our financial
condition and results of operations.
Further, we do not have the experience with Maryland Bank & Trusts loan portfolio that we
have with Old Line Banks loan portfolio. As a result, it may be more difficult for us to
accurately provision for the portion of our loan portfolio, subsequent to the merger, that was
originated by Maryland Bank & Trust.
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. Interest rates, because they are
influenced by, among other things, expectations about future events, including the level of
economic activity, federal monetary and fiscal policy, and geo-political stability, are not
predictable or controllable. Additionally, competitive factors heavily influence the interest
rates we can earn on our loan and investment portfolios and the interest rates we pay on our
deposits. Community banks are often at a competitive disadvantage in managing their cost of funds
compared to the large regional, super-regional or national banks that have access to the national
and international capital markets. These factors influence our ability to maintain a stable net
interest margin.
We seek to maintain a neutral position in terms of the volume of assets and liabilities that
mature or re-price during any period so that we may reasonably predict our net interest margin.
However, interest rate fluctuations, loan prepayments, loan production and deposit flows are
constantly changing and influence our ability to maintain this neutral position. Generally
speaking, our earnings are more sensitive to fluctuations in interest rates the greater the
variance in the volume of assets and liabilities that mature and re-price in any period. The
extent and duration of the sensitivity will depend on the cumulative variance over time, the
velocity and direction of interest rates, and whether we are more asset sensitive. Accordingly, we
may not be successful in maintaining this neutral position and, as a result, our net interest
margin may suffer.
The market value of our investments could negatively impact stockholders equity. We have
designated approximately 52.35% of our investment securities portfolio (and 66.15% of total assets)
at June 30, 2010 as available for sale. We expect this figure to be 79.08% of our investment
securities portfolio (and 12.39% of total assets) after the merger. Temporary unrealized gains and
losses in the estimated value of the available for sale portfolio are marked to market and are
reflected as a separate item in stockholders equity, net of taxes. As of June 30, 2010, we had
temporary unrealized gains in our available for sale portfolio of $597,282 (net of taxes). As a
result of the recent economic recession and the continued economic slowdown, several municipalities
have reported budget deficits and companies have reported lower earnings. These budget deficits
and lower earnings could cause temporary and other-than temporary impairment charges in our
investment securities portfolio and cause us to report lower net income and a decline in
stockholders equity.
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Old Line Bancshares future issuances of common stock in connection with acquisitions or
otherwise could dilute your ownership of Old Line Bancshares. We may use our common stock to
acquire other companies or to make investments in banks and other complementary businesses in the
future. We may also issue common stock, or securities convertible into common stock, through
public or private offerings, in order to raise additional capital in connection with future
acquisitions, to satisfy regulatory capital requirements or for general corporate purposes. Any
such stock issuances would dilute your ownership interest in Old Line Bancshares and may dilute the
per-share value of the common stock.
Old Line Bancshares future acquisitions, if any, may cause Old Line Bancshares to become more
susceptible to adverse economic events. While we currently have no plans to acquire additional
financial institutions, we may do so in the future if an attractive acquisition opportunity arises
that is consistent with our business plan. Any future business acquisitions could be material to
Old Line Bancshares, and the degree of success achieved in acquiring and integrating these
businesses into Old Line Bancshares could have a material effect on the value of Old Line
Bancshares common stock. In addition, any acquisition could require Old Line Bancshares to use
substantial cash or other liquid assets or to incur debt. In those events, Old Line Bancshares
could become more susceptible to future economic downturns and competitive pressures.
Additional capital may not be available when needed or required by regulatory authorities. We
are required by federal and state regulatory authorities to maintain adequate levels of capital to
support our operations. In addition, we may elect to raise additional capital to support our
business or to finance future acquisitions, if any, or we may otherwise elect or be required to
raise additional capital, including in connection with the merger. Our ability to raise additional
capital, if needed, will depend on conditions in the capital markets, economic conditions and a
number of other factors, many of which are outside our control and financial performance. Current
conditions in the capital markets are such that traditional sources of capital may not be available
to us on reasonable terms if we needed to raise additional capital. Accordingly, we may not be
able to raise additional capital if needed or on terms that are favorable or otherwise not dilutive
to existing stockholders. If we cannot raise additional capital when needed, it may have a
material adverse effect on our financial condition, results of operations and prospects.
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.
If Old Line Bank cannot attract deposits and make loans at a sufficient level, its operating
results will suffer, as will its opportunities for growth.
We face limits on our ability to lend. 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. As of June 30, 2010, we were able to lend
approximately $5.6 million to any one borrower; the merger will increase this amount by
approximately $2.5 million. This amount is significantly less than that of many of our competitors
and may discourage potential borrowers who have credit needs in excess of our legal lending limit
from doing business with us. We generally try to accommodate larger loans by selling
participations in those loans to other financial institutions, but this strategy is not always
available. We may not be able to attract or maintain customers seeking larger loans and we may not
be able to sell participations in such loans on terms we consider favorable.
Additional Risk Factors Associated with Maryland Bankcorp
Maryland Bank & Trust has entered into a written agreement with the OCC which may result in
adverse results to Maryland Bankcorps operations. On February 10, 2006, Maryland Bankcorps
wholly owned subsidiary, Maryland Bank & Trust, entered into a written agreement with its primary
regulator, the OCC. Under the terms of the written agreement, Maryland Bank & Trust agreed to take
certain actions relating to its lending operations and capital compliance. See The Merger
Agreement and the Merger Regulatory Matters Regarding Maryland Bank & Trust.
The written agreement includes timeframes to implement the compliance requirements for
Maryland Bank & Trust contained therein, including requirements to report to the OCC. The written
agreement also requires Maryland Bank & Trust to establish a committee of its board of directors
that will be responsible for overseeing compliance with the written agreement.
Maryland Bank & Trust has taken steps to comply with the requirements of the written
agreement. At September 30, 2010, Maryland Bank & Trust meets, and believes it will continue to
meet, the capital ratios stipulated by the written agreement.
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The impact of the written agreement on Maryland Bankcorps operations as well as deteriorating
credit markets may have an adverse impact on the financial condition and operations including
maintaining acceptable liquidity levels and may negatively impact the financial condition, results
of operations, and business operations of the combined company after the merger. Old Line Bank,
however, will not be subject to the written agreement after the bank merger.
Maryland Bankcorps asset quality may continue to deteriorate prior to completion of the
merger. Maryland Bankcorps non-performing assets, including OREO, were $18.6 million at June 30,
2010, compared to $11.1 million at December 31, 2009. Non-performing assets, including OREO, as a
percentage of total assets were 5.34% at June 30, 2010, compared to 3.19% at December 31, 2009.
Net charge-offs for the six months ended June 30, 2010 were $2.1 million, compared to $446,000 in
the same period of 2009. Should these adverse trends continue, they may have an adverse effect on
Maryland Bankcorps financial and capital positions and, upon consummation of the merger, Old Line
Bancshares financial and capital positions.
Maryland Bankcorps loan portfolio is concentrated in commercial real estate and in certain
geographic areas. Maryland Bankcorps commercial real estate loans totaled $121.4 million as of
June 30, 2010, or 53.49% of its loan portfolio. Additionally, its construction and development
loans totaled $38.1 million as of June 30, 2010, or 16.77% of its loan portfolio. Approximately
92% of Maryland Bankcorps loans were originated in Maryland.
Commercial real estate loans are typically larger than residential real estate loans and
consumer loans and depend on sales, in the case of construction and development loans, and cash
flows, in the case of other commercial real estate loans, from the property to service the debt.
Sales and cash flows have been and may continue to be affected significantly by general economic
conditions, and a further deterioration in the markets where its collateral is located could
increase the likelihood of default. Because Maryland Bankcorps loan portfolio contains a high
concentration of commercial real estate loans with relatively large balances, the deterioration of
a few of these loans could cause a significant percentage increase in its non-performing loan
balances. An increase in non-performing loans could result in a loss of earnings from these loans,
an increase in the provision for loan losses and an increase in charge-offs, all of which could
have a material adverse effect on the financial condition and results of operations of Maryland
Bankcorp, and, upon consummation of the merger, of Old Line Bancshares.
Old Line Bancshares could record future impairment losses on Maryland Bankcorps holdings of
investment securities available for sale. Maryland Bankcorps investment portfolio of securities
available for sale includes U.S. Department of the Treasury (U.S. Treasury) and agency
securities, municipal securities, and mortgage backed securities. Maryland Bankcorp routinely
conducts periodic reviews to identify and evaluate each investment security to determine whether an
other-than-temporary impairment (OTTI) has occurred. According to established OTTI accounting
rules and Maryland Bankcorps OTTI policy statements, Maryland Bankcorp asserts that it did not
have any temporary impairment charge to recognize during the quarter ended June 30, 2010. If the
merger with Old Line Bancshares is completed, Old Line Bancshares will take ownership of the
investment portfolio securities and record them at their fair value as of the closing date. A
number of factors or combinations of factors could cause Old Line Bancshares to conclude in one or
more future reporting periods that an unrealized loss that exists with respect to these securities
constitutes an additional impairment that is other than temporary, which could result in material
losses to Old Line Bancshares. These factors include, but are not limited to, failure to make
scheduled principal and interest payments, an increase in the severity of the unrealized loss on a
particular security, an increase in the continuous duration of the unrealized loss without an
improvement in value or changes in market conditions and/or industry or issuer specific factors
that would render Old Line Bancshares unable to forecast a full recovery in value. In addition,
the fair values of these investment securities could decline if the overall economy and the
financial condition of some of the issuers continue to deteriorate and there remains limited
liquidity for these securities.
Risk Factors as they Relate to Maryland Bankcorp Stockholders in Connection with the Merger
Maryland Bankcorps directors and executive officers have financial interests in the merger
that are different from, or in addition to, the interests of Maryland Bankcorp stockholders. In
considering the information contained in this document, you should be aware that Maryland
Bankcorps directors and executive officers have financial interests in the merger that are
different from, or in addition to, the interests of Maryland Bankcorp stockholders. The Maryland
Bankcorp directors and executive officers who collectively hold approximately 44.30% of the
outstanding Maryland Bankcorp stock have agreed to vote in favor of the merger proposal. This
agreement may have the effect of discouraging persons from making a proposal to acquire Maryland
Bankcorp. Further, certain executive officers of Maryland Bankcorp have entered into, and each
director of Maryland Bankcorp will have the opportunity to enter into, a non-compete agreement with
Old Line Bancshares that will provide them with cash payments in exchange for their agreement not
to compete with Old Line Bancshares for a certain period of time after the merger is consummated.
Under these agreements, Thomas B. Watts, the
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Chairman of the Board and Chief Executive Officer of Maryland Bankcorp, and G. Thomas
Daugherty, the President of Maryland Bankcorp, will each receive a total of $200,000 over two years
in exchange for their agreement not to compete with Old Line Bancshares for a three-year period.
Each non-employee director of Maryland Bankcorp will have the opportunity to enter into a similar
agreement providing for a cash payment of $50,000 to be paid upon the closing of the merger. Old
Line Bancshares and Old Line Bank have also agreed to increase the size of their boards of
directors to include two persons selected by Maryland Bankcorp, which the merger agreement
contemplates will be Messrs. Watts and Daugherty, who will be compensated for their service on the
board of directors of Old Line Bank. These and certain other additional interests of Maryland
Bankcorps directors and executive officers are described in detail in The Merger Agreement and
the Merger Interests of Directors, Officers and Others in the Merger. These circumstances may
cause some of Maryland Bankcorp directors and executive officers to view the proposed transaction
differently than you view it.
Maryland Bankcorp stockholders may not receive the form of merger consideration that they
elect. Depending on the elections made by all Maryland Bankcorp stockholders, certain Maryland
Bankcorp stockholders who elect to receive cash consideration may instead receive shares of Old
Line Bancshares common stock for all or a portion of their shares of Maryland Bankcorp common
stock.
If Maryland Bankcorp stockholders oversubscribe for the available pool of cash, those Maryland
Bankcorp stockholders electing to receive cash will have the amount of cash they selected reduced
on a pro rata basis and will receive all or a portion of their consideration in the form of shares
of Old Line Bancshares common stock. The pro rata allocation process will be administered by Old
Line Bancshares exchange agent in accordance with the merger agreement. Accordingly, at the time
Maryland Bankcorp stockholders vote on the proposal to approve the merger agreement and the merger,
unless they elect to take Old Line Bancshares common stock they will not know the form of merger
consideration that they will receive, regardless of their election prior to the merger. In
addition, a Maryland Bankcorp stockholder may receive a pro rata amount of Old Line Bancshares
common stock even if he or she has elected to receive all cash. Further, to the extent that
Maryland Bankcorp stockholders receive all or a portion of the merger consideration in a form that
they did not elect, they also will not know the tax consequences that will result upon the exchange
of their shares of Maryland Bankcorp common stock. See The Merger Agreement and the Merger
Certain Federal Income Tax Consequences.
Because the aggregate merger consideration is subject to adjustment and the value of the Old
Line Bancshares common stock for purposes of the common stock portion of the merger consideration
will fluctuate only within certain limits, and is not based solely on market value, Maryland
Bankcorp stockholders will not know until the effective time of the merger the value of the
consideration they will receive in the merger. Upon completion of the merger, each share of
Maryland Bankcorp common stock will be converted into the right to receive merger consideration
consisting of shares of Old Line Bancshares common stock and/or cash pursuant to the terms of the
merger agreement. The value of the merger consideration to be received by Maryland Bankcorp
stockholders will be based on the $20 million aggregate merger consideration, as adjusted as
provided in the merger agreement for certain operating losses, asset quality changes and
merger-related expenses incurred by Maryland Bankcorp, as well as for changes in the average price
of Old Line Bancshares common stock, as defined in the merger agreement, if the average price is
above $11.45 or below $7.63. Assuming there are no adjustments to the aggregate merger
consideration , the value of the per-share merger consideration, based on 646,626 shares of
Maryland Bankcorp common stock outstanding, would be $30.9298. The per-share merger consideration
will be reduced if the aggregate merger consideration is adjusted, however, and these calculations
will not be completed until the closing of the merger.
In addition, the number of shares of Old Line Bancshares common stock that will be received
for each share of Maryland Bankcorp common stock for which the common stock consideration is paid
in the merger will be determined by dividing the per-share merger consideration value by the
average price of a share of Old Line Bancshares common stock (the exchange ratio), subject to
upper and lower limits on the average price above and below which the exchange ratio will be fixed.
The average price takes into account both recent trading prices and the price of stock issuances
by Old Line Bancshares within the 90-day period ending five days prior to the closing date of the
merger. As a result, the average price may vary from the market price of the Old Line Bancshares
common stock based solely on trading prices on the NASDAQ Stock Market. Any increase in the
average price over the market price will have the effect of decreasing the number of shares of Old
Line Bancshares common stock issued for each share of Maryland Bankcorp common stock as compared to
a situation where the exchange ratio was based solely on recent trading prices. Therefore, if the
average price exceeds the market price, stockholders of Maryland Bankcorp who receive the common
stock merger consideration will receive fewer shares of Old Line Bancshares common stock in
exchange for their Maryland Bankcorp shares than they would have received if the exchange ratio
were based solely on recent trading prices, and, as a result, the value they receive in exchange
for their shares could be lower than if the exchange ratio was based solely on recent trading
prices.
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Further, the exchange ratio will not be adjusted if the average price exceeds $11.45 or is
below $7.63. Therefore, if the average price of Old Line Bancshares common stock falls below
$7.63, the exchange ratio will remain fixed at the same amount as if the average price were $7.63.
As a result, the value of shares of Old Line Bancshares common stock that a Maryland Bankcorp
stockholder receives in the merger will decline correspondingly with declines in the average price
of Old Line Bancshares common stock below $7.63 prior to and as of the date the merger
consideration is received.
Accordingly, at the time of the special meeting of Maryland Bankcorp stockholders and prior to
the election deadline, Maryland Bankcorp stockholders will not know or be able to calculate the
amount of the consideration they will receive, the exchange ratio that will be used to determine
the number of shares of Old Line Bancshares common stock that they would receive upon completion of
the merger, or the value of any shares of Old Line Bancshares common stock they would receive upon
completion of the merger. Stock price changes may result from a variety of factors, including
general market and economic conditions, changes in the businesses, operations and prospects of Old
Line Bancshares and regulatory considerations. Many of these factors are beyond Old Line
Bancshares control. You should obtain current market quotations for shares of Old Line Bancshares
common stock
Maryland Bankcorp has the option, but is not required, to terminate the merger agreement if
the average price of the Old Line Bancshares common stock falls below $6.00, although Maryland
Bankcorp does not have this option if Old Line Bancshares, in its sole discretion, increases the
aggregate merger consideration as set forth in the merger agreement. Maryland Bankcorp cannot
predict at this time whether or not its board of directors would exercise its right to terminate
the merger agreement if these conditions were met. The merger agreement does not provide for a
resolicitation of Maryland Bankcorp stockholders in the event that the conditions are met and the
Maryland Bankcorp board nevertheless chooses to complete the transaction. Maryland Bankcorps
board of directors has made no decision as to whether it would exercise its right to terminate the
merger agreement. In considering whether to exercise its right to terminate the merger agreement,
Maryland Bankcorps board of directors would take into account all the relevant facts and
circumstances that exist at the time and would consult with its financial advisor and legal
counsel.
The merger agreement limits Maryland Bankcorps ability to pursue alternative transactions to
the merger and requires Maryland Bankcorp to pay a termination fee if it does. The merger
agreement prohibits Maryland Bankcorp and its directors, officers, representatives and agents,
subject to narrow exceptions, from initiating, encouraging, soliciting or entering into discussions
with any third party regarding alternative acquisition proposals. The prohibition limits Maryland
Bankcorps ability to pursue offers from other possible acquirers that may be superior from a
financial point of view. If Maryland Bankcorp receives an unsolicited proposal from a third party
that is superior from a financial point of view to that made by Old Line Bancshares and the merger
agreement is terminated, Maryland Bankcorp would be required to pay a termination fee of either
$750,000 or $1,000,000. This fee makes it less likely that a third party will make an alternative
acquisition proposal.
The federal income tax consequences of the merger for Maryland Bankcorp stockholders will be
dependent upon the merger consideration received. The federal income tax consequences of the
merger to you will depend upon the merger consideration you receive. In general, if you exchange
your shares of Maryland Bankcorp common stock solely for cash, you will recognize gain or loss for
federal income tax purposes in an amount equal to the difference between the cash you receive and
your adjusted tax basis in your Maryland Bankcorp common stock. If you receive solely Old Line
Bancshares common stock in exchange for your Maryland Bankcorp common stock, you generally will not
recognize any gain or loss for federal income tax purposes. However, you generally will have to
recognize gain or loss in connection with cash received in lieu of fractional shares of Old Line
Bancshares common stock. If you receive a combination of cash and Old Line Bancshares common stock
in the transaction, you generally will not recognize loss but will recognize gain, if any, to the
extent of any cash received. For a more detailed discussion of the federal income tax consequences
of the transaction to you, see The Merger Agreement and the Merger Certain Federal Income Tax
Consequences.
After the merger is completed, Maryland Bankcorp stockholders who receive Old Line Bancshares
common stock for some or all of their shares of Maryland Bankcorp common stock will become Old Line
Bancshares stockholders and will have different rights that may be less advantageous than their
current rights. Upon completion of the merger, Maryland Bankcorp stockholders who receive Old Line
Bancshares common stock for some or all of their shares of Maryland Bankcorp common stock will
become Old Line Bancshares stockholders. Differences in Maryland Bankcorps articles of
incorporation and bylaws and Old Line Bancshares articles of incorporation and bylaws will result
in changes to the rights of Maryland Bankcorp stockholders who become Old Line Bancshares
stockholders. For more information, see Comparison of the Stockholder Rights. A stockholder of
Maryland Bankcorp may conclude that his, her or its current rights under Maryland Bankcorps
articles of incorporation and bylaws are more advantageous than the rights they may have as an Old
Line Bancshares stockholder under Old Line Bancshares articles of incorporation and bylaws.
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Maryland Bankcorps stockholders will have less influence as stockholders of Old Line
Bancshares than as stockholders of Maryland Bankcorp. Maryland Bankcorp stockholders currently
have the right to vote in the election of the board of directors of Maryland Bankcorp and on other
matters affecting Maryland Bankcorp. The stockholders of Maryland Bankcorp as a group will own
approximately 37.81% of the combined organization (Old Line Bancshares and Maryland Bankcorp).
When the merger occurs, each stockholder that receives shares of Old Line Bancshares common stock
will become a stockholder of Old Line Bancshares with a percentage ownership of the combined
organization much smaller than such stockholders percentage ownership of Maryland Bankcorp.
Because of this, stockholders of Maryland Bankcorp will have less influence on the management and
policies of Old Line Bancshares than they now have on the management and policies of Maryland
Bankcorp.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward-looking statements include statements regarding, among other things:
(1) The effects and benefits of the merger, including: (a) future financial operating results
and performance; (b) the expected consummation of the merger; (c) the expected pro forma effects of
the merger, and (d) plans and objectives of Old Line Bancshares management for future operations
of the combined company.
(2) With respect to Old Line Bancshares: (a) Old Line Bancshares objectives, expectations and
intentions, including (i) branch and market expansion, (ii) statements regarding anticipated
changes in revenue, expenses and income, (iii) hiring and acquisition intentions, (iv) maintenance
of our net interest margin, (v) expectations regarding income from Pointer Ridge and that Pointer
Ridge will operate at a loss for 2010, (vi) future sources of earnings/income, (vii) Old Line
Bancshares belief that it has identified any problem assets and that its borrowers will continue
to remain current on their loans, (viii) Old Line Bancshares being well positioned to capitalize on
potential opportunities in a healthy economy, and (ix) Old Line Bancshares continued growth in
customer relationships; (b) sources of liquidity; (c) the allowance for loan losses; (d) expected
loan, deposit and asset growth; (e) losses on and intentions with respect to investment securities;
(f) resolution of and losses on past due and non-accrual loans, resolution of non-performing and
past due loans, anticipated sales of foreclosed and deed-in-lieu properties and settlement of a
pending sale of foreclosed property; (g) interest rate sensitivity; (h) expected income from new
branches and the loan production team hired in 2009 offsetting related expenses; (i) earnings on
Old Line Bancshares BOLI; (j) improving earnings per share and stockholder value; and (k)
financial and other goals and plans.
(3) With respect to Maryland Bankcorp: (a) Maryland Bankcorp and Maryland Bank & Trust
continuing to comply with minimum capital requirements; (b) that Maryland Bank & Trust does not
anticipate any material losses from off-balance sheet instruments; and (c) liquidity, including
having the necessary procedures in place to determine liquidity needs and having sufficient
liquidity.
You can identify forward-looking statements because they are not historical facts and often
include the use of forward-looking terminology such as believes, expects, intends, may,
will, should, anticipates, plans or similar terminology. Such statements are subject to
risks and uncertainties that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Actual results could differ materially
from those currently anticipated due to a number of factors, including, but not limited to:
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The businesses of Maryland Bankcorp may not be integrated into Old Line Bancshares
successfully or such integration may be more difficult, time-consuming or costly than
expected; |
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Expected revenue synergies and cost savings from the merger may not be fully
realized, or realized within the expected timeframe; |
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Disruption in the parties businesses as a result of the announcement and pendency
of the merger; |
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Revenues following the merger may be lower than expected; |
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Customer and employee relationships and business operations may be disrupted by the
merger; |
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The ability to obtain required regulatory and stockholder approvals; |
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The ability to complete the merger in the expected timeframe may be more difficult,
time-consuming or costly than expected, or the merger may not be completed at all; |
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Changes in loan default and charge-off rates; |
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Changes in demand for loan products or other financial services; |
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Reductions in deposit levels necessitating increased borrowings to fund loans and
investments; |
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Deterioration in economic conditions or a slower than anticipated recovery in Old
Line Banks and Maryland Bank & Trusts target markets or nationally; |
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Continued increases in the unemployment rate in Old Line Banks and Maryland Bank &
Trusts target markets; |
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Changes in interest rates; |
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Changes in laws, regulations, policies and guidelines impacting our ability to
collect on outstanding loans or otherwise negatively impacting Old Line Banks and
Maryland Bank & Trusts business; |
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The ability of Old Line Bank to retain key personnel; |
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The ability of Old Line Bancshares and Old Line Bank to successfully implement its
growth and expansion strategy; |
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The risk of loan losses; |
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Potential conflicts of interest associated with Old Line Bancshares interest in
Pointer Ridge; |
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Changes in competitive, governmental, regulatory, technological and other factors
that may affect Old Line Bancshares or Maryland Bankcorp specifically or the banking
industry generally; |
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The other risks discussed in this joint proxy statement/prospectus, in particular in
the Risk Factors section of this document; and |
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Other risk factors detailed from time to time in filings made by Old Line Bancshares
with the SEC. |
Forward-looking statements speak only as of the date they are made. You should not place
undue reliance on any forward-looking statements. Old Line Bancshares and Maryland Bankcorp
undertake no obligation to update or clarify these forward-looking statements to reflect factual
assumptions, circumstances or events that have changed after such a forward-looking statement was
made.
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THE OLD LINE BANCSHARES SPECIAL MEETING
Date, Time and Place
Old Line Bancshares will hold a special meeting of its stockholders at its office located at
1525 Pointer Ridge Place, Bowie, Maryland, at ____ on ________________.
Purpose of the Special Meeting
At the special meeting, Old Line Bancshares stockholders will be asked to consider and vote
upon proposals to:
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Approve the merger agreement between Old Line Bancshares and Maryland Bankcorp and
the merger of Maryland Bankcorp with and into Old Line Bancshares; |
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Adjourn the special meeting if more time is needed to solicit proxies; and |
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Transact any other business that may properly be brought before the special meeting. |
Recommendation of the Board of Directors of Old Line Bancshares
The Old Line Bancshares board of directors has determined that the merger is advisable and in
the best interests of Old Line Bancshares and its stockholders and recommends that Old Line
Bancshares stockholders vote FOR approval of the merger agreement and the merger.
Record Date; Stockholders Entitled to Vote
Stockholders of record at the close of business on ______________, which the Old Line
Bancshares board of directors has set as the record date, are entitled to notice of and to vote at
the special meeting. As of the close of business on that date, there were outstanding and entitled
to vote _________ shares of common stock, $0.01 par value per share, each of which is entitled to
one vote.
Quorum
The presence, in person or by proxy, of stockholders entitled to cast a majority of all the
votes entitled to be cast at the special meeting (or _______ shares of Old Line Bancshares common
stock) will be necessary to constitute a quorum for the transaction of business at the special
meeting. Abstentions are counted for purposes of determining the presence or absence of a quorum
for the transaction of business at the special meeting.
Under Maryland law, broker non-votes are also counted for purposes of determining the presence
or absence of a quorum for the transaction of business at special meetings. In general, with
respect to shares held in street name, the holders of record have the authority to vote shares for
which their customers do not provide voting instructions only on certain routine, uncontested
items. In the case of non-routine or contested items, the institution holding street name shares
cannot vote the shares if it has not received voting instructions. These are considered to be
broker non-votes. Since there are no routine items to be voted on at the special meeting,
nominee record holders of Old Line Bancshares common stock that do not receive voting instructions
from the beneficial owners of such shares will not be able to return a proxy card with respect to
such shares; as a result, these shares will not be considered present at the special meeting and
will not count towards the satisfaction of a quorum.
Vote Required
Old Line Bancshares articles of incorporation provide that the approval of certain
transactions, including a merger, requires the vote of a majority of the shares of each class of
Old Line Bancshares capital stock entitled to vote thereon, if the merger has been approved by a
majority of its board of directors. As a result, the proposal at the Old Line Bancshares special
meeting to approve the merger agreement and the merger requires the affirmative vote of holders of
a majority of the outstanding shares of Old Line Bancshares common stock entitled to vote on the
proposal. The affirmative vote of the
holders of a majority of the shares of common stock cast on the matter is required to adjourn
the special meeting to solicit additional proxies, if necessary.
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Directors and executive officers of Old Line Bancshares and their affiliates, who beneficially
own approximately __._% of Old Line Bancshares common stock as of the record date, are expected to
vote for approval of the merger agreement and the merger.
Abstentions and Failure to Vote
Because approval of the merger agreement and the merger requires the affirmative vote of the
holders of more than 50% of the outstanding shares of Old Line Bancshares common stock entitled to
vote at the special meeting, abstentions, the failure to vote and broker non-votes will have the
same effect as votes against this matter. In other words, if you are an Old Line Bancshares
stockholder and fail to vote, fail to instruct your broker or nominee to vote, or vote to abstain,
it will have the effect of a vote against the proposal to approve the merger agreement and the
merger. Accordingly, the Old Line Bancshares board of directors urges you to submit your proxy to
vote as instructed below.
As noted above, approval of the proposal to adjourn the special meeting to solicit additional
proxies, if necessary, requires the affirmative vote of at least a majority of all votes cast on
the matter at the special meeting. Abstentions, the failure to vote and broker non-votes are not
included in calculating votes cast with respect to this proposal and therefore will have no effect
on the outcome of this proposal (assuming a quorum is present).
Voting of Proxies
The enclosed proxy with respect to the Old Line Bancshares special meeting is solicited by the
board of directors of Old Line Bancshares. The board of directors has selected John Suit and Suhas
Shah or either of them, to act as proxies with full power of substitution.
Whether or not you plan to attend the special meeting, you may submit a proxy to vote your
shares via Internet, telephone or mail as outlined below. You will need information from your
proxy card or electronic delivery notice to submit your proxy to vote your shares by Internet or
telephone.
|
|
|
By Internet: Go to www.proxyvote.com and follow the instructions. |
|
|
|
|
By Telephone: Call 1-800-690-6903 and follow the voice mail prompts. |
|
|
|
|
By Mail: Mark your vote, sign your name exactly as it appears on your proxy card,
date your proxy card and return it in the envelope provided. |
All proxies will be voted as directed by the stockholder on the proxy form. A proxy, if
executed and not revoked, will be voted in the following manner (unless it contains instructions to
the contrary, in which event it will be voted in accordance with such instructions):
|
|
|
FOR approval of the merger agreement and the merger; and |
|
|
|
|
FOR approval of the proposal to adjourn the special meeting to solicit additional
proxies, if necessary. |
At the date hereof, management has no knowledge of any business that will be presented for
consideration at the special meeting and that would be required to be set forth in this joint proxy
statement/prospectus or in the related Old Line Bancshares proxy card, other than the matters set
forth in the Notice of Special Meeting of Stockholders of Old Line Bancshares. In accordance with
Maryland law, business transacted at the Old Line Bancshares special meeting will be limited to
those matters set forth in the notice. Nonetheless, if any other matter is properly presented at
the Old Line Bancshares special meeting for consideration, proxies will be voted in the discretion
of the proxy holder on such matter.
Your vote is important. Accordingly, please sign and return the enclosed proxy card, or
indicate your vote by phone or Internet as described above, as soon as possible whether or not you
intend to attend the Old Line Bancshares special meeting.
Shares held in Street Name
If you hold your shares in a stock brokerage account or if your shares are held by a bank or
other nominee (that is, in street name), you must provide the record holder of your shares with
instructions on how to vote your shares if you wish
30
them to be counted. Please follow the voting
instructions provided by your bank, broker or other nominee. Please note that you may not vote
shares held in street name by returning a proxy card directly to Old Line Bancshares or by voting
in person at the meeting unless you provide a legal proxy, which you must obtain from your bank,
broker or other nominee. Further, brokers who hold shares of Old Line Bancshares common stock on
behalf of their customers may not give a proxy to Old Line Bancshares to vote those shares without
specific instructions from their customers.
If you are an Old Line Bancshares stockholder and you do not instruct your broker on how to
vote your shares, your broker may not vote your shares at the special meeting.
Your vote is important. Accordingly, please sign and return your brokers instructions
whether or not you plan to attend the Old Line Bancshares special meeting in person.
Revocability of Proxies
A proxy is revocable at any time prior to or at the special meeting by written notice to Old
Line Bancshares, by executing a proxy bearing a later date, or by attending the special meeting and
voting in person. A written notice of revocation of a proxy should be sent to the Secretary, Old
Line Bancshares, Inc., 1525 Pointer Ridge Place, Bowie, Maryland 20716, and will be effective if
received by the Secretary prior to the special meeting. The presence of a stockholder at the
special meeting alone will not automatically revoke such stockholders proxy.
Solicitation of Proxies
Old Line Bancshares will pay the costs of soliciting proxies from Old Line Bancshares
stockholders. These costs may include reasonable out of pocket expenses in forwarding proxy
materials to beneficial owners. Old Line Bancshares will reimburse brokers and other persons for
their reasonable expenses in forwarding proxy materials to customers who are beneficial owners of
the common stock of Old Line Bancshares registered in the name of nominees.
In addition to solicitation by mail, officers and directors of Old Line Bancshares may solicit
proxies personally or by telephone. Old Line Bancshares will not specifically compensate these
persons for soliciting such proxies, but may reimburse them for reasonable out-of-pocket expenses,
if any.
THE MARYLAND BANKCORP SPECIAL MEETING
Date, Time and Place
Maryland Bankcorp will hold a special meeting of its stockholders at its main office located
at 46930 South Shangri La Drive, Lexington Park, Maryland, at ____ on ________________.
Purpose of the Special Meeting
At the special meeting, Maryland Bankcorps stockholders will be asked to consider and vote
upon proposals to:
|
|
|
Approve the merger agreement between Old Line Bancshares and Maryland Bankcorp and
the merger of Maryland Bankcorp with and into Old Line Bancshares; |
|
|
|
|
Adjourn the special meeting if more time is needed to solicit proxies; and |
|
|
|
|
Transact any other business that may properly be brought before the special meeting. |
Recommendation of the Board of Directors of Maryland Bankcorp
The Maryland Bankcorp board of directors has unanimously determined that the merger is
advisable and in the best interests of Maryland Bankcorp and its stockholders and recommends that
Maryland Bankcorps stockholders vote FOR approval of the merger agreement and the merger.
31
Record Date; Stockholders Entitled to Vote
Stockholders of record at the close of business on ______________, which the Maryland Bankcorp
board of directors has set as the record date, are entitled to notice of and to vote at the special
meeting. As of the close of business on that date, there were outstanding and entitled to vote
646,626 shares of common stock, $0.01 par value per share, each of which is entitled to one vote.
Quorum
The presence, in person or by proxy, of stockholders entitled to cast a majority of all the
votes entitled to be cast at the special meeting (or 323,314 shares of Maryland Bankcorp common
stock) will be necessary to constitute a quorum for the transaction of business at the special
meeting. Abstentions are counted for purposes of determining the presence or absence of a quorum
for the transaction of business at the special meeting.
Under Maryland law, broker non-votes are also counted for purposes of determining the presence
or absence of a quorum for the transaction of business at special meetings. In general, with
respect to shares held in street name, the holders of record have the authority to vote shares for
which their customers do not provide voting instructions only on certain routine, uncontested
items. In the case of non-routine or contested items, the institution holding street name shares
cannot vote the shares if it has not received voting instructions. These are considered to be
broker non-votes. Since there are no routine items to be voted on at the special meeting,
nominee record holders of Maryland Bankcorp common stock that do not receive voting instructions
from the beneficial owners of such shares will not be able to return a proxy card with respect to
such shares; as a result, these shares will not be considered present at the special meeting and
will not count towards the satisfaction of a quorum.
Vote Required
The proposal at the Maryland Bankcorp special meeting to approve the merger agreement and the
merger requires the affirmative vote of holders of two-thirds of the outstanding shares of Maryland
Bankcorp common stock entitled to vote on the proposal. The affirmative vote of the holders of a
majority of the shares of common stock cast on the matter at the special meeting is required to
adjourn the special meeting to solicit additional proxies, if necessary.
Directors and executive officers of Maryland Bankcorp and their affiliates, who beneficially
own approximately __._% of Maryland Bankcorp common stock as of the record date, are expected to
vote for approval of the merger agreement and the merger. In addition, directors of Maryland Bank
& Trust who are not executive officers or directors of Maryland Bankcorp (all of whom have agreed
to vote their shares for approval of the merger) are entitled to vote an additional ____ shares or
____% of the outstanding shares, and Maryland Bank & Trust holds ______ shares (____%) for its
employee stock plan, which will be voted for approval of the merger agreement and the merger.
Abstentions and Failure to Vote
Because approval of the merger agreement and the merger requires the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Maryland Bankcorp common stock entitled
to vote at the special meeting, abstentions, the failure to vote and broker non-votes will have the
same effect as votes against this matter. In other words, if you are a Maryland Bankcorp
stockholder and fail to vote, fail to instruct your broker or nominee to vote, or vote to abstain,
it will have the effect of a vote against the proposal to approve the merger agreement and the
merger. Accordingly, the Maryland Bankcorp board of directors urges you to complete, date and sign
the accompanying proxy and return it promptly in the enclosed, postage-paid envelope.
As noted above, approval of the proposal to adjourn the special meeting to solicit additional
proxies, if necessary, requires the affirmative vote of at least a majority of all votes cast on
the matter at the special meeting. Abstentions, the
failure to vote and broker non-votes are not included in calculating votes cast with respect
to this proposal and therefore will have no effect on the outcome of this proposal (assuming a
quorum is present).
Voting of Proxies
The enclosed proxy with respect to the Maryland Bankcorp special meeting is solicited by the
board of directors of Maryland Bankcorp. The board of directors has selected G. Thomas Daugherty
and Frank Taylor or either of them, to act as proxies with full power of substitution.
32
Maryland Bankcorp requests that you sign the accompanying proxy and return it promptly in the
enclosed, postage-paid envelope. Please mark your vote, sign your name exactly as it appears on
your proxy card, date your proxy card and return it in the envelope provided.
All proxies will be voted as directed by the stockholder on the proxy form. A proxy, if
executed and not revoked, will be voted in the following manner (unless it contains instructions to
the contrary, in which event it will be voted in accordance with such instructions):
|
|
|
FOR approval of the merger agreement and the merger; and |
|
|
|
|
FOR approval of the proposal to adjourn the special meeting to solicit additional
proxies, if necessary. |
At the date hereof, management has no knowledge of any business that will be presented for
consideration at the special meeting and that would be required to be set forth in this joint proxy
statement/prospectus or in the related Maryland Bankcorp proxy card, other than the matters set
forth in the Notice of Special Meeting of Stockholders of Maryland Bankcorp. In accordance with
Maryland law, business transacted at the Maryland Bankcorp special meeting will be limited to those
matters set forth in the notice. Nonetheless, if any other matter is properly presented at the
Maryland Bankcorp special meeting for consideration, proxies will be voted in the discretion of the
proxy holder on such matter.
Your vote is important. Accordingly, please sign and return the enclosed proxy card as soon
as possible whether or not you intend to attend the Maryland Bankcorp special meeting.
Shares held in Street Name
If you hold your shares in a stock brokerage account or if your shares are held by a bank or
other nominee (that is, in street name), you must provide the record holder of your shares with
instructions on how to vote your shares if you wish them to be counted. Please follow the voting
instructions provided by your bank, broker or other nominee. Please note that you may not vote
shares held in street name by returning a proxy card directly to Maryland Bankcorp or by voting in
person at the meeting unless you provide a legal proxy, which you must obtain from your bank,
broker or other nominee. Further, brokers who hold shares of Maryland Bankcorp common stock on
behalf of their customers may not give a proxy to Maryland Bankcorp to vote those shares without
specific instructions from their customers.
If you are a Maryland Bankcorp stockholder and you do not instruct your broker on how to vote
your shares, your broker may not vote your shares at the special meeting.
Your vote is important. Accordingly, please sign and return your brokers instructions
whether or not you plan to attend the Maryland Bankcorp special meeting in person.
Revocability of Proxies
A proxy is revocable at any time prior to or at the special meeting by written notice to
Maryland Bankcorp, by executing a proxy bearing a later date, or by attending the special meeting
and voting in person. A written notice of revocation of a proxy should be sent to the Secretary,
Maryland Bankcorp, Inc., 46930 South Shangri La Drive, Lexington Park, Maryland 20653 and will be
effective if received by the Secretary prior to the special meeting. The presence of a stockholder
at the special meeting alone will not automatically revoke such stockholders proxy.
Solicitation of Proxies
Maryland Bankcorp will pay the costs of soliciting proxies from Maryland Bankcorp
stockholders. These costs may include reasonable out of pocket expenses in forwarding proxy
materials to beneficial owners. Maryland Bankcorp will reimburse brokers and other persons for
their reasonable expenses in forwarding proxy materials to customers who are beneficial owners of
the common stock of Maryland Bankcorp registered in the name of nominees.
In addition to solicitation by mail, officers and directors of Maryland Bankcorp may solicit
proxies personally or by telephone. Maryland Bankcorp will not specifically compensate these
persons for soliciting such proxies, but may reimburse them for reasonable out-of-pocket expenses,
if any.
33
OWNERSHIP OF OLD LINE BANCSHARES COMMON STOCK
The following table sets forth, as of, September 30, 2010, information with respect to the
beneficial ownership of Old Line Bancshares common stock by each director, by its executive
officers and by all of its directors and executive officers as a group, as well as information
regarding each other person that Old Line Bancshares believes owns in excess of 5% of the
outstanding common stock. Unless otherwise noted below, Old Line Bancshares believes 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.
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
|
|
Name of Beneficial Owner and Addresses |
|
Number of |
|
|
Number of Options |
|
|
Beneficially |
|
|
Percent of |
|
of 5% Owners |
|
Shares Owned |
|
|
Owned (1) |
|
|
Owned (2) |
|
|
Class Owned (3) |
|
Charles A. Bongar, Jr.(4) |
|
|
26,660 |
|
|
|
5,100 |
|
|
|
31,760 |
|
|
|
0.82 |
% |
Joseph E. Burnett(5) |
|
|
28,303 |
|
|
|
38,074 |
|
|
|
66,377 |
|
|
|
1.69 |
% |
Sandi F. Burnett |
|
|
18,250 |
|
|
|
12,000 |
|
|
|
30,250 |
|
|
|
0.78 |
% |
Craig E. Clark(6) |
|
|
151,599 |
|
|
|
5,100 |
|
|
|
156,699 |
|
|
|
4.03 |
% |
James W. Cornelsen |
|
|
67,468 |
|
|
|
108,174 |
|
|
|
175,642 |
|
|
|
4.40 |
% |
John P. Davey |
|
|
8,050 |
|
|
|
1,000 |
|
|
|
9,050 |
|
|
|
0.23 |
% |
Daniel W. Deming(7) |
|
|
21,300 |
|
|
|
8,700 |
|
|
|
30,000 |
|
|
|
0.77 |
% |
James F. Dent |
|
|
44,943 |
|
|
|
8,700 |
|
|
|
53,643 |
|
|
|
1.38 |
% |
Nancy L. Gasparovic |
|
|
10,565 |
|
|
|
8,700 |
|
|
|
19,265 |
|
|
|
0.50 |
% |
Andre J. Gingles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
Frank Lucente(8) |
|
|
104,112 |
|
|
|
6,000 |
|
|
|
110,112 |
|
|
|
2.83 |
% |
Gail D. Manuel(9) |
|
|
13,075 |
|
|
|
6,000 |
|
|
|
19,075 |
|
|
|
0.49 |
% |
John D. Mitchell(10) |
|
|
14,168 |
|
|
|
8,700 |
|
|
|
22,868 |
|
|
|
0.59 |
% |
Gregory S. Proctor, Jr.(11) |
|
|
10,602 |
|
|
|
4,200 |
|
|
|
14,802 |
|
|
|
0.38 |
% |
Christine M. Rush(12) |
|
|
5,807 |
|
|
|
36,466 |
|
|
|
42,273 |
|
|
|
1.08 |
% |
Suhas R. Shah |
|
|
4,900 |
|
|
|
2,000 |
|
|
|
6,900 |
|
|
|
0.18 |
% |
John M. Suit, II |
|
|
15,705 |
|
|
|
1,000 |
|
|
|
16,705 |
|
|
|
0.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors & executive officers
as a group (16 people) |
|
|
545,507 |
|
|
|
259,914 |
|
|
|
805,421 |
|
|
|
20.59 |
% |
Bay Pond Partners, L.P.(13)
75 State Street
Boston, MA 02109 |
|
|
217,723 |
|
|
|
|
|
|
|
217,723 |
|
|
|
5.61 |
% |
Hot Creek Capital, LLC(14)
6900 South McCarran Boulevard, Suite 3040
Reno, Nevada 89509 |
|
|
317,998 |
|
|
|
|
|
|
|
317,998 |
|
|
|
8.20 |
% |
Banc Fund, VI L.P.(15)
20 North Wacker Drive, Suite 3300
Chicago, Illinois 60606 |
|
|
331,140 |
|
|
|
|
|
|
|
331,140 |
|
|
|
8.53 |
% |
|
|
|
(1) |
|
Indicates options exercisable within 60 days of September 30, 2010. |
|
(2) |
|
The total number of shares beneficially owned includes shares of common stock owned by the
named persons as of September 30, 2010 and shares of common stock subject to options held by
the named persons that are exercisable as of, or within 60 days of September 30, 2010. |
|
(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 941 shares of common stock held for the benefit of his grandson. |
34
|
|
|
(5) |
|
Includes 1,620 shares of common stock held jointly with his spouse. |
|
(6) |
|
Includes 64,763 shares of common stock held jointly with his spouse. Does not include 11,329
shares owned by an individual retirement account for the benefit of his spouse. Mr. Clark
disclaims beneficial ownership in such shares. Does not include 4,800 shares of common stock
held in trust for the benefit of his mother-in-law. His spouse is trustee of the trust. Mr.
Clark disclaims beneficial ownership in such shares. |
|
(7) |
|
Includes 7,840 shares of common stock held jointly with his spouse, 10,000 shares of common
stock in Deming Associates, Inc. of which Mr. Deming is President and sole owner, and 1,000
shares of common stock in Livingston, Ltd. of which Mr. Deming is Vice President and fifty
percent owner. |
|
(8) |
|
Does not include 13,980 shares owned by an individual retirement account for the benefit of
his spouse. Mr. Lucente disclaims beneficial ownership in such shares. |
|
(9) |
|
Includes 2,983 shares of common stock held jointly with her spouse. |
|
(10) |
|
Includes 300 shares of common stock held for the benefit of his grandchildren. |
|
(11) |
|
Includes 2,000 shares of common stock held jointly with his spouse. |
|
(12) |
|
Includes 860 shares of common stock held jointly with Mark O. Posten. |
|
(13) |
|
Bay Pond Partners, L.P., a Delaware limited partnership, has reported in a Schedule 13G/A
filed with the Securities and Exchange Commission on February 17, 2009 that it shares voting
and investment power of 217,723 shares of common stock with Wellington Hedge Management, LLC,
a Massachusetts limited liability company, which is the sole general partner of Bay Pond
Partners. |
|
(14) |
|
Hot Creek Capital, LLC has reported in a Schedule 13G/A filed with the Securities & Exchange
Commission on January 27, 2009 that it shares voting and investment power of 317,998 shares of
common stock as the General Partner, with Hot Creek Investors, L.P. and David M. Harvey, the
principal member of Hot Creek Capital, LLC. |
|
(15) |
|
Banc Fund VI L.P. an Illinois Limited partnership, Banc Fund VII L.P., an Illinois Limited
Partnership and Banc Fund VIII L.P. an Illinois Limited Partnership jointly reported in a
Schedule 13G/A filed with the Securities & Exchange Commission on January 11, 2010 that Banc
Fund VI, L.P. has sole voting and investment power of 123,200 shares of common stock and that
Banc Fund VII L.P. has sole voting and investment power of 207,940 shares of common stock.
The general partner of BF VI is MidBanc VI L.P., whose principal business is to be a general
partner of BF VI. The general partner of BF VII is MidBanc VII L.P., whose principal business
is to be a general partner of BF VII. The general partner of BF VIII is MidBanc VIII L.P.,
whose principal business is to be a general partner of BF VIII. The general partner of
MidBanc VI, MidBanc VII and MidBanc VIII is The Banc Funds Company, L.L.C., (TBFC), whose
principal business is to be a general partner of MidBanc VI, MidBanc VII and MidBanc VIII.
TBFC is an Illinois corporation whose principal shareholder is Charles J. Moore. Mr. Moore
has voting and dispositive power over the securities of the issuer held by each of the
previously named entities. |
35
OWNERSHIP OF MARYLAND BANKCORP COMMON STOCK
The following table sets forth, as of September 30, 2010, unless otherwise noted, the number
and percentage of shares of Maryland Bankcorp common stock that are beneficially owned by each of
the named executive officers and directors of MDBC and all directors and executive officers of
Maryland Bankcorp as a group, and each other person that Maryland Bankcorp believes owns in excess
of 5% of its outstanding common stock. A person owns his shares directly as an individual unless
otherwise indicated.
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner |
|
Number of
Shares |
|
|
Percentage of
Class (1) |
|
|
|
|
Named Executive Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas B. Watts (2) |
|
|
178,091 |
|
|
|
27.54 |
% |
G. Thomas Daugherty (3) |
|
|
191,846 |
|
|
|
29.67 |
% |
Lawrence H. Wright |
|
|
235 |
|
|
|
* |
|
Louise G. Czwartacki (4) |
|
|
65 |
|
|
|
* |
|
K. Brad Howard (5) |
|
|
312 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
Outside Directors |
|
|
|
|
|
|
|
|
|
Bluford H. Putnam III |
|
|
6,989 |
|
|
|
1.08 |
% |
Francis E. Taylor (6) |
|
|
1,688 |
|
|
|
* |
|
All directors and executive officers as a group (7 persons) |
|
|
286,455 |
|
|
|
44.30 |
% |
|
|
|
|
|
|
|
|
|
5% Shareholders |
|
|
|
|
|
|
|
|
|
The Daugherty LLC (7) (8)
P.O. Box 948
California, MD 20619 |
|
|
92,771 |
|
|
|
14.35 |
% |
Katherine D. Watts (9) (10)
46595 Millstone Landing Rd
Lexington Park, MD 20653 |
|
|
71,920 |
|
|
|
11.12 |
% |
Maryland Bank & Trust Company, N.A. KSOP Plan
P.O. Box 248
Waldorf, MD 20604 |
|
|
53,742 |
|
|
|
8.32 |
% |
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Based on 646,626 shares outstanding as of September 30, 2010. |
|
(2) |
|
Consists of: a) 11,384 shares as to which Mr. Watts has sole voting and investment power; b) 71,920 shares over which his wife has sole
voting and investment power; c) 1,193 shares in a profit sharing plan as to which he has voting power; d) 823 shares in a profit
sharing plan as to which he has voting and investment power; and e) 92,771 shares held by The Daugherty LLC, as to which his wife holds
joint voting and investment power with Mr. Daugherty. |
|
(3) |
|
Consists of: a) 74,724 shares as to which Mr. Daugherty has sole voting and investment power; b) 92,771 shares held by The Daugherty
LLC as to which he holds joint voting and investment power with Ms. Watts; c) 8,636 shares in an IRA account as to which he has voting
and investment power; and d) 15,715 shares over which his wife has sole voting and investment power. |
|
(4) |
|
Consists of 65 shares held jointly with her husband. |
|
(5) |
|
Consists of: a) 252 shares held jointly with his wife; b) 30 shares held jointly with his wife and a child; and c) 30 shares held
jointly with his wife and a child. |
|
(6) |
|
Consists of: a) 844 shares as to which Mr. Taylor has sole voting and investment power; b) 6,600 shares held jointly with a family
member; and c) 366 shares, consisting of 122 shares held jointly with each of three family members. |
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(7) |
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The Daugherty LLC is a Maryland limited liability company with two members, G. Thomas Daugherty and Katherine Watts. |
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(8) |
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Included above in the 178,091 shares beneficially owned by Mr. Watts and also in the 191,846 shares beneficially owned by Mr. Daugherty. |
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(9) |
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Only includes shares held directly in Ms. Watts name. Does not include 92,771 shares held by The Daugherty LLC, in which Ms. Watts
holds joint voting and investment power with Mr. Daugherty, 11,384 shares held by her husband, 1,193 shares in a profit sharing plan as
to which her husband has voting power, or 823 shares in a profit sharing plan as to which her husband has voting and investment power. |
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(10) |
|
Included above in the 178,091 shares beneficially owned by Mr. Watts. |
36
THE MERGER AGREEMENT AND THE MERGER
The following information describes the material terms and provisions of the merger agreement
and the merger. This discussion is subject, and qualified in its entirety by reference, to the
merger agreement, as amended, which is incorporated herein by reference, and the financial advisor
opinions attached as annexes to this joint proxy statement/prospectus.
Except for its status as the contractual document between the parties with respect to the
merger described therein, the merger agreement attached as Annex A hereto is not intended to
provide factual information about the parties. The representations and warranties contained in the
merger agreement were made solely for the purposes of such agreement as of specified dates, and are
not intended to provide factual, business or financial information about Old Line Bancshares or
Maryland Bankcorp. Moreover, some of those representations and warranties may not be accurate or
complete as of any specified date, may be subject to a contractual standard of materiality
different from those generally applicable to stockholders or may have been used for purposes of
allocating risk between Old Line Bancshares and Maryland Bankcorp rather than establishing matters
as facts. For the foregoing reasons, you should not rely on the representations and warranties as
accurate or complete or as characterizations of the actual state of facts as of any specified date.
We urge you to read the full text of the merger agreement carefully.
General
The merger agreement provides that:
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Maryland Bankcorp will merge with and into Old Line Bancshares with Old Line
Bancshares as the surviving corporation; |
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If you are a stockholder of Maryland Bankcorp you will receive, at your election,
cash (subject to proration as described herein) or shares of stock of Old Line
Bancshares, in a dollar amount generally equal to the $20 million aggregate merger
consideration, as adjusted as provided in the merger agreement, divided by the number
of shares of common stock of Maryland Bankcorp outstanding on the closing date of the
merger, provided that cash will be paid in lieu of fractional shares of Old Line
Bancshares common stock and the aggregate cash consideration to be paid to stockholders
of Maryland Bankcorp will not exceed 5% of the aggregate merger consideration, unless
increased by Old Line Bancshares in its sole discretion, and subject to further
adjustments as described in the merger agreement; |
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Pursuant to an Agreement and Plan of Merger by and between Old Line Bank and
Maryland Bank & Trust, dated as of September 1, 2010, immediately after the merger
Maryland Bank & Trust will be merged with and into Old Line Bank, with Old Line Bank as
the surviving bank, which we refer to as the bank merger; and |
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Thomas B. Watts and G. Thomas Daugherty will be appointed as members of the Old Line
Bancshares and Old Line Bank boards of directors. |
Background of the Merger
From time to time over the past several years, each of Old Line Bancshares and Maryland
Bankcorps boards of directors and managements have separately considered various strategic
alternatives as part of their continuing efforts to enhance each companys community banking
franchise and to maximize stockholder value. Each company has considered strategic alternatives
which include: continuing as an independent institution; acquiring branch offices or other
community banks; establishing related lines of business; and entering into a strategic merger with
similarly-sized institutions. In the case of Old Line Bancshares, these alternatives also included
acquiring financial institutions with cultures similar to Old Line Bancshares. In the case of
Maryland Bankcorp, these alternatives also included affiliation with another community financial
institution with a culture similar to Maryland Bankcorps.
In this regard, during the last five years, James W. Cornelsen, President and Chief Executive
Officer of Old Line Bancshares, and Thomas B. Watts, Chairman of the Board and Chief Executive
Officer of Maryland Bankcorp, had met at least twice to discuss the possibility of a merger between
the two entities and their respective banks.
At the end of the third quarter of 2009, Chuck Schreck of Monocacy met with Mr. Watts to
discuss the general bank operating environment. Messrs. Watts and Schreck discussed capital
structure issues, lack of stock liquidity, stockholder
37
ownership structure, ability to raise non-dilutive Tier 1 capital (for example, trust
preferred, non-cumulative perpetual preferred or traditional preferred), and general pricing levels
of Tier 1 capital. Mr. Watts also provided background information about Maryland Bankcorp and
Maryland Bank & Trust, including ownership and operating market, as well as the opportunities and
challenges facing the bank.
Messrs. Schreck and Watts met for several follow up discussions during November 2009 that
focused on the potential ability, if any, of Maryland Bankcorp to raise some form of Tier 1 capital
(specific focus at this point excluded common equity) in order to simplify Maryland Bankcorps
common stock ownership structure by buying back shares of stock in the open market or privately
negotiated deals, thereby potentially eliminating stockholders owning less than 400 to 1,000
shares, or approximately 4% to 10% of the total shares outstanding. Beyond the mechanics of any
potential stock buyback, the discussion focused on Maryland Bankcorps current market price of $12
to $15 per share over the last year, the low relative price to book multiple reflected in the
market price per share (approximately 30% to 40% of book value per share), potential reasons for
market-observed valuation parameters, traditional and non-traditional sources and types of capital,
potential investor types and their required returns, potential non-financial requirements of these
investor types, and Maryland Bankcorps ability to successfully place and service these types of
capital (including the underlying ability of Maryland Bankcorps primary operating subsidiary,
Maryland Bank & Trust, to service these forms of capital or to place a Tier 1 form of capital
directly into Maryland Bank & Trust). Mr. Watts discussed the formal written agreement Maryland
Bankcorp had entered into with the OCC and provided additional information to assist in the review.
In early December 2009, Mr. Watts and G. Thomas Daugherty, President of Maryland Bankcorp, met
with Mr. Schreck and Rodney Martin of Monocacy to discuss and review the concepts discussed in late
November. These discussions and reviews focused on the general operating environment, the market
for bank capital instruments (all forms including common stock), the historical and current
financial performance of Maryland Bankcorp and Maryland Bank & Trust, the general regulatory
environment for banks, the regulatory environment specifically regarding Maryland Bankcorp, the
challenges facing banks in general through 2008 and 2009 in raising capital of all types, recent
capital placements and pricing levels in the market for those capital placements, potential
dilution challenges of a capital placement (public or private), and the ability or inability of
Maryland Bankcorp to service the non-common equity capital instruments desired based on current
financial performance and the formal regulatory agreement in place with the OCC. Monocacy
representatives also provided a brief overview of the impact of injecting common equity or common
equity equivalent capital instruments into Maryland Bankcorp, along with the challenges of this
strategy in the current environment and the prohibitive dilution that would be incurred if Maryland
Bankcorp pursued such a strategy.
After this review and discussion, Messrs. Watts and Daugherty asked Monocacy about the
potential merger and acquisition valuation range of Maryland Bankcorp based upon information
provided to date and the current environment. The inquiry was to focus primarily on one
multi-billion dollar banking organization of particular interest, as well as two or three others
that Messrs. Watts and Daugherty believed operated with a similar culture or operating philosophy
and of similar size or larger. These institutions assets ranged in size between $1.5 billion to
$8.0 billion. This initial review did not include Old Line Bancshares.
Within a couple of days, Mr. Schreck contacted Mr. Watts to discuss these findings and offer a
plan of action to review these strategies under discussion. In this discussion, Mr. Schreck
offered some additional alternatives related to potential institutions that may have interest in
Maryland Bankcorp as an acquisition target or merger partner. In addition, they discussed a
potential capital formation strategy, with emphasis on the expected challenges due to the
environment and the likelihood of extensive dilution to ownership and underlying value based on
expected pricing levels due to the current trading levels of Maryland Bankcorp. Mr. Watts
discussed the potential capital needs due to the growth expected in the market where Maryland
Bankcorp operated and the business being captured from recent mergers and acquisitions and customer
disruption. The operating restrictions and requirements of the regulatory agreement were discussed
in the same light as well. On December 7, 2009, Maryland Bankcorp formally engaged Monocacy to
explore strategic alternatives as discussed.
In early January 2010, Messrs. Watts and Daugherty asked Monocacy to confidentially explore
whether the three institutions identified may have an interest in pursuing a transaction of the
kind they had discussed. Monocacy provided feedback that there would in fact be varying levels of
interest, and differing approaches, from these parties. Monocacy also indicated that several other
institutions should have interest in a transaction of this type, including potential merger of
equals opportunities.
In early February 2010, given the potential dilution and servicing challenges of injecting
additional capital, Maryland Bankcorp asked Monocacy to prepare a confidential information
memorandum describing the operations of
38
Maryland Bankcorp and to solicit confidentiality agreements
from interested institutions. Monocacy provided an extensive
list of institutions that were believed to have interest in Maryland Bankcorp. Maryland
Bankcorp instructed Monocacy to focus on the larger institutions noted when making initial
contacts.
After completing the confidential information memorandum in early March 2010, Monocacy
contacted approximately 50 institutions on a no name, confidential basis describing the operational
and financial characteristics of Maryland Bankcorp. All of these institutions were of the capacity
to complete a transaction of this size and scope. The focus list included institutions in size
from over $600 million in assets to over $100 billion in assets (and did not include Old Line
Bancshares at this point).
Of these potential acquirers contacted, 14 signed confidentiality agreements and shortly
thereafter received a confidential offering memorandum. Excluding one institution in excess of $50
billion in assets, these institutions ranged in size from just over $600 million to $16 billion in
assets, with the average size approximating $3.5 billion in assets. Also during this timeframe,
Monocacy discussed the potential transaction and met with the potential acquirers, responded to
questions, and provided analytics showing the merits of a transaction with Maryland Bankcorp.
After distributing the confidential offering memoranda to these selected institutions,
Monocacy advised that preliminary indications of interest should be provided to Monocacy no later
than April 27, 2010, as Monocacy would be meeting with the Maryland Bankcorp board of directors to
discuss the preliminary findings of the process to date. Also in early April 2010, prior to the
preliminary response date of April 27, 2010, Monocacy and Maryland Bankcorp determined and agreed
to contact additional institutions that may be smaller than those included on the original contact
list but nonetheless financially and operationally capable of executing a transaction of this type,
or potentially interested in a merger of equals transaction. Monocacy identified approximately ten
additional institutions prior to the April 28, 2010 board meeting, identifying Old Line Bancshares
as one of those institutions to be contacted. Monocacy continued to contact institutions that had
delayed in responding to first contact overtures.
On April 20, 2010, Monocacy met with Mr. Cornelsen to discuss an acquisition opportunity on a
no names, confidential basis. After discussing this potential opportunity, Mr. Cornelsen requested
a confidentiality agreement in order to specifically determine the opportunity and receive a
confidential information memorandum should Old Line Bancshares continue to have an interest upon
full disclosure.
On April 21, 2010, Old Line Bancshares and Monocacy, as agent for Maryland Bankcorp, entered
into the confidentiality agreement. Monocacy in turn provided the confidential offering memorandum
to Old Line Bancshares.
On April 22, 2010, Old Line Bancshares board of directors authorized Old Line Bancshares to
move forward with investigating a potential acquisition of Maryland Bankcorp and/or Maryland Bank &
Trust, and appointed a special committee of the board of directors to review potential strategic
opportunities in general (the Special Committee), including an acquisition of Maryland Bank &
Trust.
On April 22, 2010, Monocacy met with Messrs. Watts and Daugherty to discuss the process and
findings to date, including one written, non-binding expression of interest and two institutions
requesting more time due to internal timing issues. Additionally, institutions receiving the
confidential information memorandum later than the initial group requested more time as well. Old
Line Bancshares was one of those institutions.
On April 27, 2010, Mr. Cornelsen met with David Danielson of Danielson and also conducted a
conference call with Monocacy to discuss the possibility of Old Line Bancshares acquiring Maryland
Bank & Trust.
39
On April 28, 2010, Monocacy met with the Maryland Bankcorp board of directors to discuss the
process and findings to date. Monocacy informed the board of the written, non-binding expression
of interest and the other institutions requesting more time and the specific reasons of each such
institution. Monocacy informed the board that almost 60 institutions had been contacted, with
varying degrees of success, and 19 confidential information memoranda had been delivered to
institutions executing the required confidentiality agreement. Monocacy also provided summary
information regarding the boards responsibilities in the evaluation of proposals, a summary of the
proposals including estimated pricing statistics (approximating $18.3 million in the aggregate or
$28.25 per share, 70% of book value per share) and underlying value, background information on each
entity submitting an interest in Maryland Bankcorp, all letters of interest or correspondence
received, current merger and acquisition pricing statistics in the Mid-Atlantic region (including
Maryland and Virginia) and a summary of items to address as part of any potential response.
Monocacy also briefly touched upon the impact and challenges of raising capital in the current
environment and the potential dilution to ownership and underlying value.
At the end of the presentation, Monocacy suggested, if the board wished to proceed as and it
resolved, that it form a Strategic Assessment Committee (SAC) to include not only Messrs. Watts
and Daugherty but also additional Maryland Bankcorp board members and a member from the Maryland
Bank & Trust board of directors. The members of the SAC, as constituted, included Messrs. Watts
and Daugherty, Frank Taylor, and Edwin L. Kelly. In addition, Lawrence H. Wright, Senior Vice
President and Secretary of Maryland Bankcorp and Senior Vice President and Chief Financial Officer
of Maryland Bank & Trust, was included on all correspondence, as was counsel for Maryland Bankcorp.
The board then resolved to empower Maryland Bankcorps management team, the SAC and Monocacy
to move forward with Monocacys recommendations. Those resolutions included: (a) reaching out to
the institution that provided the non-binding expression of interest to seek clarity of the
proposal (including increasing the level of consideration proposed) and addressing all of the
issues requested by the board in the confidential offering memorandum; (b) reaching out to the
institutions requiring more time due to their own internal timing conflicts and determining if an
acceptable timeline exists for them to remain in the process; (c) reaching out to the institutions
(as specifically approved, including Old Line Bancshares) requiring more time due to the late
receipt of the confidential information memorandum and determining if an acceptable timeline exists
to have them remain in the process, based upon their level of interest; (d) following up on the
list of institutions not participating to date in order to determine why they did not participate
and if they have any remaining interest in Maryland Bankcorp; (e) providing updated financial and
operational information to those institutions continuing to have interest; (f) determining a
timeline to receive updated proposals after discussing the current process with the remaining
interested institutions; and (g) instructing Monocacy to communicate ongoing findings to management
and the SAC as needed and required.
After the board meeting, management updated Monocacy on communications with the OCC as of
April 27, 2010.
From late April 2010 through mid-May 2010, Monocacy provided updates as requested to the SAC
and asked all interested institutions for updated, non-binding expressions of interest by May 14,
2010.
On May 3, 2010, Mr. Cornelsen, Christine M. Rush, Old Line Bancshares Executive Vice
President, Chief Financial Officer and Secretary, Joseph E. Burnett, Executive Vice President of
Old Line Bancshares, and the Special Committee met to discuss the potential opportunity of Old Line
Bancshares to acquire Maryland Bankcorp/Maryland Bank & Trust. On May 6, 2010, Messrs. Cornelsen
and Burnett, Ms. Rush and the Special Committee met with Danielson to discuss the merits of Old
Line Bancshares acquiring Maryland Bankcorp/Maryland Bank & Trust and potential deal terms.
On May 10, 2010, Danielson sent an initial letter of intent to Monocacy with respect to a
proposed merger of Maryland Bankcorp and Maryland Bank & Trust into Old Line Bancshares and Old
Line Bank, respectively.
Monocacy received non-binding expressions of interest from two financial institutions (one of
which was Old Line Bancshares) during the week of May 10, 2010. Monocacy updated management and
the SAC later that week as to the preliminary terms of the proposals as well as the estimated
pricing statistics and underlying values, updated background information on each institution
submitting expressions of interest in Maryland Bankcorp, and updated current merger and acquisition
pricing statistics in the Mid-Atlantic region (including Maryland and Virginia). In addition,
Monocacy disclosed that there appeared to be another institution that desired to provide a
non-binding expression of interest based upon the review of the information but that it required
more time due to senior management scheduling conflicts as well as a need to present the
opportunity to its full board of directors. Monocacy relayed this information to the SAC and
indicated that the proposed letter would not be forthcoming until approximately mid-June. Monocacy
commented to the third institution that Maryland Bankcorp was continuing to move forward with its
process in place but had made no concrete decisions as to
40
direction and indicated that the proposed letter should be presented to Monocacy as soon as
possible for appropriate review by the Maryland Bankcorp board.
Therefore, as of May 14, 2010, the Maryland Bankcorp board of directors was in receipt of two
non-binding expressions of interest (Old Line Bancshares and Party 2) and was expecting a third
within 20 business days (Party 3).
Upon review of the proposals in place, Old Line Bancshares and Party 2 had each addressed the
following items: (1) valuation (proposals within 3% of each other with Party 2s offer slightly
higher in gross consideration per share); (2) exchange ratio (both expressed as variable exchange
ratios, though Old Line Bancshares was expressed as a variable exchange ratio along with the
determining variables therein based upon each institutions book value per share, measured
quarterly, through closing); (3) form of consideration (both stock and cash mixture of relatively
similar proportions although Old Line Bancshares presented a non-voting, convertible preferred
class of stock for Maryland Bankcorp stockholders owning more that 4% of the total pro forma
company shares outstanding, with such shares convertible upon a change of control of the pro forma
company in the future); (4) the potential for continuing advisory board participation (Old Line
Bancshares offered a non-compete payment as described in Interests of Directors, Officers and
Others in the Merger Director Noncompetition Agreements); (5) Maryland Bankcorp board
invitations (Old Line Bancshares offered two positions and Party 2 offered one position); (6)
employee displacement and severance (Old Line Bancshares as described in Terms of the Merger
Employment; Severance and Party 2 silent as to specifics of severance, though offered); (7)
contingencies (none other than normal and customary due diligence, regulatory approvals and
stockholder approvals); and (8) timing to complete due diligence.
Early during the week of May 17, 2010, Maryland Bankcorp notified Old Line Bancshares and
Party 2 that it would like to move forward with their conduct of non-exclusive due diligence on
Maryland Bank & Trust.
On May 19, 2010, Old Line Bancshares sent a preliminary due diligence list to Monocacy.
On May 20, 2010, Monocacy delivered the Old Line Bancshares and Party 2 due diligence requests
and timing parameters to management and the SAC. Monocacy also discussed and clarified the
proposals provided with Old Line Bancshares and Party 2.
Monocacy worked with Maryland Bankcorp, Old Line Bancshares and Party 2 to provide as much due
diligence information via secured access in order to limit direct on-site due diligence.
Additionally, on-site due diligence was scheduled for June 11-13, 2010 for Old Line Bancshares and
tentatively scheduled for the last week of June 2010 for Party 2. Other due diligence information
passed securely through this timeframe to both institutions.
On May 24, 2010, Old Line Bancshares officially retained Danielson as its financial advisor
with respect to a potential acquisition of Maryland Bankcorp and Maryland Bank & Trust.
On June 3, 2010, Monocacy representatives met with the two non-management members of the SAC
at their request to discuss the process and challenges with respect thereto.
On June 7, 2010, Messrs. Watts, Daugherty, Martin and Schreck met with Mr. Cornelsen, Craig E.
Clark, Chairman of the Board of Old Line Bancshares, and Mr. Danielson to discuss due diligence
matters, synergies, cultural fit and potential deal terms.
On June 8, 2010, Messrs. Watts, Daugherty and Martin met with the management team of Party 2
to discuss the possible transaction and upcoming due diligence.
On June 9, 2010, Messrs. Watts, Daugherty, Schreck and Martin met with the management team of
an initial institution (now indentified as Party 4) now wanting to re-enter the process after
eliminating its specific timing obstacles.
On June 10, 2010, Monocacy met and discussed a transaction structure with one of the three
original institutions identified (now identified as Party 5) early on to determine if it was
still interested in Maryland Bankcorp. Though there was continued interest, the management team
indicated they would contact Monocacy within 30 days to determine how Party 5 would proceed, if at
all.
From June 11 through June 13, 2010, Old Line Bancshares, along with Danielson and other
consultants, conducted on-site due diligence at Maryland Bank & Trust.
41
On June 17, 2010, Monocacy met with Maryland Bankcorp management, the SAC and Maryland
Bankcorps counsel to discuss the current process, findings to date, regulatory challenges and
requirements and institutions still involved in the process. Monocacy noted due diligence
questions asked by Old Line Bancshares and Party 2. Also, Monocacy indicated that Party 3 would be
submitting a non-binding proposal in the next couple of days.
On June 18, 2010, Party 3 provided its non-binding proposal and Monocacy forwarded it to
Maryland Bankcorp management and the SAC for review. Among other things, the proposal included a
common stock component (publicly registered and traded) along with a non-voting, non-convertible,
perpetual preferred stock component. Also, two positions were offered to join the board of
directors of Party 3. Management, the SAC and Monocacy decided to review the offer closely and
Monocacy was asked to clarify the proposal with Party 3 over the next week.
On June 22 and 23, 2010, Old Line Bancshares conducted follow-up due diligence at Maryland
Bank & Trust with respect to its loan portfolio.
On June 22, 2010 Monocacy met with the management team of Party 2 to answer questions
regarding the transaction, current due diligence information and upcoming on-site due diligence
(including specific timing issues given calendar conflicts with Party 2). Also, Monocacy met with
an additional institution (now identified as Party 6) that had signed a confidentiality agreement
late in the process (June 17, 2010) to discuss the information memorandum, the process,
expectations and procedures to continue. Party 6 indicated that it had a high level of interest at
the right price and would get back to Monocacy fairly quickly. Party 6 was privately held and
did not have a public currency as did Old Line Bancshares and Parties 2 through 5.
During the week of June 21, 2010, Maryland Bankcorp management and the SAC met with Monocacy
to discuss the process to date, determine exact scheduling of on-site due diligence with Party 2,
and to discuss Party 3s non-binding proposal.
Monocacy indicated that the process was moving as expected. Monocacy noted that Party 2s
on-site due diligence would focus mostly on loan files and would occur after the July 4, 2010
holiday period (likely the week of July 12 due to scheduling conflicts and timing issues). Also,
Party 3s proposal was deemed inadequate (anywhere from 10% to 25% below where Old Line Bancshares
and Party 2s proposals were valued) as presented and the SAC asked Monocacy to indicate as such to
Party 3, inviting them to update their proposal should they desire to do so.
Also, Monocacy and the SAC determined to ask all participants remaining in the process to
complete due diligence reviews, as scheduled, and present their best and most refined non-binding
expressions of interest by July 21, 2010, in anticipation of a SAC/ Maryland Bankcorp board meeting
on July 22, 2010.
On July 9, 2010, Messrs. Cornelsen and Burnett, Ms. Rush and the Special Committee met with
Danielson to discuss a revised letter of intent. Danielson presented and discussed the background
on the transaction thus far, various options in structuring the deal, other key pricing
considerations, non-financial considerations, the impact on Old Line Bancshares and the likely
timeline for the transaction.
On July 13, 2010, Danielson sent to Monocacy a revised letter of intent with respect to Old
Line Bancshares proposal to acquire Maryland Bankcorp and Maryland Bank & Trust. On July 13,
2010, Danielson sent a further revised letter of intent to Monocacy based on further conversations
with Monocacy.
Between July 15 and July 30, 2010, Danielson, on behalf of Old Line Bancshares, and Monocacy,
on behalf of Maryland Bankcorp, negotiated the terms of the letter of intent.
On July 15 and 16, 2010, Monocacy received updated, non-binding expressions of interest from
both Old Line Bancshares and Party 2. Both Old Line Bancshares and Party 2s proposals reflected
findings of due diligence to that point and presented slightly altered proposals based on findings
within credit due diligence.
At the July 22, 2010 SAC/board meeting, Monocacy presented the updated, non-binding
expressions of interest received to date. Both Old Line Bancshares and Party 2 either submitted
new letters or provided refinement. Party 3 declined to update their proposal. Party 4 was still
reviewing its position as to whether to provide a proposal. Party 5 determined that it likely
would not be submitting a proposal, though interested in Maryland Bankcorp, due to timing and
market considerations. Party 6 determined not to move forward in the process at all.
42
Upon review of the proposals in place, Old Line Bancshares and Party 2 had addressed the
following items, respectively: (1) valuation (proposals within 6% of each other with Party 2s
offer slightly higher in gross consideration per share, though both valuation ranges incorporated
potential adjustments for credit summarized below); (2) exchange ratio (both expressed as variable
exchange ratios, though Old Line Bancshares was expressed as a variable exchange ratio along with
a collar substantively identical in structure to that discussed in Terms of the Merger and
Party 2 provided no such detail but expected there to be a reasonable collar negotiated as part of
any proposed transaction); (3) form of consideration (both stock and cash mixture of relatively
similar proportions although Old Line Bancshares presented, again, a non-voting, convertible
preferred class of stock for Maryland Bankcorp stockholders potentially owning more that 4% of the
total pro forma company shares outstanding, with such shares convertible upon a change of control
of the pro forma company in the future); (4) the potential for continuing advisory board
participation (Old Line Bancshares offered non-compete payments as noted above); (5) Maryland
Bankcorp board invitations (Old Line Bancshares offered two positions and Party 2 offered one
position); (6) employee displacement and severance (Old Line Bancshares as noted above and Party 2
silent as to specifics of severance, though offered); (7) potential adjustments for credit
deterioration beyond that expected as part of due diligence review (Old Line Bancshares addressed
as substantively presented herein while Party 2 addressed credit in (a) a similar fashion as Old
Line Bancshares with resulting pricing mechanics, (b) as a potential hold back and resolution of
certain credit assets with resulting pricing mechanics, (c) a manner whereby members of the board
or an outside entity would acquire credit assets at arms length with resulting pricing mechanics,
or (d) a potential acquisition of Maryland Bank & Trust with certain credit assets held back as
part of consideration; (8) director and officer liability insurance (Old Line Bancshares
specifically addressed this issue while Party 2 did generally); and (9) contingencies (none other
than normal and customary ongoing due diligence, regulatory approvals and stockholder approvals).
In addition, Monocacy, the SAC and the Maryland Bankcorp board of directors reviewed the
impact of the proposals to underlying book value, earnings and dividends. Also, a cursory review
was undertaken to determine the ability of each institution to access the capital markets in the
future, compared to that of Maryland Bankcorp as a standalone entity, with the resulting impact to
proposed Maryland Bankcorp stockholder ownership and underlying value should the combined pro forma
company choose to undertake that particular future strategy. The SAC, board of directors and
Monocacy determined that Maryland Bankcorp was better off financially and operationally with either
Old Line Bancshares or Party 2 versus a standalone basis and was also better off financially and
operationally with either Old Line Bancshares or Party 2 even if the capital markets were accessed
in the future.
The SAC and Maryland Bankcorp board empowered Monocacy to return to both Old Line Bancshares
and Party 2 in order to solidify each proposal, clarify exact language regarding employee benefits
and severance as requested, obtain commitments for consulting language and duties, obtain
registered common stock in lieu of non-voting, convertible stock (for Old Line Bancshares only, a
standstill for shares in excess of 4%, and only impacting the holdings of Messrs. Watts and
Daugherty and their affiliates) and financially improve the proposed pricing levels.
On July 22, 2010, the Old Line Bancshares board of directors met with Messrs. Cornelsen and
Burnett and Ms. Rush to discuss the potential acquisition of Maryland Bankcorp and review the
current draft of the letter of intent. The board of directors then authorized Mr. Cornelsen to
negotiate a final letter of intent and to make adjustments to the pricing and content of the letter
of intent within certain parameters.
During the week of July 26, 2010, Monocacy contacted Old Line Bancshares and Party 2 to
accomplish what the SAC and the Maryland Bankcorp board of directors requested in order to move
forward. As part of the discussion, Maryland Bankcorp requested a face to face meeting with Old
Line Bancshares to clarify certain aspects of the proposal in order to move forward. Therefore, on
July 28, 2010, members of Maryland Bankcorp management, Monocacy, Old Line Bancshares management
and Danielson met to discuss open items as desired by the SAC and the Maryland Bankcorp board of
directors. Old Line Bancshares agreed to the proposed changes presented. Party 2 declined to
provide any additional changes to their proposal.
On the evening of July 28, 2010, the SAC recommended its support for Old Line Bancshares and
the Maryland Bankcorp board of directors moved to obtain a revised, non-binding expression of
interest and also moved, subject to counsel and Monocacy guidance, to negotiate a definitive
agreement. Monocacy was also asked to determine an appropriate date for Maryland Bankcorp to
perform due diligence on Old Line Bancshares.
On July 30, 2010, Danielson sent a final letter of intent, executed by Mr. Cornelsen on behalf
of Old Line Bancshares and Old Line Bank, to Maryland Bankcorp.
43
On August 2, 2010 Maryland Bankcorp passed the appropriate resolution empowering Mr. Watts to
execute the non-binding, expression of interest with Old Line Bancshares.
On August 3, 2010, Mr. Watts executed the letter of intent on behalf of Maryland Bankcorp and
Maryland Bank & Trust. On August 3, 2010, Monocacy sent the fully executed letter of intent to
Danielson.
During the period of August 16 through August 31, 2010, the parties, including their legal
counsel and financial advisors, negotiated the terms of the merger, including the final terms of
the merger agreement and the related documents, including the merger agreement between Old Line
Bank and Maryland Bank & Trust and those agreements discussed in Interests of Directors,
Officers and Others in the Merger.
On August 18, 2010, the parties executed an amended and restated confidentiality agreement
with respect to the proposed merger.
On August 20, 2010, Maryland Bankcorp sent their due diligence request list for on-site and
off-site due diligence to Old Line Bancshares.
On August 24, 2010, Old Line Bancshares legal counsel conducted on-site due diligence on
Maryland Bank & Trust at its Waldorf location.
On August 26 and 27, 2010, Maryland Bankcorp, along with its legal counsel and financial
advisor, conducted on-site due diligence on Old Line Bancshares and Old Line Bank at their Bowie
headquarters. Old Line Bancshares also provided secure data for off-site due diligence data
review.
On September 1, 2010, the board of directors of Old Line Bancshares met to consider the
proposed merger with Maryland Bankcorp. At this meeting, the board of directors reviewed the final
terms of the merger agreement and the related documents and discussed these matters with management
and with Danielson as its financial advisor. Danielson also gave its presentation and presented
its oral opinion that, subject to the qualifications and limitations on its review in rendering its
opinion, the terms of the proposed merger agreement were fair, from a financial point of view, to
Old Line Bancshares stockholders. The Old Line Bancshares board of directors approved the merger
agreement and the merger, as well as the related documents, and authorized their execution.
Also on September 1, 2010, the Maryland Bankcorp board of directors met to consider the
proposed merger with Old Line Bancshares. In addition to reviewing and discussing the final terms
of the merger agreement and the merger, as well as the related documents, the board received the
presentation and oral opinion of Monocacy that, subject to the qualifications and limitations on
its review in rendering its opinion, the consideration to be received by stockholders of Maryland
Bankcorp pursuant to the terms of the merger agreement was fair, from a financial point of view, to
Maryland Bankcorp stockholders. At its meeting, the Maryland Bankcorp board of directors
unanimously approved the merger agreement and the merger as well as the related documents.
After the approval of the boards of directors, on September 1, 2010, the parties executed the
merger agreement and announced the merger.
On September 30, 2010, the parties executed an amendment to the merger agreement to clarify
certain provisions of the merger agreement.
44
Old Line Bancshares Reasons for the Merger
In evaluating acquisition opportunities, Old Line Bancshares looks for financial institutions
with business philosophies that are similar to those of Old Line Bancshares and that operate in
markets that geographically complement its operations. In evaluating acquisition opportunities,
Old Line Bancshares also considers its long-range strategies, including financial, customer and
employee strategies. Old Line Bancshares, from time to time, reviews its strategic plan to analyze
its geographic scope, financial performance and growth opportunities. Old Line Bancshares has
explored a number of opportunities to expand its presence east and southeast of Washington, D.C.;
however, Old Line Bancshares board of directors concluded that the acquisition of Maryland
Bankcorp was the best opportunity to accomplish this business objective during the current
timeframe. In connection with its approval of the merger with Maryland Bankcorp, Old Line
Bancshares board of directors reviewed the terms of the proposed acquisition and definitive
agreements and their potential impact to Old Line Bancshares constituencies. In reaching its
decision to approve the merger agreement and the merger, Old Line Bancshares board of directors
considered a number of factors, including the following:
|
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The acquisition of Maryland Bankcorp and Maryland Bank & Trust represents an
attractive opportunity for Old Line Bank to broaden its geographic market while
remaining a community bank; |
|
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|
The advantageous geographic location of Maryland Bank & Trusts branches as they
relate to Old Line Bancshares long-term strategic plan to expand its presence east and
southeast of Washington, D.C., including expanding its presence in Charles and Prince
Georges Counties and gaining entry into Calvert and St. Marys Counties as a result of
Maryland Bank & Trust having branch locations there; |
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|
The expectation that the merger would be accretive to earnings in light of the
potential cost savings and revenue enhancements; |
|
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|
The acquisition of Maryland Bankcorp and Maryland Bank & Trust will double Old Line
Banks branch locations and increase Old Line Bancshares total assets by more than
$349 million; |
|
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|
The increase in overall assets to more than $750 million will increase Old Line
Bancshares access to equity and debt markets; |
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|
The increase in shares outstanding will increase the visibility of and liquidity in
Old Line Bancshares common stock; |
|
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|
The acquisition of Maryland Bankcorp will better position Old Line Bancshares to
acquire other community banks in the future; |
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Maryland Bankcorps customer service-oriented emphasis with local decision-making
ability and a clear focus on the community and local customers, which are consistent
with Old Line Bancshares business approach; |
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Maryland Bankcorps priority in serving the small and mid-size business sectors as
well as individuals; |
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The potential operating efficiencies of combining the two entities, potential
revenue enhancements, Maryland Bankcorps asset quality, and fee income sources; |
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The financial condition, operating results and future prospects of Old Line
Bancshares and Maryland Bankcorp; |
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Historical pro forma financial information on the merger, including, among other
things, pro forma book value and earnings per share information, dilution analysis, and
capital ratio impact information; |
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Acquisition of Maryland Bank & Trust would increase Old Line Banks legal lending
limits; |
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A review of comparable transactions, including a comparison of the price being paid
in the merger with the prices paid in other comparable financial institution mergers; |
45
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Managements view, based on, among other things, such comparable transactions
reviewed, that the consideration paid by Old Line Bancshares is fair to Old Line
Bancshares and its stockholders from a financial point of view; and |
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Perceived opportunities to increase the combined companys commercial lending, and
to reduce the combined companys operating expenses, following the merger. |
The discussion and factors considered by Old Line Bancshares board of directors is not
intended to be exhaustive, but includes all material factors considered. In approving the merger
and the ancillary agreements discussed elsewhere in this document, Old Line Bancshares board did
not specifically identify any one factor or group of factors as being more significant than any
other factor in the decision making process. Rather, Old Line Bancshares board of directors based
its recommendation on the totality of information presented to it. In addition, individual members
of the board may have given differing weight or priority to different factors.
After deliberating with respect to the proposed merger with Maryland Bankcorp, considering,
among other things, the factors discussed above and the opinion of Danielson discussed below, the
Old Line Bancshares board of directors approved the merger agreement and the merger with Maryland
Bankcorp and declared the merger advisable.
The emphasis of the Old Line Bancshares boards discussion, in considering the transaction,
was on the strategic benefits and financial aspects of the transaction, particularly:
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The enhanced franchise value discussed above, including pro forma market share
information relating to deposits in Maryland Bank & Trusts branches; |
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The expectation that the merger would be accretive to earnings in light of the
potential cost savings and revenue enhancements; |
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|
The increase in Old Line Bancshares total assets and branch locations resulting
from the merger; |
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The belief that the merger will better position Old Line Bancshares to acquire other
community banks in the future and increase its access to equity and debt markets; and |
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Perceived opportunities to increase the combined companys commercial lending, and
to reduce the combined companys operating expenses, following the merger. |
There can be no certainty that the above benefits of the merger anticipated by the Old Line
Bancshares board of directors will occur. Actual results may vary materially from those
anticipated. For more information on the factors that could affect actual results, see Caution
Regarding Forward-Looking Statements and Risk Factors.
Maryland Bankcorps Reasons for the Merger
The Maryland Bankcorp board of directors, with the assistance of its financial and legal
advisors, evaluated and considered a variety of financial, legal and market considerations relating
to its decision to proceed with the merger. The terms of the proposed merger, including the
consideration to be received by Maryland Bankcorps stockholders, are the result of arms length
negotiations between the representatives of Maryland Bankcorp and Old Line Bancshares. The
decision of the board of directors to approve the merger, adopt the merger agreement, and recommend
that stockholders approve the merger agreement was the result of extensive discussions and
deliberation that took place over a period of over eight months, with scheduled formal discussions
occurring at multiple meetings of the SAC, which was empowered to review and recommend direction to
the Maryland Bankcorp board of directors (and set direction and scope for management during this
process), multiple scheduled and special meetings of the Maryland Bankcorp board of directors, and
numerous informal discussions among directors and management. Management participated in multiple
meetings with Monocacy in reviewing all of its strategic options and also met, on multiple
occasions, with prospective acquirers and merger partners in order to learn more about each of the
organizations having interest in Maryland Bankcorp. The board of directors received multiple
presentations from its financial advisor and legal counsel. The decision of the board of directors
was without dissenting vote.
There is no single reason for the decision of the board of directors. No specific levels of
importance were placed on any of the factors considered, and each director likely reached his/her
decision by placing different weights on different factors.
46
The factors considered by the board of directors included, but were not limited to, the
following:
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The financial value of the Old Line Bancshares proposal and the significant premium
over the current market value of Maryland Bankcorps common stock. |
|
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Maryland Bankcorps future prospects for enhancing stockholder value by continuing
to operate as an independent bank holding company. |
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The current environment that Maryland Bankcorp was operating in and the view that
the operating environment may remain in its current state for a significant length of
time. |
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The formal regulatory agreement in place, noting the restrictions and challenges
therein, along with the potential impact of an additional agreement placing even
greater restrictions and challenges on Maryland Bankcorp or Maryland Bank & Trust. |
|
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The extensive process conducted by Monocacy, thoroughly identifying all possible
candidates potentially interested in Maryland Bankcorp, and that the process produced
the best alternative and value for Maryland Bankcorps stockholders and constituencies. |
|
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|
The strategic nature of the proposed combination with Old Line Bancshares and the
opportunity to create future financial value for the stockholders as a combined
organization. |
|
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|
The business, financial condition and earnings prospects of Old Line Bancshares and
the apparent competence, experience, community banking philosophy and integrity of Old
Line Bancshares and its management. |
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|
The ability of Old Line Bancshares to access the capital markets, as and if needed,
versus Maryland Bankcorps ability to access the capital markets on a standalone basis,
especially considering Old Line Bancshares past capital formation successes. |
|
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|
The belief that, by creating and becoming part of a larger organization with greater
resources, Maryland Bankcorp would be able to better serve its customers and
communities and provide a broader array of products and services that will be
competitive with other financial service providers in Southern Maryland. |
|
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|
The contribution of key balance sheet and income statement measures to the combined
organization compared to the receipt of ownership in the combined organization
generally in excess of those contributions. |
|
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|
The positive effects to earnings per share and dividends per share on an actual and
underlying basis as determined by the exchange ratio and the ability of Maryland
Bankcorp stockholders to receive cash dividends as part of longer term consideration. |
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The fact that Old Line Bancshares common stock trades on the NASDAQ Stock Market
with substantially higher trading volumes than Maryland Bankcorps stock, and that
following the merger Maryland Bankcorps stockholders would benefit from this increased
liquidity. |
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|
Old Line Bancshares is categorized as well capitalized under banking regulations
by a significant margin, has a strong liquidity position, and has remained consistently
profitable during the challenging years of 2008 and 2009, as well as through the year
to date period of June 30, 2010. |
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|
The fact that Old Line Bancshares has a history of paying consistent quarterly cash
dividends to its stockholders. |
|
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That Maryland Bankcorp would have two seats on the Old Line Bancshares board and the
Old Line Bank board after the effective time of the merger. |
|
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|
That although Old Line Bancshares issued preferred stock and warrants under the TARP
Capital Purchase Program, it promptly repaid the preferred stock and repurchased the
warrants under the TARP Capital Purchase Program within one year. Therefore, Old Line
Bancshares is not subject to the dividend obligations associated with TARP preferred
stock, is not subject to the restrictions applicable to participants in the TARP
Capital |
47
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|
|
Purchase Program, and is not subject to the potential dilution associated with conversion
of TARP preferred stock or the associated TARP warrants. The ability of Old Line
Bancshares to swiftly exit the TARP Capital Purchase Program added a degree of comfort to
the financial and operation strength of Old Line Bancshares given the regulatory
oversight required to enter and exit the TARP Capital Purchase Program. |
|
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|
That the primarily stock-for-stock merger in the aggregate (but as elected by
stockholders individually within the terms of the agreement) is a tax efficient
structure for the transaction, which, unlike an all cash transaction, will not result
in immediate realized capital gains to Maryland Bankcorps stockholders. |
|
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|
That the merger would constitute a reorganization under section 368(a) of the
Internal Revenue Code, and that it would be accounted for as an acquisition for
accounting and financial reporting purposes. |
|
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|
The results of due diligence investigation by Maryland Bankcorp and Old Line
Bancshares and their respective management teams and consultants. |
|
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|
All of the points discussed herein, along with the pro forma review of the combined
organization, and the belief that the transaction should meet the requirements of the
regulatory agencies in order to gain regulatory approval. |
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|
The oral and written opinion (and the supporting procedures followed) of Maryland
Bankcorps financial advisor that the per share consideration to be received by
Maryland Bankcorp stockholders was fair to Maryland Bankcorps stockholders from a
financial point of view. |
After thorough consideration of all factors it deemed relevant, Maryland Bankcorps board of
directors concluded that the merger agreement and the consideration to be paid under the merger
agreement represented the best entire value reasonably available to Maryland Bankcorps
stockholders, and that the proposal was in the best interests of Maryland Bankcorp and its
stockholders.
Opinion of Old Line Bancshares Financial Advisor
Old Line Bancshares retained Danielson Associates, LLC by letter agreement dated May 24, 2010,
to act as its financial advisor in connection with a possible business combination with Maryland
Bankcorp. As part of its engagement, Danielson delivered its written fairness opinion (the
Danielson Fairness Opinion), dated as of September 1, 2010 (the date of the merger agreement) to
Old Line Bancshares board of directors that, as of such date and based upon and subject to various
considerations set forth in the opinion, the terms of the merger agreement are fair, from a
financial point of view, to the stockholders of Old Line Bancshares.
The full text of Danielsons written letter opinion to Old Line Bancshares board of directors
dated September 1, 2010, which sets forth the assumptions made, matters considered and
qualifications and limitations of the review undertaken, is attached as Annex B to this joint proxy
statement/prospectus. Old Line Bancshares stockholders are urged to read this opinion carefully in
its entirety. The Danielson Fairness Opinion is directed only to the fairness of the terms of the
merger agreement to the holders of Old Line Bancshares common stock from a financial point of view.
It has been provided to Old Line Bancshares board of directors in connection with the boards
evaluation of the merger, does not address the merits of the underlying decision by Old Line
Bancshares to engage in the merger, and does not constitute a recommendation to any person as to
how he or she should vote. The summary of the Danielson Fairness Opinion set forth below is
qualified in its entirety by reference to the text of the full opinion.
Danielson, as part of its financial advisory business, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions and valuations for
corporate and other purposes. Old Line selected Danielson to act as its financial advisor based on
Danielsons experience, including in connection with mergers and acquisitions of commercial banks
and bank holding companies.
No limitations were imposed by Old Line Bancshares on the scope of Danielsons investigation
or on the procedures followed by Danielson in rendering its opinion.
48
The following is a summary of Danielsons opinion and is qualified in its entirety by
reference to the full text of the opinion.
In its opinion, Danielson determined a fair value range for Maryland Bankcorps common stock
and that Old Line Bancshares common stock to be issued as consideration was fairly valued. Fair
value is defined as the price at which Maryland Bankcorp and Old Line Bancshares common stock would
change hands between a willing seller and a willing buyer with each having reasonable knowledge of
the relevant facts.
In determining the value range of Maryland Bankcorps common stock, Danielsons primary
emphasis was on transaction prices paid relative to capital for banking institutions that had
financial and market characteristics similar to that of Maryland Bankcorp. Adjustments were then
considered relative to the differences between Maryland Bankcorp and the comparable transactions.
In determining a fair value of Old Line Bancshares common stock, Danielsons primary emphasis was
on the pricing multiples of comparable banks. Other analyses were also utilized as appropriate.
In rendering the opinion, Danielson:
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Reviewed and analyzed the merger agreement. |
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|
Reviewed Old Line Bancshares and Maryland Bankcorps audited consolidated balance
sheets as of December 31, 2009, 2008 and 2007 and their related audited consolidated
statements of income, statements of changes in stockholders equity and statements of cash
flows for the fiscal years ending December 31, 2009, 2008 and 2007. |
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|
Reviewed Old Line Bancshares Annual Reports on Form 10-K for the years ended December
31, 2009, 2008 and 2007 and Quarterly Reports on Form 10-Q for the fiscal quarters ending
June 30, 2010 and March 31, 2010. |
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Reviewed and analyzed other publicly available information regarding Old Line Bancshares
and Maryland Bankcorp. |
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Reviewed certain non-public information including business plans, financial projections
and third party loan reviews regarding Maryland Bankcorp. |
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Reviewed certain non-public information including business plans and financial
projections regarding Old Line Bancshares. |
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Reviewed recent reported stock prices and trading activity of Old Line Bancshares and
Maryland Bankcorps common stock. |
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|
Discussed past and current operations, financial condition and future prospects of each
company with senior executives of Old Line Bancshares and Maryland Bankcorp. |
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|
Reviewed and analyzed certain publicly available financial, transaction and stock market
data of banking companies that Danielson selected as relevant to our analysis. |
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Conducted other analyses and reviewed other information Danielson considered necessary
or appropriate. |
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|
Incorporated its assessment of the overall economic environment and market conditions,
as well as its experience in mergers and acquisitions, bank stock valuations and other
transactions. |
In rendering its opinion, Danielson also relied upon and assumed, without independent
verification, the accuracy, reasonableness and completeness of the information, projections and
forecasts provided by Old Line Bancshares and Maryland Bankcorp. In particular, Danielson relied
upon the results of Old Line Bancshares review of Maryland Bankcorps loan portfolio and
discussions of the results and projections with executive management of Old Line Bancshares.
Danielson does not assume any responsibility for the accuracy, reasonableness and completeness of
the materials received.
Although Danielson evaluated the aggregate merger consideration to be paid by Old Line
Bancshares in connection with the merger, it did not recommend the specific consideration payable
in the merger, which was determined by Old Line Bancshares and Maryland Bankcorp.
Danielsons opinion is based on conditions as they existed, and the information received by
Danielson, as of the date of the opinion and Danielson does not have any obligation to update,
revise or reaffirm the opinion.
49
Danielson acted as Old Line Bancshares financial advisor in the merger. Pursuant to an
engagement letter, Old Line Bancshares has agreed to pay Danielson an advisory fee, including the
provision of its fairness opinion, totaling $115,000. Old Line Bancshares paid Danielson a $15,000
non-refundable retainer fee upon execution of the engagement letter, $35,000 upon the execution of
the merger agreement and $10,000 upon Danielsons presentation of its financial opinion. Old Line
Bancshares will pay Danielson the remaining $55,000 of its fee upon the closing of the merger. Old
Line Bancshares has also agreed to reimburse Danielsons out-of-pocket expenses incurred in
connection with its engagement and to indemnify Danielson against certain liabilities arising out
of the performance of its obligations under the engagement letter.
In the past, Danielson has performed other services for Old Line Bancshares. Old Line
Bancshares retained Danielson in 2009 to value the warrants it issued under the U.S. Treasurys
Troubled Asset Relief Program (TARP) and was paid $8,500 for this service. Old Line Bancshares
also paid Danielson $1,000 for an industry update presentation to its board of directions in March
2010. There have been no material relationships between Danielson or its affiliates and
representatives and Old Line Bancshares or its affiliates during the past two years.
Transaction Summary
Danielson described the transaction, stating that Old Line Bancshares has offered to acquire
all of the outstanding common stock of Maryland Bankcorp for consideration of $20 million, or
$30.93 per share. The consideration is subject to adjustments for operating losses at Maryland
Bankcorp, negative changes in asset quality at Maryland Bankcorp and transaction expense limits at
Maryland Bankcorp. Consideration is also subject to a price collar based on the average price of
Old Line Bancshares common stock over a 90-day period prior to closing, subject to certain
qualifications.
If Old Line Bancshares average price is in a range from $7.63 to $11.45 per share, the
consideration remains $20 million, unless subjected to an adjustment. If the average price is less
than $7.63 per share the exchange ratio becomes fixed at 4.0537 per share and the consideration
will be less than $20 million. If the average price exceeds $11.45 per share the exchange ratio
becomes fixed at 2.7012 and the consideration will be more than $20 million.
Danielson explained that the consideration to be exchanged will be in Old Line Bancshares
common stock and $1 million in cash, and that Old Line Bancshares had the option to increase cash
up to certain limits. Also, if Old Line Bancshares average price falls below $6.00 per share,
Maryland Bankcorp has the right to walk-away from the transaction, but Old Line Bancshares has the
right to cure by increasing the consideration.
Analysis of Maryland Bankcorp
In its analysis of Maryland Bankcorp, Danielson considered the following:
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The attractiveness of Maryland Bankcorps market. |
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|
The financial condition of Maryland Bankcorp, in particular, its capital position, asset
quality and deposit base. |
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|
The financial performance of Maryland Bankcorp, in particular, its recent losses,
contributions to reserves and non-interest expenses. |
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The results of the loan review completed by Old Line Bancshares. |
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|
The current and historical stock prices of Maryland Bankcorp. |
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Other analyses as deemed appropriate. |
To determine the fair value range of Maryland Bankcorps common stock, Danielson considered
various methodologies including: a) the sale prices of comparable institutions; b) return on
investment calculations; c) premiums over a fair stock price; and d) liquidation value.
The opinion stated that recent sale prices of comparable institutions was the most commonly
used methodology when there are sufficient comparisons, as it in effect lets the market set the
fair sale value. Investment calculations such as discounted dividends are another popular method
of determining value, but in this transaction it did not provide a meaningful result as it requires
actual or normalized earnings projected forward, which were too subjective. Premiums over a fair
stock price were also not a viable measurement as Maryland Bankcorps stock was too illiquid to be
considered a good benchmark.
50
Liquidation value was also not a good method of valuation in this
case as Maryland Bankcorps asset quality issues and
capital position did not threaten it as a going concern, but that Old Line Bancshares due
diligence results did provide the basis for adjustment to book value, which was considered.
In utilizing these methodologies, Danielson considered the following:
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|
|
The acquisition prices of banks and thrifts nationally since 2000 with deal values in
excess of $10 million. |
|
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|
The acquisition prices of 15 Comparable Transactions (as defined below) of banks
nationally that occurred in 2009 and in 2010 through August 31, 2010. |
|
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|
The differences between Maryland Bankcorp from the Comparable Transactions, in
particular, the differences in market, asset quality, asset mix and deposit mix. |
|
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|
Results of Old Line Bancshares due diligence on Maryland Bankcorps loans and real
estate owned. |
Danielson noted that in 2009 there were only 24 bank and thrift sales nationwide with a deal
value in excess of $10 million, and the median prices were 116% of book and 119% of tangible book.
Through the first eight months of 2010, there were 27 transactions meeting this same criterion,
with a median price of 113% of book and 123% of tangible book. Prices times earnings during these
two periods were of little value because of the generally depressed earnings for the selling banks.
The greatly reduced activity also meant there were few, if any, local transactions to be utilized
as comparisons.
National Bank and Thrift Sales*
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|
Number |
|
Price |
|
|
|
|
of |
|
Times |
|
Price as a Percent of |
|
|
Deals |
|
Earnings |
|
Book |
|
Tang. Book |
|
Assets |
2010** |
|
|
27 |
|
|
|
22.5X |
|
|
|
113 |
% |
|
|
123 |
% |
|
|
12.1 |
% |
2009 |
|
|
24 |
|
|
|
18.0 |
|
|
|
116 |
|
|
|
119 |
|
|
|
9.9 |
|
|
|
|
* |
|
Bank and thrift sales excluding mergers of equals and
transactions under $10 million in deal value. |
|
** |
|
Through August 31, 2010. |
Source: SNL Financial, Charlottesville, Virginia.
To get a meaningful number of comparable transactions, Danielson deemed it necessary not to
limit the geography or the deal value at the low-end. The criteria used for the selling banks were
deal values under $100 million, non-performing assets (NPAs) in excess of 2% of assets and
tangible equity over 6% of assets. There were 15 such transactions that met this criterion
(Comparable Transactions).
Comparable Transactions Description, Deposit Mix and Loan Mix*
|
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|
|
Selected Data |
|
|
|
|
Non-Int. |
|
Real Estate |
|
|
|
|
Bearing |
|
Backed |
|
|
|
|
Deposits/ |
|
Loans/ |
Seller Full Name |
|
Seller City, State |
|
Deposits |
|
Loans |
O.A.K. Financial Corporation |
|
Byron Center, MI |
|
|
4 |
% |
|
|
73 |
% |
Comm Bancorp, Inc. |
|
Clarks Summit, PA |
|
|
11 |
|
|
|
74 |
|
Union National Financial Corp. |
|
Lancaster, PA |
|
|
16 |
|
|
|
83 |
|
Napa Community Bank |
|
Napa, CA |
|
|
19 |
|
|
|
86 |
|
Shamrock Bank of Florida |
|
Naples, FL |
|
|
5 |
|
|
|
92 |
|
California Oaks State Bank |
|
Thousand Oaks, CA |
|
|
28 |
|
|
|
47 |
|
First Louisiana Bancshares, Inc. |
|
Shreveport, LA |
|
|
29 |
|
|
|
65 |
|
CB Bancorp, Inc. |
|
Higginsport, OH |
|
|
8 |
|
|
|
88 |
|
51
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|
|
|
|
|
Selected Data |
|
|
|
|
Non-Int. |
|
Real Estate |
|
|
|
|
Bearing |
|
Backed |
|
|
|
|
Deposits/ |
|
Loans/ |
Seller Full Name |
|
Seller City, State |
|
Deposits |
|
Loans |
Yuma Community Bank |
|
Yuma, AZ |
|
|
30 |
|
|
|
86 |
|
Am Tru Inc. |
|
Whiting, IN |
|
|
11 |
|
|
|
85 |
|
Southwest Capital Bancshares, Inc. |
|
Ft. Meyers, FL |
|
|
10 |
|
|
|
85 |
|
Community National Corp. |
|
Franklin, OH |
|
|
17 |
|
|
|
95 |
|
Carolina Commerce Bank |
|
Gastonia, NC |
|
|
5 |
|
|
|
88 |
|
Timberland Bancshares, Inc. |
|
El Dorado, AR |
|
|
9 |
|
|
|
70 |
|
First Company |
|
Cody, WY |
|
|
17 |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
Median (15 banks) |
|
|
|
|
11 |
% |
|
|
85 |
% |
|
|
|
|
|
|
|
|
|
|
|
Maryland Bankcorp |
|
Lexington Park, MD |
|
|
31 |
% |
|
|
87 |
% |
|
|
|
* |
|
Whole bank transactions in 2009 and 2010 through
August 31, 2010, with deal value under $100 million, where the selling bank had NPAs greater than 2% of
assets and tangible equity greater than 6% of assets. |
Source: SNL Financial, Charlottesville, Virginia.
Danielson noted that, of the 15 Comparable Transactions, only three involved banks in the
Middle Atlantic region. Of the remaining 11 transactions, four were in the Midwest and the other
eight were in either the South or Far West.
The median price to tangible book for the Comparable Transactions was 103%. If only the seven
transactions with the selling bank having NPAs above 3% are utilized, the median price is a lower
81% of book. Medians relative to assets were 9.2% and 7.6%, respectively.
Danielson commented that it is difficult to establish fair value for troubled banks as
reported financials often do not indicate how aggressively the selling bank had worked on its asset
quality issues. The data for the Comparable Transactions, however, suggests that a fair value for
a troubled bank with a relatively high level of NPAs and a capital base that was still in excess of
6% was roughly 80% of tangible book.
Comparable Transactions in 2009 & 2010*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deal |
|
|
Times |
|
|
Tang. |
|
|
|
|
|
|
NPAs*/ |
|
|
Seller |
|
Buyer Full Name/Seller Short Name |
|
Value |
|
|
Earnings |
|
|
Book |
|
|
Assets |
|
|
Assets |
|
|
State |
|
|
|
(In mill.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemical Financial Corporation/O.A.K. |
|
$ |
77.5 |
|
|
|
|
|
|
|
109 |
% |
|
|
9.2 |
% |
|
|
2.10 |
% |
|
MI |
FNB Corporation/Comm |
|
|
67.8 |
|
|
|
|
|
|
|
127 |
|
|
|
10.6 |
|
|
|
3.89 |
|
|
PA |
Donegal Group, Inc./Union National |
|
|
25.2 |
|
|
|
|
|
|
|
87 |
|
|
|
5.6 |
|
|
|
2.83 |
|
|
PA |
Rabobank Group/Napa Community |
|
|
25.0 |
|
|
|
40.5 |
X |
|
|
158 |
|
|
|
15.0 |
|
|
|
2.40 |
|
|
CA |
Florida Shores Bancorp, Inc./Shamrock |
|
|
22.1 |
|
|
|
|
|
|
|
122 |
|
|
|
35.0 |
|
|
|
4.62 |
|
|
FL |
California United Bank/California Oaks |
|
|
17.3 |
|
|
|
|
|
|
|
103 |
|
|
|
12.6 |
|
|
|
2.19 |
|
|
CA |
Community Trust Financial
Corporation/First Louisiana |
|
|
16.8 |
|
|
|
25.0 |
|
|
|
145 |
|
|
|
12.0 |
|
|
|
2.42 |
|
|
LA |
Merchants Bancorp, Inc./CB Bancorp |
|
|
10.8 |
|
|
|
22.6 |
|
|
|
100 |
|
|
|
9.7 |
|
|
|
4.64 |
|
|
OH |
Foothills Bank/Yuma Community |
|
|
10.5 |
|
|
|
18.3 |
|
|
|
186 |
|
|
|
14.5 |
|
|
|
2.96 |
|
|
AZ |
Horizon Bancorp/Am Tru |
|
|
9.6 |
|
|
|
|
|
|
|
152 |
|
|
|
7.9 |
|
|
|
2.33 |
|
|
IN |
Stonegate Bank/Southwest Capital |
|
|
9.4 |
|
|
|
|
|
|
|
61 |
|
|
|
7.6 |
|
|
|
6.24 |
|
|
FL |
NB&T Financial Group / Community
National |
|
|
6.9 |
|
|
|
|
|
|
|
81 |
|
|
|
6.9 |
|
|
|
4.68 |
|
|
OH |
Carolina Trust Bank / Carolina
Commerce |
|
|
5.2 |
|
|
|
|
|
|
|
53 |
|
|
|
5.1 |
|
|
|
2.33 |
|
|
NC |
Southern Bancorp, Inc./Timberland |
|
|
5.0 |
|
|
|
|
|
|
|
76 |
|
|
|
3.7 |
|
|
|
4.68 |
|
|
AR |
Glacier Bancorp, Inc./First Company |
|
|
2.2 |
|
|
|
|
|
|
|
58 |
|
|
|
5.9 |
|
|
|
3.44 |
|
|
WY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median (15 banks) |
|
|
|
|
|
|
|
|
|
|
103 |
% |
|
|
9.2 |
% |
|
|
2.96 |
% |
|
|
|
|
Median NPAs over 3% (7 banks) |
|
|
|
|
|
|
|
|
|
|
81 |
% |
|
|
7.6 |
% |
|
|
4.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maryland Bankcorp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.34 |
% |
|
MD |
52
|
|
|
* |
|
NPAs includes loans more than 90 days past due and still accruing and
restructured loans. |
Source: SNL Financial, Charlottesville, Virginia.
To determine Maryland Bankcorps fair sale value, Danielson noted that it is also necessary to
consider how it differs from the selling banks in the Comparable Transactions and make adjustments
based on the differences, if any. Areas typically used in making adjustments are profitability,
capital, growth, size, market, asset mix and quality, deposit mix, management and unique
considerations.
Danielson continued that, in the case of a troubled bank such as Maryland Bankcorp, profits,
growth and management are usually not reasons for an adjustment as most, or all, the selling banks
in the Comparable Transactions had losses or profits that were not meaningful, low growth or
negative growth and management teams that would likely be replaced by the buyer. Also, since
capital level was a prerequisite for choosing the comparative transactions, it was not a
differentiating factor. Thus, the pertinent areas for differences to consider are market, asset
mix and quality, deposit mix and any unique considerations.
When the various components of Maryland Bankcorps fair sale value are considered, there is
reason for a positive upward value adjustment for its market and deposit mix and a downward
adjustment for its asset quality. These adjustments, in Danielsons opinion, were offsetting.
While a liquidation analysis was not deemed applicable, Danielson did consider the result of
Old Line Bancshares due diligence on Maryland Bankcorps loans and real estate owned. While the
result was not an attempt to determine what the loans or real estate might be sold for in the open
market, it implied that using Old Line Bancshares methodology, a discount to equity of several
million dollars was applicable.
Valuation Applied to Maryland Bankcorp
The primary measurement of value used by Danielson in its valuation of Maryland Bankcorp
common stock is the sale prices of comparable banks. The traditional multiples used to measure
value under this method are price times earnings, price-to-book and price-to-assets. Price times
earnings is the best measurement of value when earnings are normal or can be normalized, but when
industry-wide bank earnings are low and the bank being analyzed is posting losses, this measurement
does not yield a meaningful result and so was not utilized. Price-to-assets is used as a primary
measurement of value only when price-to-earnings or price-to-book cannot be used. In this case,
price-to-book does provide a meaningful measurement of value and was emphasized by Danielson.
Summary of Valuation Multiples
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Median |
|
Number |
|
|
Price/ |
|
Price/ |
|
Price/ |
|
In |
|
|
Earnings |
|
Tang. Book |
|
Assets |
|
Group |
National 2009* |
|
|
18.0 |
X |
|
|
119 |
% |
|
|
9.9 |
% |
|
|
24 |
|
National 2010** |
|
|
22.5 |
|
|
|
123 |
|
|
|
12.1 |
|
|
|
27 |
|
Comparable Group*** |
|
|
|
|
|
|
103 |
|
|
|
9.2 |
|
|
|
15 |
|
Most Comparable (NPAs >3%)*** |
|
|
|
|
|
|
81 |
|
|
|
7.6 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line Bancshares/Maryland |
|
|
|
|
|
|
80 |
% |
|
|
5.8 |
% |
|
|
|
|
Bankcorp**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Bank and thrift deals with an announced transaction value of more than $10 million announced in 2009. |
|
** |
|
Bank and thrift deals with an announced transaction value of more than $10 million announced between
January 1, 2010 and August 31, 2010. |
|
*** |
|
Bank deals with the selling banks NPAs over 2% of assets and tangible equity over 6% of assets as
of the quarter preceding the announcement. Announced between January 1, 2009 and August 31, 2010. |
|
**** |
|
Based on Maryland Bankcorps assets of $342.8 million and equity of $25.138 and an announced deal
value of $20 million. |
53
Source: SNL Financial, Charlottesville, Virginia and Danielson calculations
Danielson continued that, the most comparable transactions were those that took place in 2009
and in 2010, through August 31, 2010, where the selling bank had NPAs to assets in excess of 3%
(Most Comparable Transactions). In total,
there were seven transactions meeting this criterion with a median price to book of 81% and
price to assets of 7.6%.
Pricing Applied to Maryland Bankcorp Compared to Old Line Bancshares Offer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price-to-Book |
|
Price-to-Assets |
|
|
Median |
|
Old Line |
|
Median |
|
Old Line |
|
|
Most |
|
Bancshares |
|
Most |
|
Bancshares |
|
|
Comp. |
|
Offer |
|
Comp. |
|
Offer |
|
|
|
81%* |
|
|
|
80 |
% |
|
|
7.6%* |
|
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value (in mill.)**
|
|
$ |
20.4 |
|
|
$ |
20.0 |
|
|
$ |
26.1 |
|
|
$ |
20.0 |
|
Per share**
|
|
|
31.49 |
|
|
|
30.93 |
|
|
$ |
40.29 |
|
|
|
30.93 |
|
|
|
|
* |
|
Based on the median of the seven Most Comparable Transactions in 2009
and in 2010 through August 31, 2010. |
|
** |
|
Based on assets of $342.8 million, equity of $25.138 million, shares
outstanding of 646,626 and a book value per share of $38.88 as of June
30, 2010. |
Source: Danielson calculations.
Danielson noted that based on the median sale pricing of the seven Most Comparable
Transactions, the resulting price before any net adjustment in value is $20.4 million, or $31.49
per share based on a median value of 81% of book. As price-to-book provides a good guide to value,
price-to-assets comparisons are typically not utilized.
After the application of the median pricing multiples of the Most Comparable Transactions to
Maryland Bankcorp, the resulting value must be adjusted to account for differences between Maryland
Bankcorp and the banks in the comparable group. These adjustments are a value increase for
Maryland Bankcorps market and deposit base and a value decrease related to asset quality.
Danielson further noted that, as the banks in Most Comparable Transactions were also banks
with high levels of NPAs like Maryland Bankcorp, the asset quality adjustment is modest and this is
offset by increases in value due to a more favorable market and deposit mix. Thus, Old Line
Bancshares offer of $20 million, which is similar to the value returned by applying the median
price-to-book of the Most Comparable Transactions of $20.4 million, is reasonable.
Analysis of Old Line Bancshares
Danielson also considered information related to Old Line Bancshares, to determine if its
common stock is fairly valued. In this regard, Danielson considered:
|
|
|
The financial condition of Old Line Bancshares, in particular, its capital position and
asset quality. |
|
|
|
|
The financial performance of Old Line Bancshares, in particular, its growth and returns
on equity. |
|
|
|
|
The current and historical stock prices of Old Line Bancshares. |
|
|
|
|
Selected financial data as compared to 13 Comparable Banks with assets between $300 and
$500 million, NPAs plus loans 90 days past due and restructured loans between 0.75% and
1.75% of assets and average daily volume of shares traded of at least 100. |
|
|
|
|
A discounted dividends analysis with discount rates of 10% and 12% and terminal values
of 12 and 10 times earnings. |
|
|
|
|
Other analyses as deemed appropriate. |
To determine the fair value of the Old Line Bancshares common stock to be exchanged for the
common stock of Maryland Bankcorp, Danielson considered Old Line Bancshares current and historical
stock prices, the pricing multiples of
54
13 publicly-traded banks or holding companies (the
Comparable Banks) that it deemed comparable to Old Line Bancshares and discounted dividend
calculations.
Danielson noted that the reason for utilizing comparables from across the nation was that
there were too few comparables in the region as Old Line Bancshares performance has been better
than most banks, thereby reducing the
number of comparable banks. The Comparable Banks were profitable, had assets between $300
million and $500 million, NPAs between 0.75% and 1.75% of assets as of June 30, 2010 and traded an
average of 100 shares daily.
Description of Comparable Banks*
|
|
|
|
|
|
|
Full Names |
|
City, State |
|
Assets |
|
|
|
|
|
(In mill.) |
|
Bancorp of New Jersey, Inc. |
|
Fort Lee, NJ |
|
$ |
353 |
|
CBT Financial Corporation |
|
Clearfield, PA |
|
|
363 |
|
Cortland Bankcorp |
|
Cortland, OH |
|
|
479 |
|
CSB Bankcorp, Inc. |
|
Millersburg, OH |
|
|
441 |
|
HFB Financial Corporation |
|
Middlesboro, KY |
|
|
346 |
|
Juniata Valley Financial Corporation |
|
Mifflintown, PA |
|
|
444 |
|
Ledyard Financial Group |
|
Hanover, NH |
|
|
387 |
|
MCNB Banks Inc. |
|
Welch, WV |
|
|
310 |
|
National Bancshares Corporation |
|
Orrville, OH |
|
|
384 |
|
Premier Commercial Bancorp |
|
Anaheim, CA |
|
|
371 |
|
Private Bank of California |
|
Los Angeles, CA |
|
|
350 |
|
Town and Country Financial Corporation |
|
Springfield, IL |
|
|
371 |
|
Virginia National Bank |
|
Charlottesville, VA |
|
|
417 |
|
|
|
|
|
|
|
Median (13 banks) |
|
|
|
$ |
371 |
|
Source: SNL Financial, Charlottesville, Virginia.
None of the 13 Comparable Banks were in Maryland, but four were in adjoining states and two
others were in the Northeast. Of the remaining seven, five were in the Midwest and two were in
California.
It was noted by Danielson that Old Line Bancshares financial performance and financial
condition was similar to those of the Comparable Banks as of June 30, 2010, or the 12 months ending
June 30, 2010. Old Line Bancshares net income of 0.52% of average assets and 5.25% of average
equity compared to the Comparable Banks medians of 0.57% and 5.94%, respectively. Old Line
Bancshares equity and tangible equity of 9.22% of assets compared to the Comparable Banks medians
of 10.12% and 9.34%, respectively. Old Line Bancshares NPAs of 1.36% of assets compared to the
Comparable Banks median of 1.43%. In each instance, Old Line Bancshares percentages were
slightly less than the Comparable Banks medians, but the differences were not considered
meaningful enough to merit a value adjustment.
Despite the overall good financial performance of the Comparable Banks in a tough banking
environment, the price to book was 76% and the median price to tangible book was 84%. The median
relative to assets was 7.6%.
Danielson added that, normally the better pricing comparison is earnings, but even those that
are the good performers in a bad economy, are below their normal earnings expectations as not one
of the Comparable Banks had a double-digit return of equity. Thus, a price times earnings
comparison is not meaningful at the present time.
Old Line Bancshares stock price of $7.95 per share as of August 27, 2010 was 83% of both
common and tangible book, which was almost identical to the median price to tangible book of the
Comparable Banks, and Old Line Bancshares price-to-assets of 7.6% was identical to the median of
the Comparable Banks.
55
Comparisons of Old Line Bancshares and the Comparable Banks*
|
|
|
|
|
|
|
|
|
|
|
Old Line |
|
|
Comparable |
|
|
|
Bancshares |
|
|
Banks |
|
Assets (in millions) |
|
$ |
408 |
|
|
$ |
371 |
|
|
|
|
|
|
|
|
|
|
Net income / average assets |
|
|
0.52 |
% |
|
|
0.57 |
% |
Net oper. income / average assets |
|
|
1.02 |
% |
|
|
1.20 |
% |
Equity / assets |
|
|
9.22 |
% |
|
|
10.12 |
% |
Tangible equity / tangible assets |
|
|
9.22 |
% |
|
|
9.34 |
% |
NPAs**/ assets |
|
|
1.36 |
% |
|
|
1.43 |
% |
Return on average equity |
|
|
5.25 |
% |
|
|
5.94 |
% |
|
|
|
|
|
|
|
|
|
Stock price data*** |
|
|
|
|
|
|
|
|
LTM earnings |
|
|
18.1 |
X |
|
|
12.7 |
X |
Price / book |
|
|
83 |
% |
|
|
76 |
% |
Price / tangible book |
|
|
83 |
% |
|
|
84 |
% |
Price / assets |
|
|
7.6 |
% |
|
|
7.6 |
% |
Average daily volume**** |
|
|
1,559 |
|
|
|
421 |
|
|
|
|
* |
|
June 30, 2010 or 12 months ended June 30, 2010. |
|
** |
|
Includes loans over 90 days past due and restructured loans. |
|
*** |
|
Stock price as of August 27, 2010 and financial data and stock price activity
for the twelve months ended June 30, 2010 or June 30, 2010. |
|
**** |
|
For the year ended August 27, 2010. |
Source: SNL Financial, Charlottesville, Virginia.
Danielson also utilized a discounted dividends analysis to determine if Old Line Bancshares
common stock is fairly valued. This analysis assumed annual net income growth of 8%, return on
average assets of 0.75%, which assumes earnings increases in the future, and dividends paid out on
capital in excess of 9% of assets. These growth assumptions are not based upon any formal
projections or budgets and are subject to significant uncertainties, including changes in interest
rates, the competitive landscape, and the regulatory environment.
To approximate the terminal values of Old Line Bancshares common stock at the end of a seven
year period, price times earnings multiples of 10X and 12X were chosen to reflect historical bank
trading multiples. The resulting dividend streams and terminal values were then discounted to
present values using discount rates of 10% and 12%, chosen to reflect an appropriate rate of return
that may be required by a prospective buyer of the stock. Under these scenarios, the present value
of the stock ranged from $6.02 to $7.93 per share.
Danielson also noted that, prices resulting from the discounted dividends method, even when
utilizing a future earnings rate of 0.75% on average assets, which is higher than Old Line
Bancshares earnings since 2006, results in a price of $6.02 at a 12% discount rate and $7.93 at a
10% discount rate. These prices are 60% of book and 81% of book respectively. These valuations
suggest that Old Line Bancshares earnings are still too low to draw much meaning from a discounted
dividend analysis.
56
Old Line Bancshares Discounted Dividend Value*
|
|
|
|
|
|
|
|
|
|
|
Discount Rate |
|
|
|
10% |
|
|
12% |
|
Discounted Dividends 12X earnings |
|
|
|
|
|
|
|
|
Value (in millions) |
|
$ |
25.9 |
|
|
$ |
22.6 |
|
Per share* |
|
$ |
6.81 |
|
|
$ |
6.02 |
|
Price-to-earnings |
|
|
13.6X |
|
|
|
11.8X |
|
Price as percent of tangible book |
|
|
69 |
% |
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
Discounted Dividends 10X earnings |
|
|
|
|
|
|
|
|
Value (in millions) |
|
$ |
30.6 |
|
|
$ |
26.7 |
|
Per share* |
|
$ |
7.93 |
|
|
$ |
7.00 |
|
Price-to-earnings |
|
|
16.0X |
|
|
|
14.0X |
|
Price as percent of tangible book |
|
|
81 |
% |
|
|
71 |
% |
|
|
|
* |
|
Assumes 8% asset growth, starting capital of $37.6 million, a 9.00% capital to asset ratio,
earnings of $1.9 million based on the six months ended June 30, 2010 annualized, returns on average
assets of 0.75%, shares outstanding of 3,880,005 and 321,851 options with a weighted average strike
price of $8.41 per share. |
Thus, based primarily on the median pricing multiples of the Comparable Banks, supported by
other analyses and comparisons, Danielson concluded that Old Line Bancsharess stock price is
fairly valued.
Financial Impact Analysis
|
|
|
Danielson also conducted a financial impact analysis that included: |
|
|
|
|
The accretion/dilution impact on Old Line Bancshares earnings per share and capital per
share. |
|
|
|
|
The post merger ownership percentages under various scenarios. |
|
|
|
|
The post merger balance sheet contributions of Old Line Bancshares and Maryland
Bankcorp. |
Danielson noted that the acquisition of Maryland Bankcorp could be accretive to Old Line
Bancsharess earnings per share (EPS) based on anticipated cost savings, but slightly dilutive to
its capital per share (CPS). For the purposes of this opinion, Danielson utilized a cost savings
of 25%, which is less than that anticipated by management, and an average price at the bottom of
the collar, $7.63 per share, as that is the point at which Old Line Bancshares issues the most
shares as consideration.
57
Analysis of Earnings Per Share Change
Assuming Old Line Bancshares Average Price of $7.63 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
Percent |
|
|
|
Earnings |
|
|
Shares |
|
|
EPS |
|
|
Share |
|
|
Change |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line Bancshares at
historical
earnings level* |
|
$ |
2,000 |
|
|
|
3,880 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
Maryland Bankcorp annualized
net income
for the second quarter 2010 |
|
|
(702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Eliminations and other** |
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amortization of
intangibles |
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Earnings on cash paid
of $1 mill. |
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
$ |
1,711 |
|
|
|
6,370 |
|
|
$ |
0.27 |
|
|
$ |
(0.25 |
) |
|
|
(47.9 |
)% |
|
25% cost savings*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Cost savings |
|
$ |
3,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Taxes on savings of 34% |
|
|
(1,215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total**** |
|
$ |
4,071 |
|
|
|
6,370 |
|
|
$ |
0.64 |
|
|
$ |
0.13 |
|
|
|
24.4 |
% |
|
|
|
* |
|
Based on earnings of $2.1 million in 2009 and annualized earnings of $1.9 million
in the first half of 2010. |
|
** |
|
Normalizes contributions to the loan loss reserve and eliminates securities gains and
interest expense on holding company. loans. |
|
*** |
|
Assumes non-interest expenses of $14.3 million. |
|
**** |
|
Excludes merger-related expenses.
|
Source: SNL Financial, Charlottesville, Virginia and Old Line Bancshares and Danielson projections.
estimates.
Based on cost savings of 25% and an Old Line Bancshares average price of $7.63 per share, the
transaction is accretive to EPS. While all of the cost savings will not be realized in the first
year, and some not in the second year either, even a lower level of cost savings could be
accretive. A 25% cost savings, when fully achieved, based on current earnings, would increase Old
Line Bancsharess EPS by about $0.13, or 24%.
Utilizing an Old Line Bancshares average price of $7.63 per share, the transaction is dilutive
to CPS, according to Danielson. The CPS dilution is minimized by the high existing equity of
Maryland Bankcorp, but will be reduced by write-downs on loans and real estate owned, cash paid as
part of the consideration, merger expenses and projected goodwill and intangibles that result from
the merger, exclusive of any accounting adjustments. The net result is a reduction of Old Line
Bancsharess CPS by $0.90, or 9.5%.
58
Analysis of Capital Per Share Change
Assuming Old Line Bancshares Average Price of $7.63 per share*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per |
|
|
Percent |
|
|
|
Equity |
|
|
Shares |
|
|
CPS |
|
|
Share |
|
|
Change |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line Bancshares equity June 30, 2010 |
|
$ |
36,998 |
|
|
|
3,880 |
|
|
$ |
9.54 |
|
|
|
|
|
|
|
|
|
Maryland Bankcorp equity June 30, 2010 |
|
|
25,138 |
|
|
|
2,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid in transaction |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset markdowns** |
|
|
(6,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger related expenses** |
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangibles*** |
|
|
862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,998 |
|
|
|
6,370 |
|
|
$ |
8.63 |
|
|
|
(0.90 |
) |
|
|
(9.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings with 25% cost savings*** |
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,998 |
|
|
|
6,370 |
|
|
$ |
9.26 |
|
|
|
(0.27 |
) |
|
|
(2.9 |
)% |
|
|
|
* |
|
Based on consideration of $20 million absent any accounting adjustments. |
|
** |
|
Old Line Bancshares estimate. |
|
** |
|
Assumes earnings of $4 million are achieved based upon cost savings of 25%. |
|
Source: |
|
SNL Financial, Charlottesville, Virginia, and Old Line Bancshares and Danielson
estimates. |
While future earnings may be very different from past earnings, Danielson noted that Old Line
Bancshares has over the past 18 months ended June 30, 2010, reported earnings that are roughly $2
million annually. Based solely on that past level of earnings, and with 25% cost savings, Old Line
Bancshares earnings could be as much as $4 million annually post transaction, after an initial
adjustment period to integrate the two banks. With cost savings of 25%, and earnings of $4
million, the decline in CPS is only $0.27, or 2.9%.
Danielson also analyzed the post-merger ownership of Old Line Bancshares and Maryland
Bankcorp, which is dependent on the average price of Old Line Bancshares. If the average price is
$7.63 per share or less, then pre-merger stockholders of Old Line Bancshares will own approximately
60.9% of Old Line Bancshares post-merger. If the average price is $11.45 per share or higher, then
pre-merger Old Line Bancshares stockholders will own approximately 70.0% of Old Line Bancshares
post-merger.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Merger Shares |
|
|
Post Merger Ownership |
|
|
|
Old |
|
|
Maryland |
|
|
|
|
|
|
Old |
|
|
Maryland |
|
|
|
|
|
|
Line |
|
|
Bancorp |
|
|
Total |
|
|
Line |
|
|
Bancorp |
|
|
Total |
|
Post Merger Ownership
in Old Line Bancshares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price of $7.63 per share |
|
|
3,880 |
|
|
|
2,490 |
|
|
|
6,370 |
|
|
|
60.9 |
% |
|
|
39.1 |
% |
|
|
100.0 |
% |
Avg. Price of $9.54 per share |
|
|
3,880 |
|
|
|
1,992 |
|
|
|
5,872 |
|
|
|
66.1 |
|
|
|
33.9 |
|
|
|
100.0 |
|
Avg. Price of $11.45 per share |
|
|
3,880 |
|
|
|
1,659 |
|
|
|
5,539 |
|
|
|
70.0 |
|
|
|
30.0 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution analysis |
|
|
|
|
|
|
|
In millions |
|
|
|
|
|
|
|
|
|
|
Contribution Percentage |
|
|
|
|
|
Assets |
|
$ |
407.6 |
|
|
$ |
342.8 |
|
|
$ |
750.4 |
|
|
|
54.3 |
% |
|
|
45.7 |
% |
|
|
100.0 |
% |
Gross loans |
|
|
288.5 |
|
|
|
226.9 |
|
|
|
515.4 |
|
|
|
56.0 |
|
|
|
44.0 |
|
|
|
100.0 |
|
Non-interest bearing deposits |
|
|
53.7 |
|
|
|
91.3 |
|
|
|
145.0 |
|
|
|
37.0 |
|
|
|
63.0 |
|
|
|
100.0 |
|
All other deposits |
|
|
265.1 |
|
|
|
205.7 |
|
|
|
470.7 |
|
|
|
56.3 |
|
|
|
43.7 |
|
|
|
100.0 |
|
Total deposits |
|
|
318.8 |
|
|
|
297.0 |
|
|
|
615.7 |
|
|
|
51.8 |
|
|
|
48.2 |
|
|
|
100.0 |
|
Equity* |
|
|
37.0 |
|
|
|
20.0 |
|
|
|
57.0 |
|
|
|
64.9 |
|
|
|
35.1 |
|
|
|
100.0 |
|
|
|
|
* |
|
Equity of Maryland Bankcorp is assumed to be the offering price of $20.0 million. |
The balance sheet contributions of Old Line Bancshares and Maryland Bankcorp are not dependent
on the average price. Based on June 30, 2010 financial data, Old Line Bancshares is contributing
54.3% of the assets, 56.0% of gross loans and 51.8% of deposits. Assuming Maryland Bankcorps
equity is equivalent to consideration offered, Old Line Bancshares is contributing 64.9% of the
equity.
Conclusion
Since no comparable banks or bank acquisitions used in the various analyses are totally
identical to Old Line Bancshares, Maryland Bankcorp or the particulars of this merger, the results
do not represent mathematical certainty. Instead the comparisons rely on the likelihood that the
median stock prices and/or the bank acquisition prices of comparable banks are applicable to the
pertinent stock and acquisition values in this merger.
The summary set forth above is not a complete description of the analyses and procedures
performed by Danielson in the course of arriving at its opinion. The full text of the opinion of
Danielson dated September 1, 2010, which sets forth the assumptions made and matters considered, is
attached as Annex B to this joint proxy statement/prospectus. Danielsons opinion is directed only
to the fairness of the consideration received by Old Line Bancshares stockholders and does not
constitute a recommendation to any Old Line Bancshares stockholder as to how such stockholder
should vote relative to the merger.
Danielson concluded that, based on Maryland Bankcorps recent performance, franchise, future
prospects, comparisons with similar transactions and other analyses, it is its opinion that the Old
Line Bancshares offer to acquire all of the common stock of Maryland Bankcorp for $20 million, or
approximately $30.93 per share, subject to certain pricing adjustments and a price collar, in an
exchange of Old Line Bancshares common stock, which is fairly valued, inclusive of at least $1 million
in cash, is fair to Old Line Bancshares stockholders from a financial point of view.
60
Opinion of Maryland Bankcorps Financial Advisor
Maryland Bankcorp retained Monocacy Financial Advisors, LLC to act as Maryland Bankcorps
financial advisor in connection with the merger and related matters based upon its qualifications,
expertise and reputation, as well as its familiarity with Maryland Bankcorp and other community
banking organizations like Maryland Bankcorp. Monocacy is an investment banking, advisory, and
consulting firm providing services of similar nature to community banking organizations. As a part
of its investment banking and advisory business, Monocacy is continually engaged in the valuation
of businesses in connection with mergers and acquisitions, private placements, and valuations for
ESOPs, capital formation and capital structure transactions, going private transactions, corporate
and other purposes.
At the September 1, 2010 special meeting of the Maryland Bankcorp board of directors, Monocacy
provided an oral opinion that the stock and cash consideration of $30.93 (or an exchange ratio,
based on pricing as of that day, of 3.8906 shares of Old Line Bancshares common stock for each
share of Maryland Bankcorp common stock as described in the merger agreement) is fair to Maryland
Bankcorps stockholders from a financial point of view. No limitations were imposed by Maryland
Bankcorp on the scope of Monocacys investigation or on the procedures followed by Monocacy in
rendering its opinion. At the same meeting, the Maryland Bankcorp board of directors approved the
merger and the merger agreement, subject to review by the Maryland Bankcorp board of directors of
the final version of certain ancillary agreements and the receipt of Monocacys written opinion.
Later that day, Monocacy delivered its written opinion to the Maryland Bankcorp board of directors
confirming its oral opinion, and the Maryland Bankcorp board of directors voted, unanimously, to
adopt the merger agreement and recommend that the stockholders of Maryland Bankcorp approve the
merger agreement.
The full text of the opinion of Monocacy, which sets forth, among other things, assumptions
made, procedures followed, matters considered and limits on the review undertaken by Monocacy, is
attached as Annex C to this joint proxy statement/ prospectus. Holders of Maryland Bankcorp common
stock are urged to read the opinion in its entirety. Monocacys opinion is directed only to the
merger consideration described in the merger agreement and does not constitute a recommendation to
any Maryland Bankcorp stockholder as to how such stockholder should vote at the Maryland Bankcorp
special stockholder meeting. The summary set forth in this prospectus and proxy statement of the
opinion of Monocacy is qualified in its entirety by reference to the full text of its opinion
attached to this document as Annex C.
In arriving at its opinion, Monocacy engaged in discussions with members of both of the
management teams of Maryland Bankcorp and Old Line Bancshares, separately, concerning the
historical and current business operations, financial conditions and prospects of Maryland Bankcorp
and Old Line Bancshares and reviewed:
|
|
|
the merger agreement; |
|
|
|
|
certain publicly-available information for Maryland Bankcorp, including each of its
Annual Reports to Stockholders for the years ended December 31, 2009, 2008 and 2007,
and the quarterly call reports for Maryland Bank & Trust for each of the quarterly
periods ended on March 31 and June 30, 2010, and the Maryland Bankcorp internal
consolidated and consolidating financial results for the quarter ended June 30, 2010
furnished by Maryland Bankcorp management; |
|
|
|
|
certain publicly-available information for Old Line Bancshares, including each of
its Annual Reports to Shareholders and Annual Reports on Form 10-K for the years ended
December 31, 2009, 2008 and 2007 and quarterly reports on Form 10-Q for each of the
quarterly periods ended on March 31 and June 30, 2010, and the Old Line Bancshares
internal consolidated and consolidating financial results for the quarter ended June
30, 2010 furnished by Old Line Bancshares management; |
|
|
|
|
certain information, including historical and forecasted financial information,
relating to earnings, dividends, assets, liabilities and prospects of as Maryland
Bankcorp furnished by senior management of Maryland Bankcorp; |
|
|
|
|
certain information, including historical and forecasted financial information,
relating to earnings, dividends, assets, liabilities, and prospects of Old Line
Bancshares as furnished by senior management of Old Line Bancshares; |
|
|
|
|
Maryland Bankcorp senior management projected earnings estimates or budget(s) for
fiscal years 2010 through 2013, if available; |
|
|
|
|
Old Line Bancshares senior management projected earnings estimates or budget(s) for
fiscal years 2010 through 2013, if available; |
61
|
|
|
the estimated amount and timing of the deal costs, cost savings and potential mark
to market impacts expected to result from the merger, which were furnished by senior
management teams of Maryland Bankcorp and Old Line Bancshares; |
|
|
|
|
the financial condition and operating results of certain other financial
institutions that Monocacy deemed comparable; |
|
|
|
|
a contribution analysis of Maryland Bankcorp and Old Line Bancshares to the combined
entity with regard to certain financial metrics as of December 31, 2009 and June 30,
2010; |
|
|
|
|
the recent stock prices and trading activity for the common stock of both Old Line
Bancshares and Maryland Bankcorp during the last year and up until the day prior to the
announcement of the merger; |
|
|
|
|
various valuation analyses of Maryland Bankcorp that Monocacy performed including a
cash dividend analysis, analysis of comparable companies and analysis of comparable
transactions, and an accretion/dilution analysis; |
|
|
|
|
various valuation analyses of Old Line Bancshares that Monocacy performed including
a cash dividend analysis, analysis of comparable companies and analysis of comparable
transactions, a dividend discount analysis, and an accretion/dilution analysis; and |
|
|
|
|
such other information, financial studies, regulatory overviews and summaries,
analyses and investigations and such other factors that Monocacy deemed relevant for
the purposes of its opinion. |
In conducting its review and arriving at the opinion, Monocacy, with the consent of the board
of directors of Maryland Bankcorp, has relied, without independent investigation, upon the accuracy
and completeness of all financial and other information provided to Monocacy by Maryland Bankcorp
and Old Line Bancshares or upon publicly available information. Monocacy does not undertake any
responsibility for the accuracy, completeness or reasonableness of, or any obligation independently
to verify, such information. Monocacy has further relied upon the assurance of management of
Maryland Bankcorp and Old Line Bancshares that they were unaware of any facts that would make the
information provided or available to Monocacy incomplete or misleading in any respect. Monocacy
did not make any independent evaluations, valuations or appraisals of the assets or liabilities of
Maryland Bankcorp and Old Line Bancshares. Monocacy did not review any individual credit files and
assumed that the aggregate allowances for credit losses relating to the loans of Maryland Bankcorp
and Old Line Bancshares were and will continue to be adequate to cover such losses. The opinion is
necessarily based upon economic and market conditions and other circumstances as they existed and
were evaluated by Monocacy on the date of its opinion. Monocacy does not have any obligation to
update its opinion, unless requested by the Maryland Bankcorp board of directors in writing, and
Monocacy expressly disclaims any responsibility to do so in the absence of such a written request.
62
The projections furnished to Monocacy and used by it in certain of its analyses were prepared
by, or derived from, Maryland Bankcorp and Old Line Bancshares senior management. Maryland
Bankcorp and Old Line Bancshares do not publicly disclose internal management projections of the
type provided to Monocacy in connection with its review of the merger. As a result, such
projections were not prepared with a view towards public disclosure. The projections were based on
numerous variables and assumptions which are inherently uncertain, including factors related to
general economic and competitive conditions. Accordingly, actual results could vary significantly
from those set forth in the projections.
For purposes of rendering its opinion, Monocacy assumed that, in all respects material to its
analyses:
|
|
|
the merger will be completed substantially in accordance with the terms set forth in
the merger agreement; |
|
|
|
|
the representations and warranties of each party in the merger agreement and in all
related documents and instruments referred to in the merger agreement are true and
correct; |
|
|
|
|
each party to the merger agreement and all related documents will perform all of the
covenants and agreements required to be performed by such party under such documents; |
|
|
|
|
all conditions to the completion of the merger will be satisfied without any
waivers; and |
|
|
|
|
in the course of obtaining the necessary regulatory, contractual or other consents
or approvals for the merger, no restrictions, including any divestiture requirements,
termination or other payments or amendments or modifications, will be imposed that will
have a material adverse effect on the future results of operations or financial
condition of the combined entity or the contemplated benefits of the merger, including
the cost savings, revenue enhancements and related expenses expected to result from the
merger. |
Monocacy further assumed that the merger will be accounted for as a purchase transaction under
generally accepted accounting principles. Monocacys opinion is not an expression of an opinion as
to the prices at which shares of Maryland Bankcorp or Old Line Bancshares common stock will trade
following the announcement of the merger or the actual value of the shares of common stock of the
combined company when issued pursuant to the merger, or the prices at which the shares of common
stock of the combined company will trade following the completion of the merger.
No limitations were imposed by Maryland Bankcorp on Monocacy on the scope of Monocacys
investigation or the procedures to be followed by Monocacy in rendering its opinion. During the
two-year period preceding the engagement of Monocacy by Maryland Bankcorp with respect to the
merger with Old Line Bancshares, there was no material relationship between Monocacy (or its
principals) or any of its affiliates or representatives on the one hand, and Maryland Bankcorp or
any of its affiliates on the other hand. Nor was there, during the two-year period preceding the
signing of the merger agreement, any material relationship between Monocacy (or its principals) or
any of its affiliates or representatives on the one hand, and Old Line Bancshares or any of its
affiliates on the other hand. The form and amount of the consideration to be paid to Maryland
Bankcorp or its stockholders were determined through arms length negotiations between Maryland
Bankcorp and Old Line Bancshares. Monocacy was not requested to opine as to, and its opinion does
not address, Maryland Bankcorps underlying business decision to proceed with or effect the merger
or the relative merits of the merger compared to any alternative transaction that might be
available to Maryland Bankcorp. Further, its opinion does not constitute a recommendation to the
stockholders of Maryland Bankcorp with respect to any approval of the merger agreement or the
merger.
Additionally, Monocacy was not requested to opine as to, and its opinion does not address, the
fairness of the amount or nature of the compensation to any of Maryland Bankcorps officers,
directors or employees other than the merger consideration to be received, if any, by such persons
due to their status as a stockholder of Maryland Bankcorp.
In the analyses, Monocacy has made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond the control of
Maryland Bankcorp and Old Line Bancshares. Any estimates contained in the analyses are not
necessarily indicative of future results or value, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport to be appraisals or
to necessarily reflect the prices at which companies or their securities actually may be sold. No
comparable company or merger utilized in our analyses was identical to Maryland Bankcorp, Old Line
Bancshares or the merger. Accordingly, such analyses are not based solely on arithmetic
calculations; rather, they involve complex considerations and judgments concerning differences in
financial and operating characteristics of the relevant companies, the timing of the relevant
mergers and prospective buyer interests, as well as other factors that could affect the public
trading markets of Maryland Bankcorp and Old Line Bancshares or companies to which it is being
compared. None of the analyses performed by Monocacy was assigned a greater significance than any
other.
63
The financial forecast information and projected cost savings and other projected synergies
expected to result from the merger furnished by management of Maryland Bankcorp and Old Line
Bancshares, respectively, and deemed reasonable by them, contained in or underlying Monocacys
analyses are not necessarily indicative of future results or values, which may be significantly
more or less favorable than such forecasts and estimates. The forecasts and estimates were based
on numerous variables and assumptions that are inherently uncertain, including factors related to
general economic and competitive conditions. In that regard, Monocacy assumed, with Maryland
Bankcorps and Old Line Bancshares consent, that the projected financial forecasts, including the
projected cost savings, projected adjustments, impact to credit and underwriting and other
projected synergies expected to result from the merger, were reasonably prepared on a basis
reflecting the best currently available judgments of Maryland Bankcorp and Old Line Bancshares, and
that such forecasts will be realized in the amounts and at the times that they contemplate. The
estimates contained in Monocacys analyses are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than those suggested by those
analyses. Estimates of values of financial institutions or assets do not purport to be appraisals
or necessarily reflect the prices at which financial institutions or their securities actually may
be sold. Accordingly, actual results could vary significantly from those assumed in the financial
forecasts and related analyses.
The following is a summary of the material analyses presented by Monocacy to the Maryland
Bankcorp board of directors in connection with its September 1, 2010 opinion. In connection with
its written opinion dated as of the same date, Monocacy performed procedures to update certain of
its analyses and reviewed the assumptions on which such analyses were based and the factors
considered in connection therewith. This summary is not a complete description of the analyses
underlying the Maryland Bankcorp opinion or the presentation made by Monocacy to Maryland
Bankcorps board of directors, but summarizes the material analyses performed and presented in
connection with such an opinion. The preparation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular circumstances.
Therefore, a fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Monocacy did not attribute any particular weight to any
analysis or factor that it considered, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. The financial analyses summarized
below include information presented in tabular format. Accordingly, Monocacy believes that its
analyses and the summary of its analyses must be considered as a whole and that selecting portions
of its analyses and factors or focusing on the information presented below in tabular format,
without considering all analyses and factors or the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the process underlying its analyses and opinion. The tables alone
do not constitute a complete description of the financial analyses.
64
Summary Analysis of the Transaction
Monocacy reviewed the terms of the merger and the merger agreement. It noted that the stock
and cash, as elected by stockholders per the merger agreement, consideration of $30.93 to be
received by Maryland Bankcorp stockholders would not fluctuate through closing assuming the stock
price of Old Line Bancshares remained within the collar range of $7.63 to $11.45, respectively.
However, the exchange ratio would fluctuate within that same range, determining a potential
exchange ratio of 4.0537 to 2.7012, respectively, shares of Old Line Bancshares common stock for
each share of Maryland Bankcorp common stock. Based upon the closing price of Old Line Bancshares
of $7.95 on August 31, 2010, the implied exchange ratio was 3.8906 shares of Old Line Bancshares
common stock for each share of Maryland Bankcorp common stock. Therefore, the per share value of
$30.93 ($20 million in aggregate value), within this collar range, represents 79.3% of book value
per Maryland Bankcorp share and 79.3% of tangible book value per Maryland Bankcorp share as of June
30, 2010. Monocacy also noted that the consideration per share represents a 111.8% premium over
current Maryland Bankcorp market price per share as of August 31, 2010. The aggregate deal
metrics are displayed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium to |
|
|
|
Price / Book |
|
|
Price / Tang. |
|
|
Price / LTM |
|
|
Price / 2010E |
|
|
Price / |
|
|
Price / |
|
|
MBKP Stock |
|
Deal Price (1) |
|
Value |
|
|
Book Vale |
|
|
Earnings (2) |
|
|
Earnings (3) |
|
|
Assets |
|
|
Deposits |
|
|
Price (4) |
|
$20,000,000 |
|
|
79.3 |
% |
|
|
79.3 |
% |
|
nm |
|
|
16.67x |
|
|
|
6.73 |
% |
|
|
5.74 |
% |
|
|
111.8 |
% |
|
|
|
(1) |
|
Deal price is based on the closing price of Old Line Bancshares stock on August 31,
2010 and the exchange ratio of 3.8906 which was established based on the closing price of
Old Line Bancshares stock as of the same date. |
|
(2) |
|
Not meaningful. Maryland Bankcorp reported losses of $4.7 million for the latest
twelve months (LTM) ended June 30, 2010. |
|
(3) |
|
Maryland Bankcorp indicated 2010 budgeted net income assuming no material additions to
the provision into the allowance for loan losses. Maryland Bankcorp reported losses of
$1.137 million for the six months ended June 30, 2010. |
|
(4) |
|
Premium to Maryland Bankcorp stock price is as of August 31, 2010 ($30.93 per share
transaction price/$14.60 Maryland Bankcorp stock price). |
Unless otherwise noted, pricing metrics reflect Maryland Bankcorp data for the period ended
as of June 30, 2010. Latest twelve months net income and earnings per share for Maryland
Bankcorp estimated from internal reports, filed call reports, FR-Y9 reports filed with the
Federal Reserve, and SNL Financial data.
Dividend Analysis
Monocacy reviewed the current quarterly dividend distribution rates for each company and
assumed an annualized rate of each such quarterly distribution rate. Monocacy noted that, under
current quarterly dividend distribution rates for both companies and taking into account the 3.8906
exchange ratio per Maryland Bankcorp share, that there is a material increase in both the nominal
amount of the cash dividend as well as the effective yield for Maryland Bankcorp stockholders (after the
merger is completed). Monocacy also reviewed the impact to the dividend distribution rate under
the range of potential exchange ratio calculations. In every scenario, there is a material
increase in both the nominal amount of the cash dividend as well as the effective yield for
Maryland Bankcorp stockholders (after the merger is completed). It should also be noted that the
aggregate estimated dividend distribution flow approximates or exceeds the net income of Maryland
Bankcorp over the past three fiscal years. Also, the projected gross dividend flows are projected
to approximate or exceed gross dividend flows when Maryland Bankcorp declared dividends in the
fiscal years 2006 through 2008. Maryland Bankcorp and its primary subsidiary are currently
prohibited from paying dividends due to regulatory agreements in place with its primary regulator.
65
Estimated Dividends
|
|
|
|
|
|
|
|
|
Independent Basis Per Share |
|
MBKP |
|
|
OLBK |
|
2Q10 |
|
$ |
|
|
|
$ |
0.03 |
|
Annualized |
|
$ |
|
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
Proforma Relative Basis Per Share |
|
MBKP |
|
|
OLBK |
|
Assumes exchange ratio of: |
|
|
|
|
|
|
|
|
3.8906 |
|
$ |
0.47 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
4.0537 |
|
$ |
0.49 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
2.7012 |
|
$ |
0.32 |
|
|
$ |
0.12 |
|
|
|
|
|
|
Gross Estimated Dividend Flow |
|
MBKP |
|
3.8906 |
|
$ |
301,892 |
|
|
|
|
|
|
4.0537 |
|
$ |
314,547 |
|
|
|
|
|
|
2.7012 |
|
$ |
209,600 |
|
Contribution Analysis
The contribution analysis performed by Monocacy compares the relative contribution of key
balance sheet and income statement measures by Old Line Bancshares and Maryland Bankcorp to the
pro-forma consolidated company as of December 31, 2010, and June 30, 2010.
66
Contribution Analysis (1)
($ in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Contribution |
|
December 31, 2009 |
|
OLBK |
|
|
MBKP |
|
|
Proforma |
|
|
OLBK |
|
|
MBKP |
|
Total Assets |
|
$ |
357,219 |
|
|
$ |
351,756 |
|
|
$ |
708,975 |
|
|
|
50.4 |
% |
|
|
49.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans, Net |
|
$ |
265,009 |
|
|
$ |
226,204 |
|
|
$ |
491,213 |
|
|
|
53.9 |
% |
|
|
46.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
286,348 |
|
|
$ |
299,756 |
|
|
$ |
586,104 |
|
|
|
48.9 |
% |
|
|
51.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
$ |
36,632 |
|
|
$ |
26,097 |
|
|
$ |
62,729 |
|
|
|
58.4 |
% |
|
|
41.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2,123 |
|
|
$ |
(3,831 |
) |
|
$ |
(1,708 |
) |
|
|
100.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62.3 |
% |
|
|
37.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership based on exchange ratio ranges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.7 |
% |
|
|
39.3 |
% |
4.0537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.7 |
% |
|
|
40.3 |
% |
3.2421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.9 |
% |
|
|
35.1 |
% |
2.7013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69.0 |
% |
|
|
31.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Contribution |
|
June 30, 2010 |
|
OLBK |
|
|
MBKP |
|
|
Proforma |
|
|
OLBK |
|
|
MBKP |
|
Total Assets |
|
$ |
408,210 |
|
|
$ |
348,165 |
|
|
$ |
756,375 |
|
|
|
54.0 |
% |
|
|
46.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans, Net |
|
$ |
285,820 |
|
|
$ |
220,365 |
|
|
$ |
506,185 |
|
|
|
56.5 |
% |
|
|
43.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
318,779 |
|
|
$ |
296,960 |
|
|
$ |
615,739 |
|
|
|
51.8 |
% |
|
|
48.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
$ |
37,638 |
|
|
$ |
25,210 |
|
|
$ |
62,848 |
|
|
|
59.9 |
% |
|
|
40.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTM Net Income |
|
$ |
1,969 |
|
|
$ |
(4,777 |
) |
|
$ |
(2,808 |
) |
|
|
100.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.4 |
% |
|
|
35.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership based on exchange ratio ranges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.8905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.7 |
% |
|
|
39.3 |
% |
4.0537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.7 |
% |
|
|
40.3 |
% |
3.2421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64.9 |
% |
|
|
35.1 |
% |
2.7013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69.0 |
% |
|
|
31.0 |
% |
|
|
|
(1) |
|
Contribution analysis is prior to any mark to market or other merger accounting
adjustments. |
As of June 30, 2010, the range of contribution from Maryland Bankcorp ranges from 0.0% to
48.2% in the pro forma consolidated company, with an average of 35.6%. Monocacy notes that
Maryland Bankcorp stockholders will own 39.3% of the pro forma company based on the current
exchange ratio. Maryland Bankcorp stockholders could own no less than 31% and no more than 40.3%
under the current collar structure in place, and assuming all stock elected by Maryland Bankcorp
stockholders and no detrimental credit adjustments occur. Monocacy focused primarily on the
contribution and receipt of earnings and equity in rendering its opinion.
Analysis of Selected Comparable Companies Mid-Atlantic Peer Group Maryland Bankcorp
Monocacy compared selected financial and operating results of Maryland Bankcorp to a peer
group that included the 108 publicly traded commercial banks in the Mid-Atlantic region (as defined
by SNL Financial and including Virginia), which were primarily selected based on comparable asset
size. Specifically, the peer group identified had assets between $250 million and $650 million.
The peer group had median trading multiples of 88.2% of book value per share, 90.4% of tangible
book value per share, and 12.3x LTM earnings per share. This compares with Maryland Bankcorps
financial
67
metrics of 34.7% of book value per share, 34.7% of tangible book value per share, and a
non-meaningful LTM earnings multiple (due to reported net losses at Maryland Bankcorp previously
discussed above) as of June 30, 2010.
This comparison showed that, among other things, for the LTM ended June 30, 2010:
|
|
|
Maryland Bankcorps tangible equity to tangible assets ratio was 8.73%, compared
with the Mid-Atlantic peer group median of 8.50%; |
|
|
|
|
Maryland Bankcorps Tier 1 Ratio was 13.22%, compared with the Mid-Atlantic peer
group median of 12.20%; |
|
|
|
|
Maryland Bankcorps Risk Based Capital Ratio was 14.49%, compared with the
Mid-Atlantic peer group median of 13.29%; |
|
|
|
|
Maryland Bankcorps ratio of nonperforming assets (NPAs) (excluding total accruing
loans contractually past due 90 days or more) to total assets was 5.19%, compared with
the Mid-Atlantic peer group median of 1.65%; |
|
|
|
|
Maryland Bankcorps loan loss reserves to loans ratio was 2.89%, compared to the
Mid-Atlantic peer group median of 1.46%; |
|
|
|
|
Maryland Bankcorps loan loss reserves to NPAs ratio was 26.3%, compared to the
Mid-Atlantic peer group median of 56.7%; |
|
|
|
|
Maryland Bankcorps Texas Ratio (defined as NPAs and Loans 90 plus days late
divided by tangible common equity plus loan loss reserves) was 50.3%, compared to the
Mid-Atlantic peer group median of 20.1% (lower is stronger); |
|
|
|
|
Maryland Bankcorps LTM return on average assets (ROAA) was (1.31%), compared with
the Mid-Atlantic peer group median of 0.52%; and |
|
|
|
|
Maryland Bankcorps LTM return on average equity (ROAE) was (15.05%), compared
with the Mid-Atlantic peer group median of 5.53%. |
Other pertinent peer company financial metrics are presented below.
|
|
|
|
|
|
|
|
|
|
|
Peer Median |
|
|
MBKP |
|
Price / Book % |
|
|
88.2 |
|
|
|
34.7 |
|
Price / Tang. Book % |
|
|
90.4 |
|
|
|
34.7 |
|
Price / LTM Net Income x |
|
|
12.3 |
|
|
nm |
Return on Average Assets LTM % |
|
|
0.52 |
|
|
|
-1.31 |
|
Return on Average Equity LTM % |
|
|
5.53 |
|
|
|
-15.05 |
|
Dividend Yield % |
|
|
2.17 |
|
|
|
0 |
|
Net Interest Margin % |
|
|
3.71 |
|
|
|
4.05 |
|
Efficiency Ratio % |
|
|
71.19 |
|
|
|
92.70 |
|
Dividend Payout Ratio % |
|
|
28.11 |
|
|
|
0 |
|
Tang. Equity / Tang. Assets % |
|
|
8.50 |
|
|
|
8.73 |
|
Tier 1 Ratio % |
|
|
12.20 |
|
|
|
13.22 |
|
Risk Based Ratio % |
|
|
13.29 |
|
|
|
14.49 |
|
Non-performing Assets / Assets % |
|
|
1.65 |
|
|
|
5.19 |
|
Texas Ratio % |
|
|
20.05 |
|
|
|
50.32 |
|
Loan Loss Reserve / Loans % |
|
|
1.46 |
|
|
|
2.89 |
|
Loan Loss Reserve / NPAs % |
|
|
56.72 |
|
|
|
36.3 |
|
Financial results for the LTM ended June 30, 2010, excluding stock price, were utilized as
that was the most recent available information as of September 1, 2010 (the date the merger
agreement was signed). No financial institution used in the above analyses as a comparison is
identical to Maryland Bankcorp. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect the public trading
values of the financial institutions to which Maryland Bankcorp was compared.
Analysis of Selected Comparable Companies Mid-Atlantic Peer Group Old Line Bancshares
Monocacy compared selected financial and operating results of Old Line Bancshares to a peer
group that included
68
108 publicly traded commercial banks in the Mid-Atlantic region (as defined by
SNL Financial and including Virginia), which were primarily selected based on comparable asset
size. Specifically the peer group identified had assets between $250 million and $650 million.
The peer group had median trading multiples of 88.2% of book value per share, 90.4% of tangible
book value per share, and 12.3x LTM earnings per share. This compares with Old Line Bancshares
financial metrics of 85.4% of book value per share, 85.4% of tangible book value per share, and
18.5x LTM earnings per share as of June 30, 2010.
This comparison showed that, among other things, for the LTM ended June 30, 2010:
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Old Line Bancshares tangible equity to tangible assets ratio was 9.22%, compared
with the Mid-Atlantic peer group median of 8.50%; |
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Old Line Bancshares Tier 1 Ratio was 11.31%, compared with the Mid-Atlantic peer
group median of 12.20%; |
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Old Line Bancshares Risk Based Capital Ratio was 12.19%, compared with the
Mid-Atlantic peer group median of 13.29%; |
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Old Line Bancshares ratio of NPAs (excluding total accruing loans contractually
past due 90 days or more) to total assets was 1.33%, compared with the Mid-Atlantic
peer group median of 1.65%; |
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Old Line Bancshares loan loss reserves to loans ratio was 0.94%, compared to the
Mid-Atlantic peer group median of 1.46%; |
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Old Line Bancshares loan loss reserves to NPAs ratio was 49.9%, compared to the
Mid-Atlantic peer group median of 56.7%; |
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Old Line Bancshares Texas Ratio (defined as NPAs and Loans 90 plus days late
divided by tangible common equity plus loan loss reserves) was 13.7%, compared to the
Mid-Atlantic peer group median of 20.1% (lower is stronger); |
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Old Line Bancshares LTM ROAA was 0.52%, compared with the Mid-Atlantic peer group
median of 0.52%; and |
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Old Line Bancshares LTM ROAE was 5.25%, compared with the Mid-Atlantic peer group
median of 5.53%. |
Other pertinent peer company financial metrics are presented below.
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Peer Median |
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OLBK |
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Price / Book % |
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88.2 |
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85.37 |
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Price / Tang. Book % |
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90.4 |
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85.37 |
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Price / LTM Net Income x |
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12.3 |
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18.5 |
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Return on Average Assets LTM % |
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0.52 |
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0.52 |
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Return on Average Equity LTM % |
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5.53 |
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5.25 |
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Dividend Yield % |
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2.17 |
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1.47 |
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Net Interest Margin % |
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3.71 |
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3.68 |
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Efficiency Ratio % |
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71.19 |
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73.45 |
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Dividend Payout Ratio % |
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28.11 |
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27.27 |
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Tang. Equity / Tang. Assets % |
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8.50 |
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9.22 |
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Tier 1 Ratio % |
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12.20 |
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11.31 |
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Risk Based Ratio % |
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13.29 |
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12.19 |
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Non-performing Assets / Assets % |
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1.65 |
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1.33 |
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Texas Ratio % |
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20.05 |
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13.69 |
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Loan Loss Reserve / Loans % |
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1.46 |
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0.94 |
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Loan Loss Reserve / NPAs % |
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56.72 |
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49.9 |
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Financial results for the LTM ended June 30, 2010, excluding stock price, were utilized as
that was the most recent available information as of September 1, 2010 (the date the merger
agreement was signed). No financial institution used in the above analyses as a comparison is
identical to Old Line Bancshares. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect the public trading
values of the financial institutions to which Old Line Bancshares was compared.
69
Trading Analyses
Monocacy reviewed the stock prices, relative performance and trading volumes of both Maryland
Bankcorp and Old Line Bancshares over various time frames and to various indices. Additionally,
Monocacy charted the published stock price and tangible book value multiples for both companies
over the last five years. Monocacy noted that Old Line Bancshares has significantly greater
liquidity in its stock when comparing the company to Maryland Bankcorp.
Trading / Volume / Stock Performance Analysis (1)(2)
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MBKP |
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OLBK |
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August 31, 2010 |
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$ |
14.60 |
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$ |
7.95 |
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August 31, 2009 |
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$ |
12.50 |
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$ |
7.25 |
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Total Return |
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|
16.8 |
% |
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9.7 |
% |
|
Volume (actual) |
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|
24,497 |
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|
389,425 |
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SNL Bank Index Return |
|
|
-15.2 |
% |
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|
-15.2 |
% |
|
KBW Bank Index Return |
|
|
-8.1 |
% |
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|
-8.1 |
% |
|
Dividends Per Share |
|
$ |
|
|
|
$ |
0.12 |
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|
|
(1) |
|
All averages and return data are as of August 31, 2010. |
|
(2) |
|
Source: SNL Financial |
Analysis of Selected Comparable Transactions
Monocacy reviewed and compared actual information for 81 completed or pending bank merger
transactions announced from a period of June 30, 2008 to August 31, 2010, throughout the
Mid-Atlantic and Southeastern United States (as defined by SNL Financial and referred to herein as
Group 1). The transactions summarized below for Group 1 involved commercial banks located in
those states comprising the Mid-Atlantic and Southeast. Additionally, the transactions reviewed
included transactions where 100% of the ownership of the selling bank was acquired by the buyer.
The Group 1 does not include merger of equals transactions.
Monocacy then created a subset of Group 1 (referred to as Group 2) targeting only those
transactions reported in the Mid-Atlantic region of the United States, including Maryland and
Virginia. Again, the transactions reviewed only included transactions where 100% of the ownership
of the selling target bank was acquired by the buyer. The Group 2 subset also excludes merger of
equals transactions.
Monocacy then further honed Group 1 transactions where NPAs of greater that 1.50% of total
assets were reported by the seller (referred to as Group 3). This subset creating Group 3
transactions more clearly defines sellers experiencing similar, but not exact, operating and
regulatory issues experienced by Maryland Bankcorp.
Finally, Monocacy honed Group 2 transactions where NPAs of greater that 1.50% of assets were
reported by the seller (referred to as Group 4). This subset creating Group 4 transactions,
again, more clearly defines sellers experiencing similar, but not exact, operating and regulatory
issues experienced by Maryland Bankcorp.
From all of the reviews, Monocacy focused on the Group 3 and Group 4 subset transactions to
compare the Old Line Bancshares/Maryland Bankcorp merger due to the similarities of these
transactions to the merger and the operational challenges and regulatory pressures experienced by
Maryland Bankcorp, as discussed herein. The results of all four groupings are presented below for
review. The comparison in the text following the table is extracted from the Group 3 and 4
comparable data though all four reviews were incorporated into the findings and support of the
opinion.
70
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Tang. |
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Price / |
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Price / |
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Buyer P/B |
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Equity / |
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# of |
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Price / |
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Tang. |
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Core LTM |
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Price / |
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Price / |
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Premium / |
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Day of |
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Tang. |
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NPA / |
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Reserve / |
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Efficiency |
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Identifier |
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Groupings |
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Deals |
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Book |
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Book |
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Income |
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Assets |
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Deposits |
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Market |
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Announcement |
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Assets |
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Assets |
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Loans |
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Ratio |
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ROA |
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ROE, LTM |
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Group 1 |
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Mid-Atlantic and Southeast |
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81 |
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93.82 |
% |
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109.42 |
% |
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26.70 |
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|
6.79 |
% |
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|
8.87 |
% |
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40.2 |
% |
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104.26 |
% |
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8.78 |
% |
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1.50 |
% |
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61.50 |
% |
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82.19 |
% |
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-0.31 |
% |
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5.91 |
% |
Group 2 |
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Mid-Atlantic Only |
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31 |
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83.13 |
% |
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110.29 |
% |
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8.61 |
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|
6.27 |
% |
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8.63 |
% |
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40.2 |
% |
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104.89 |
% |
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7.60 |
% |
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1.78 |
% |
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62.48 |
% |
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81.00 |
% |
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-0.12 |
% |
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-3.63 |
% |
Group 3 |
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Mid-Atlantic and Southeast, NPA > 1.50% subset |
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39 |
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66.54 |
% |
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79.33 |
% |
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8.31 |
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4.25 |
% |
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5.15 |
% |
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39.6 |
% |
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90.53 |
% |
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7.19 |
% |
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4.74 |
% |
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51.59 |
% |
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90.09 |
% |
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-1.22 |
% |
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-13.66 |
% |
Group 4 |
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Mid-Atlantic Only, NPA > 1.50% subset |
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16 |
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79.49 |
% |
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99.73 |
% |
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8.31 |
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4.25 |
% |
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5.78 |
% |
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52.1 |
% |
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93.80 |
% |
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5.73 |
% |
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5.19 |
% |
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43.35 |
% |
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82.19 |
% |
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-0.82 |
% |
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-9.59 |
% |
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|
OLBK / MBKP Transaction |
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1 |
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|
79.33 |
% |
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79.33 |
% |
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nm |
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5.75 |
% |
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6.73 |
% |
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111.9 |
% |
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83.37 |
% |
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8.73 |
% |
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5.19 |
% |
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58.51 |
% |
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92.70 |
% |
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-0.55 |
% |
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-15.05 |
% |
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Buyer/ Target |
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Capital Funding Bancorp Inc/ AmericasBank Corp.
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Chemung Financial Corp./ Canton Bancorp Inc. |
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Continental Bank Holdings Inc/ First Resource Bk |
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Premier Financial Bancorp Inc./ Abigail Adams National Bancorp |
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Roma Financial Corp. (MHC)/ Sterling Banks Inc. |
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First Chester County Corp./ American Home Bank NA |
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Northwest Bancshares, Inc./ NexTier Inc. |
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Peoples United Financial Inc./ Smithtown Bancorp Inc. |
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Tower Bancorp Inc./ First Chester County Corp. |
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F.N.B. Corp./ Comm Bancorp Inc. |
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First Niagara Finl Group/ Harleysville National Corp. |
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Capital One Financial Corp./ Chevy Chase Bank F.S.B. |
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Quontic Bank Acquisition Corp./ Golden First Bank |
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Fidelity S&L Assn./ Croydon Savings Bank |
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Customers USA Bank/ Berkshire Bancorp Inc. |
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Investor group/ Hampton Roads Bankshares Inc. |
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|
This comparison showed that based on the price of $30.93 per Maryland Bankcorp share and
Maryland Bankcorps financial condition as of June 30, 2010:
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|
The transaction price was 79.3% of book value per share and 79.3% of tangible book
value per share, respectively, compared with the Group 4 comparable transaction group
medians of 79.5% and 99.7%, respectively. Group 3 transactions had median multiples of
66.5% and 79.3%, respectively; |
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|
The transaction price to LTM earnings multiple was not meaningful due to LTM losses
reported at Maryland Bankcorp, compared with the Group 4 comparable transaction group
median of 8.31x LTM earnings and 8.31x LTM earnings for the Group 3 transactions; |
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|
The transaction price was 5.75% of assets, compared with the Group 4 comparable
transaction group median of 4.25% for all bank transactions and 4.25% for Group 3 bank
transactions; |
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|
The transaction price was 6.73% of deposits, compared with the Group 4 comparable
transaction group median of 5.78% for all bank transactions and 5.15% for Group 3 bank
transactions; and |
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|
The transaction price represented a 111.9% one-day trading premium to Maryland
Bankcorps common stock trading price as of August 31, 2010, compared with the
comparable transaction group median one-day premium of 52.1% for the Group 4 and 39.6%
for the Group 3 transactions. |
Monocacy recognized that no transaction reviewed was identical to the merger and that,
accordingly, any analysis of comparable transactions necessarily involves complex considerations
and judgments concerning differences in financial and operating characteristics of the parties to
the transactions being compared.
71
Dividend Discount Analysis Maryland Bankcorp
Monocacy calculated an estimated equity value per share for Maryland Bankcorp based upon the
values, discounted to the present, of estimates of projected dividends and theoretical dividends
(with retained earnings to support growth) from the fiscal year ending December 31, 2010 through
the fiscal year ending December 31, 2014 and a projected year 2014 terminal value (assuming
Maryland Bankcorp continued to operate as an independent company). In conducting its analysis,
Monocacy utilized financial estimates provided by and deemed reasonable by Maryland Bankcorp senior
management for 2010 through 2014. Monocacy further assumed, which was deemed reasonable by
Maryland Bankcorp management, a dividend distribution of $0.00 per share in 2010 through 2014 due
to the restrictions placed upon Maryland Bankcorp from its primary regulator and loss recorded over
the past several quarters, thereby restricting any payments of dividends. Additionally, the
theoretical dividends scenario for Maryland Bankcorp assumed a dividend payout ratio designed to
retain sufficient capital to maintain total risked based capital at 14.00% as required by Maryland
Bankcorps primary regulator, if even achievable.
This analysis utilized a discount rate of 15.0% and an average of terminal value indications,
based on a multiple of 100% multiplied by projected 2014 tangible book value and 16.0 multiplied by
2014 net income. The discount rate was derived utilizing the Ibbotson and Associates 2009 Yearbook
on cost of equity buildup, in addition to Monocacy analytical judgment. The terminal multiples
were estimated based on a return to more normalized valuation levels based on historical data.
There is no assurance such values would be realized. The analysis resulted in an estimated equity
value range per share of $16.28 to $22.75 for projected dividends and $15.04 to $22.61 for
theoretical dividends. Additionally, Monocacy ran sensitivity analyses based on a range of
discounts rates between 13% and 17% and terminal multiples between 60.0% and 130% of tangible book
value (based on minimum and maximum of findings in comparable transactions above) and price to
earnings multiples between 14.0x and 18.0x. This sensitivity analysis produced value ranges of
$12.52 to $32.29 per Maryland Bankcorp share, with most scenarios never exceeding the $30.93 per
share to be received by Maryland Bankcorp stockholders in the merger.
Moreover, it should be noted that beyond the current restrictions in place disallowing
Maryland Bankcorp to pay dividends, the theoretical dividend does not produce any expected
dividends until the last year of the assumption period due to the 14% risk based capital
requirement imposed by Maryland Bankcorps primary regulator.
Financial Impact Analysis
Monocacy performed pro forma merger analyses that combined Maryland Bankcorp and Old Line
Bancshares projected income statement and balance sheet information. Assumptions regarding the
accounting treatment, acquisition adjustments and cost savings were used to calculate the financial
impact that the merger would have on certain projected financial results of the pro forma company.
This analysis indicated that the merger is expected to be accretive to the combined companys
estimated GAAP earnings per share over a two year horizon, though dependent upon the timing and
execution of cost savings and synergies. This analysis was based on managements earnings
estimates for Maryland Bankcorp and Old Line Bancshares and estimated cost savings on projected
non-interest expenses. Maryland Bankcorps and Old Line Bancshares earnings projections were
provided by each companys respective management. For all of the above analyses, the actual
results achieved by the combined company following the merger will vary from the projected results
and the variations may be material.
Maryland Bankcorp and Monocacy entered into an engagement letter relating to the financial
advisory services to be provided by Monocacy in connection with other duties originally
contemplated and the resulting merger. Maryland Bankcorp has agreed to pay Monocacy an aggregate
advisory fee in an amount up to 1.5% of the aggregate merger consideration (including holding
company debt assumed and other items of value), or approximately $390,000 (assuming no adjustments
to the aggregate merger consideration pursuant to the merger agreement). Maryland Bankcorp has
already paid Monocacy an initial non-refundable retainer fee of $15,000 upon the execution of the
engagement letter, $25,000 upon Monocacys delivery of its fairness opinion, and approximately
$78,000 (20% of the total fee) upon the execution of the merger agreement. Maryland Bankcorp will
pay Monocacy the balance of its fee upon the completion of certain milestones as follows: 10% of
the total fee upon mailing of this joint proxy statement/prospectus; 10% of the total fee upon the
receipt of approval of the merger agreement and the merger by Maryland Bankcorps stockholders; and
the remaining balance (approximately 60% of the total fee) upon the closing of the merger. Maryland
Bankcorp has also agreed to reimburse certain of Monocacys reasonable out-of-pocket expenses up to
$10,000 (or more with Maryland Bankcorps consent) incurred in connection with its engagement and
to indemnify Monocacy against certain liabilities arising out of rendering its opinion. The full
text of Monocacys opinion, which sets forth the assumptions made, matters considered and
limitations on the
72
review undertaken, is attached as Annex C to this joint proxy statement/prospectus. Maryland
Bankcorps board of directors urges the holders of Maryland Bankcorp common stock to read the
opinion in its entirety.
Terms of the Merger
Effects of the Merger
Upon completion of the merger, Maryland Bankcorp will be merged with and into Old Line
Bancshares and the separate legal existence of Maryland Bankcorp will cease. All property (with
minor exceptions for certain personal property), rights, powers, duties, obligations and
liabilities of Maryland Bankcorp will automatically be deemed transferred to Old Line Bancshares,
as the surviving corporation in the merger. Old Line Bancshares will continue to be governed by
its articles of incorporation and bylaws as in effect immediately prior to the merger.
The merger agreement provides that, pursuant to an Agreement and Plan of Merger by and between
Old Line Bank and Maryland Bank & Trust, dated as of September 1, 2010, immediately after the
merger Maryland Bank & Trust will be merged with and into Old Line Bank.
Consideration to be Paid in the Merger
Pursuant to the terms of the merger agreement, Old Line Bancshares will acquire Maryland
Bankcorp for consideration of $20 million, subject to adjustment, in cash and stock as described
herein and in the merger agreement, which we refer to as the aggregate merger consideration.
The $20 million aggregate merger consideration is subject to adjustment based on certain
operating losses, asset quality changes and merger-related expenses as follows:
|
|
|
Operating Loss Adjustments: Any consolidated operating losses of Maryland Bankcorp
reported for any quarter ending after March 31, 2010, excluding any provisions for loan
losses, will be deducted from the aggregate merger consideration on a post-tax,
dollar-for-dollar basis. |
|
|
|
|
Asset Quality Adjustments: Pursuant to the terms of the merger agreement, Old Line
Bancshares will review any credit of Maryland Bankcorp that, after March 31, 2010
(which credits have previously been disclosed to Old Line Bancshares) becomes
classified as special mention, substandard, non-accrual or other real estate owned
(OREO), requires an allocation under Financial Accounting Standards Board Statement
No. 114 or is more than 90 days past due, and assign a current estimate of projected
loss for each such classified item within 30, and no later than five, business days
prior to the closing date of the merger. The difference between such estimate of
projected loss for each such classified item and the Old Line Bancshares initial
estimate of projected loss as of September 1, 2010, will be deducted from the aggregate
merger consideration on a post-tax, dollar-for-dollar basis. If Old Line Bancshares
initial estimate of projected loss for each such classified item exceeds the actual
loss or initial estimate provided within 30 days of closing, such excess will be used
to offset any of these deductions. |
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|
|
|
Maximum Expense Amount. The merger agreement provides that each party will pay its
own expenses incurred in connection with the merger, but that all fees and expenses
incurred by Maryland Bankcorp, including legal, investment banking and any other fees,
may not exceed $450,000, not including any amounts for extended officer and director
liability insurance for officers and directors of Maryland Bankcorp that will be
purchased by Old Line Bancshares contemporaneously with the closing of the merger. Any
costs or expenses Maryland Bankcorp incurs in connection with the merger agreement and
the merger that exceed the $450,000 expense cap will be deducted from the aggregate
merger consideration on a post-tax, dollar-for-dollar basis. |
In addition, as discussed further below under What Maryland Bankcorp Stockholders Will
Receive in the Merger, as a result of the exchange ratio ceasing to adjust if the average price of
a share of Old Line Bancshares common stock, as calculated in accordance with the merger agreement,
rises above $11.45 or falls below $7.63, the aggregate merger consideration will be adjusted as
follows:
|
|
|
If the average price exceeds $11.45 then the aggregate merger consideration will
increase by the amount calculated by (i) multiplying the difference between $11.45 and
the average price by the exchange ratio of |
73
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|
|
2.7012, and then (ii) multiplying the resulting number by the number of shares of Maryland
Bankcorp common stock outstanding on the closing date of the merger, which should be
646,626. |
|
|
|
If the average price is less than $7.63, then the aggregate merger consideration
will decrease by the amount calculated by (i) multiplying the difference between $7.63
and the average price by the exchange ratio of 4.0537, and then (ii) multiplying the
resulting number by the number of shares of Maryland Bankcorp common stock outstanding
on the closing date of the merger. |
Changes in the average price above $11.45 or below $7.63 will not, however, impact the number
of shares of Old Line Bancshares common stock that will be issued in exchange for a share of
Maryland Bankcorp common stock in the merger (i.e. the per-share stock consideration) since at such
point the exchange ratio will be fixed, but such changes will impact the amount of cash that will
be issued in exchange for each share of Maryland Bankcorp common stock in the merger (i.e. the
per-share cash consideration), as discussed further below.
What Maryland Bankcorp Stockholders Will Receive in the Merger
Each share of Maryland Bankcorp common stock that you hold at the effective time of the merger
will automatically be converted into the right to receive either cash, which we refer to as the
per-share cash consideration, or shares of Old Line Bancshares common stock, which we refer to as
the per-share stock consideration, as discussed below, except for shares of Maryland Bankcorp
common stock held by stockholders who perfect their dissenters rights as discussed in
Dissenters Rights.
The per-share cash consideration will be equal to the aggregate merger consideration (as
adjusted) divided by the number of shares of Maryland Bankcorp common stock outstanding on the
closing date of the merger, rounded down to the nearest ten-thousandths. Assuming there are no
adjustments to the aggregate merger consideration, that the average price of Old Line Bancshares
common stock, as defined in the merger agreement, is between $7.63 and $11.45, and that there are
646,626 shares of Maryland Bankcorp common stock outstanding on the closing date of the merger, the
per-share cash consideration will be $30.9298. However, as illustrated in the table below, the
per-share cash consideration will increase if the average price of the Old Line Bancshares common
stock is above $11.45 and decrease if the average price is below $7.63, since changes outside of
this range will impact the aggregate merger consideration.
The per-share stock consideration will be equal to the number of shares of Old Line Bancshares
common stock equal to the quotient of the per-share cash consideration divided by the average price
of the Old Line Bancshares common stock, as defined in the merger agreement, rounded down to the
nearest ten-thousandths (we refer to this figure as the exchange ratio). If the average price is
below $7.63 or above $11.45, however, the exchange ratio with respect to the per-share stock
consideration will be fixed at 2.70124 shares and 4.0537 shares, respectively, and will not be
calculated based on the aggregate merger consideration divided by the number of outstanding shares
of Maryland Bankcorp common stock (i.e. will not be based on the per-share cash consideration
figure). As a result, the value of the per-share stock consideration will increase if the average
price is above $11.45, because you will not receive fewer shares to offset such increase in the
average price, and will decrease if the average price is below $7.63, since you will not receive
additional shares to offset such decrease in the average price.
Similarly, the per-share cash consideration will increase if the average price is above $11.45
and decrease if the average price is below $7.63, since the aggregate merger consideration will be
adjusted upward or downward, respectively, when the average price is outside of this range.
In addition, Old Line Bancshares will not issue fractional shares of Old Line Bancshares
common stock to Maryland Bankcorp stockholders. If you are otherwise entitled to receive a
fractional share of Old Line Bancshares common stock under the exchange procedure described above,
you will instead have the right to receive cash, without interest, in an amount equal to the
product of the fraction of a share that would otherwise be due to you and the average price of Old
Line Bancshares common stock as calculated pursuant to the merger agreement.
As you can see from the table below, the value of the per-share stock consideration (based on
the average price) will generally be equal to the value of the per-share cash consideration. If
the average price is above $11.45, however, the value of the per-share stock consideration will
exceed the per-share cash consideration. This is a result of the exchange ratio being fixed at
2.7012 if the average price is above $11.45 and 4.0537 if the average price is less than $7.63 and
the fact that the cash paid for a fractional share is based solely on the average price, without an
upper and lower limit as there is for the exchange ratio. Since a significantly larger component
of the per-share stock consideration is paid in cash for a fractional
74
share at an average price higher than $11.45 than at an average price lower than $7.63, the impact
of changes in the average price has a more significant impact on the value of the cash paid for
fractional shares as the average price increases and more cash is paid for fractional shares than
is the case with the impact when the average price is lower than $7.63. Since Maryland Bankcorp
stockholders will be paid the merger consideration due them on an aggregate basis, however (in
other words, you will not be paid for a fractional share with respect to each share of Maryland
Bankcorp common stock you own but only for a fractional share of Old Line Bancshares common stock
you would be due on an aggregate basis after all your Maryland Bankcorp shares are converted into
the right to receive the per-share merger consideration), the difference between the value of the
per-share cash consideration and the per-share stock consideration will not be as large on a
per-stockholder basis as the below table may imply if you simply multiplied your holdings in
Maryland Bankcorp by the total figures in the table.
As defined in the merger agreement, the average price of the Old Line Bancshares common
stock is equal to the weighted average of (i) the closing prices of Old Line Bancshares common
stock as reported on the NASDAQ Capital Market and (ii) the price or prices at which shares of Old
Line Bancshares common stock are sold in a securities offering conducted by Old Line Bancshares
(other than in connection with a merger, exchange offer or other transaction other than an issuance
of new shares for cash) at any time during the 90-day period ending five days prior to the
anticipated closing date of the merger (the Determination Period). However, for the purposes of
calculating the average price, the price or prices at which shares of Old Line Bancshares common
stock are sold in an offering will not exceed the greater of (i) 110% of the closing price of Old
Line Bancshares common stock as reported on the NASDAQ Capital Market on the last trading day of
the quarter preceding the Determination Period, or (ii) the book value per share of Old Line
Bancshares common stock, determined as of the end of the quarter preceding the Determination Period
in accordance with accounting principles generally accepted in the United States.
Because the average price of the Old Line Bancshares common stock takes into account stock
values other than trading prices, however, the value of the per-share stock consideration may be
higher or lower than the value of the per-share cash consideration than it would be if based on
recent trading values alone.
Under the terms of the merger agreement, up to 100% but not less than 95% of the outstanding
shares of Maryland Bankcorp common stock will be exchanged for Old Line Bancshares common stock and
not more than 5% of the outstanding shares of Maryland Bankcorp common stock will be exchanged for
cash. If holders of more than 5% of the outstanding shares of Maryland Bankcorp common stock elect
to receive cash (including those that perfect dissenters rights), the number of shares that you
elected to exchange for cash (if any) will be reduced through an allocation formula and the rest of
your shares will be exchanged for stock consideration. However, all holders of Maryland Bankcorp
common stock who elect to receive the stock consideration will receive that form of consideration.
Accordingly, after Maryland Bankcorp stockholder elections have been tabulated, the elected
amounts of stock or cash may be adjusted to achieve a mix of consideration to Maryland Bankcorp
stockholders that consists of up to 100% but not less than 95% in Old Line Bancshares common stock
and not more than 5% in cash. Therefore, you may receive significantly less cash or more shares of
Old Line Bancshares common stock than you elect.
If you do not make a valid election, you will be deemed to have made no election. No election
shares will be converted into the stock consideration.
For more information about the allocation rules and the potential effects of the allocation
procedures described above, see Terms of the Merger Election and Exchange Procedures and
Terms of the Merger Allocation Procedures and Proration.
75
Examples
The following table provides examples of what the per-share stock consideration and per-share
cash consideration would be at various average prices, as calculated pursuant to the merger
agreement. This illustration assumes that there are no adjustments to the aggregate merger
consideration and 646,626 shares of Maryland Bankcorp common stock are outstanding on the closing
date of the merger.
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Per-Share Stock Consideration |
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Per Share Cash Consideration |
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|
|
|
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Value of |
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Cash in |
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Total |
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Impact on |
|
|
|
|
|
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No. |
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Shares |
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Lieu of |
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Value |
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Aggregate |
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Per-Share Cash |
Average |
|
Exchange |
|
Shares |
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Received |
|
Fractional |
|
Received |
|
Merger |
|
Consideration |
Price |
|
Ratio |
|
Received |
|
(1) |
|
Shares(2) |
|
(3) |
|
Consideration |
|
(2) |
$12.50 |
|
2.7012 |
|
2 |
|
$25.00 |
|
$8.76 |
|
$33.76 |
|
Increase of $678,957 |
|
$31.97 |
$12.00 |
|
2.7012 |
|
2 |
|
$24.00 |
|
$8.41 |
|
$32.41 |
|
Increase of $355,644 |
|
$31.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$11.45 |
|
2.7012 |
|
2 |
|
$22.90 |
|
$8.02 |
|
$30.92 |
|
None |
|
$30.92 |
$11.00 |
|
2.8118 |
|
2 |
|
$22.00 |
|
$8.92 |
|
$30.92 |
|
None |
|
$30.92 |
$10.50 |
|
2.9456 |
|
2 |
|
$21.00 |
|
$9.92 |
|
$30.92 |
|
None |
|
$30.92 |
$10.00 |
|
3.0929 |
|
3 |
|
$30.00 |
|
$0.92 |
|
$30.92 |
|
None |
|
$30.92 |
$9.50 |
|
3.2557 |
|
3 |
|
$28.50 |
|
$2.42 |
|
$30.92 |
|
None |
|
$30.92 |
$9.00 |
|
3.4366 |
|
3 |
|
$27.00 |
|
$3.92 |
|
$30.92 |
|
None |
|
$30.92 |
$8.50 |
|
3.6388 |
|
3 |
|
$25.50 |
|
$5.42 |
|
$30.92 |
|
None |
|
$30.92 |
$8.00 |
|
3.8662 |
|
3 |
|
$24.00 |
|
$6.92 |
|
$30.92 |
|
None |
|
$30.92 |
$7.63 |
|
4.0537 |
|
4 |
|
$30.52 |
|
$0.40 |
|
$30.92 |
|
None |
|
$30.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7.50 |
|
4.0537 |
|
4 |
|
$30.00 |
|
$0.40 |
|
$30.40 |
|
Decrease of $340,448 |
|
$30.40 |
$7.00 |
|
4.0537 |
|
4 |
|
$28.00 |
|
$0.37 |
|
$28.37 |
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Decrease of $1,649,866 |
|
$28.37 |
$6.50 |
|
4.0537 |
|
4 |
|
$26.00 |
|
$0.34 |
|
$26.34 |
|
Decrease of $2,959,284 |
|
$26.35 |
$6.00* |
|
4.0537 |
|
4 |
|
$24.00 |
|
$0.32 |
|
$24.32 |
|
Decrease of $4,268,701 |
|
$24.32 |
$5.50 |
|
4.0537 |
|
4 |
|
$22.00 |
|
$0.29 |
|
$22.29 |
|
Decrease of $5,578,119 |
|
$22.30 |
$5.00 |
|
4.0537 |
|
4 |
|
$20.00 |
|
$0.26 |
|
$20.26 |
|
Decrease of $13,112,44 |
|
$20.28 |
$4.50 |
|
4.0537 |
|
4 |
|
$18.00 |
|
$0.24 |
|
$18.24 |
|
Decrease of $11,803,046 |
|
$18.25 |
|
|
|
* |
|
If the average price falls below $6.00, Maryland Bankcorp may elect to terminate the merger
agreement, though it may not exercise this right, and Old Line Bancshares can prevent Maryland
Bankcorp from terminating the merger agreement if it increases the aggregate merger
consideration as provided for in the merger agreement. |
|
(1) |
|
Calculated as the average price multiplied by the number of shares received. |
|
(2) |
|
Rounded down to the nearest whole cent. Note that cash in lieu of fractional shares
will be paid only with respect to the aggregate per-share stock consideration issued to a
particular stockholder and will not be paid on a per-share of Maryland Bankcorp common stock
basis. |
|
(3) |
|
Calculated as the sum of the value of the shares received and the cash paid in lieu
of fractional share. |
76
Maryland Bankcorp Price Termination Right
Maryland Bankcorp has the option, but is not required, to terminate the merger agreement if
the average price of Old Line Bancshares common stock falls below $6.00, unless Old Line
Bancshares, in its sole discretion, increases the aggregate merger consideration in stock, cash or
a combination thereof, by an amount equal to the product of (i) $6.00 minus the average price and
(ii) 2,621,231. Maryland Bankcorp cannot predict whether or not it would exercise its right to
terminate the merger agreement if these conditions were met.
The merger agreement does not provide for a resolicitation of Maryland Bankcorp stockholders
in the event that the conditions are met and Maryland Bankcorp chooses to complete the transaction.
Maryland Bankcorps board of directors has made no decision as to whether it would exercise its
right to terminate the merger agreement if the average price of the Old Line Bancshares common
stock fell below $6.00. In considering whether to exercise its right to terminate the merger
agreement, Maryland Bankcorps board of directors would take into account all of the relevant facts
and circumstances that exist at the time and would consult with its financial advisor and legal
counsel.
The fairness opinion received by Maryland Bankcorp from Monocacy is dated as of September 1,
2010, and is based on conditions in effect on that date. Accordingly, the fairness opinion does
not address the possibilities presented if the termination provision relating to the average price
of Old Line Bancshares common stock is triggered, including the possibility that Maryland
Bankcorps board of directors might elect to continue with the merger even if Maryland Bankcorp has
the ability to terminate the merger agreement under that provision. See Opinion of Maryland
Bankcorps Financial Advisor.
Approval of the merger agreement and the merger by Maryland Bankcorps stockholders will
confer on Maryland Bankcorps board of directors the power to complete the merger even if the
price-related termination provision is triggered, without any further action by or re-solicitation
of the votes of Maryland Bankcorp stockholders.
Election and Exchange Procedures
Subject to the allocation process described in the next section, each Maryland Bankcorp
stockholder may elect to receive with respect to his or her shares of Maryland Bankcorp common
stock all Old Line Bancshares common stock, all cash or a combination of common stock and cash.
Stock Election Shares. Maryland Bankcorp stockholders who validly elect to receive shares of
Old Line Bancshares common stock for some or all of their shares will receive the per-share stock
consideration for that portion of the stockholders shares of Maryland Bankcorp common stock equal
to the stockholders stock election. In our discussion below, we sometimes refer to shares held by
stockholders who have made stock elections as stock election shares.
Cash Election Shares. Maryland Bankcorp stockholders who validly elect to receive cash for
some or all of their shares will receive the per-share cash consideration for that portion of the
stockholders shares of Maryland Bankcorp common stock equal to the stockholders cash election,
subject to the allocation process referenced above. In our discussion below, we sometimes refer to
shares held by Maryland Bankcorp stockholders who have made cash elections as cash election
shares.
Any shares held by Maryland Bankcorp stockholders that perfect their dissenters rights (whom
we sometimes refer to as objecting stockholders) under Maryland law with respect to the Merger
will be considered cash election shares for these purposes (but will be paid fair value in
accordance with the procedures set forth in the MGCL instead of the per-cash merger consideration;
see Dissenters Rights).
No-Election Shares. Shares held by Maryland Bankcorp stockholders who (i) indicate that they
have no preference as to whether they receive Old Line Bancshares common stock or cash, (ii) do not
make a valid election, or (iii) fail to properly perfect their dissenters rights will be deemed to
be no election shares. No election shares will be treated as stock election shares. See
Allocation Procedures and Proration below.
A limited amount of cash will be paid to Maryland Bankcorp stockholders, as further described
below. Accordingly, there is no assurance that a Maryland Bankcorp stockholder will receive cash
if that stockholder elects to receive cash consideration with respect to any or all of his or her
shares of Maryland Bankcorp common stock. If the cash consideration elections of Maryland Bankcorp
stockholders (including shares held by objecting stockholders) would exceed the specified limits,
then the procedures for allocating Old Line Bancshares common stock and cash to be received by
77
Maryland Bankcorp stockholders will be followed by Old Line Bancshares exchange agent. See
Allocation Procedures and Proration below.
Election Form; Letter of Transmittal. Included with the copy of this joint proxy
statement/prospectus sent to Maryland Bankcorp stockholders is an election form with instructions
for electing to receive Old Line Bancshares common stock or cash or a combination of stock and cash
for your Maryland Bankcorp stock. Old Line Bancshares and Maryland Bankcorp will also send an
election form to persons who become holders of Maryland Bankcorp common stock after the record date
for the Maryland Bankcorp special meeting and the election deadline. The deadline for making your
election will be 5:00 p.m. on _____________, 2011, unless you are notified in writing of an earlier
election deadline. If the election deadline is made earlier than _____________, 2011, Old Line
Bancshares exchange agent will mail to you written notice of such earlier deadline at least 20
days prior to the date of such earlier deadline. You must carefully follow the instructions on the
election form. Your election will be properly made only if by the deadline date, you have
submitted to Old Line Bancshares exchange agent at its designated office, a properly completed and
signed election form.
If your election is not timely and properly made, your shares of Maryland Bankcorp stock will
be treated as no election shares and you will be entitled to receive solely the common stock
consideration in exchange for your shares of Maryland Bankcorp common stock. Neither Old Line
Bancshares nor its exchange agent will be under any obligation to notify any person of any defects
in an election form.
In addition, within five days of the closing date of the merger, Old Line Bancshares exchange
agent will mail to each holder of Maryland Bankcorp common stock a letter of transmittal with
instructions for submitting your Maryland Bankcorp stock certificate(s) in exchange for the Old
Line Bancshares common stock or the cash consideration. You must carefully follow the instructions
in the letter of transmittal and return a properly executed letter of transmittal and your Maryland
Bankcorp stock certificate(s) to the exchange agent in order to receive the merger consideration
for your shares. The Maryland Bankcorp stock certificate(s) must be in a form that is acceptable
for transfer (as explained in the election form and/or letter of transmittal). Neither Old Line
Bancshares nor its exchange agent will be under any obligation to notify any person of any defects
in a letter of transmittal.
As soon as reasonably practicable after its receipt of properly completed and signed letters
of transmittal and accompanying Maryland Bankcorp stock certificates, Old Line Bancshares exchange
agent will mail certificates representing shares of Old Line Bancshares common stock and/or checks
representing the merger consideration for shares of Maryland Bankcorp common stock, together with
cash in lieu of fractional share interests. No interest will be paid on any cash payment.
Certificates representing shares of Old Line Bancshares common stock will be dated the
effective date of the merger and will entitle the holders to dividends, distributions and all other
rights and privileges of an Old Line Bancshares stockholder from the effective date. Until the
certificates representing Maryland Bankcorp common stock are surrendered for exchange, holders of
such certificates will not receive the cash or stock consideration or dividends or distributions on
the Old Line Bancshares common stock into which such shares have been converted. When the
certificates are surrendered to the exchange agent, any unpaid dividends or other distributions
will be paid without interest. Old Line Bancshares has the right to withhold dividends or any
other distributions on its shares until the Maryland Bankcorp stock certificates are surrendered
for exchange.
Until surrendered, each Maryland Bankcorp stock certificate, following the effective date of
the merger, is evidence solely of the right to receive the aggregate per-share merger
consideration. In no event will either Old Line Bancshares or Maryland Bankcorp be liable to any
former Maryland Bankcorp stockholder for any amount paid in good faith to a public official or
agency pursuant to any applicable abandoned property, escheat or similar law.
Old Line Bancshares will not issue any fractions of a share of common stock. Rather, Old Line
Bancshares will pay cash for any fractional share interest any Maryland Bankcorp stockholder would
otherwise be entitled to receive in the merger. For each fractional share that would otherwise be
issued, Old Line Bancshares will pay by check an amount equal to the fractional share interest to
which the holder would otherwise be entitled multiplied by the average price of Old Line Bancshares
common stock calculated pursuant to the terms of the merger agreement. Shares of Maryland Bankcorp
common stock held by Old Line Bancshares as of the effective date of the merger, if any, will be
canceled.
78
Allocation Procedures and Proration
As a result of the merger, Maryland Bankcorp will be merged with and into Old Line Bancshares.
Each share of Maryland Bankcorp common stock will then be converted into either cash or shares of
Old Line Bancshares common stock as each Maryland Bankcorp stockholder elects, subject to the
limitations described in this joint proxy statement/prospectus. Specifically, notwithstanding the
election of Maryland Bankcorp stockholders to receive cash, Old Line Bancshares common stock or a
combination of stock and cash in the merger: (i) the number of shares of Maryland Bankcorp common
stock that will be exchanged for Old Line Bancshares common stock will be up to 100% but not less
than 95% of the total number of shares of Maryland Bankcorp common stock issued and outstanding on
the effective date of the merger; and (ii) the number of shares of Maryland Bankcorp common stock
that will be exchanged for cash (including shares held by objecting stockholders) will be not more
than 5% of the total number of shares of Maryland Bankcorp common stock issued and outstanding on
the effective date of the merger.
Regardless of the cash elections, however, all Maryland Bankcorp stockholders who elect to
receive Old Line Bancshares common stock consideration and all stockholders who fail to make an
election (other than objecting stockholders) will receive the Old Line Bancshares common stock
consideration for their Maryland Bankcorp shares. Therefore, only Maryland Bankcorp stockholders
who elect to receive cash for their Maryland Bankcorp shares will be affected if the holders of
more than 5% of the Maryland Bankcorp common stock elect to receive cash and perfect their
dissenters rights.
Cash Consideration Equal to or Less Than 5%. If the aggregate number of cash election shares
is less than or equal to 5% of the total number of shares of Maryland Bankcorp common stock issued
and outstanding on the effective date of the merger, then:
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All cash election shares will be converted into the right to receive the per-share
cash consideration; and |
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|
All common stock election shares and all no election shares will be converted into
the right to receive the per-share stock consideration. |
Under-election of the Stock Consideration. If the aggregate number of shares of Maryland
Bankcorp common stock for which stockholders elect to receive cash and perfect dissenters rights
is greater than 5% of the issued outstanding shares of Maryland Bankcorp common stock on the
effective date of the merger, then:
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|
All no election shares will be considered stock election shares and converted into
the right to receive the per-share stock consideration; |
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|
All stock election shares will be converted into the right to receive the per-share
stock consideration; |
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|
Old Line Bancshares exchange agent will convert cash election shares to stock
election shares on a pro rata basis to the extent necessary to have the aggregate
number of stock election shares (including the converted no election shares) equal to
95% of the total number of shares of Maryland Bankcorp common stock issued and
outstanding on the effective date; and |
|
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|
|
The remaining cash election shares will be converted into the right to receive the
per-share cash consideration. |
As discussed above, shares of Maryland Bankcorp common stock held by holders who perfect their
dissenters rights on or prior to the effective time will be considered cash election shares for
purposes of the allocation procedure, although such shares will not be converted into stock
election shares. If holders of more than 5% of the shares of Maryland Bankcorp common stock
exercise their dissenters rights, then Old Line Bancshares has the right to not close the merger
and to terminate the merger agreement. If Old Line Bancshares waives this right, then the number
of shares of Maryland Bankcorp common stock that will be exchanged for cash will exceed 5% of the
total number of shares of Maryland Bankcorp common stock issued and outstanding on the effective
date of the merger, but under the allocation procedures discussed herein only the shares held by
objecting stockholders will be considered cash election shares and all other cash election shares
will be converted into stock election shares, and only objecting stockholders will receive cash for
their shares of Maryland Bankcorp common stock pursuant to the merger.
79
Examples
The following examples illustrate the allocation rules described above. These examples are
only for illustration purposes and do not necessarily reflect what you will receive for your
Maryland Bankcorp shares. In all of these examples, assume that there are 646,626 shares of
Maryland Bankcorp common stock outstanding and that no Maryland Bankcorp stockholders perfect
dissenters rights, which means that no more than 32,331 Maryland Bankcorp shares (or approximately
5% of the total Maryland Bankcorp shares outstanding in these examples) will be converted into the
right to receive cash. The examples do not include the cash Maryland Bankcorp stockholders will
receive for fractional shares of Old Line Bancshares common stock.
Example 1
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
elects to receive Old Line Bancshares common stock for all of these shares.
Result:
Under the allocation rules of the merger, all Maryland Bankcorp stockholders who elect to
receive Old Line Bancshares common stock will receive that election regardless of what other
Maryland Bankcorp stockholders elect. Therefore, our hypothetical Maryland Bankcorp stockholder
who elected to receive Old Line Bancshares common stock for 1,000 Maryland Bankcorp shares will
receive the per-share stock consideration for each of his shares of Maryland Bankcorp common stock.
Example 2
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
elects to receive cash for all of these shares. Also assume that holders of less than 5% of the
outstanding Maryland Bankcorp shares elect to receive cash.
Result:
Under the allocation rules of the merger, no more than 5% of the total Maryland Bankcorp
shares outstanding will be converted into the right to receive cash in the merger. In this
example, less than 5% of the total Maryland Bankcorp shares outstanding chose to be converted into
cash. Therefore, our hypothetical stockholder who elected to receive cash for 1,000 Maryland
Bankcorp shares will be entitled to receive the per-share cash consideration for each of his or her
shares of Maryland Bankcorp common stock, or a total of $30,929.80, assuming that the average price
of the Old Line Bancshares common stock is between $7.63 and $11.45.
Example 3
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
elects to receive cash for all of these shares. Also assume that holders of 52,331 Maryland
Bankcorp shares (or more than 5% or 32,331 of the outstanding Maryland Bankcorp shares) elect to
receive cash.
Result:
Under the allocation rules of the merger, no more than 5% of the total Maryland Bankcorp
shares outstanding will be converted into the right to receive cash in the merger. In this
example, more than 5% of the total Maryland Bankcorp shares outstanding chose to be converted into
cash. Therefore, all elections for cash will be reduced in accordance with the merger allocation
rules. Our hypothetical Maryland Bankcorp stockholder who elected to receive cash for 1,000
Maryland Bankcorp shares will be entitled to receive cash for 617 of his or her Maryland Bankcorp
shares (32,331/52,331 X 1,000 rounded down to the nearest whole share) and Old Line Bancshares
common stock for his or her remaining 383 shares.
80
Example 4
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
elects to receive cash for 500 Maryland Bankcorp shares and Old Line Bancshares common stock for
500 Maryland Bankcorp shares. Also assume that holders of less than 5% of the outstanding Maryland
Bankcorp shares elect to receive cash.
Result:
Under the allocation rules of the merger, no more than 5% of the total Maryland Bankcorp
shares outstanding will be converted into the right to receive cash in the merger. In this
example, less than 5% of the total Maryland Bankcorp shares outstanding chose to be converted into
cash. Therefore, our hypothetical stockholder who elected to receive cash for 500 Maryland
Bankcorp shares and Old Line Bancshares common stock for 500 Maryland Bankcorp shares will be
entitled to receive the election he or she chose. This means that our hypothetical Maryland
Bankcorp stockholder will be entitled to receive in the merger the per-share cash consideration in
exchange for each of the 500 of his or her shares for which he or she elected to receive the
per-share cash consideration and the per-share stock consideration in exchange for each of the
other 500 of his or her shares.
Example 5
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
elects to receive cash for 500 Maryland Bankcorp shares and Old Line Bancshares common stock for
500 Maryland Bankcorp shares. Also assume that holders of 52,331 Maryland Bankcorp shares (or more
than 5% or 32,331 of the outstanding Maryland Bankcorp shares) elect to receive cash.
Results:
Under the allocation rules of the merger, no more than 5% of the total Maryland Bankcorp
shares outstanding will be converted into the right to receive cash in the merger. In this
example, holders of more than 5% of the total Maryland Bankcorp shares outstanding elected for
their shares to be converted into cash. Therefore, all elections for cash will be reduced in
accordance with the merger allocation rules. Our hypothetical Maryland Bankcorp stockholder who
elected to receive Old Line Bancshares common stock for 500 Maryland Bankcorp shares will receive
Old Line Bancshares common stock for that portion of his or her election. However, with respect to
the 500 Maryland Bankcorp shares for which the Maryland Bankcorp stockholder elected to receive
cash, he or she will be entitled to receive cash for 308 Maryland Bankcorp shares (32,331/52,331 X
500 and rounded down to the nearest whole share) and Old Line Bancshares common stock for the
remaining 192 Maryland Bankcorp shares. This means our hypothetical Maryland Bankcorp stockholder
will be entitled to receive in the merger the per-share cash consideration for each of 308 of the
500 shares of Maryland Bankcorp common stock for which he or she elected to receive the cash
consideration and the per-share stock consideration with respect to each of his or her remaining
692 shares.
Example 6
Facts:
Assume that a hypothetical stockholder owns 1,000 shares of Maryland Bankcorp common stock and
either does not make an election or makes an invalid election.
Results:
Under the allocation rules of the merger, all Maryland Bankcorp shares for which no valid
elections were received, other than those Maryland Bankcorp shares held by objecting stockholders,
will be converted into the right to receive Old Line Bancshares common stock. Our hypothetical
Maryland Bankcorp stockholder who did not make a proper election for 1,000 Maryland Bankcorp shares
will be entitled to receive the per-share stock consideration for each of his or her 1,000 shares
of Maryland Bankcorp common stock.
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Included with this joint proxy statement/prospectus sent to each stockholder of Maryland
Bankcorp is an election form that includes instructions for making their election as to the form of
consideration they prefer to receive in the merger. If a Maryland Bankcorp stockholder who does
not perfect dissenters rights does not properly complete and return an election form by the
election deadline set forth under Election and Exchange Procedures Election Form; Letter of
Transmittal, then that stockholder will receive Old Line Bancshares common stock as set forth
above.
Because the United States federal income tax consequences of receiving Old Line Bancshares
common stock, cash or both Old Line Bancshares common stock and cash will differ, Maryland Bankcorp
stockholders are urged to read carefully the information included under the caption - Certain
Federal Income Tax Consequences and to consult their tax advisors for a full understanding of the
mergers tax consequences to them.
Old Line Bancshares Common Stock
Each share of Old Line Bancshares common stock outstanding immediately prior to completion of
the merger will remain outstanding after and unchanged by the merger.
Effective Date
The merger will take effect when all conditions, including obtaining stockholder and
regulatory approval, have been fulfilled or waived, or as soon as practicable thereafter as Old
Line Bancshares and Maryland Bankcorp may mutually select. Regulatory approval cannot be waived.
We presently expect to close the merger by March 31, 2011. See Conditions to the Merger and
Regulatory Approvals.
Representations and Warranties
The merger agreement contains customary representations and warranties relating to, among
other things:
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Organization of Old Line Bancshares and Maryland Bankcorp and their respective
subsidiaries; |
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Capital structures of Old Line Bancshares and Maryland Bankcorp; |
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Valid approval, valid execution and delivery, non-contravention, performance and
enforceability of the merger agreement; |
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Consents or approvals of regulatory authorities or third parties necessary to
complete the merger; |
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Consistency of financial statements with accounting principles generally accepted in
the United States; |
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Absence of material adverse changes, since June 30, 2010, in assets, liabilities,
liquidity, net worth, property, financial condition and results of operations, or any
damage, destruction or loss; |
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Filing of tax returns and payment of taxes; |
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Absence of undisclosed material pending or threatened litigation; |
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Compliance with applicable laws and regulations; |
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Absence of labor or collective bargaining agreements, labor strike, labor suits and
similar matters, and absence of pending or threatened legal proceedings with respect to
labor matters; |
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Retirement and other employee plans and matters relating to the Employee Retirement
Income Security Act of 1974; |
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Quality of title to assets and properties; |
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Maintenance of adequate insurance;
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Absence of undisclosed brokers, finders or similar fees or the retention of
finders, brokers and similar persons; |
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Absence of material environmental violations, actions or liabilities; |
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Accuracy of information supplied by Old Line Bancshares and Maryland Bankcorp for
inclusion in the registration statement, filed under the Securities Act of 1933, of
which this joint proxy statement/prospectus is a part, and all applications filed with
regulatory authorities for approval of the merger; |
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Intellectual property used or owned by Old Line Bancshares and Maryland Bankcorp; |
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Validity and binding nature of loans reflected as assets in the financial statements
of Maryland Bankcorp; |
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Disclosure of material contracts; |
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Material compliance with the Community Reinvestment Act; |
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Compliance with laws related to securities activities of employees; |
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Disclosure of related party transactions; |
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Establishment and maintenance of the allowance for loan losses; |
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Investment securities status; |
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Qualification of the merger as a reorganization under Section 368(a) of the Internal
Revenue Code; |
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Accuracy and completeness of corporate books and records; |
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Receipt of fairness opinion; |
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Absence of certain enumerated changes with respect to Maryland Bankcorp; and |
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Absence of undisclosed liabilities. |
Conduct of Business Pending the Merger
In the merger agreement, Old Line Bancshares and Maryland Bankcorp each agreed to use their
reasonable good faith efforts to preserve their business organizations intact, to maintain good
relationships with employees, and to preserve the goodwill of customers and others with whom they
do business.
In addition, Maryland Bankcorp agreed to conduct its business and to engage in transactions
only in the ordinary course of business, consistent with past practice, except as otherwise
required by or contemplated in the merger agreement or consented to by Old Line Bancshares.
Maryland Bankcorp also agreed in the merger agreement that it will not, and will not allow any
subsidiary to, without the written consent of Old Line Bancshares:
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Change its articles of incorporation or bylaws; |
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Change the number of authorized or issued shares of its capital stock, repurchase
any shares of its capital stock, redeem or otherwise acquire any shares of its capital
stock, or issue or grant options or similar rights with respect to its capital stock or
any securities convertible into its capital stock; |
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Declare, set aside or pay any dividend or other distribution in respect of its
capital stock; |
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Grant any severance or termination pay, except in accordance with policies or
agreements in effect on September 1, 2010;
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Enter into or amend any employment, consulting, severance, compensation,
change-in-control or termination contract or arrangement; |
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Grant job promotions or increase the rate of compensation of, or pay any bonus to,
any director, officer, employee, independent contractor, agent or other person
associated with Maryland Bankcorp or any Maryland Bankcorp subsidiary, except for
routine periodic pay increases, selective merit pay increases and pay raises in
connection with promotions during the period beginning on September 1, 2010 and ending
on the effective date of the merger, provided, however, that any increase in
compensation for an executive officer of Maryland Bankcorp or any Maryland Bankcorp
subsidiary will require Old Line Bancshares prior written consent; |
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Sell or otherwise dispose of any material asset, other than in the ordinary course
of business, consistent with past practice; |
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Subject any asset to a lien, pledge, security interest or other encumbrance, other
than in the ordinary course of business consistent with past practice; |
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Modify in any material manner the manner in which it has previously conducted its
business or enter into any new line of business; |
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Incur any indebtedness for borrowed money, except in the ordinary course of
business, consistent with past practice; |
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Sell or otherwise dispose of any real property; |
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Engage in any merger, consolidation, liquidation, acquisition, leasing, purchase and
assumption transaction or any similar transaction unless failure to engage in such
transaction would constitute a breach of fiduciary duty by Maryland Bankcorps
directors; |
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Take any action that would result in any condition to closing from being satisfied,
except as may be required by applicable law and after written consent or waiver from
Old Line Bancshares; |
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Waive, release, grant or transfer any rights of material value, or modify or change
in any material respect any existing material agreement to which Maryland Bankcorp is a
party; |
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Change any accounting methods, principles or practices, except as may be required by
accounting principles generally accepted in the United States, by any applicable
regulatory authority or as otherwise provided for in the merger agreement; |
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Implement any new employee benefit or welfare plan, or amend any plans except as
required by law; |
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Amend or otherwise modify its underwriting and other lending guidelines and policies
or otherwise fail to conduct its lending activities in the ordinary course of business
consistent with past practice; |
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Enter into, renew, extend or modify any transaction with any affiliate of Maryland
Bankcorp, other than deposit and loan transactions in the ordinary course of business
and that comply with applicable laws and regulations; |
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Enter into any interest rate swap, floor or cap or similar arrangement; |
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Take any action that would give rise to a right of payment to any person under any
employment agreement, except for contractually required compensation; |
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Purchase any security for its investment portfolio other than in compliance with its
existing policies;
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Except as already disclosed to Old Line Bancshares, make any capital expenditure of
$50,000 or more or undertake or enter into any lease, contract or other commitment; |
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Take any action that would preclude the treatment of the merger as a reorganization
under Section 368 of the Internal Revenue Code; |
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Enter into, grant, approve or extend any loan, credit facility, line of credit or
letter of credit in excess of $325,000 in the aggregate to a single borrower, provided
that it may make such a credit extension if Old Line Bancshares does not object to such
credit extension within 48 hours of receipt of information regarding such proposed
credit extension; or |
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Agree to do any of the foregoing. |
Maryland Bankcorp also agreed in the merger agreement, among other things:
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To permit Old Line Bancshares, if Old Line Bancshares elects to do so at its own
expense, to conduct environmental assessments with respect to Maryland Bankcorps and
its subsidiaries properties, whether owned or leased; |
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To modify or change its loan, OREO, accrual, reserve, tax, litigation and real
estate valuation policies and practices, including loan classifications and levels of
reserves, consistent with accounting principles generally accepted in the United States
and applicable banking laws and regulations, so as to be applied on a basis that is
consistent with that of Old Line Bancshares, immediately prior to the effective date of
the merger; |
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To allow at least one representative from Old Line Bancshares to attend any meetings
of the board of directors or a committee thereof of Maryland Bankcorp and Maryland Bank
& Trust; and |
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To dissolve any non-operating subsidiaries of Maryland Bankcorp and Maryland Bank &
Trust prior to the closing of the merger. |
Old Line Bancshares and Maryland Bankcorp jointly agreed, among other things:
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To prepare all applications, registration statements and other documents necessary
to obtain all required regulatory approvals; |
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To submit the proposed merger to their stockholders for approval at a special
meeting to be held as soon as practicable, with an approval recommendation by each
companys board of directors; |
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Subject to the terms of the merger agreement, to take all actions necessary to
complete the transactions contemplated by the merger agreement; |
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To maintain adequate insurance; |
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To maintain books and records consistent with past practice; |
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To file all tax returns and pay all taxes when due; |
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To cooperate with each other in the interest of an orderly, cost-effective
consolidation of operations, and, if mutually agreed, terminate any in-house back
office, support, processing or other operational activities or services of Maryland
Bankcorp or any Maryland Bankcorp subsidiary, including accounting, loan processing and
deposit services, and substitute a contract or arrangement between Old Line Bancshares
or any Old Line Bancshares subsidiary and Maryland Bankcorp for the provision of
similar services to Maryland Bankcorp; |
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To deliver to each other quarterly financial statements; |
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To deliver to each other all documents that may be filed with the SEC or with other
banking or regulatory authorities; and
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To consult upon the form and substance of any press release related to the merger
agreement or the proposed merger. |
In addition, Old Line Bancshares also agreed in the merger agreement, among other things, that
it will purchase extended period officers and directors liability insurance for the officers and
directors of Maryland Bankcorp and that it will not, and will not allow any subsidiary to, without
the consent of Maryland Bankcorp:
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Change its articles of incorporation or bylaws; |
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Repurchase, redeem or otherwise acquire any shares of its capital stock or
securities convertible into capital stock; |
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Take any action that would result in any condition to closing from being satisfied,
except as may be required by applicable law and after written notification to Maryland
Bankcorp; |
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Change any accounting methods, principles or practices, except as may be required by
changes in accounting principles generally accepted in the United States or by any
applicable regulatory authority; |
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Take any action that would preclude the treatment of the merger as a reorganization
under Section 368 of the Internal Revenue Code; or |
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Agree to do any of the foregoing. |
Conditions to the Merger
Old Line Bancshares and Maryland Bankcorps obligations to complete the merger are subject to
various conditions, including the following:
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The merger agreement shall have been approved by the stockholders of both Maryland
Bankcorp and Old Line Bancshares; |
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All necessary governmental approvals for the merger shall have been obtained, and
all waiting periods required by law or imposed by any governmental authority with
respect to the merger shall have expired. See Terms of the Merger Regulatory
Approvals; |
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There shall not be any order, decree or injunction in effect preventing the
completion of the transactions contemplated by the merger agreement; |
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Each of Old Line Bancshares and Maryland Bankcorp shall have received an opinion of
counsel or a letter from their independent certified public accountants that, among
other things, the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code and,
with respect to the opinion received by Maryland Bankcorp, that any gain realized in
the merger will be recognized only to the extent of cash or other property (other than
Old Line Bancshares common stock) received, including cash received in lieu of
fractional share interests. See Certain Federal Income Tax Consequences; |
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Each of Old Line Bancshares and Maryland Bankcorp shall have received an opinion of
counsel from the other partys counsel as to certain matters; and |
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No material adverse change shall have occurred in the business, property, assets,
liabilities, operations, liquidity, income or financial condition of Maryland Bankcorp
or Old Line Bancshares, or any of their subsidiaries. |
In addition to the foregoing, each partys obligations to close the merger are conditioned on:
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The accuracy in all material respects, as of September 1, 2010, and as of the
effective date of the merger, of the representations and warranties of the other,
except as to any representation or warranty that specifically relates to an earlier
date and except as otherwise contemplated by the merger agreement;
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The others performance in all material respects of all covenants and obligations
required to be performed by it at or prior to the effective date of the merger; and |
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Other conditions that are customary for transactions of the type contemplated by the
merger agreement. See Terms of the Merger Representations and Warranties and
Terms of the Merger Conduct of Business Pending the Merger. |
In addition, Old Line Bancshares obligation to close the merger is also contingent on:
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Old Line Bancshares being satisfied that the results of any environmental
assessments it conducted with respect to property of Maryland Bankcorp or its
subsidiaries will not have a material adverse effect on Maryland Bankcorp; |
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Holders of no more than 5% of the outstanding shares of Maryland Bankcorp common
stock perfecting their dissenters rights; |
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Each of Messrs. Watts and Daugherty (and certain of their affiliates) having
delivered to Old Line Bancshares an executed voting limit and standstill agreement.
See Interests of Directors, Officers and Others in the Merger Voting Limit and
Standstill Agreements; |
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Each of Messrs. Watts and Daugherty having delivered to Old Line Bancshares an
executed non-competition agreement; and |
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Each director of Maryland Bankcorp or any Maryland Bankcorp subsidiary having
delivered to Old Line Bancshares an executed voting support agreement. See
Interests of Directors, Officers and Others in the Merger Support Agreements. |
Except for the requirements of Old Line Bancshares and Maryland Bankcorp stockholder approval,
regulatory approvals and the absence of any order, decree or injunction preventing the transactions
contemplated by the merger agreement, each party may waive each of the conditions described above
in the manner and to the extent described in Terms of the Merger Amendment; Waiver
immediately below.
Amendment; Waiver
Subject to applicable law, at any time prior to the closing date of the merger, Old Line
Bancshares and Maryland Bankcorp may:
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Amend the merger agreement; |
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Extend the time for the performance of any of the obligations or other acts of the
other required in the merger agreement; |
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Waive any inaccuracies in the representations and warranties of the other contained
in the merger agreement; |
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Waive any term or condition of the merger agreement; or |
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Waive compliance by the other with any of the agreements or conditions contained in
the merger agreement, except for the requirements of Maryland Bankcorp and Old Line
Bancshares stockholder approval, regulatory approvals and the absence of any order,
decree or injunction preventing the transactions contemplated by the merger agreement. |
Termination
The merger agreement may be terminated at any time prior to the effective date of the merger
by the mutual consent of Old Line Bancshares and Maryland Bankcorp.
The merger agreement may also be terminated by either party if:
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The other party, in any material respect, breaches any representation, warranty,
covenant or other agreement contained in the merger agreement, and the breach remains
uncured 30 days after written notice of the breach is given to the breaching party
(however, if the breach cannot reasonably be cured within this 30-day period, but may
reasonably be cured within 60 days and the cure is being diligently pursued, no
termination can occur before the expiration of the 60-day period); |
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The conditions to such partys obligation to close the merger have not been
satisfied or waived and cannot be satisfied within 30 days after giving written notice
to the other party; |
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The closing of the merger does not occur by May 31, 2011, unless this is due to a
material breach of the merger agreement by the terminating party; |
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Any regulatory authority whose approval or consent is required for completion of the
merger issues a definitive written denial of the approval or consent and the time
period for appeals or requests for reconsideration has expired; |
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Maryland Bankcorps stockholders or Old Line Bancshares stockholders vote but do
not approve the merger at a special meeting called to vote on the merger; |
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Maryland Bankcorp or any Maryland Bankcorp subsidiary enters into an alternative
transaction; or |
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The other partys board of directors withdraws, changes or modifies its
recommendation to its stockholders to approve the merger agreement and the merger. |
The merger agreement may also be terminated by Maryland Bankcorp if Old Line Bancshares or any
Old Line Bancshares subsidiary enters into an alternative transaction, as a result of which Old
Line Bancshares is not the surviving entity or Old Line Bancshares directors as of September 1,
2010 do not comprise the majority of the surviving entitys board of directors, with any person
other than Maryland Bankcorp, and the Maryland Bankcorp board of directors determines, with written
advice of counsel, that such transaction is not in the best interests of Maryland Bankcorps
stockholders.
In addition, the merger agreement contains a provision under which Maryland Bankcorp may
terminate the merger agreement if the average price of Old Line Bancshares common stock is less
than $6.00 unless Old Line Bancshares, in its sole discretion, increases the aggregate merger
consideration in stock, cash or a combination thereof, by an amount equal to the product of (i)
$6.00 minus the average price and (ii) 2,621,231. See The Merger Agreement and the Merger
Terms of the Merger Maryland Bankcorp Price Termination Right.
Termination Fee
Maryland Bankcorp has agreed to pay a fee of $750,000 to Old Line Bancshares if Old Line
Bancshares terminates the merger agreement in connection with:
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The entry by Maryland Bankcorp or any Maryland Bankcorp subsidiary into an
alternative transaction, provided that Old Line Bancshares is not then in material
breach of any material representation, warranty, covenant or other agreement contained
in the merger agreement; |
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Maryland Bankcorps material breach of the merger agreement, provided that Old Line
Bancshares is not then in material breach of any representation, warranty, covenant or
other agreement contained in the merger agreement; |
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The Maryland Bankcorp board of directors withdrawing, changing or modifying its
recommendation to stockholders to approve the merger agreement and the merger; or |
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The failure of the merger to close by May 31, 2011 or receive all necessary
regulatory approvals or consents and the failure to so close or receive such approvals
or consents was directly caused by the knowing, willful and intentional actions or
inactions of Maryland Bankcorp, provided Old Line Bancshares is not then in material
breach of any material representation, warranty, covenant or other agreement contained
in the merger agreement. |
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In addition, Maryland Bankcorp has agreed to pay a fee of $1,000,000 to Old Line
Bancshares if Maryland Bankcorp terminates the merger agreement after it enters into an alternative
transaction after receipt of written advice from its counsel that the failure to do so would
constitute a breach of Maryland Bankcorps directors fiduciary duty under Maryland law.
Old Line Bancshares has agreed to pay a fee of $750,000 to Maryland Bankcorp if Maryland
Bankcorp terminates the merger agreement in connection with:
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Old Line Bancshares material breach of the merger agreement, provided that Maryland
Bankcorp is not then in material breach of any representation, warranty, covenant or
other agreement contained in the merger agreement; |
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The Old Line Bancshares board of directors withdrawing, changing or modifying its
recommendation to stockholders to approve the merger agreement and the merger; or |
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The failure of the merger to close by May 31, 2011 or receive all necessary
regulatory approvals or consents and the failure to so close or receive such approvals
or consents was directly caused by the knowing, willful and intentional actions or
inactions of Old Line Bancshares, provided Maryland Bankcorp is not then in material
breach of any material representation, warranty, covenant or other agreement contained
in the merger agreement. |
No Solicitation of Other Transactions
Maryland Bankcorp has agreed that, unless it believes, after receipt of written advice from
its legal counsel, that failure to do so would violate the Maryland Bankcorp directors fiduciary
duty, it will not, and will not allow others under its control to, directly or indirectly:
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Initiate, solicit, encourage (including by way of furnishing information) or take
any other action to facilitate any inquiries or the making of any proposal that relates
to a merger, consolidation or acquisition of Maryland Bankcorp or any of its
subsidiaries, acquisition of all or substantially all of the assets or liabilities of
Maryland Bankcorp or any of its subsidiaries, or the acquisition of ownership or voting
power representing 10% or more of the outstanding common stock of Maryland Bankcorp or
any of its subsidiaries; |
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Enter into or maintain or continue discussions or negotiate with a third party
regarding any acquisition proposal or inquiry described above; or |
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Agree to or endorse any acquisition proposal or inquiry described above. |
Maryland Bankcorp has also agreed to notify Old Line Bancshares promptly if Maryland Bankcorp
receives any acquisition proposal or inquiry described above from any third party.
For a discussion of circumstances under which certain actions relating to a possible change in
control involving Maryland Bankcorp could result in Maryland Bankcorp being required to pay a
termination fee of either $750,000 or $1,000,000, see The Merger Agreement and the Merger Terms
of the Merger Termination Fee.
Expenses
Old Line Bancshares and Maryland Bankcorp will each pay all costs and expenses incurred by it
in connection with the transactions contemplated by the merger agreement, including fees and
expenses of financial consultants, accountants and legal counsel. If Maryland Bankcorp incurs
expenses exceeding $450,000 (not including the purchase of tail officers and directors
liability insurance), however, any amount over $450,000 will be deducted from the aggregate merger
consideration paid to Maryland Bankcorps stockholders in the merger.
Regulatory Approvals
Completion of the merger is subject to the prior receipt of all consents or approvals of, and
the provision of all notices to, federal and state authorities required to complete the merger of
Old Line Bancshares and Maryland Bankcorp as well as the merger of Old Line Bank and Maryland Bank
& Trust.
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Old Line Bancshares and Maryland Bankcorp have agreed to use their reasonable best efforts to
obtain all regulatory approvals required to complete the merger and the bank merger. These
approvals include, with respect to the merger, approval from the Federal Reserve Board and the
Maryland Commissioner and, with respect to the bank merger, approval from the Maryland Commissioner
and no objection from the OCC. The merger cannot proceed without these required regulatory
approvals.
Regulatory Approvals for the Merger
Federal Reserve Board. A merger of two bank holding companies requires the prior approval of
the Federal Reserve Board under the Bank Holding Company Act. Under this law, the Federal Reserve
Board generally may not approve any proposed transaction:
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That would result in a monopoly or that would further a combination or conspiracy
to monopolize banking in the United States; or |
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That could substantially lessen competition in any section of the country, that
would tend to create a monopoly in any section of the country, or that would be in
restraint of trade, unless the Federal Reserve Board finds that the public interest in
meeting the convenience and needs of the communities served outweighs the
anti-competitive effects of the proposed transaction. |
The Federal Reserve Board is also required to consider the financial and managerial resources
and future prospects of the bank holding companies and their subsidiary banks and the convenience
and needs of the communities to be served. Under the Community Reinvestment Act of 1977, the
Federal Reserve Board also must take into account the record of performance of Old Line Bancshares
and Maryland Bankcorp in meeting the credit needs of their communities, including low and
moderate-income neighborhoods. In addition, the Federal Reserve Board must take into account the
effectiveness of the bank holding companies in combating money laundering activities. Any
transaction approved by the Federal Reserve Board generally may not be completed until 30 days
after such approval, during which time the U.S. Department of Justice may challenge such
transaction on antitrust grounds and seek divestiture of certain assets and liabilities.
Maryland Commissioner. The merger is subject to the prior approval of the Maryland
Commissioner under Section 5-903 of the Financial Institutions Article of the Maryland Annotated
Code. In determining whether to approve the merger, the Maryland Commissioner will consider:
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Whether the merger may be detrimental to the safety and soundness of Maryland
Bankcorp; and |
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Whether the merger may result in an undue concentration of resources or a
substantial reduction of competition in the State of Maryland. |
The Maryland Commissioner will not approve any acquisition if upon consummation the combined
entity (including any of its bank subsidiaries) would control 30% or more of the total amount of
deposits of insured depository institutions in the State of Maryland, although the Maryland
Commissioner may waive this limitation upon good cause shown. Old Line Bank will not control 30%
of the insured deposits in Maryland after the merger.
The Maryland Commissioner will have 60 days after receipt of the application to determine
whether to approve the merger.
Regulatory Approvals for the Bank Merger
Maryland Commissioner. The bank merger agreement is subject to the prior approval of the
Maryland Commissioner under Section 3-703(c) of the Financial Institutions Articles of the Maryland
Annotated Code. The Maryland Commissioner will approve an agreement for the bank merger agreement
if it determines that:
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Old Line Bank meets all the requirements of Maryland law for the formation of a new
commercial bank; |
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The bank merger agreement provides an adequate capital structure, including surplus,
for Old Line Bank in relation to its deposit liabilities and other activities; |
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The bank merger agreement is fair; and |
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The proposed bank merger is not against the public interest. |
The Maryland Commissioner will have six months after receipt of the application to determine
whether to approve the bank merger.
OCC No Objection. Pursuant to OCC rules, since Maryland Bank & Trust is being merged into a
state bank, prior OCC approval of the bank merger is not required. However, Old Line Bank must
file a notice advising the OCC of its intention to acquire Maryland Bank & Trust in the bank merger
prior to consummation of the bank merger.
Applications
Old Line Bancshares has not filed applications with the Federal Reserve Board or the Maryland
Commissioner requesting approval of the merger of Maryland Bankcorp with and into Old Line
Bancshares, and Old Line Bank has not filed applications with the Maryland Commissioner or the OCC
requesting approval or non-objection of the merger of Maryland Bank & Trust into Old Line Bank.
However, Old Line Bancshares and Old Line Bank anticipate filing the applications as soon as
possible and expect to file no later than November 15, 2010. In general, the applications will
describe the terms of the merger or bank merger, the parties involved and the activities to be
conducted by the combined entities as a result of the transaction, and will contain certain related
financial and managerial information.
We are not aware of any material governmental approvals or actions that are required to
complete the merger, except as described above. If any other approval or action is required, we
will use our best efforts to obtain such approval or action.
Management and Operations After the Merger
The current officers and directors of Old Line Bancshares and Old Line Bank, with the addition
of Thomas B. Watts, Chairman of the Board and Chief Executive Officer of Maryland Bankcorp, and G.
Thomas Daugherty, President of Maryland Bankcorp (or such replacements as Maryland Bankcorp shall
name if either of Messrs. Watts or Daugherty become disqualified to serve as directors pursuant to
the merger agreement), to each entitys board of directors, will continue to be the officers and
directors of Old Line Bancshares and Old Line Bank, respectively, after the merger.
Employment; Severance
Following the merger, Old Line Bancshares is not obligated to continue the employment of any
Maryland Bankcorp employee. As a result of the merger, some Maryland Bankcorp positions, primarily
in-house back office, support, processing and other operational activities and services, may be
eliminated. However, Old Line Bancshares will endeavor to continue the employment of all Maryland
Bankcorp employees in positions that will contribute to the successful performance of the combined
organization. If a position is duplicative, Old Line Bancshares will attempt to reassign the
individual to a needed position that uses the skills and abilities of the individual. If that is
impracticable or Old Line Bancshares does not have available a comparable position, Old Line
Bancshares will grant an eligible employee who is terminated two weeks of severance pay for each
year of service up to a maximum of 26 weeks of severance pay. All employees of Maryland Bankcorp
and any Maryland Bankcorp subsidiary, including Maryland Bank & Trust, other than Messrs. Watts and
Daugherty, will be eligible for severance benefits, except that no employee of Maryland Bankcorp
who receives any severance benefits under the merger agreement will also be eligible for any
payment or benefit pursuant to any change in control agreement, employment agreement, salary
continuation agreement or similar plan or right. Each person eligible for severance benefits will
remain eligible for such benefits if his or her employment is terminated, other than for cause
(as defined in the merger agreement), within 12 months after the time the merger is effective. Any
former Maryland Bankcorp employee whose employment with Old Line Bancshares is terminated without
cause after 12 months from the effective date of the merger will receive such severance benefits
from Old Line Bancshares as is provided for in Old Line Bancshares general severance policy for
such terminations (with full credit being given for each year of service with Maryland Bankcorp or
any Maryland Bankcorp subsidiary).
Employee Benefits
The merger agreement provides that as of the effective date of the merger, each employee of
Maryland Bankcorp or any Maryland Bankcorp subsidiary who becomes an employee of Old Line
Bancshares or a subsidiary thereof will be entitled to full credit for each year of service with
Maryland Bankcorp or any subsidiary thereof for purposes of determining
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eligibility for
participation and vesting, but not benefit accrual, in Old Line Bancshares, or as appropriate, in
the Old Line Bancshares subsidiaries, employee benefit plans, programs and policies. Old Line
Bancshares will use the original date of hire by Maryland Bankcorp or a Maryland Bankcorp subsidiary in making such determinations.
After the effective date of the merger, Old Line Bancshares may discontinue or amend, or convert to
or merge with, an Old Line Bancshares benefit plan, any Maryland Bankcorp benefit plan, subject to
the plans provisions and applicable law.
Interests of Directors, Officers and Others in the Merger
Certain members of management of Maryland Bankcorp and its board of directors may have
interests in the merger in addition to their interests as stockholders of Maryland Bankcorp. The
Maryland Bankcorp board of directors was aware of these factors and considered them, among other
matters, in approving the merger agreement.
Share Ownership
As of _____________, the record date for the special meeting of Maryland Bankcorp
stockholders, the directors, executive officers and other significant stockholders of Maryland
Bankcorp may be deemed to be the beneficial owners of _______ shares, representing _.__% of the
outstanding shares of Maryland Bankcorp common stock. See Ownership of Maryland Bankcorp Common
Stock).
Indemnification and Insurance
Old Line Bancshares has agreed that for a minimum of three years and a maximum of six years
after the mergers effective date, Old Line Bancshares will, at its expense, maintain directors and
officers liability insurance for the former directors and officers of Maryland Bankcorp and its
subsidiaries with respect to matters occurring at or prior to the mergers effective date (a tail
policy), so long as the policy can be obtained at a cost not in excess of 200% of the rate for such
directors and officers liability insurance in effect as of September 1, 2010. If Old Line
Bancshares is unable to obtain a directors and officers liability insurance tail policy at a cost
not in excess of 200% of such rate, Old Line Bancshares will obtain a directors and officers
liability insurance tail policy with the maximum coverage reasonably available for a cost that is
equal to 200% of such rate.
Board Positions and Compensation
Upon completion of the merger and the subsequent bank merger, Thomas B. Watts and G. Thomas
Daugherty will be appointed as Old Line Bancshares and Old Line Bank directors and shall be
entitled to compensation in such capacity on the same basis as other Old Line Bancshares and Old
Line Bank directors.
Supplemental Executive and Director Retirement Plans and Pension Agreement
Each of Thomas B. Watts and G. Thomas Daugherty is a party to an executive supplemental
retirement plan (SERP) with Maryland Bank & Trust. Each SERP provides for payments to the
executive after his retirement in certain circumstances. The SERPs provide that upon a change in
control, the acquiring entity is obligated to abide by the terms of the SERPs. Under these
agreements, which are financed by certain life insurance policies on the life of each executive, if
the executive remains employed until his 65th birthday, Maryland Bank & Trust is
obligated to pay him $100,000 annually for 15 years, payable in equal monthly installments
following his retirement. The benefits are decreased if the executive retires before age 65 and
increased if he retires after age 65. The merger will constitute a change of control under the
SERPs; after the change of control, if Mr. Watts or Mr. Daugherty is terminated, his benefits under
the SERP become vested as if he had remained until normal retirement age. In addition, if Mr.
Watts or Mr. Daugherty dies before all benefits due under the SERP are paid, the remaining benefits
are payable in a lump sum to his estate.
In addition, Frank Taylor, a current director of Maryland Bankcorp and Maryland Bank & Trust,
is a party to a director supplemental retirement plan (DSRP) with Maryland Bank & Trust. The
DSRP provides for payments to Mr. Taylor after he leaves the Maryland Bank & Trust board of
directors in certain circumstances. The DSRP provides that upon a change in control, the acquiring
entity is obligated to abide by the terms of the DSRP. Under the DSRP, which is financed by
certain life insurance policies on the life of Mr. Taylor, if Mr. Taylor remains a director of
Maryland Bank & Trust until his 65th birthday, Maryland Bank & Trust is obligated to pay
him $20,000 annually for 15 years, payable in equal monthly installments after he retires from the
board of directors. The benefits are decreased if Mr. Taylor retires from the board before age 65
and increased if he retires after age 65. The merger will constitute a change of control under the
DSRP; after the change of control, if Mr. Taylor does not serve as a director, his benefits under
the DSRP become vested as if he had
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remained until normal retirement age. In addition, if Mr. Taylor dies before all benefits due
under the DSRP are paid, the remaining benefits are payable in a lump sum to his estate.
Finally, Lawrence H. Wright, Senior Vice President and Secretary of Maryland Bankcorp and
Senior Vice President and Chief Financial Officer of Maryland Bank & Trust, K. Bradley Howard, Vice
President of Maryland Bankcorp and Vice President, Business Development and Marketing Officer of
Maryland Bank & Trust, and Louise G. Czwartacki, Vice President and Treasurer of Maryland Bankcorp
and Vice President, Senior Operations and Information Security Officer of Maryland Bank & Trust,
are each a party to a supplemental pension agreement with Maryland Bank & Trust. Under the
agreements, Maryland Bank & Trust purchased a life insurance policy on the life of each executive,
and each executive agreed to remain an employee of Maryland Bank & Trust until age 65, unless both
Maryland Bank & Trust and the executive agree retirement should occur at age 62. Each executive is
deemed to have earned and is entitled to 55% of the benefits under his or her agreement at age 62,
with the remaining benefits earned pro rata each year until age 65. If the executive is
terminated, the benefits under the agreement are considered fully earned. The values of these
agreements were $242,152 as of December 28, 2009 for Mr. Wright, $195,644 as of December 28, 2009
for Mr. Howard, and $334,013 as of January 21, 2010 for Ms. Czwartacki. In addition, if the
executive dies before age 65, each agreement provides for a death benefit, currently $640,000 for
Mr. Wright, $605,000 for Mr. Howard and $909,041 for Ms. Czwartacki, to be paid to his or her
beneficiary. Pursuant to the merger agreement Old Line Bancshares has agreed to continue Maryland
Bank & Trusts obligations under these supplemental pension agreements.
Support Agreements
As a condition to Old Line Bancshares entering into the merger agreement, each of the
directors of Maryland Bankcorp entered into an agreement with Old Line Bancshares, dated as of
September 1, 2010, pursuant to which each director agreed to vote all of their shares of Maryland
Bankcorp common stock in favor of the merger. A form of support agreement is Exhibit B to the
merger agreement, which is attached to this document as Annex A. The support agreements may have
the effect of discouraging persons from making a proposal for an acquisition transaction involving
Maryland Bankcorp. The following is a brief summary of the material provisions of the support
agreements:
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Each director of Maryland Bankcorp agreed, among other things, to vote, or cause to
be voted, at any meeting of Maryland Bankcorp stockholders or other circumstance in
which the vote, consent or other approval of stockholders is sought, all of the
Maryland Bankcorp common stock as to which he or she is the record or beneficial owner
(and including shares held of record by such directors spouse and children) (a) for
approval of the merger agreement and the merger and the other transactions contemplated
thereby at any meeting of the Maryland Bankcorp stockholders duly held for such
purpose, (b) against any alternative acquisition transaction, and (c) against certain
other actions or proposals that are intended, or could reasonably be expected, to
impede, interfere with, delay, postpone or materially adversely affect the merger, the
merger agreement or the transactions contemplated by the merger agreement. |
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Each director of Maryland Bankcorp agreed to take all reasonable actions and to
assist in the consummation of the merger and the other transactions contemplated by the
merger agreement, and to use his or her best efforts to cause Maryland Bankcorp and its
subsidiaries to take certain actions set forth in the merger agreement with respect to
the preparation of this document and all required regulatory applications. |
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Each director of Maryland Bankcorp agreed to continue to hold his or her shares of
Maryland Bankcorp until the merger is effective or the merger agreement is terminated. |
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Each director agreed not to enter into any arrangement or understanding that would
be in any manner inconsistent with or violate the support agreement. |
Executive Noncompetition Agreements
The merger agreement provides that as of the closing date of the merger Old Line Bancshares
will enter into non-compete agreements with Thomas B. Watts and G. Thomas Daugherty. These
agreements provide that, for a three-year period following the closing date of the merger, each of
Messrs. Watts and Daugherty agrees not to (i) transact any business that competes with Old Line
Bank, (ii) solicit or encourage any customers or employees of Old Line Bank to leave Old Line Bank
or otherwise adversely affect that persons business relationship with Old Line Bank, or (iii)
participate or engage in the business of banking or in any banking-related business that is being
conducted by Old Line Bank or Old Line Bancshares,
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including serving as a bank director, officer or employee or owning more than 4.9% of any
company that competes with Old Line Bancshares or Old Line Bank.
The agreements further obligate each of Messrs. Watts and Daugherty, for a period of two years
after the closing date, to cooperate with Old Line Banks and Old Line Bancshares management to
provide for a smooth transition following the merger, which will include assisting Old Line
Bancshares and Old Line Bank with any questions or concerns and providing advice with respect to
Maryland Bankcorps or Maryland Bank & Trusts business, operations, customers, target market,
personnel matters, vendors or services.
In exchange, the noncompetition agreements provide that Old Line Bancshares will pay to each
of Messrs. Watts and Daugherty the sum of $200,000, with $25,000 paid upon consummation of the
merger and the balance paid over the first two years of the agreements.
A form of the executive noncompetition agreement is Exhibit C to the merger agreement, which
is attached to this document as Annex A.
Director Noncompetition Agreements
Pursuant to the merger agreement, Old Line Bancshares will offer to enter into a three-year
non-compete agreement with each non-employee director of Maryland Bankcorp and Maryland Bank &
Trust (this does not include Messrs. Watts and Daugherty) in exchange for a lump-sum payment of
$50,000 to be paid upon the closing of the merger. These agreements provide that, for a three-year
period following the closing date of the merger, each such director agrees not to (i) transact any
business that competes with Old Line Bancshares or Old Line Bank, (ii) solicit or encourage any
customers or employees of Old Line Bancshares or Old Line Bank to leave Old Line Bancshares or Old
Line Bank or otherwise adversely affect that persons business relationship with Old Line
Bancshares or Old Line Bank, or (iii) participate or engage in the business of banking or in any
banking-related business that is being conducted by Old Line Bank or Old Line Bancshares, including
serving as a bank director, officer or employee or owning more than 4.9% of any company that
competes with Old Line Bancshares or Old Line Bank, in certain enumerated Maryland counties.
A form of the executive noncompetition agreement is Exhibit E to the merger agreement, which
is attached to this document as Annex A.
Voting Limit and Standstill Agreements
As a condition to Old Line Bancshares entering into the merger agreement, each of Messrs.
Watts and Daugherty, their spouses and any entities they control (the Watts Group and Daugherty
Group, as applicable) entered into an agreement with Old Line Bancshares, dated as of September 1,
2010, pursuant to which each of the Watts Group and the Daugherty Group agreed that,
notwithstanding how many shares they acquire as a result of the merger, they will vote no more than
4% of the total issued and outstanding shares of Old Line Bancshares in any vote of the
stockholders of Old Line Bancshares. The agreements further prohibit each member of the Watts
Group and Daugherty Group, except for actions taken as a director of Old Line Bancshares or that
are approved by a majority of Old Line Bancshares board of directors (excluding any member of the
Watts Group or the Daugherty Group), from taking certain actions with respect to Old Line
Bancshares, including (i) acquiring or offering to acquire additional shares of common stock, other
than as compensation for board service, (ii) engaging in the solicitation of proxies or consents or
making any stockholder proposals, (iii) trying to influence any person with respect to voting of
common stock, (iv) nominating any person for election as a director, (v) making any public
statements with respect to any action requiring stockholder approval, (vi) depositing their shares
of Old Line Bancshares common stock in any voting trust or entering into a similar arrangement,
(vii) seeking to control or influence the management, board of directors or policies of Old Line
Bancshares, (viii) proposing any business combination, recapitalization, restructuring, dissolution
or similar transaction, or (ix) seeking to call a stockholder meeting, remove a director or support
a person suing Old Line Bancshares or any of its affiliates.
The voting limit and standstill agreements do not provide for any payment to the members of
the Watts Group or the Daugherty group. A form of the voting limit and standstill agreement is
Exhibit A to the merger agreement, which is attached to this document as Annex A.
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Regulatory Matters Regarding Maryland Bank & Trust
On February 10, 2006, Maryland Bankcorps wholly owned subsidiary, Maryland Bank & Trust,
entered into a formal written agreement with its primary regulator, the OCC. Under the terms of
the written agreement, Maryland Bank & Trust agreed to take certain actions relating to its lending
operations and capital compliance. Specifically, the OCC required Maryland Bank & Trust to take
the following actions:
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Conduct a review of senior management to ensure these individuals can perform the
duties required under Maryland Bank & Trusts policies and procedures and the
requirements of the written agreement, manage day-to-day operations of Maryland Bank &
Trust, and where necessary, implement a written program to address the training of
Maryland Bank & Trusts senior officers; |
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Develop a staffing plan for the lending and compliance functions that are necessary
to implement and maintain a sound system of internal controls and risk management; |
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Achieve certain regulatory capital levels, which are greater than the regulatory
requirements to be well capitalized under bank regulatory requirements by October 31,
2008. In particular, Maryland Bank & Trust must achieve a: 14% total risk-based
capital to total risk-weighted assets ratio; 12% Tier 1 capital to risk-weighted assets
ratio; and 8% Tier 1 capital to adjusted total assets ratio; |
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Develop and implement a three-year capital program; |
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Adopt a written program to ensure compliance with Regulation O and internally test
compliance with the program; |
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Adopt a written consumer compliance program to ensure Maryland Bank & Trust operates
in compliance with all applicable consumer protection laws, rules and regulations; |
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Develop and implement written policies and procedures to ensure compliance with the
Bank Secrecy Act; |
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Obtain satisfactory credit information on all loans lacking such information,
maintain proper collateral documentation, adopt a process for timely resolution of
credit and collateral exceptions, and adopt a process for identifying, tracking and
reporting credit, collateral and policy exceptions |
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Hire an independent appraiser to provide a written or updated appraisal of certain
assets; |
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Improve Maryland Bank & Trusts loan portfolio management and provide the Board with
quarterly written reports on credit quality; |
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Take all necessary actions to protect Maryland Bank & Trusts interest in criticized
assets, adopt and implement a program to eliminate regulatory criticism of these
assets, and engage in an ongoing review of its criticized assets; |
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Improve the management and monitoring of Maryland Bank & Trusts loan portfolio; |
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Establish an effective management information system that facilitates risk
identification, establishes controls, and delivers accurate information for timely
review in a manner consistent with the written agreement; |
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Establish an independent on-going internal loan review system to review Maryland
Bank & Trusts loan and lease portfolios for timely identification and categorization
of problem assets in a manner consistent with the written agreement; |
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Review the allowances for loan and lease losses and adopt and establish a program
for the maintenance of an adequate allowance in a manner consistent with the written
agreement; and |
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Maintain an independent internal audit program. |
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The written agreement includes timeframes to implement the foregoing and on-going compliance
requirements for Maryland Bank & Trust, including requirements to report to the OCC. The written
agreement also requires Maryland Bank & Trust to establish a committee of its board of directors
that will be responsible for overseeing compliance with the written agreement.
Maryland Bank & Trust has taken steps to comply with the requirements of the written
agreement. At September 30, 2010, Maryland Bank & Trusts capital ratios were in compliance with
the written agreement.
Old Line Bank, however, will not be subject to the written agreement following the
bank merger.
Accounting Treatment
The merger will be accounted for using the acquisition method of accounting with Old Line
Bancshares treated as the acquiror. Under this method of accounting, Maryland Bankcorps assets
and liabilities will be recorded by Old Line Bancshares at their respective fair values as of the
closing date of the merger and added to those of Old Line Bancshares. Any excess of purchase price
over the net fair values of Maryland Bankcorps assets and liabilities will be recorded as
goodwill. Any excess of the fair value of Maryland Bankcorps net assets over the purchase price
will be recognized in earnings as a bargain purchase gain by Old Line Bancshares on the closing
date of the merger. Financial statements of Old Line Bancshares issued after the merger will
reflect these values, but will not be restated retroactively to reflect the historical financial
position or results of operations of Maryland Bankcorp prior to the merger. The results of
operations of Maryland Bankcorp will be included in the results of operations of Old Line
Bancshares beginning on the effective date of the merger.
Certain Federal Income Tax Consequences
The following discussion addresses the material United States federal income tax consequences
of the merger to a Maryland Bankcorp stockholder who holds shares of Maryland Bankcorp common stock
as a capital asset. This discussion is based upon the Internal Revenue Code, U.S. Treasury
regulations promulgated under the Internal Revenue Code, judicial authorities, published positions
of the Internal Revenue Service (the IRS) and other applicable authorities, all as in effect on
the date of this discussion and all of which are subject to change (possibly with retroactive
effect) and to differing interpretations. This discussion does not address all aspects of United
States federal income taxation that may be relevant to Maryland Bankcorp stockholders in light of
their particular circumstances and does not address aspects of United States federal income
taxation that may be applicable to Maryland Bankcorp stockholders subject to special treatment
under the Internal Revenue Code (including banks, tax-exempt organizations, insurance companies,
dealers in securities, traders in securities that elect to use a mark-to-market method of
accounting, regulated investment companies, investors in pass-through entities, Maryland Bankcorp
stockholders who acquired their shares of Maryland Bankcorp common stock pursuant to the exercise
of employee stock options or otherwise as compensation, and Maryland Bankcorp stockholders who are
not United States persons as defined in section 7701(a)(30) of the Internal Revenue Code). In
addition, the discussion does not address any aspect of state, local or foreign taxation. No
assurance can be given that the IRS would not assert, or that a court would not sustain, a position
contrary to any of the tax aspects set forth below.
Maryland Bankcorp stockholders are urged to consult their tax advisors with respect to the
particular United States federal, state, local and foreign tax consequences of the merger to them.
The closing of the merger is conditioned upon (i) the receipt by Old Line Bancshares of (a)
the opinion of Ober, Kaler, Grimes & Shriver, P.C., counsel to Old Line Bancshares, or (b) a letter
from Rowles & Company, LLP, the independent certified public accountants for Old Line Bancshares,
and (ii) the receipt by Maryland Bankcorp of the opinion of
Reznick Group, P.C., the independent
certified public accountants for Maryland Bankcorp (it is anticipated that Old Line Bancshares will
waive this condition and accept the opinion of Nelson Mullins Riley & Scarborough LLP, special
counsel for Maryland Bankcorp, in lieu of the opinion of Reznick
Group, P.C.), each dated as of the
effective date of the merger, substantially to the effect that, on the basis of facts,
representations and assumptions set forth or referred to therein (including factual representations
contained in certificates of officers of Maryland Bankcorp and Old Line Bancshares) which are
consistent with the state of facts existing as of the effective date of the merger:
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The merger constitutes a reorganization under Section 368(a) of the Internal Revenue
Code; and |
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Only as to the opinion to be received by Maryland Bankcorp, any gain realized in the
merger will be recognized only to the extent of cash or other property (other than Old
Line Bancshares common stock) received in the merger, including cash received in lieu
of fractional share interests. |
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The tax opinions to be delivered in connection with the merger are not binding on the IRS or
the courts, and neither Maryland Bankcorp nor Old Line Bancshares intends to request a ruling from
the IRS with respect to the United States federal income tax consequences of the merger.
Consequently, no assurance can be given that the IRS will not assert, or that a court would not
sustain, a position contrary to any of those set forth below. In addition, if any of the facts,
representations or assumptions upon which the opinions are based is inconsistent with the actual
facts, the United States federal income tax consequences of the merger could be adversely affected.
Assuming that the merger will be treated as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, the discussion below sets forth the material United States
federal income tax consequences of the merger to Maryland Bankcorp stockholders not subject to
special treatment under the Internal Revenue Code, as described above. Such consequences generally
will depend on whether Maryland Bankcorp stockholders exchange their Maryland Bankcorp common stock
for cash, Old Line Bancshares common stock or a combination of cash and Old Line Bancshares common
stock.
Exchange for Old Line Bancshares Common Stock
If, pursuant to the merger, a Maryland Bankcorp stockholder exchanges all of his or her shares
of Maryland Bankcorp common stock solely for shares of Old Line Bancshares common stock, the
stockholder will not recognize any gain or loss except in respect of cash received in lieu of any
fractional share of Old Line Bancshares common stock (as discussed below). The aggregate adjusted
tax basis of the shares of Old Line Bancshares common stock received in the exchange will be equal
to the aggregate adjusted tax basis of the shares of Maryland Bankcorp common stock surrendered
(reduced by the tax basis allocable to any fractional share of Old Line Bancshares common stock for
which cash is received), and the holding period of the Old Line Bancshares common stock will
include the period during which the shares of Maryland Bankcorp common stock were held by the
Maryland Bankcorp stockholder. If a Maryland Bankcorp stockholder has differing bases or holding
periods in respect of his or her shares of Maryland Bankcorp common stock, the stockholder should
consult his or her tax advisor prior to the exchange with regard to identifying the bases or
holding periods of the particular shares of Old Line Bancshares common stock received in the
exchange.
Exchange Solely for Cash
In general, if, pursuant to the merger, a Maryland Bankcorp stockholder exchanges all of his
or her shares of Maryland Bankcorp common stock solely for cash, such holder will recognize gain or
loss equal to the difference between the amount of cash received and his or her adjusted tax basis
in the shares of Maryland Bankcorp common stock surrendered, which gain or loss generally will be
long-term capital gain or loss if the stockholders holding period with respect to the Maryland
Bankcorp common stock surrendered is more than one year. If, however, the Maryland Bankcorp
stockholder owns (or is deemed for tax purposes to own) shares of Old Line Bancshares common stock
after the merger, the cash received may be treated as a dividend under certain circumstances. See
" Possible Treatment of Cash as a Dividend below.
Exchange for Old Line Bancshares Common Stock and Cash
If, pursuant to the merger, a Maryland Bankcorp stockholder exchanges all of his or her shares
of Maryland Bankcorp common stock for a combination of Old Line Bancshares common stock and cash,
the stockholder generally will recognize gain (but not loss) in an amount equal to the lesser of
(i) the amount of gain realized (i.e., the excess of the sum of the amount of cash and the fair
market value of the Old Line Bancshares common stock received in the exchange over such
stockholders adjusted tax basis in the shares of Maryland Bankcorp common stock surrendered) and
(ii) the amount of cash received pursuant to the merger. For this purpose, gain or loss must be
calculated separately for each identifiable block of shares surrendered in the exchange, and loss
realized on one block of shares may not be used to offset gain realized on another block of
Maryland Bankcorp shares. Any recognized gain generally will be long-term capital gain if the
Maryland Bankcorp stockholders holding period with respect to the Maryland Bankcorp common stock
surrendered is more than one year. However, the cash received may be treated as a dividend under
certain circumstances. See Possible Treatment of Cash as a Dividend below.
The aggregate tax basis of Old Line Bancshares common stock received by a Maryland Bankcorp
stockholder that exchanges his or her shares of Maryland Bankcorp common stock for a combination of
Old Line Bancshares common stock and cash pursuant to the merger will be equal to the aggregate
adjusted tax basis of the shares of Maryland Bankcorp common stock surrendered, reduced by the
amount of cash received by the Maryland Bankcorp stockholder pursuant to the merger, and increased
by the amount of gain (including any portion of the gain that is treated as a dividend as described
below), if any, recognized by the Maryland Bankcorp stockholder on the exchange. The holding
period of the Old Line
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Bancshares common stock will include the holding period of the shares of
Maryland Bankcorp common stock surrendered. If a Maryland Bankcorp stockholder has differing bases or holding periods in respect of his or
her shares of Maryland Bankcorp common stock, such stockholder should consult his or her tax
advisor prior to the exchange with regard to identifying the bases or holding periods of the
particular shares of Old Line Bancshares common stock received in the exchange.
Cash Received in Lieu of a Fractional Share
Cash received by a Maryland Bankcorp stockholder in lieu of a fractional share of Old Line
Bancshares common stock generally will be treated as received in redemption of the fractional
share, and gain or loss generally will be recognized in an amount equal to the difference between
the amount of cash received in lieu of the fractional share and the portion of the stockholders
aggregate adjusted tax basis of the shares of Maryland Bankcorp common stock surrendered that is
allocable to the fractional share. The gain or loss generally will be long-term capital gain or
loss if the holding period for the shares of Maryland Bankcorp common stock surrendered is more
than one year. However, the cash received may be treated as a dividend under certain
circumstances. See Possible Treatment of Cash as a Dividend below.
Possible Treatment of Cash as a Dividend
In general, the determination of whether the receipt of cash in the merger will be treated as
a dividend depends upon the extent to which the exchange reduces the Maryland Bankcorp
stockholders deemed percentage stock ownership of Old Line Bancshares following the merger. For
purposes of this determination, Maryland Bankcorp stockholders will be treated as if they first
exchanged all of their shares of Maryland Bankcorp common stock solely for Old Line Bancshares
common stock and then Old Line Bancshares immediately redeemed a portion of the Old Line Bancshares
common stock in exchange for the cash actually received (the deemed redemption). The gain
recognized in the exchange followed by the deemed redemption will be treated as capital gain if (i)
the deemed redemption is substantially disproportionate with respect to the Maryland Bankcorp
stockholder (and the stockholder actually or constructively owns after the deemed redemption less
than 50% of the voting power of the outstanding Old Line Bancshares common stock) or (ii) the
deemed redemption is not essentially equivalent to a dividend.
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The deemed redemption generally will be substantially disproportionate with respect to a
Maryland Bankcorp stockholder if the percentage of the outstanding stock of Old Line Bancshares
that is actually and constructively owned by the stockholder immediately after the deemed
redemption is less than 80% of the percentage of the outstanding common stock of Old Line
Bancshares that the stockholder is deemed actually and constructively to have owned immediately
before the deemed redemption. If this test is not satisfied, the deemed redemption will not be
considered to be essentially equivalent to a dividend if it results in a meaningful reduction
in the stockholders deemed percentage stock ownership of Old Line Bancshares. In applying the
above tests, a Maryland Bankcorp stockholder will, under the constructive ownership rules, be
deemed to own stock that is owned by certain other persons or otherwise in addition to the stock
actually owned by the stockholder.
The IRS has ruled that a minority stockholder in a publicly held corporation whose relative
stock interest is minimal and who exercises no control with respect to corporate affairs is
considered to have a meaningful reduction even if the stockholder has only an insignificant
reduction in percentage stock ownership under the above analysis. Accordingly, it is anticipated
that few if any Maryland Bankcorp stockholders will be impacted by these rules. However, as these
rules are complex and dependent upon a Maryland Bankcorp stockholders specific circumstances, each
stockholder that may be subject to these rules should consult his or her tax advisor.
Backup Withholding
A Maryland Bankcorp stockholder receiving cash in the merger may be subject to backup
withholding at a rate of 28% if the stockholder is a non-corporate United States person and (i)
fails to provide an accurate taxpayer identification number, (ii) has been notified by the IRS that
it has failed to report all interest or dividends required to be shown on its federal income tax
returns, or (iii) in certain circumstances, fails to comply with applicable certification
requirements. Amounts withheld under the backup withholding rules will be allowed as a credit
against a stockholders United States federal income tax liability provided that the stockholder
furnishes the required information to the IRS.
Information Reporting
A Maryland Bankcorp stockholder who receives Old Line Bancshares common stock as a result of
the merger will be required to retain records pertaining to the merger. Each Maryland Bankcorp
stockholder who is a significant holder, who is required to file a U.S. federal income tax
return, and who receives Old Line Bancshares common stock in the merger will be required to file a
statement with such stockholders U.S. federal income tax return setting forth such stockholders
basis in the Maryland Bankcorp common stock surrendered and the fair market value of the Old Line
Bancshares common stock and cash received in the merger. A significant holder is a stockholder
who, immediately before the merger, owned at least 5% of the outstanding Maryland Bankcorp common
stock.
This discussion is not intended to be a complete analysis or description of all potential
United States federal income tax consequences of the merger. In addition this discussion does not
address tax consequences that may vary with, or are contingent on, individual circumstances. It
also does not address any federal estate tax or state, local or foreign tax consequences of the
merger. Tax matters are very complicated, and the tax consequences of the merger to a Maryland
Bankcorp stockholder will depend upon the facts of his or her particular situation. Accordingly,
we strongly urge each Maryland Bankcorp stockholder to consult with a tax advisor to determine the
particular tax consequences of the merger, as well as to any later sale of shares of Old Line
Bancshares common stock received in the merger.
Restrictions on Sales of Shares by Certain Affiliates
The shares of Old Line Bancshares common stock to be issued in the merger will be freely
transferable under the Securities Act of 1933, except for shares issued to any stockholder who is
an affiliate of Old Line Bancshares as defined by Rule 144 under the Securities Act. Affiliates
consist of individuals or entities that control, are controlled by or are under common control with
Old Line Bancshares, and include the executive officers and directors of Old Line Bancshares and
may include significant stockholders of Old Line Bancshares following the merger.
Stock Exchange Listing
Following the merger, the shares of Old Line Bancshares common stock will continue to trade on
the NASDAQ Capital Market under the symbol OLBK.
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Dissenters Rights
Under Sections 3-201 through 3-213 of the MGCL, Maryland Bankcorp stockholders have the right
to object to the merger and to demand and receive fair value of their shares of Maryland Bankcorp
common stock, determined as of the date of the meeting at which the merger is approved, without
reference to any appreciation or depreciation in value resulting from the merger or its proposal.
These rights are also known as dissenters rights.
Holders of Old Line Bancshares common stock do not have the right to exercise dissenters
rights in connection with the merger.
Sections 3-201 through 3-213 of the MGCL, which set forth the procedures a stockholder
requesting payment for his or her shares must follow, is reprinted in its entirety as Annex D to
this joint proxy statement/prospectus. The following discussion is not a complete statement of the
law relating to dissenters rights under Sections 3-201 through 3-213 of the MGCL. This discussion
and Annex D should be reviewed carefully by any Maryland Bankcorp stockholder who wishes to
exercise dissenters rights or who wishes to preserve the right to do so, as failure to strictly
comply with the procedures set forth in Sections 3-201 through 3-213 of the MGCL will result in the
loss of dissenters rights.
General requirements. Sections 3-201 through 3-213 of the MGCL generally require the
following:
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Written Objection to the Proposed Transaction. Maryland Bankcorp stockholders who
desire to exercise their dissenters rights must file with Maryland Bankcorp, at or
before the Maryland Bankcorp special meeting to vote on the merger agreement and the
merger, a written objection to the proposed transaction. A vote against the merger
agreement and the merger will not satisfy such objection requirement. The written
objection should be delivered or addressed to Maryland Bankcorp, Inc., 46930 South
Shangri La Drive, Lexington Park, Maryland 20653, Attention: Lawrence H. Wright, Senior
Vice President and Secretary. |
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Refrain From Voting For or Consenting to the Merger Proposal. If you wish to
exercise your dissenters rights, you must not vote in favor of the proposal to approve
the merger agreement and the merger. If you return a properly executed proxy that does
not instruct the proxy holder to vote against or to abstain on the proposal to approve
the merger agreement and the merger, or otherwise vote in favor of the merger agreement
and the merger, your dissenters rights will terminate, even if you previously filed a
written notice of intent to demand payment. You do not have to vote against the merger
in order to preserve your dissenters rights. |
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Written Demand for Payment. Within 20 days after acceptance of the articles of
merger by the Maryland State Department of Assessments and Taxation, you must make a
written demand on Old Line Bancshares for payment of your stock that states the number
and class of shares for which payment is demanded. All written demands for payment of
the fair value of Maryland Bankcorp common stock should be delivered or addressed to
Old Line Bancshares, Inc., 1525 Pointer Ridge Place, Bowie, Maryland 20716, Attention:
Christine M. Rush. |
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An objection to the merger, demand for payment of the fair value and a petition for
appraisal, discussed below, must be executed by or on behalf of the holder of record,
fully and correctly, as the holders name appears on the holders stock certificates.
Therefore, if your Maryland Bankcorp common stock is owned of record in a fiduciary
capacity, such as by a broker, trustee, guardian or custodian, execution of the demand
should be made in that capacity. |
Old Line Bancshares Written Notice. Under Section 3-207 of the MGCL, Old Line Bancshares, as
the successor to Maryland Bankcorp, will promptly notify each objecting stockholder in writing of
the date the articles of merger were accepted for record by the Maryland State Department of
Assessments and Taxation. Old Line Bancshares may also send a written offer to pay the objecting
holders of Maryland Bankcorp common stock what it considers to be the fair value of the stock. If
Old Line Bancshares chooses to do this, it will provide each objecting stockholder of Maryland
Bankcorp with: (i) a balance sheet as of a date not more than six months before the date of the
offer; (ii) a profit and loss statement for the 12 months ending on the date of that balance sheet;
and (iii) any other information Old Line Bancshares considers pertinent.
Petition for Appraisal. Within 50 days after the date the articles of merger are accepted by
the Maryland State Department of Assessments and Taxation, Old Line Bancshares or any holder of
Maryland Bankcorp common stock who has complied with the statutory requirements summarized above
may file a petition with a court of equity in Prince Georges County, Maryland, for an appraisal to
determine the fair value of Maryland Bankcorp common stock (an appraisal). Old Line Bancshares
is not obligated to, and has no present intention to, file a petition with respect to an appraisal
of the fair
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value of Maryland Bankcorp common stock. Accordingly, it is the obligation of objecting
holders of Maryland Bankcorp common stock to initiate all necessary action to perfect their
dissenters rights within the time period prescribed by Section 3-208 of the MGCL.
If a petition for an appraisal is timely filed, after a hearing on the petition, the court
will determine the holders of Maryland Bankcorp common stock that are entitled to dissenters
rights and will appoint three disinterested appraisers to determine the fair value of the Maryland
Bankcorp common stock on terms and conditions the court considers proper. Within 60 days after
appointment (or such longer period as the court may direct), the appraisers will file with the
court and mail to each party to the proceeding their report stating their conclusion as to the fair
value of the stock. Within 15 days after the filing of this report, any party may object to such
report and request a hearing. The court shall, upon motion of any party, enter an order either
confirming, modifying or rejecting such report and, if confirmed or modified, enter judgment
directing the time within which payment for the fair value shall be made by Old Line Bancshares.
If the appraisers report is rejected, the court may determine the fair value of the stock of the
objecting stockholders or may remit the proceeding to the same or other appraisers. Any judgment
entered pursuant to a court proceeding shall include interest from the date of the Maryland
Bankcorp stockholders vote on the merger. Costs of the proceeding will be determined by the court
and may be assessed against Old Line Bancshares or, under certain circumstances, the objecting
stockholder(s) or both. The courts judgment is final and conclusive on all parties and has the
same force and effect as other decrees in equity.
Fair Value. You should be aware that the fair value of your Maryland Bankcorp common stock as
determined under Sections 3-201 through 3-213 of the MGCL could be more than, the same as or less
than the value of the Old Line Bancshares stock you would receive in the merger if you did not seek
appraisal of your Maryland Bankcorp common stock. You should further be aware that, if you have
duly demanded the payment of the fair value of your Maryland Bankcorp common stock in compliance
with Section 3-203 of the MGCL, you will not, after making such demand, be entitled to vote the
Maryland Bankcorp common stock subject to the demand for any purpose or be entitled to, with
respect to such shares of stock, the payment of dividends or other distributions payable to holders
of record on a record date occurring after the close of business on the date the stockholders
approved the merger agreement and the merger. Fair value may not include any appreciation or
depreciation that directly or indirectly results from the transaction objected to or from its
proposal.
If you fail to comply strictly with these procedures you will lose your dissenters rights.
Consequently, if you wish to exercise your dissenters rights, we strongly urge you to consult a
legal advisor before attempting to exercise your dissenters rights.
DESCRIPTION OF OLD LINE BANCSHARES COMMON STOCK
The following summary is a description of the material terms of Old Line Bancshares common
stock and should be read in conjunction with the section entitled Comparison of Stockholder
Rights. This summary is not meant to be complete and is qualified by reference to the applicable
provisions of the MGCL, and the amended and restated articles of incorporation, as amended, of Old
Line Bancshares and the amended and restated bylaws of Old Line Bancshares. You are urged to read
those documents carefully. Copies of Old Line Bancshares articles of incorporation and bylaws are
on file with the SEC. See Where You Can Find More Information.
General
Old Line Bancshares authorized capital stock consists of 15,000,000 shares of common stock,
par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share.
Common Stock
Subject to the rights of holders of preferred stock or any other stock with superior dividend
rights, holders of Old Line Bancshares common stock are entitled to receive dividends if and when
the board of directors of Old Line Bancshares declares dividends from funds legally available. In
addition, holders of common stock share ratably in the net assets of Old Line Bancshares upon the
voluntary or involuntary liquidation, dissolution or winding up of Old Line Bancshares, after
distributions are made to anyone with more senior rights.
Each holder of Old Line Bancshares common stock is entitled to one vote for each share held on
each matter submitted for stockholder action. Holders of Old Line Bancshares common stock have no
conversion, sinking fund, redemptive rights or preemptive rights to subscribe for any securities of
Old Line Bancshares.
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All outstanding shares of Old Line Bancshares common stock are, and shares to be issued in the
merger will be, when issued, fully paid and nonassessable.
Preferred Stock
Old Line Bancshares is authorized to issue 1,000,000 shares of preferred stock, par value $0.
01 per share. Old Line Bancshares 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 that could have the effect of discouraging a takeover
or other transaction that 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, no shares of preferred stock are outstanding and Old Line Bancshares
has no present plans to issue any preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock of Old Line Bancshares is American Stock
Transfer and Trust Company. The common stock is listed on the NASDAQ Capital Market under the
symbol OLBK.
Anti-Takeover Provisions in Old Line Bancsharess Articles of Incorporation and Bylaws
General. A number of provisions of Old Line Bancshares articles of incorporation and bylaws
deal with matters of corporate governance and certain rights of stockholders. The following
discussion is a general summary of certain provisions the articles of incorporation and bylaws that
might be deemed to have a potential anti-takeover effect. The following description of certain
of the provisions of the articles of incorporation and bylaws is necessarily general and reference
should be made in each case to the articles of incorporation and bylaws.
Extraordinary Transactions. Old Line Bancshares articles of incorporation provide that
certain business combinations (as defined in the articles of incorporation) transactions between
Old Line Bancshares and any person who is the beneficial owner, directly or indirectly, of more
than 15% of the shares of Old Line Bancshares capital stock entitled to vote in the election of
directors (an interested stockholder) (or between Old Line Bancshares and an affiliate of the
interested stockholder) require a supermajority vote of holders of 80% of the total outstanding
shares of capital stock of Old Line Bancshares unless a majority of the disinterested directors
(as defined in the charter) of Old Line Bancshares approve the business combination if the
stockholders of Old Line Bancshares are not receiving cash or other consideration in the
transaction or, with respect to all other business combination transactions, unless certain fair
price and procedural provisions are satisfied. In general, the articles of incorporation define a
business combination as:
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Any merger or consolidation of Old Line Bancshares or a subsidiary with an
interested stockholder or an affiliate of an interested stockholder; |
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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 having an aggregate fair market value equal to or
greater than 10% of Old Line Bancshares assets; |
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The issuance or transfer by Old Line Bancshares or any subsidiary of any securities
thereof 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 10% of Old Line Bancshares
combined assets, except pursuant to an employee benefit plan of Old Line Bancshares; |
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Any reclassification or recapitalization of Old Line Bancshares, any merger or
consolidation of Old Line Bancshares with any of its subsidiaries, or any other
transaction (whether or not with or into or otherwise involving an interested
stockholder) that 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 or any subsidiary that are directly or indirectly
owned by any interested stockholder or any affiliate of any interested stockholder; or
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The adoption of a plan or proposal for the liquidation or dissolution of Old Line
Bancshares proposed by or on behalf of an interested stockholder or any affiliate of
any interested stockholder. |
In general, the articles of incorporation define 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. Old Line Bancshares articles of incorporation and
bylaws provide that it 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. Old Line Bancshares 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 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. Old Line Bancshares believes that classification of its board of
directors will help to assure the continuity and stability of its business strategies and policies
as determined by its board of directors.
Absence of Cumulative Voting. There is no cumulative voting in the election of Old Line
Bancshares 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 or her votes for one nominee or disperse his or her votes
among nominees as he or she chooses, cumulative voting is generally considered to increase the
ability of minority stockholders to elect nominees to a corporations board of directors.
The absence of cumulative voting means that the holders of a majority of Old Line Bancshares
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. Old Line Bancshares articles of incorporation 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. Old Line Bancshares articles of incorporation generally
provide that amendments to the articles, including those that would impact anti-takeover
provisions, must be approved by the holders of at least two-thirds of the shares entitled to be
voted on the matter. Stockholders generally have no right to amend the bylaws.
Authorized Shares. As indicated above, Old Line Bancshares articles of incorporation
authorize the issuance of 15,000,000 shares of common stock and authorize 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 the 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. 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. Old Line Bancshares bylaws provide that any
stockholder desiring to make a nomination for the election of directors must submit written notice
to Old Line Bancshares 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 interests of stockholders generally.
Anti-Takeover Provisions in the MGCL
In addition to the provisions contained in Old Line Bancshares articles of incorporation 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
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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 corporations 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.
Marylands business combination statute does not apply to business combinations that are
approved or exempted by the board of directors prior to the time that the Interested Stockholder
becomes an Interested Stockholder. In addition, Marylands business combination statute does not
apply to a corporation that opts out of the business combination statute through a charter
provision. Old Line Bancshares has not elected to opt out of Marylands business combination
statute through a charter provision.
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 corporations 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 corporations 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 ten 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.
Marylands control share acquisition statute does not apply to individuals or transactions
that are approved or exempted (whether generally or specifically) in a charter or bylaw provision
before the control share acquisition occurs. Old Line Bancshares has not approved or exempted any
individuals or transactions through a charter or bylaw provision.
Effect of Anti-Takeover Provisions
The foregoing provisions of the articles of incorporation and bylaws and Maryland law could
have the effect of discouraging an acquisition of Old Line Bancshares 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 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.
Old Line Bancshares board of directors believes that the provisions described above are
prudent and will reduce its vulnerability to takeover attempts and certain other transactions that
are not negotiated with and approved by its board of directors. Old Line Bancshares board of
directors believes that these provisions are in Old Line Bancshares 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 Old Line Bancshares true value and to negotiate more effectively
for what may be in the best interests of Old Line
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Bancshares stockholders. Accordingly, the board
of directors believes that it is in Old Line Bancshares best interests and in the best interests of Old Line Bancshares 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 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.
COMPARISON OF STOCKHOLDER RIGHTS
Upon completion of the merger, stockholders of Maryland Bankcorp will become stockholders of
Old Line Bancshares. Accordingly, their rights as stockholders will be governed by Old Line
Bancshares articles of incorporation and bylaws, as well as by the MGCL. Certain differences in
the rights of stockholders arise from differences between Old Line Bancshares and Maryland
Bankcorps articles of incorporation and bylaws.
The following is a summary of material differences in the rights of Old Line Bancshares
stockholders and Maryland Bankcorp stockholders. This discussion is not a complete statement of
all differences affecting the rights of stockholders. We qualify this discussion in its entirety
by reference to the MGCL and the respective articles of incorporation and bylaws of Old Line
Bancshares and Maryland Bankcorp.
Capitalization
Maryland Bankcorp. The authorized capital stock of Maryland Bankcorp consists of:
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10,000,000 shares of common stock, $0.01 par value per share; and |
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5,000,000 shares of preferred stock, $0.01 par value per share. |
Old Line Bancshares. The authorized capital stock of Old Line Bancshares consists of:
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15,000,000 shares of common stock, $0.01 par value per share; and |
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1,000,000 shares of preferred stock, $0.01 par value per share. |
No shares of Maryland Bankcorp preferred stock or Old Line Bancshares preferred stock are
outstanding.
Voting Rights Generally
Maryland Bankcorp. Maryland Bankcorps articles of incorporation provide that holders of its
common stock are entitled to one vote per share. Holders of common stock have cumulative voting
rights in the election of directors.
Maryland Bankcorps articles of incorporation do not alter the voting requirements otherwise
set forth in the MGCL.
Old Line Bancshares. Old Line Bancshares articles of incorporation provide that holders of
its common stock have the right to one vote for each share of common stock held. Holders of common
stock do not have cumulative voting rights.
Old Line Bancshares articles of incorporation provide that any business combination
involving the company, including (i) a merger or consolidation with an interested stockholder,
(ii) the sale, lease, license, exchange, mortgage, pledge, transfer or other disposition of any
asset exceeding 10% of the companys assets to any one or more interested stockholders, (iii)
reclassifications, recapitalizations, mergers or consolidations that increase the amount of Old
Line Bancshares securities owned by an interested stockholder, and (iv) the adoption of any plan of
liquidation or dissolution, must be approved by the holders of at least 80% of the outstanding
voting power, unless approved by a majority of the disinterested directors or the transaction
complies with certain price and procedural requirements set forth in the articles of incorporation.
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In addition, Old Line Bancshares articles of incorporation provide that the sale, lease or
exchange of all or substantially all of its assets or a merger or consolidation of Old Line
Bancshares with or into another corporation requires
the approval of holders of only a majority of the shares of each class of its stock
outstanding and entitled to vote if such transaction is approved by a majority of the board of
directors. Without such a charter provision, the MGCL provides that the required vote for such
transactions is two-thirds of each class of stock outstanding and entitled to vote.
Board of Directors
The MGCL provides that a Maryland corporations board of directors must consist of at least
one director.
Maryland Bankcorp. Maryland Bankcorps bylaws provide that there will be no less than five
and no more than 25 members of the board of directors, with the board having the power to set the
number of directors within those limits. The board is not divided into classes and directors are
elected annually for one-year terms. Directors are elected by a plurality of the votes cast.
Maryland Bankcorp currently has five directors.
Under the bylaws, the board has the authority to fill vacancies that occur on the board,
including vacancies caused by an increase in the number of directors, although the board can
require that a vacancy be filled by the stockholders at a special meeting.
Pursuant to the MGCL, the stockholders of Maryland Bankcorp may remove a director, with or
without cause, by majority vote, but may not remove a director without cause if the votes cast
against the directors removal would be sufficient to elect the director if then cumulatively voted
at an election of the entire board, unless the entire board is to be removed.
Old Line Bancshares. Old Line Bancshares articles of incorporation and bylaws provide that
its board must be between five and 25 members, with the board having the power to set the number of
directors within those limits. Pursuant to the bylaws, the directors are divided into three
classes, as even in number as possible, with the terms of the classes scheduled to expire in
successive years. At each annual meeting, Old Line Bancshares stockholders elect the members of a
single class of directors who are elected to three-year terms. Directors are elected by a
plurality of the votes cast. Old Line Bancshares currently has 14 directors.
Under Old Line Bancshares articles of incorporation, its board of directors has the authority
to fill vacancies that occur on the board, including vacancies caused by an increase in the number
of directors, subject to the rights of holders of any preferred stock then outstanding. Pursuant
to Old Line Bancshares articles of incorporation, directors may be removed only for cause and only
by the affirmative vote of holders of at least 80% of the outstanding shares entitled to vote in
the election of directors, and only after reasonable notice and opportunity for the director to be
heard before the body proposing to remove the director.
Nominations of Directors
Maryland Bankcorp. Maryland Bankcorps articles of incorporation and bylaws do not address
the nomination of directors. As a result, under state law stockholders of Maryland Bankcorp may
make nominations for directors from the floor at any annual meeting of stockholders or at a special
meeting of stockholders called for the purpose of electing directors.
Old Line Bancshares. Old Line Bancshares bylaws provide that the board of directors or any
stockholder entitled to vote for the election of directors may make nominations for the election of
directors.
Other than the existing board of directors, stockholders of Old Line Bancshares must make
their nominations for director in writing to the attention of the secretary of Old Line Bancshares.
Nominations must be submitted not less than 14 nor more than 50 days before the annual meeting of
stockholders. Nominations must contain certain information regarding the identity and background
of the proposed nominee. Rules recently adopted by the SEC will allow certain stockholders to
nominate directors of Old Line Bancshares using the companys proxy materials beginning November
15, 2013.
Amendments to the Articles of Incorporation
Maryland Bankcorp. Pursuant to the MGCL, amendments to Maryland Bankcorps articles of
incorporation require the approval of its board of directors and holders of two-thirds of all the
shares entitled to vote on such amendment.
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Old Line Bancshares. Old Line Bancshares articles of incorporation generally may be amended
by affirmative vote of the holders of at least 80% of the total voting power of the company
entitled to vote in the election of directors generally.
Amendments to Bylaws
Maryland Bankcorp. Only its board of directors has the power to amend Maryland Bankcorps
bylaws. Stockholders do not have the right to amend the bylaws.
Old Line Bancshares. In general, Old Line Bancshares board of directors has the power to
amend its bylaws. Stockholders generally do not have the right to amend the bylaws.
Limited Liability
Maryland Bankcorp. Maryland Bankcorps articles of incorporation provide that to the maximum
extent allowed by Maryland law, its officers and directors are not liable to Maryland Bankcorp or
its stockholders for money damages. Under Maryland law, a Maryland corporation may not include any
provision in its articles of incorporation that restricts or limits the liability of its directors
or officers to the corporation or its stockholders:
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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; or |
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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 persons 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. |
Old Line Bancshares. Old Line Bancshares articles of incorporation provide that its officers
and directors are not personally liable to Old Line Bancshares or its stockholders for monetary
damages for breach of their fiduciary duties, provided that such provision does not eliminate or
limit personal liability of an officer or director:
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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; |
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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 persons 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 |
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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
company. |
Indemnification
Maryland Bankcorp. Maryland Bankcorps articles of incorporation and bylaws provide that, to
the fullest extent under the MGCL, it will indemnify its past, present and future directors and
officers for all judgments, fines, penalties, settlements and costs and expenses actually and
reasonably incurred by such persons in connection with any threatened, pending or completed action,
suit or proceeding against such person, whether civil, criminal, administrative or investigative,
in which such officer or director is a party or threatened to be made a party, by reason of his
having been an officer or director of the company or, at the companys request, any other entity to
the extent not otherwise entitled to indemnification.
The MGCL provides that a Maryland corporation may not indemnify a director if it is
established that:
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The act or omission of the director was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and deliberate
dishonesty; |
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The director actually received an improper benefit in money, property or services; |
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In the case of any criminal proceeding, the director had reasonable cause to believe
that the act or omission was unlawful; or |
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In the case of a proceeding by or in the right of the company, the director is
adjudged to be liable to the company, unless the court in which the suit was brought
determines that indemnification is nevertheless proper, in which case indemnification
is limited to expenses. |
Maryland Bankcorps bylaws provide that the board of directors, on behalf of the company, may
grant indemnification to any officer, employee, agent or other individual in its sole discretion
and in accordance with the MGCL. The bylaws provide for the advancement of expenses in connection
with defending any proceeding for which any person is entitled to indemnification, provided they
undertake to reimburse such amounts if it is determined by a court that such person is not entitled
to such advancement.
Old Line Bancshares. Old Line Bancshares articles of incorporation provide that, to the
fullest extent under the MGCL, it will indemnify its past, present and future directors and
officers against all expenses, liability and losses reasonably incurred or suffered by such person
in connection with any threatened or pending action, suit or proceeding, whether civil, criminal,
administrative or investigative, in which such officer or director is a party or threatened to be
made a party, by reason of his having been an officer or director of the company or, at the
companys request, any other entity, provided, however, that the company will indemnify any such
person in connection with a proceeding initiated by such person only if such proceeding was
authorized by the board of directors, except for a proceeding to enforce such persons right to
indemnification or advancement of expenses.
Its articles of incorporation provide that Old Line Bancshares cannot indemnify any officer,
director or employee 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 monetary penalties or requiring affirmative action by an
individual or individuals in the form of payments to the company.
The articles of incorporation also provide for the right to advancement of expenses in
connection with the indemnification rights set forth above, provided such officer or director
undertakes to reimburse such amounts if it is determined by a court that such person is not
entitled to indemnification and advancement of expenses.
Special Stockholders Meetings
Maryland Bankcorp. Special meetings of Maryland Bankcorps stockholders may be called at any
time by its board of directors or its president, and must be called by its president upon the
written request of stockholders of at least 33% of all outstanding shares of Maryland Bankcorp
stock that are entitled to vote.
Old Line Bancshares. Special meetings of Old Line Bancshares stockholders may be called at
any time by its board of directors, the Chairman of the board of directors or by stockholders
owning, in the aggregate, not less than 20% of the stock of the company, and must be called by the
secretary of the company upon the written application of one or more stockholders who are entitled
to vote and hold at least one-fifth in interest of the capital stock entitled to vote at such
meeting.
Preemptive Rights
Maryland Bankcorp. Maryland Bankcorps articles of incorporation provide that, with certain
exceptions for stock issued for compensation or pursuant to warrants issued to the U.S. Treasury,
holders of common stock have the right to subscribe for additional shares of common stock or
interests convertible thereto in proportion to their current percentage of common stock or
interests convertible thereto held by the stockholder in any issuance of additional shares of
common stock or interests convertible thereto by Maryland Bankcorp. These are commonly known as
preemptive rights.
Old Line Bancshares. Stockholders of Old Line Bancshares do not have preemptive rights.
Dissenters Rights
Maryland Bankcorp. The dissenters rights of Maryland Bankcorp stockholders are governed by
the MGCL, which, as described in more detail under The Merger Agreement and the Merger
Dissenters Rights, provides that stockholders are generally entitled to dissent from, and demand
payment of the fair value of their shares in connection with, a merger,
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consolidation, share
exchange, asset transfer, business combinations or charter amendment that substantially adversely
alters the stockholders rights.
Old Line Bancshares. Because Old Line Bancshares common stock is listed on the NASDAQ Stock
Market, Old Line Bancshares stockholders generally do not have dissenters rights in connection
with extraordinary transactions or otherwise. There are some exceptions, however, such as for a
merger, consolidation or share exchange in which the holders would receive something besides stock,
depositary receipts, cash in lieu of fractional shares or any combination thereof, or if the
companys directors and executive officers owned 5% or more of the companys outstanding voting
stock any time in the past year.
EXPERTS
The consolidated financial statements of Old Line Bancshares, as of December 31, 2009, 2008
and 2007, and for each of the years then ended, appearing elsewhere in this joint proxy
statement/prospectus, have been included herein and in the registration statement in reliance upon
the report of Rowles & Company LLP, independent registered public accounting firm, which is
included herein upon authority of Rowles & Company LLP as experts in accounting and auditing.
The consolidated financial statements of Maryland Bankcorp, as of December 31, 2009 and 2008, and for each of the years then ended, appearing elsewhere in this joint proxy
statement/prospectus, have been included herein and in the registration statement in reliance upon
the report of Reznick Group, P.C., independent public accounting firm, which is included
herein upon authority of Reznick Group, P.C. as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Old Line Bancshares common stock to be issued in the merger and certain
other legal matters relating to the merger are being passed upon for Old Line Bancshares by the law
firm of Ober, Kaler, Grimes & Shriver, P.C., Baltimore, Maryland.
Certain legal matters relating to the merger are being passed upon by the law firm of Nelson
Mullins Riley & Scarborough LLP, Washington, D.C., as special counsel to Maryland Bankcorp.
Ober, Kaler, Grimes & Shriver, P.C. and Nelson Mullins Riley & Scarborough LLP will deliver
opinions to Old Line Bancshares and Maryland Bankcorp, respectively, as to certain federal income
tax consequences of the merger.
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INFORMATION ABOUT OLD LINE BANCSHARES, INC.
AND OLD LINE BANK
In this section references to we and our refer to Old Line Bancshares, Inc. and its
subsidiaries collectively, unless the context requires otherwise.
BUSINESS OF OLD LINE BANCSHARES, INC.
Old Line Bancshares was incorporated under the laws of the State of Maryland on April 11, 2003
to serve as the holding company of Old Line Bank. The primary business of Old Line Bancshares is
to own all of the capital stock of Old Line Bank.
On May 22, 2003, the stockholders of Old Line Bank approved the reorganization of Old Line
Bank into a holding company structure. The reorganization became effective on September 15, 2003.
In connection with the reorganization, (i) Old Line Bank became our wholly-owned subsidiary and
(ii) each outstanding share (or fraction thereof) of Old Line Bank common stock was converted into
one share (or fraction thereof) of Old Line Bancshares common stock, and the former holders of Old
Line Bank common stock became the holders of all our outstanding shares.
Our primary business is to own all of the capital stock of Old Line Bank. We also have an
approximately $1.1 million investment in Pointer Ridge Office Investment, LLC, a Maryland limited
liability company that owns the building in which Old Line Bancshares leases and operates its main
headquarters as well as a branch of Old Line Bank. We own 62.50% of Pointer Ridge.
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.
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 National
Bank and to have a local primary regulator. Prior to the conversion, Old Line Banks primary
regulator was the OCC. Currently, Old Line Banks primary regulator is the Maryland Commissioner.
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 FDIC insures its deposits.
We
are headquartered in Bowie, Maryland, approximately ten miles east of Andrews Air
Force Base and 20 miles east 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 Georges, Charles, Anne Arundel and northern St. Marys. We also target
customers throughout the greater Washington, D.C. metropolitan area. Our branch offices generally
operate six days per week from 8:00 a.m. until 7:00 p.m. on weekdays and from 8:00 a.m. until noon
on Saturday. None of our branch offices are open on Sunday.
Our principal 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 leverage our capital
appropriately.
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.
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Recent Business Developments
Branch Expansion Developments
In 2009, we substantially completed our branch expansion efforts with the opening of two new
branch locations. On July 1, 2009, we opened a branch at 1641 State Route 3 North, Crofton,
Maryland in Anne Arundel County. We had initially executed a lease and applied to regulatory
authorities to open this branch in 2004, but its construction was delayed due to engineering and
permit delays. During July and August 2009, we hired the staff for this location.
In October 2009, we opened an additional branch in the Fairwood Office Park located at 12100
Annapolis Road, Suite 1, Glen Dale, Maryland. We hired the staff for this location during the
third quarter of 2009.
In the fourth quarter of 2009, we moved our Greenbelt (Prince Georges County) Maryland branch
that was opened in June 2007 on the 1st floor of an office building to a free standing building at
the southwest corner of the intersection of Kenilworth Avenue and Ivy Lane, Greenbelt, Maryland.
In April 2007, we hired the Branch Manager for this location and hired the remainder of the staff
in May and September of 2007.
Expansion of Commercial, Construction and Commercial Real Estate Lending
In December 2009, we added a team of four experienced, highly skilled loan officers to our
staff. These officers have a combined 50 years of commercial banking experience and were employed
by a large regional bank with offices in the suburban Maryland market prior to joining us. These
individuals have worked in our market area for many years, have worked together as a team for
several years and have a history of successfully generating a high volume of commercial,
construction and commercial real estate loans. This team operates from our Greenbelt, Maryland
branch location.
The addition of these individuals and our new branches caused an increase in non-interest
expenses during the first half of 2010 and we expect will cause an increase for the full year 2010.
As a result of the addition of these individuals and branches, however, the bank experienced an
increased level of loan and deposit growth during the first half of 2010 that we expect will
continue for the foreseeable future, which has provided and will provide increased interest income
that exceeds their non-interest expenses.
Sale and Repurchase of Preferred Stock to the U.S. Treasury
On December 5, 2008, we issued $7 million of our Series A Preferred Stock and warrants to
purchase 141,892 shares of our common stock at $7.40 per share to the U.S. Treasury pursuant to the
Capital Purchase Program under the Troubled Asset Relief Program implemented pursuant to the
Emergency Economic Stabilization Act of 2008.
On July 15, 2009, we paid the U.S. Treasury $7,058,333 to repurchase the preferred stock
outlined above. The amount paid included the liquidation value of the preferred stock and $58,333
of accrued but unpaid dividends. We have also repurchased at a fair market value of $225,000 the
warrant to purchase 141,892 shares of our common stock that was issued to the U.S. Treasury in
conjunction with the issuance of the preferred stock.
Location and Market Area
We consider our current primary market area to consist of the suburban Maryland (Washington,
D.C. suburbs) counties of Prince Georges, Anne Arundel, Charles and northern St. Marys. The
economy in our current primary market area has focused on real estate development, high technology,
retail and the government sector.
Our headquarters and a branch are located at 1525 Pointer Ridge Place, Bowie, Prince Georges
County, Maryland. A critical component of our strategic plan and future growth is Prince Georges
County. Prince Georges County wraps around the eastern boundary of Washington, D.C. and offers
urban, suburban and rural settings for employers and residents. There are several national and
international airports less than an hour away, as is Baltimore. We currently have six branch
locations in Prince Georges County.
Two of our branch offices are 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.
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Two of our branch offices are located in Anne Arundel County, one in Annapolis that we opened
in September 2008 and our new branch that we opened in Crofton in July 2009. Anne Arundel County
borders the Chesapeake Bay and is situated in the high-tech corridor between Baltimore and
Washington, D.C. With over 534 miles of shoreline, it provides waterfront living to many
residential communities. Annapolis, the State Capital and home to the United States Naval Academy,
and Baltimore/Washington International Thurgood Marshal Airport (BWI) are located in Anne Arundel
County. Anne Arundel County has one of the strongest economies in the State of Maryland and its
unemployment rate is consistently below the national average.
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 have provided luxury boat
financing to individuals, who generally tend to be high net worth 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,
prior to funding, the loan committee consisting of the President, Chief Credit Officer, Chief
Lending Officer and six members of the board of directors must approve by a majority vote all
credit decisions in excess of a lending officers lending authority. Management believes that it
employs experienced lending officers, secures appropriate collateral and carefully monitors the
financial condition of its borrowers and the concentrations 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 firms 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, 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. They may
also involve higher average balances, increased difficulty monitoring and a higher risk of default
since their repayment generally depends on the successful operation of the borrowers business. To
help manage this risk, we typically limit these loans to proven businesses and we generally obtain
appropriate collateral and personal guarantees from the borrowers principal owners and monitor the
financial condition of the business. For loans in excess of $250,000, monitoring usually includes
a review of the borrowers annual tax returns and updated financial statements.
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. We originate
commercial real estate loans on a fixed rate or adjustable rate basis. Usually, these rates adjust
during a three, five or seven year time period based on the then current treasury or prime rate
index. Repayment terms include amortization schedules from three years to a maximum of 25 years
with principal and interest payments due monthly and with all remaining principal due at maturity.
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Commercial real estate lending entails significant additional risks as compared with
residential mortgage lending. 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 that may
detrimentally impact the borrowers ability to repay. We attempt to mitigate these risks by
carefully underwriting these loans. Our underwriting generally includes an analysis of the
borrowers capacity to repay, the current collateral value, a cash flow analysis and review of the
character of the borrower and current and prospective conditions in the market. We generally limit
loans in this category to 75% to 80% of the value of the property and require personal and/or
corporate guarantees. For loans of this type in excess of $250,000, we monitor the financial
condition and operating performance of the borrower through a review of annual tax returns and
updated financial statements. In addition, we will meet with the borrower and/or perform site
visits as required.
Real Estate Construction Lending. This segment of our loan portfolio consists of funds
advanced for construction of single family residences, multi-family housing and commercial
buildings. These loans have short durations, meaning maturities typically of nine months or less.
Residential houses, multi-family dwellings and commercial buildings 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 the project under construction. The value of the project is
estimated prior to the completion of construction. 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. We generally only offer real estate construction financing
to experienced builders and commercial entities or individuals who have demonstrated the ability to
obtain a permanent loan take out. We also perform a complete analysis of the borrower and the
project under construction. This analysis includes a review of the cost to construct, the
borrowers ability to obtain a permanent loan take out, the cash flow available to support the
debt payments and construction costs in excess of loan proceeds, and the value of the collateral.
During construction, we advance funds on these loans on a percentage of completion basis. We
inspect each project as needed prior to advancing funds during the term of the construction loan.
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. Usually, we secure our home equity loans and lines of credit with a security
interest in the borrowers primary or secondary residence. Our initial underwriting includes an
analysis of the borrowers debt/income ratio which generally may not exceed 40%, collateral value,
length of employment and prior credit history. We do not have any sub-prime residential real
estate loans.
Consumer Installment Lending
Luxury Boat Loans. We offer various types of secured and unsecured consumer loans. Prior to
2008, a primary aspect of our consumer lending was financing for luxury boat purchases. Although
we continue to maintain a portfolio comprised of these loans ($12.3 million or 87.86% of the
consumer loans, excluding consumer real estate, and 4.27% of gross loans at June 30, 2010) and
would consider making such loans in the future if borrowers were to apply for them, we have not
originated any substantive new marine loans since the third quarter of 2007. Our average loan in
the luxury boat loan category is approximately $150,000, with a 15 year term and a fixed interest
rate. Historically, our internal analysis and industry statistics indicated that the average life
of these loans was approximately 42 months as the purchaser either traded or sold the vessel. We
believe that the current economic turmoil has extended the average life of these loans as borrowers
are not trading their boats for new ones or able to sell the boat (and pay off the related loan)
when they desire to do so. These loans entail greater risks than residential mortgage lending
because the boats that secure these loans are depreciable assets. Further, payment on these loans
depends on the borrowers continuing financial stability. Job loss, divorce, illness or personal
bankruptcy may adversely impact the borrowers ability to pay. To mitigate these risks, we have
more stringent underwriting standards for these loans 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, satisfactory
prior credit repayment history and the loan to value ratio may not exceed 85%. To ascertain value,
we generally receive a survey of the boat from a qualified surveyor and/or a current purchase
agreement and compare the determined value to published industry values. The majority of these
boats are United States Coast Guard documented vessels and we obtain a lien on the vessel with a
first preferred ship mortgage, where applicable, or a security interest on the title. As a result
of these stringent guidelines, this segment of our portfolio has experienced minimal delinquency.
Since
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inception of the portfolio in 1997, only five accounts have experienced 30-day delinquency
with total losses in the portfolio
of $98,000 from three accounts. The most recent loss occurred during the third quarter of
2009 when we repossessed a boat. At the time of repossession, this boat secured a loan of
approximately $100,000. At repossession, we charged $50,000 to the allowance for loan losses for
anticipated losses that we expected to incur on this transaction and we included $50,000 in other
assets for the repossessed value of the boat. We sold this boat during the second quarter of 2010
with no additional substantive losses.
Personal and Household Loans. 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 consumers total debt service should not exceed 40%
of their gross income. The underwriting standards for consumer loans include a determination of
the applicants 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 rapidly depreciating assets secure these loans. 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 borrowers 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 June 30, 2010, our legal lending limit for loans to one borrower was
approximately $5.6 million. 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,
purchased funds, and short term borrowings. It is our goal to provide adequate liquidity to
support our loan growth. In the event we have excess liquidity, we use investments to generate
positive earnings. In the event deposit growth does not fully support our loan growth, we can use
a combination of investment sales, federal funds, other purchased funds and short term borrowings
to augment our funding position.
We actively monitor our investment portfolio and we classify the majority of the portfolio as
available for sale. In general, under such a classification, we may sell investment instruments
as management deems appropriate. On a monthly basis, we mark to market the investment portfolio
through an adjustment to stockholders equity net of taxes. Additionally, we use the investment
portfolio to balance our asset and liability position. We 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, debit cards, automated
teller machines at all of our branch locations and credit cards through a third party processor.
Additionally, we provide Internet banking capabilities to our customers. With our Internet banking
service, our customers may view their accounts on-line and electronically remit bill payments. Our
commercial account services include direct deposit of payroll for our commercial clients
employees, an overnight sweep service and remote deposit capture service.
Deposit Activities
Deposits are the major source of our funding. We offer a broad array of deposit products that
include demand, 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. Prior to 2006, we did not use brokered deposits. In the first quarter of
2006, we did begin using brokered certificates of deposit through the Promontory Interfinancial
Network. Through this deposit matching network and its certificate of deposit
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account registry
service (CDARS), we obtained the ability to offer our customers access to FDIC-insured deposit
products in aggregate amounts exceeding current insurance limits. When we place funds through
CDARS on behalf of a customer, we
receive matching deposits through the network. During 2007, 2008 and 2009, we also purchased
brokered certificates of deposit from other sources.
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 effectively leveraged 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.
Employees
As of September 30, 2010, Old Line Bank had 70 full time and 11 part time employees. No
collective bargaining unit represents any of our employees and we believe that relations with our
employees are good. Old Line Bancshares has no employees.
Supervision and Regulation
Old Line Bancshares and Old Line Bank 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
Old Line Bancshares is a Maryland corporation registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended. We are subject to regulation and examination by the
Federal Reserve Board, and are 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 bank holding
company of control of more than 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.
Subject to certain time and deposit base requirements, we can 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 of its subsidiary
banks 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 Acts anti-tying prohibitions that give bank subsidiaries of
holding companies greater flexibility in packaging products and services with their affiliates.
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In accordance with Federal Reserve Board policy, Old Line Bancshares is 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 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 Reserves 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 institutions financial condition.
The Federal Reserve Board imposes risk-based capital measures on bank holding companies in
order to insure their capital adequacy.
Old Line Bancshares, as a bank holding company, is 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 is a small bank holding company, and does
not have a debt to equity ratio that is greater than 1:1.
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. In approving the application, the Maryland
Commissioner 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 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 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 is not required due to an exemption under Maryland law,
or for which federal law authorizes the transaction without application to the Maryland
Commissioner, the parties to the acquisition must provide written notice to the Maryland
Commissioner at least 15 days before the effective date of the transaction.
The status of Old Line Bancshares as a registered bank holding company under the Bank Holding
Company Act does not exempt it from certain federal and state laws and regulations applicable to
Maryland 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 the Deposit Insurance Fund of
the FDIC (DIF) insures its deposit accounts up to the maximum legal limits of the FDIC. It is
subject to regulation, supervision and regular examination by the Maryland Commissioner and the
Federal Reserve Board. The regulations of these various agencies govern most aspects of Old Line
Banks 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 its stockholders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act)
transferred responsibility for the implementation of financial consumer protection laws to a new
independent agency in the Federal Reserve Board. The new agency, the Consumer Financial Protection
Bureau, will issue rules and regulations governing consumer financial protection. However,
depository institutions of less than $10 billion in assets, such as Old Line Bank, will continue to
be examined for compliance with consumer protection laws by the prudential regulators which will
also have enforcement authority.
The following references to the laws and regulations which regulate Old Line Bank are brief
summaries thereof, do not purport to be complete, and are qualified in their entirety by reference
to such laws and regulations.
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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. The Dodd-Frank Act requires the Federal Reserve Board to
issue consolidated regulatory capital requirements for holding companies that are at least as
stringent as those applicable to the bank. However, the Dodd-Frank Act appears to allow the
Federal Reserve Board to continue to exempt bank holding companies of less than $500 million
in consolidated assets from the holding company capital requirements. 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 Tier 1 Capital. In general, this
requirement is similar to the capital that a bank must have in order to be considered adequately
capitalized under the prompt corrective action regulations. See Prompt Corrective Action.
Old Line Bank currently complies with this minimum requirement.
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. 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 must, 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 will achieve its minimum
Leverage Capital Ratio requirement. A bank that fails to file such a 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.
On September 3, 2009, the U. S. Treasury issued a policy statement (the Treasury Policy
Statement) entitled Principles for Reforming the U.S. and International Regulatory Capital
Framework for Banking Firms. The U.S. Treasury developed this statement in consultation with the
U.S. bank regulatory agencies and contemplates changes to the existing regulatory capital regime
that would involve substantial revisions to the regulatory capital and liquidity regime for
regulated banking organizations and other systemically important institutions. The Treasury Policy
Statement calls for, among other things, higher and stronger capital requirements for all banking
firms. The Treasury Policy Statement suggested that changes to the regulatory capital framework be
phased in over a period of several years. The recommended schedule provides for a comprehensive
international agreement by December 31, 2010, with the implementation of reforms by December 31,
2012,
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although it does remain possible that U.S. bank regulatory agencies could officially adopt,
or informally implement new capital standards at an earlier date.
On December 17, 2009, the Basel Committee on Banking Supervision (Basel Committee) issued a
set of proposals (the Capital Proposals) that would significantly revise the definitions of Tier
1 Capital and Tier 2 Capital, with the most significant changes being to Tier 1 Capital. Most
notably, the Capital Proposals would also re-emphasize that common equity is the predominant
component of Tier 1 Capital by adding a minimum common equity to risk-weighted
assets ratio and requiring that goodwill, general intangibles and certain other items that
currently must be deducted from Tier 1 Capital instead be deducted from common equity as a
component of Tier 1 Capital. The Capital Proposals also leave open the possibility that the Basel
Committee will recommend changes to the minimum Tier 1 Capital and total capital ratios of 4.0% and
8.0%, respectively.
Concurrently with the release of the Capital Proposals, the Basel Committee also released a
set of proposals related to liquidity risk exposure (the Liquidity Proposals, and together with
the Capital Proposals, the 2009 Basel Committee Proposals). The Liquidity Proposals have three
key elements, including the implementation of (i) a liquidity coverage ratio designed to ensure
that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the
banks liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a
net stable funding ratio designed to promote more medium and long term funding of the assets and
activities of banks over a one year time horizon, and (iii) a set of monitoring tools that the
Basel Committee indicates should be considered as the minimum types of information that banks
should report to supervisors and that supervisors should use in monitoring the liquidity risk
profiles of supervised entities.
Comments on the 2009 Basel Committee Proposals were due by April 16, 2010, with the
expectation that the Basel Committee will release a comprehensive set of proposals by December 31,
2010 and that final provisions will be implemented by December 31, 2012. The U.S. bank regulators
urged comment on the 2009 Basel Committee Proposals. Ultimate implementation of such proposals in
the U.S. will be subject to the discretion of the U.S. bank regulators and the regulations or
guidelines adopted by such agencies may differ from the 2009 Basel Committee Proposals and other
proposals that the Basel Committee may promulgate in the future.
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 institutions 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 will
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
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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.
Immediately upon becoming undercapitalized, an institution becomes 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 institutions 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 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.
A critically undercapitalized institution will 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.
Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed
for an institution where: (i) an institutions obligations exceed its assets; (ii) there is
substantial dissipation of the institutions 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 institutions 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 institutions 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.
Old Line Bank is well capitalized.
Deposit Insurance Assessments
The DIF insures substantially all of Old Line Banks deposits. The FDIC maintains a risk
based assessment system for determining deposit insurance premiums. The FDIC has established four
risk categories (I-IV), each subject to different premium rates, based upon an institutions status
as well capitalized, adequately capitalized or under capitalized, and the institutions supervisory
rating. In December 2008, the FDIC raised the then current assessment rates uniformly by 7 basis
points for the first quarter of 2009 assessment, which resulted in annualized assessment rates for
institutions in Risk Category 1 (well capitalized institutions, perceived as posing the least risk
to the insurance fund) from 12 to 14 basis points. In February 2009, the FDIC issued final rules
to amend the DIF restoration plan, change the risk-based assessment system and set assessment rates
for Risk Category 1 institutions beginning in the second quarter of 2009. As a result of this
final rule the annualized assessment rates for institutions in Risk Category 1 range from 12 to 16
basis points. Old Line Bank is a Risk Category 1 institution.
The FDIC has authority to further increase insurance assessments. In addition, the Dodd-Frank
Act requires that the FDIC amend its assessment system to base it on total assets less tangible
equity rather than deposits. A significant increase in insurance premiums would likely have an
adverse effect on the operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.
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Under the FDIA, the FDIC may terminate insurance of deposits upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Deposit Insurance
Because of the recent difficult economic conditions, deposit insurance per account owner had
been raised to $250,000 for all types of accounts until January 1, 2014. That level was made
permanent by the newly enacted Dodd-Frank Act. In addition, the FDIC adopted an optional Temporary
Liquidity Guarantee Program (TLGP) under which, for a fee,
noninterest-bearing transaction accounts would receive unlimited insurance coverage until June
30, 2010, subsequently extended to December 31, 2010. The Dodd-Frank Act extends the unlimited
coverage of noninterest-bearing transaction accounts until December 31, 2012 without providing an
opt out.
Maryland Regulatory Assessment
The Maryland Commissioner assesses state chartered banks to cover the expense of regulating
banking institutions. The Maryland Commissioner assesses each banking institution the sum of
$1,000, plus $0.08 for each $1,000 of assets of the institution over $1,000,000, as disclosed on
the banking institutions most recent financial report. In 2009, Old Line Bank paid $37,940 to the
Maryland Commissioner.
Regulatory Enforcement Authority
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) included
substantial enhancement to the enforcement powers available to federal banking regulators,
including the Federal Reserve Board. 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. FIRREA
significantly increased the amount of and grounds for civil money penalties and requires, except
under certain circumstances, public disclosure of final enforcement actions by the federal banking
agencies.
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 laws coverage.
In addition, Old Line Bank is subject to the provisions of Section 23A and 23B of the Federal
Reserve Act and Regulation W of the Federal Reserve Bank (collectively, Regulation W), which
limit 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. Regulation W limits the aggregate amount of transactions
with any individual affiliate to 10% of the capital and surplus of Old Line Bank and also limits
the aggregate amount of transactions with all affiliates to 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 Regulation W, and the purchase of low quality assets from
affiliates is generally prohibited.
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Regulation W, among other things, prohibits an institution from engaging in certain
transactions with certain affiliates (as defined in the Federal Reserve Act) 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. In addition, under Regulation W:
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a bank and its subsidiaries may not purchase a low-quality asset from an affiliate; |
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covered transactions and other specified transactions between a bank or its
subsidiaries and an affiliate must be on terms and conditions that are consistent with
safe and sound banking practices; and |
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with some exceptions, each loan or extension of credit by a bank to an affiliate
must be secured by collateral with a market value ranging from 100% to 130%, depending
on the type of collateral, of the amount of the loan or extension of credit. |
Regulation W generally excludes non-bank and non-savings association subsidiaries of banks
from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat
these subsidiaries as affiliates.
Old Line Bank also is subject to the restrictions contained in Sections 22(g) and 22(h) of the
Federal Reserve Act and the Federal Reserve Boards Regulation O thereunder (collectively,
Regulation O), which govern loans and extensions of credit to executive officers, directors and
principal stockholders. Under Regulation O, loans to a director, an executive officer or a
greater-than-10% stockholder of a bank as well as certain affiliated interests of any of the
foregoing may not exceed, together with all other outstanding loans to such person and affiliated
interests, the loans-to-one-borrower limit applicable to national banks (generally 15% of the
institutions unimpaired capital and surplus), and all loans to all such persons in the aggregate
may not exceed the institutions unimpaired capital and unimpaired surplus. Regulation O also
prohibits the making of loans in an amount greater than $25,000 or 5% of capital and surplus but in
any event not over $500,000, to directors, executive officers and greater-than-10% stockholders of
a bank, and their respective affiliates, unless such loans are approved in advance by a majority of
the board of directors of the bank with any interested director not participating in the voting.
Further, Regulation O requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as those that are offered in comparable
transactions to unrelated third parties unless the loans are made pursuant to a benefit or
compensation program that is widely available to all employees of the bank and does not give
preference to insiders over other employees. Regulation O also prohibits a depository institution
from paying overdrafts over $1,000 of any of its executive officers or directors unless they are
paid pursuant to written pre-authorized extension of credit or transfer of funds plans.
All of Old Line Banks loans to its and Old Line Bancshares executive officers, directors and
greater-than-10% stockholders, and affiliated interests of such persons, comply with the
requirements of Regulation W and Regulation O.
We have entered into banking transactions with our directors and executive officers and the
business and professional organizations in which they are associated in the ordinary course of
business. We make any loans and loan commitments in accordance with all applicable laws.
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 Banks unimpaired
capital and surplus
Liquidity
Old Line Bank is subject to the reserve requirements imposed by the Maryland Commissioner.
Old Line 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. Specifically, as of December 31, 2009,
amounts in transaction accounts above $10.7 million and up to $55.2 million must have reserves held
against them in the ratio of three percent of the amount. Amounts above $55.2 million require
reserves of 10 percent of the amount in excess of $55.2 million. The Maryland reserve requirements
may be used to satisfy the requirements of Regulation D. Old Line Bank is in compliance with its
reserve requirements.
121
Dividends
Old Line Bancshares is a legal entity separate and distinct from Old Line Bank. Virtually all
of Old Line Bancshares revenue available for the payment of dividends on its common stock results
from dividends paid to Old Line Bancshares by Old Line Bank. 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, from its
surplus in excess of 100% of its required capital stock. Also, if Old Line Banks 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 institutions 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, among other things, 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
The USA Patriot Act of 2001 (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 Patriot Act requires financial institutions, including banks, to establish
anti-money laundering programs, including employee training and independent audit requirements,
meet minimum standards specified by the Act, follow minimum standards for customer identification
and maintenance of customer identification records, and regularly compare customer lists against
lists of suspected terrorists, terrorist organizations and money launderers. The U.S. Treasury has
issued a number of implementing regulations that apply to various requirements of the USA Patriot
Act to financial institutions such as Old Line Bank. Those regulations impose obligations on
financial institutions to maintain appropriate policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing.
Failure of a financial institution to comply with the USA Patriot Acts 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 U.S. Treasurys
regulations.
The costs or other effects of the compliance burdens imposed by the Patriot Act or future
anti-terrorist, homeland security or anti-money laundering legislation or regulations cannot be
predicted with certainty.
Consumer Protection Laws
Old Line Bank is subject to a number of federal and state laws designed to protect borrowers
and promote lending to various sectors of the economy. These laws include the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the
Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures
Act, and various state law counterparts.
In addition, federal law currently contains extensive customer privacy protection provisions.
Under these provisions, a financial institution must provide to its customers, at the inception of
the customer relationship and annually thereafter, the institutions policies and procedures
regarding the handling of customers nonpublic personal financial information. These provisions
also provide that, except for certain limited exceptions, a financial institution may not provide
such personal information to unaffiliated third parties unless the institution discloses to the
customer that such information may be so provided and the customer is given the opportunity to opt
out of such disclosure. Federal law makes it a criminal
122
offense, except in limited circumstances, to obtain or attempt to obtain customer information
of a financial nature by fraudulent or deceptive means.
Effective July 1, 2010, the Electronic Fund Transfer Act prohibits financial institutions from
charging consumers fees for paying overdrafts on automated teller machines (ATM) and one-time
debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those
type of transactions. If a consumer does not opt in, any ATM transaction or debit that overdraws
the consumers account will be denied. Overdrafts on the payment of checks and regular electronic
bill payments are not covered by this new rule. Before opting in, the consumer must be provided a
notice that explains the financial institutions overdraft services, including the fees associated
with the service, and the consumers choices. Financial institutions must provide consumers who do
not opt in with the same account terms, conditions and features (including pricing) that they
provide to consumers who do opt in.
Financial Regulatory Legislation
The previously referenced Dodd-Frank Act contains a wide variety of provisions affecting the
regulation of depository institutions in addition to those already mentioned. Those include
restrictions related to mortgage originations, risk retention requirements as to securitized loans
and the noted newly created consumer protection agency. The full impact of the Dodd-Frank Act on
our business and operations will not be known for years until regulations implementing the statute
are written and adopted. The Dodd-Frank Act may have a material impact on our operations,
particularly through increased compliance costs resulting from possible future consumer and fair
lending regulations.
In addition to the Dodd-Frank Act and the regulations that will be promulgated thereunder, new
regulations and statutes are regularly proposed that contain wide-ranging proposals for altering
the structures, regulations, and competitive relationships of the nations financial institutions.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the
extent to which any new regulation or statute may affect our business.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies
of the United States government and its agencies. The Federal Reserve Boards monetary policies
have had, and are likely to continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve
Board affect the levels of bank loans, investments and deposits through its control over the
issuance of United States government securities, its regulation of the discount rate applicable to
member banks and its influence over reserve requirements to which member banks are subject. We
cannot predict the nature or impact of future changes in monetary and fiscal policies.
Properties
Our headquarters are located at 1525 Pointer Ridge Place, Bowie, Maryland in Prince Georges
County. Pointer Ridge, an entity in which we have a $1.1 million investment and a 62.50% ownership
interest owns this property. Frank Lucente, a director of Old Line Bancshares and Old Line Bank
controls 12.50% of Pointer Ridge and controls the manager of Pointer Ridge. On June 6, 2006, we
executed leases for 2,557 square feet on the 1st floor of the building for a new branch office,
5,449 square feet on the 3rd floor and 11,053 square feet on the 4th floor of this building. The
leases which commenced on July 1, 2006, are for thirteen years, with two, five-year renewal
options. The current basic monthly payment terms on the leases are for payments of $45,859 with 3%
annual increases. The basic monthly payments include our pro-rata share of taxes, insurances and
common area maintenance on the building with any deficiencies incurred incorporated into the
following years basic monthly payments. We eliminate 62.50% of these lease payments in
consolidation.
In 2004, we finalized our purchase of our then current full service banking branch and office
facility located at 2995 Crain Highway in Waldorf, Maryland. In July 2006, we moved our
headquarters from this location to 1525 Pointer Ridge Place, Bowie, Maryland. We have retained our
branch office at 2995 Crain Highway. Since 2007, we have leased the second floor of this building
to a realtor. This tenant vacated the property in March 2010. We have not leased this space and
anticipate that we may use it subsequent to the merger with Maryland Bankcorp.
We maintain a branch operation at the Old Line Centre location, and have done so since 1989.
The lease, which commenced in August 1999, is for ten years with two, five-year renewal options.
Payment terms on the lease are $4,991 monthly with 1.5% annual increases. We pay our pro-rata
share of common area maintenance, taxes and insurance on the building. We have exercised the first
five-year renewal option.
123
We own our branch at 15808 Livingston Road in Accokeek, Maryland in Prince Georges County.
Our Clinton, Maryland, Prince Georges County branch, located at 7801 Old Branch Avenue, was
opened in September 2002 in leased space. The monthly lease payment on this facility is $2,725.
Exclusive of the monthly rent, we pay no utilities or other expenses associated with this facility.
The lease term is for a period of ten years, with three, five-year renewal options.
Our loan production office in College Park, Prince Georges County, Maryland is located in
leased space on the fourth floor of a four story building located at 9658 Baltimore Avenue. The
lease which commenced in August 2005 expires in February 2013. Payment terms on the lease are
$3,042 monthly, with 3% annual increases. We also lease space for a branch on the first floor of
this building. This lease commenced in January 2008 at $5,000 monthly with 3% annual increases.
The term for this space is 10 years with two five year renewal terms. We pay our pro-rata share of
taxes, insurance and common area maintenance associated with the building.
In August 2004, we announced plans to open a branch in Crofton, Maryland. Due to engineering
and resultant permit delays, construction on the building was delayed. We opened this branch in
July of 2009. We pay lease payments of $6,986 monthly with 2.5% annual increases plus our pro-rata
share of operating expenses, taxes and insurance. The lease term is for 10 full calendar years
with automatic renewal for three additional terms of five years, unless the bank provides no less
than 180 days notice.
In June 2007, we opened a branch in Greenbelt, Maryland. Initially, we leased 2,700 square
feet of space on the 1st floor of an office building located at 6301 Ivy Lane, Greenbelt, Prince
Georges County, Maryland. The lease had a term of five years. After providing nine months
written notice and paying a termination fee, Old Line Bank had the option to terminate the lease
after the 2nd anniversary of the commencement date. In January 2009, we notified the landlord of
our intent to terminate this lease in August 2009, paid the termination fee of $33,909 and moved
this branch to the new facility in the fourth quarter of 2009 as outlined below.
On January 31, 2007, Old Line Bank also entered into a lease agreement to lease approximately
33,000 square feet of ground area located at the southwest corner of the intersection of Kenilworth
Avenue and Ivy Lane in Greenbelt, Prince Georges County, Maryland. In 2009, Old Line Bank
constructed a free standing bank building on the land. The lease commenced in July 2009 and has an
initial term of 30 years with two successive renewal periods of ten years. Old Line Bank moved the
6301 Ivy Lane, Greenbelt, Maryland branch into this new facility in the fourth quarter of 2009. We
pay $8,825 per month for this lease plus taxes, insurance and operating expenses.
In May 2008, we executed a lease agreement to lease 1,620 square feet of space in a store unit
located at 167-U Jennifer Road, Annapolis, Maryland in Anne Arundel County. In September 2008, we
opened this branch. The lease has an initial term of 5 years with one renewal option of five
years. The monthly installments of this lease are $5,284 with 3% annual increases. We also pay
taxes, insurance, utilities and our pro-rata share of common area maintenance.
In July 2007, we identified a site for a second branch location at 12100 Annapolis Road, Glen
Dale, Maryland in Prince Georges County. In 2009, we purchased the pad site located in the
Fairwood Office Park, constructed a 2,863 square foot branch and opened this branch in October
2009.
Legal Proceedings
From time to time, Old Line Bancshares or Old Line Bank may be involved in litigation relating
to claims arising out of its normal course of business. As of the date of this joint proxy
statement/prospectus, we did not have any material pending legal matters or litigation for Old Line
Bank or Old Line Bancshares.
124
OLD LINE BANCSHARES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
Forward-Looking Statements
Some of the matters discussed below include forward-looking statements. 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. Our
actual results and the actual outcome of our expectations and strategies could be different from
those anticipated or estimated for the reasons discussed below and under the headings Caution
Regarding Forward-Looking Statements and Risk Factors.
Overview
Old Line Bancshares was incorporated under the laws of the State of Maryland on April 11, 2003
to serve as the holding company of Old Line Bank.
Our primary business is to own all of the capital stock of Old Line Bank. We also have an
approximately $1.1 million investment in a real estate investment limited liability company named
Pointer Ridge. We own 62.50% of Pointer Ridge. Frank Lucente, one of our directors and a director
of Old Line Bank, controls 12.50% of Pointer Ridge and controls the manager of Pointer Ridge. The
purpose of Pointer Ridge is to acquire, own, hold for profit, sell, assign, transfer, operate,
lease, develop, mortgage, refinance, pledge and otherwise deal with real property located at the
intersection of Pointer Ridge Road and Route 301 in Bowie, Maryland. Pointer Ridge owns a
commercial office building containing approximately 40,000 square feet and leases this space to
tenants. We lease approximately 50% of this building for our main office and operate a branch of
Old Line Bank from this address.
Although the current economic climate continued to present significant challenges for our
industry, we have worked diligently towards our goal of becoming the premier community bank east of
Washington D.C. While it remains uncertain whether the economy will continue on its path towards
recovery, it appears the economy may reach sustainable recovery during 2011. We remain cautiously
optimistic that we have identified any problem assets and that our remaining borrowers will
continue to stay current on their loans. Now that we have substantially completed our internal
branch expansion, enhanced our data processing capabilities and expanded our commercial lending
team, we believe that we are well positioned to capitalize on the opportunities that may become
available in a healthy economy.
Summary of Recent Performance and Other Activities
Year Ended December 31, 2009
During one of the most challenging economic periods in the last 30 years, we were pleased to
report continued profitability for 2009. Net income attributable to Old Line Bancshares increased
$280,032 or 15.95% for the year ended December 31, 2009. After inclusion of the dividends and
accretion on the preferred stock issued under the U.S. Treasury Capital Purchase Program in
December 2008, net income available to common stockholders was $1.6 million or $0.40 per basic and
diluted common share for the year ending December 31, 2009.
The following events occurred during 2009:
|
|
|
We maintained asset quality with total non-performing assets of $1.6 million (0.44%
of total assets) and two other loans totaling approximately $581,000 past due between
30 and 89 days at year end. |
|
|
|
|
We increased the provision for loan losses by $485,000 from $415,000 to $900,000. |
|
|
|
|
The loan portfolio grew $33.9 million or 14.67%. |
|
|
|
|
Total deposits grew $54.9 million or 23.73%. |
|
|
|
|
We maintained liquidity and by all regulatory measures remained well capitalized. |
125
|
|
|
We recognized an increase in earnings on our investment in Pointer Ridge of
approximately $145,000 inclusive of a non-recurring lease termination fee of
approximately $158,000 recognized in the quarter ended March 31, 2009. |
|
|
|
|
We recorded an approximately $159,000 gain from sale on investments. |
|
|
|
|
We incurred a $392,000 increase in FDIC insurance premiums inclusive of a $149,748
special assessment. |
|
|
|
|
We enhanced our core data processing system. |
|
|
|
|
We repurchased from the U.S. Treasury 7,000 shares of preferred stock and the
warrant to purchase 141,892 share of our common stock that we issued to them in
December 2008. |
|
|
|
|
We opened new branch locations in Crofton and Glen Dale, Maryland and moved our
Greenbelt location to a permanent building. |
|
|
|
|
We added a team of four highly skilled loan officers to our staff. |
The following summarizes the highlights of our financial performance for the twelve month
period ended December 31, 2009 compared to the twelve month period ended December 31, 2008 (000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
Net income available to common stockholders |
|
$ |
1,550 |
|
|
$ |
1,727 |
|
|
$ |
(177 |
) |
|
|
(10.25 |
)% |
Interest revenue |
|
|
17,096 |
|
|
|
15,424 |
|
|
|
1,672 |
|
|
|
10.84 |
|
Interest expense |
|
|
5,580 |
|
|
|
5,910 |
|
|
|
(330 |
) |
|
|
(5.58 |
) |
Net interest income after provision for loan losses |
|
|
10,616 |
|
|
|
9,100 |
|
|
|
1,516 |
|
|
|
16.66 |
|
Non-interest revenue |
|
|
1,820 |
|
|
|
964 |
|
|
|
856 |
|
|
|
88.80 |
|
Non-interest expense |
|
|
9,257 |
|
|
|
7,373 |
|
|
|
1,884 |
|
|
|
25.55 |
|
Average total loans |
|
|
254,562 |
|
|
|
217,550 |
|
|
|
37,012 |
|
|
|
17.01 |
|
Average interest earning assets |
|
|
308,416 |
|
|
|
252,027 |
|
|
|
56,389 |
|
|
|
22.37 |
|
Average total interest bearing deposits |
|
|
221,651 |
|
|
|
165,596 |
|
|
|
56,055 |
|
|
|
33.85 |
|
Average non-interest bearing deposits |
|
|
39,410 |
|
|
|
36,039 |
|
|
|
3,371 |
|
|
|
9.35 |
|
Net Interest Margin (1) |
|
|
3.77 |
% |
|
|
3.80 |
% |
|
|
|
|
|
|
|
|
Return on average equity |
|
|
5.13 |
% |
|
|
5.04 |
% |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.40 |
|
|
$ |
0.44 |
|
|
$ |
(0.04 |
) |
|
|
(9.09 |
%) |
Diluted earnings per common share |
|
|
0.40 |
|
|
|
0.44 |
|
|
|
(0.04 |
) |
|
|
(9.09 |
%) |
|
|
|
(1) |
|
See Reconciliation of Non-GAAP Measures. |
Six-Month Period Ended June 30, 2010
In a continually challenging economic environment, we were pleased to report continued
profitability for the second quarter of 2010. Net income available to common stockholders was
$530,097 or $0.14 per basic and diluted common share for the three month period ending June 30,
2010. This was $82,611 or 18.46% higher than net income available to common stockholders of
$447,486 or $0.12 per basic and diluted common share for the same period in 2009. Net income
available to common stockholders was $994,631 or $0.26 per basic and diluted common share for the
six month period ending June 30, 2010. This was $137,390 or 16.03% higher than net income
available to common stockholders of $857,241 or $0.22 per basic and diluted common share for the
same period in 2009.
During the first six months of 2010, the following events occurred:
|
|
|
We placed two additional loans on non-accrual status which increased total
non-accrual loans to $4.7 million (1.14% of total assets) from $1.6 million (0.44%) at
December 31, 2009. We do not have any other loans past due between 30 and 89 days at
quarter end. |
126
|
|
|
We decreased the provision for loan losses by $310,000 from $550,000 to $240,000. |
|
|
|
|
The loan portfolio grew $20.8 million or 7.85%. |
|
|
|
|
Total deposits grew $32.5 million or 11.35%. |
|
|
|
|
We maintained liquidity and by all regulatory measures remained well capitalized. |
|
|
|
|
We recognized a loss on our investment in Pointer Ridge of approximately $68,000. |
|
|
|
|
Andre J. Gingles was appointed to our board of directors. |
|
|
|
|
Our Greenbelt lending team that we hired in December 2009 was a significant
contributor to our loan and deposit growth during the three and six month periods. |
The following summarizes the highlights of our financial performance for the three month
period ended June 30, 2010 compared to the three month period ended June 30, 2009 (figures in the
table may not match those discussed in the balance of this section due to rounding).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net income available to common stockholders |
|
$ |
530 |
|
|
$ |
448 |
|
|
$ |
82 |
|
|
|
18.30 |
% |
Interest revenue |
|
|
4,574 |
|
|
|
4,227 |
|
|
|
347 |
|
|
|
8.21 |
|
Interest expense |
|
|
1,281 |
|
|
|
1,416 |
|
|
|
(135 |
) |
|
|
(9.53 |
) |
Net interest income after provision for loan losses |
|
|
3,123 |
|
|
|
2,561 |
|
|
|
562 |
|
|
|
21.94 |
|
Non-interest revenue |
|
|
271 |
|
|
|
535 |
|
|
|
(264 |
) |
|
|
(49.35 |
) |
Non-interest expense |
|
|
2,610 |
|
|
|
2,272 |
|
|
|
338 |
|
|
|
14.88 |
|
Average total loans |
|
|
279,843 |
|
|
|
253,411 |
|
|
|
26,432 |
|
|
|
10.43 |
|
Average interest earning assets |
|
|
356,899 |
|
|
|
306,264 |
|
|
|
50,635 |
|
|
|
16.53 |
|
Average total interest bearing deposits |
|
|
256,971 |
|
|
|
215,226 |
|
|
|
41,745 |
|
|
|
19.40 |
|
Average non-interest bearing deposits |
|
|
52,343 |
|
|
|
39,169 |
|
|
|
13,174 |
|
|
|
33.63 |
|
Net interest margin (1) |
|
|
3.75 |
% |
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
Return on average equity |
|
|
5.88 |
% |
|
|
5.27 |
% |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.02 |
|
|
|
16.67 |
|
Diluted earnings per common share |
|
|
0.14 |
|
|
|
0.12 |
|
|
|
0.02 |
|
|
|
16.67 |
|
|
|
|
(1) |
|
See Reconciliation of Non-GAAP Measures |
127
The following summarizes the highlights of our financial performance for the six month
period ended June 30, 2010 compared to the six month period ended June 30, 2009 (figures in the
table may not match those discussed in the balance of this section due to rounding).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, |
|
|
|
(Dollars in thousands) |
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net income available to common stockholders |
|
$ |
995 |
|
|
$ |
857 |
|
|
$ |
138 |
|
|
|
16.10 |
% |
Interest revenue |
|
|
8,964 |
|
|
|
8,329 |
|
|
|
635 |
|
|
|
7.62 |
|
Interest expense |
|
|
2,529 |
|
|
|
2,866 |
|
|
|
(337 |
) |
|
|
(11.76 |
) |
Net interest income after provision for loan losses |
|
|
6,195 |
|
|
|
4,913 |
|
|
|
1,282 |
|
|
|
26.09 |
|
Non-interest revenue |
|
|
564 |
|
|
|
1,139 |
|
|
|
(575 |
) |
|
|
(50.48 |
) |
Non-interest expense |
|
|
5,305 |
|
|
|
4,334 |
|
|
|
971 |
|
|
|
22.40 |
|
Average total loans |
|
|
274,267 |
|
|
|
246,784 |
|
|
|
27,483 |
|
|
|
11.14 |
|
Average interest earning assets |
|
|
345,319 |
|
|
|
299,232 |
|
|
|
46,087 |
|
|
|
15.40 |
|
Average total interest bearing deposits |
|
|
249,966 |
|
|
|
207,971 |
|
|
|
41,995 |
|
|
|
20.19 |
|
Average non-interest bearing deposits |
|
|
49,571 |
|
|
|
37,786 |
|
|
|
11,785 |
|
|
|
31.19 |
|
Net interest margin (1) |
|
|
3.80 |
% |
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
Return on average equity |
|
|
5.58 |
% |
|
|
5.15 |
% |
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.26 |
|
|
$ |
0.22 |
|
|
$ |
0.04 |
|
|
|
18.18 |
|
Diluted earnings per common share |
|
|
0.26 |
|
|
|
0.22 |
|
|
|
0.04 |
|
|
|
18.18 |
|
|
|
|
(1) |
|
See Reconciliation of Non-GAAP Measures |
Growth Strategy
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. In the past three years, we have
expanded in Prince Georges County and Anne Arundel County, Maryland.
We opened a branch at 167-U Jennifer Road, Annapolis, Maryland in Anne Arundel County in
September 2008. We hired the staff for this branch during the months of August and September of
2008. In February 2008, we opened a branch in Prince Georges County at 9658 Baltimore Avenue,
College Park, Maryland in the same building as the loan production office that houses one of our
teams of loan officers. We hired the Branch Manager and staff for this location in February 2008.
On July 1, 2009, we opened a branch at 1641 State Route 3 North, Crofton, Maryland in Anne Arundel
County. During July and August of 2009, we hired the staff for this location. In October 2009, we
opened our branch in the Fairwood Office Park located at 12100 Annapolis Road, Suite 1, Glen Dale,
Maryland. We hired the staff for this location during the third quarter of 2009.
As previously reported, in December 2008, we increased our ownership in Pointer Ridge from
50.00% to 62.50%. As a result, we now consolidate their results of operations and financial
performance. During 2009, this consolidation caused an approximately $567,283 increase in
non-interest revenue, a $413,610 increase in interest expense, a $526,494 reduction in occupancy
expense and an $87,215 increase in non-interest expense.
In December 2009, we added a team of four experienced, highly skilled loan officers to our
staff. These officers have a combined 50 years of commercial banking experience and were employed
by a large regional bank with offices in the suburban Maryland market prior to joining us. These
individuals have worked in our market area for many years, have worked together as a team for
several years and have a history of successfully generating a high volume of commercial,
construction and commercial real estate loans.
128
On July 1, 2009, we opened a branch at 1641 State Route 3 North, Crofton, Maryland in Anne
Arundel County. During July and August of 2009, we hired the staff for this location. In October
2009, we opened our branch in the Fairwood Office Park located at 12100 Annapolis Road, Suite 1,
Glen Dale, Maryland. We hired the staff for this location during the third quarter of 2009.
While many of our peer banks have experienced devastating financial losses, high delinquencies
and record levels of charge-offs, we have managed to maintain profitability and asset quality in an
extremely challenging environment while incurring increased FDIC insurance cost, increased
operating costs associated with the new branches and a $485,000 increase in the loan loss provision
for the year ended December 31, 2009. We continue to remain cautiously optimistic that we will
continue to successfully navigate through this difficult period. However, we also recognize that
we are not immune to losses in our loan portfolio. If the unemployment rate continues to remain
high and real estate values decline further, we anticipate that even our strong borrowers may
experience financial difficulties as they continue to cope with declining revenues, diminishing
cash flows and depreciating collateral values in their businesses. Therefore, we expect that we
will continue to maintain a higher allowance for loan losses than we have historically required.
Although the current economic climate continues to present significant challenges for our
industry, we anticipate the bank will continue to experience loan and deposit growth during the
remainder of 2010. We do expect that the current economic climate will cause a slower rate of loan
growth in the future than we have historically experienced.
With the opening of the Fairwood branch as discussed above, we have substantially completed
our current branch expansion as far as opening new branches other than pursuant to the acquisition
of other banks. Accordingly, other than in connection with our acquisition of Maryland Bankcorp
and Maryland Bank & Trust, we dont anticipate opening any additional branches in the immediate
future, although should we identify new branch locations that will support our long term growth
plans we may open additional branches.
Because of the new branches and the loan production team we hired in 2009, salaries and
benefits expenses and other operating expenses increased during the first six months of 2010 and
will continue to increase during the remainder of 2010. We anticipate that, over time, income
generated from the branches and our new loan officers will offset any increase in expenses. We
also expect that for the remainder of 2010 Pointer Ridge will continue to operate at a loss. We
believe with our existing branches, our lending staff, our corporate infrastructure and our solid
balance sheet and strong capital position, our team can continue to focus our efforts on improving
earnings per share and enhancing stockholder value.
Other Opportunities
We use the Internet and technology to augment our growth plans. Currently, we offer our
customers image technology, Internet banking with on-line account access and bill payer service.
We provide selected commercial customers the ability to remotely capture their deposits and
electronically transmit them to us.
In order to support our growth, provide improved management information capabilities and
enhance the products and services we deliver to our customers, during the 1st quarter of
2009, we began enhancing our core data processing systems. We completed this process in April
2009. As a result, data processing costs were mildly higher during the first six months of 2010
and we expect this will be the case for the full year 2010. We will continue to evaluate cost
effective ways that technology can enhance our management capabilities, products and services.
We may take advantage of strategic opportunities presented to us via mergers occurring in our
marketplace. For example, we may acquire other banks, purchase branches that other banks close or
lease branch space from other banks, or hire additional loan officers. We also continually
evaluate and consider opportunities with financial services companies or institutions with which we
may become a strategic partner, merge or acquire.
Repayment of Troubled Asset Relief Program (TARP) Investment
On July 15, 2009, we repurchased from the U.S. Treasury the 7,000 shares of preferred stock
that we issued to them in December 2008 under the U.S. Treasurys Capital Purchase Program through
the Troubled Asset Relief Program. We paid the U.S. Treasury $7,058,333 to repurchase the
preferred stock which reflects the liquidation value of the preferred stock and $58,333 of accrued
but unpaid dividends. In August 2009, we also repurchased at a fair market value of $225,000 the
warrant to purchase 141,892 shares of our common stock.
129
Results of Operations
Net Interest Income
Net interest income is the difference between income on interest earning assets and the cost
of funds supporting those assets. Earning assets are comprised primarily of loans, investments,
and federal funds sold. Cost of funds consists of interest bearing deposits and other borrowings.
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.
2009 compared to 2008
Net interest income after provision for loan losses for the year ended December 31, 2009
amounted to $10.6 million, which was $1.5 million or 16.48% greater than the 2008 level of $9.1
million. As discussed below and outlined in detail in the Rate/Volume Analysis, these changes were
the result of interest earning assets growing at a faster rate than interest-bearing liabilities.
A decline in interest rates on these interest earning assets partially offset this growth. The
interest rate on interest bearing deposits also declined at a faster rate than the rate on interest
earning assets. Changes in the federal funds rate and the prime rate affect the interest rates on
interest earning assets, net interest income and net interest margin.
The prime interest rate, which is the rate offered on loans to borrowers with strong credit,
began 2008 at 7.25% and decreased 200 basis points in the first quarter, 25 basis points in the
second quarter, 175 basis points in the fourth quarter and at year end 2008 was 3.25%. During
2009, the prime interest rate remained unchanged at 3.25% for the entire period. The intended
federal funds rate has also moved in a similar manner to the prime interest rate. It began 2008 at
4.25% and decreased 200 basis points in the first quarter, 25 basis points in the second quarter
and 175 to 200 basis points in the fourth quarter and ended the year of 2008 at zero to 0.25%.
During 2009, the intended federal funds rate remained at zero to 0.25% for the entire period.
We offset the effect on net interest income caused by these declines in interest rates
primarily by growing total average interest earning assets $56.4 million to $308.4 million for the
year ended December 31, 2009 from $252.0 million for the year ended December 31, 2008. The growth
in average interest earning assets derived primarily from a $37.1 million increase in average total
loans, an $18.9 million growth in average investment securities and a $13.9 million increase in
average interest bearing deposits in other banks. The growth in net interest income that derived
from the increase in total average interest earning assets was also offset by growth in average
interest bearing deposits which grew to $221.7 million from $165.6 million.
Our net interest margin was 3.77% for the year ended December 31, 2009, as compared to 3.80%
for the year ended December 31, 2008. The decrease in the net interest margin is the result of
several components. The yield on average interest-earning assets declined during the period 57
basis points from 6.15% in 2008 to 5.58% in 2009. This decrease was primarily because of the lower
federal funds interest yield and the lower prime rate during the year. As outlined above, we
partially offset these rate reductions through growth in the loan portfolio. As a result of this
growth, there were a higher percentage of funds invested in higher yielding commercial and mortgage
loans during the period. The yield on borrowed funds increased 39 basis points during the period.
The consolidation of Pointer Ridges assets, liabilities, and equity was the primary cause of the
increase in the cost of borrowed funds.
2008 compared to 2007
Net interest income after provision for loan losses for the year ended December 31, 2008
amounted to $9.1 million, which was $1.1 million or 13.75% greater than the 2007 level of $8.0
million. The increase was primarily attributable to a 19.66% or $41.4 million increase in total
average interest earning assets to $252.0 million for the twelve months ended December 31, 2008
from $210.6 million for the twelve months ended December 31, 2007.
Interest revenue increased from $14.6 million for the year ended December 31, 2007 to $15.4
million for the year ended December 31, 2008. As discussed below and outlined in detail in the
Rate/Volume Analysis, these changes were the result of substantial increases in earning assets.
The increase in interest bearing assets was primarily caused by a $44.6 million increase in average
total loans. As a result of this growth, there were a higher percentage of funds invested in
higher yielding commercial and mortgage loans during the period.
130
In order to fund this loan growth, we deployed funds from lower yielding investment securities
and federal funds sold. The growth in average total loans was attributable to the business
development efforts of the entire Old Line Bank
lending team and directors and the expansion of our branch network. We believe that the
continued expansion of our branch network provides us with increased name recognition and new
opportunities that contributed to our growth.
Interest expense for all interest bearing liabilities amounted to $5.9 million in 2008, which
was $353,224 lower than the 2007 level of $6.3 million. Although average interest bearing deposits
grew $24.7 million during the period and average borrowed funds increased $18.4 million, the rate
paid on these funds decreased during the year.
Our net interest margin was 3.80% for the year ended December 31, 2008, as compared to 3.98%
for the year ended December 31, 2007. The decrease in the net interest margin is the result of
several components. The yield on average interest-earning assets decreased 81 basis points during
the period from 6.96% in 2007 to 6.15% in 2008, and average interest-earning assets grew by $41.4
million. During the period, interest rates declined dramatically and we experienced a 103 basis
point decrease of the yield on average interest-bearing liabilities from 3.98% in 2007 to 2.95% in
2008.
This decrease was because of the rapid reduction in the federal funds interest rate that the
Federal Reserve implemented. We partially offset these rate reductions through growth in the loan
portfolio, movement of federal funds into higher yielding investments and increased reliance on
short term, low cost borrowing. During November and December of 2008, we moved funds from Federal
Funds to higher earning investments and loans and placed more reliance on short term, low interest
rate borrowings for loan funding.
131
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 |
|
|
|
|
Twelve Months Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
458,457 |
|
|
$ |
1,149 |
|
|
|
0.25 |
% |
|
$ |
13,342,150 |
|
|
$ |
290,788 |
|
|
|
2.18 |
% |
|
$ |
21,525,420 |
|
|
$ |
1,142,707 |
|
|
|
5.31 |
% |
Interest bearing deposits |
|
|
17,004,299 |
|
|
|
270,290 |
|
|
|
1.59 |
|
|
|
3,116,699 |
|
|
|
104,560 |
|
|
|
3.35 |
|
|
|
498,630 |
|
|
|
25,556 |
|
|
|
5.13 |
|
Investment securities(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
187,658 |
|
|
|
7,647 |
|
|
|
4.07 |
|
|
|
2,072,573 |
|
|
|
73,061 |
|
|
|
3.53 |
|
|
|
3,621,923 |
|
|
|
121,196 |
|
|
|
3.35 |
|
U.S. government agency |
|
|
8,411,754 |
|
|
|
313,654 |
|
|
|
3.73 |
|
|
|
4,896,926 |
|
|
|
192,271 |
|
|
|
3.93 |
|
|
|
7,347,989 |
|
|
|
302,119 |
|
|
|
4.11 |
|
Mortgage backed securities |
|
|
24,642,044 |
|
|
|
1,059,386 |
|
|
|
4.30 |
|
|
|
7,799,475 |
|
|
|
356,398 |
|
|
|
4.57 |
|
|
|
1,247,089 |
|
|
|
48,946 |
|
|
|
3.92 |
|
Municipal securities |
|
|
2,540,562 |
|
|
|
126,752 |
|
|
|
4.99 |
|
|
|
2,875,141 |
|
|
|
140,893 |
|
|
|
4.90 |
|
|
|
3,240,786 |
|
|
|
159,015 |
|
|
|
4.91 |
|
Other |
|
|
2,886,213 |
|
|
|
72,150 |
|
|
|
2.50 |
|
|
|
2,124,236 |
|
|
|
92,723 |
|
|
|
4.37 |
|
|
|
1,477,894 |
|
|
|
84,859 |
|
|
|
5.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
38,668,231 |
|
|
|
1,579,589 |
|
|
|
4.08 |
|
|
|
19,768,351 |
|
|
|
855,346 |
|
|
|
4.33 |
|
|
|
16,935,681 |
|
|
|
716,135 |
|
|
|
4.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
70,966,468 |
|
|
|
4,168,203 |
|
|
|
5.87 |
|
|
|
62,783,300 |
|
|
|
4,234,175 |
|
|
|
6.74 |
|
|
|
44,125,513 |
|
|
|
3,654,176 |
|
|
|
8.28 |
|
Mortgage |
|
|
168,196,382 |
|
|
|
10,346,433 |
|
|
|
6.15 |
|
|
|
137,944,563 |
|
|
|
9,109,972 |
|
|
|
6.60 |
|
|
|
108,513,579 |
|
|
|
8,039,542 |
|
|
|
7.41 |
|
Consumer |
|
|
15,399,539 |
|
|
|
856,562 |
|
|
|
5.56 |
|
|
|
16,821,749 |
|
|
|
896,398 |
|
|
|
5.33 |
|
|
|
20,363,658 |
|
|
|
1,074,436 |
|
|
|
5.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
254,562,389 |
|
|
|
15,371,198 |
|
|
|
6.04 |
|
|
|
217,549,612 |
|
|
|
14,240,545 |
|
|
|
6.55 |
|
|
|
173,002,750 |
|
|
|
12,768,154 |
|
|
|
7.38 |
|
Allowance for loan losses |
|
|
2,277,747 |
|
|
|
|
|
|
|
|
|
|
|
1,749,885 |
|
|
|
|
|
|
|
|
|
|
|
1,405,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
252,284,642 |
|
|
|
15,371,198 |
|
|
|
6.09 |
|
|
|
215,799,727 |
|
|
|
14,240,545 |
|
|
|
6.60 |
|
|
|
171,597,568 |
|
|
|
12,768,154 |
|
|
|
7.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets(1) |
|
|
308,415,629 |
|
|
|
17,222,226 |
|
|
|
5.58 |
|
|
|
252,026,927 |
|
|
|
15,491,239 |
|
|
|
6.15 |
|
|
|
210,557,299 |
|
|
|
14,652,552 |
|
|
|
6.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
7,104,387 |
|
|
|
|
|
|
|
|
|
|
|
4,369,508 |
|
|
|
|
|
|
|
|
|
|
|
3,800,713 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
14,548,001 |
|
|
|
|
|
|
|
|
|
|
|
5,157,011 |
|
|
|
|
|
|
|
|
|
|
|
4,186,529 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
11,904,806 |
|
|
|
|
|
|
|
|
|
|
|
11,107,525 |
|
|
|
|
|
|
|
|
|
|
|
10,030,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(1) |
|
$ |
341,972,823 |
|
|
|
|
|
|
|
|
|
|
$ |
272,660,971 |
|
|
|
|
|
|
|
|
|
|
$ |
228,574,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
Savings |
|
$ |
6,853,343 |
|
|
|
25,602 |
|
|
|
0.37 |
|
|
$ |
6,436,599 |
|
|
|
39,492 |
|
|
|
0.61 |
|
|
$ |
8,250,010 |
|
|
|
55,660 |
|
|
|
0.67 |
|
Money market and NOW |
|
|
33,931,390 |
|
|
|
171,476 |
|
|
|
0.51 |
|
|
|
34,046,098 |
|
|
|
321,164 |
|
|
|
0.94 |
|
|
|
28,382,013 |
|
|
|
588,824 |
|
|
|
2.07 |
|
Other time deposits |
|
|
180,866,687 |
|
|
|
4,356,021 |
|
|
|
2.41 |
|
|
|
125,113,791 |
|
|
|
4,740,952 |
|
|
|
3.79 |
|
|
|
104,244,760 |
|
|
|
5,045,070 |
|
|
|
4.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
221,651,420 |
|
|
|
4,553,099 |
|
|
|
2.05 |
|
|
|
165,596,488 |
|
|
|
5,101,608 |
|
|
|
3.08 |
|
|
|
140,876,783 |
|
|
|
5,689,554 |
|
|
|
4.04 |
|
Borrowed funds |
|
|
37,817,464 |
|
|
|
1,026,755 |
|
|
|
2.72 |
|
|
|
34,754,155 |
|
|
|
808,127 |
|
|
|
2.33 |
|
|
|
16,423,688 |
|
|
|
573,405 |
|
|
|
3.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
259,468,884 |
|
|
|
5,579,854 |
|
|
|
2.15 |
|
|
|
200,350,643 |
|
|
|
5,909,735 |
|
|
|
2.95 |
|
|
|
157,300,471 |
|
|
|
6,262,959 |
|
|
|
3.98 |
|
Non-interest bearing deposits |
|
|
39,410,471 |
|
|
|
|
|
|
|
|
|
|
|
36,039,280 |
|
|
|
|
|
|
|
|
|
|
|
34,561,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,879,355 |
|
|
|
5,579,854 |
|
|
|
1.87 |
|
|
|
236,389,923 |
|
|
|
5,909,735 |
|
|
|
2.50 |
|
|
|
191,861,805 |
|
|
|
6,262,959 |
|
|
|
3.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
3,390,944 |
|
|
|
|
|
|
|
|
|
|
|
1,450,813 |
|
|
|
|
|
|
|
|
|
|
|
1,249,573 |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
692,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
39,010,380 |
|
|
|
|
|
|
|
|
|
|
|
34,820,235 |
|
|
|
|
|
|
|
|
|
|
|
35,463,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
341,972,823 |
|
|
|
|
|
|
|
|
|
|
$ |
272,660,971 |
|
|
|
|
|
|
|
|
|
|
$ |
228,574,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest spread(1) |
|
|
|
|
|
|
|
|
|
|
3.43 |
|
|
|
|
|
|
|
|
|
|
|
3.20 |
|
|
|
|
|
|
|
|
|
|
|
2.98 |
% |
|
Net
interest income(1) |
|
|
|
|
|
$ |
11,642,372 |
|
|
|
3.77 |
% |
|
|
|
|
|
$ |
9,581,504 |
|
|
|
3.80 |
% |
|
|
|
|
|
$ |
8,389,593 |
|
|
|
3.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE basis
adjusts for the tax favored status of these types of assets. Management believes providing
this information on a FTE basis provides investors with a more accurate picture of our net
interest spread and net interest income and we believe it to be the preferred industry
measurement of these calculations. See Reconciliation of Non-GAAP Measures. |
|
2) |
|
Available for sale investment securities are presented at amortized cost. |
132
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, |
|
|
Twelve Months Ended December 31, |
|
|
|
2009 compared to 2008 |
|
|
2008 compared to 2007 |
|
|
|
Variance due to: |
|
|
Variance due to: |
|
|
|
Total |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
(289,639 |
) |
|
$ |
(138,510 |
) |
|
$ |
(151,129 |
) |
|
$ |
(851,919 |
) |
|
$ |
(517,342 |
) |
|
$ |
(334,577 |
) |
Interest bearing deposits |
|
|
165,730 |
|
|
|
(80,912 |
) |
|
|
246,642 |
|
|
|
79,004 |
|
|
|
(11,704 |
) |
|
|
90,708 |
|
Investment Securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
(65,414 |
) |
|
|
9,878 |
|
|
|
(75,292 |
) |
|
|
(48,135 |
) |
|
|
6,190 |
|
|
|
(54,325 |
) |
U.S. government agency |
|
|
121,383 |
|
|
|
(10,132 |
) |
|
|
131,515 |
|
|
|
(109,848 |
) |
|
|
(13,039 |
) |
|
|
(96,809 |
) |
Mortgage backed securities |
|
|
702,988 |
|
|
|
(22,306 |
) |
|
|
725,294 |
|
|
|
307,452 |
|
|
|
9,296 |
|
|
|
298,156 |
|
Municipal securities |
|
|
(14,141 |
) |
|
|
2,512 |
|
|
|
(16,653 |
) |
|
|
(18,122 |
) |
|
|
(203 |
) |
|
|
(17,919 |
) |
Other |
|
|
(20,573 |
) |
|
|
(47,347 |
) |
|
|
26,774 |
|
|
|
7,864 |
|
|
|
(23,531 |
) |
|
|
31,395 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(65,972 |
) |
|
|
(582,060 |
) |
|
|
516,088 |
|
|
|
579,999 |
|
|
|
(766,923 |
) |
|
|
1,346,922 |
|
Mortgage |
|
|
1,236,461 |
|
|
|
(657,060 |
) |
|
|
1,893,521 |
|
|
|
1,070,430 |
|
|
|
(942,512 |
) |
|
|
2,012,942 |
|
Consumer |
|
|
(39,836 |
) |
|
|
38,138 |
|
|
|
(77,974 |
) |
|
|
(178,038 |
) |
|
|
10,630 |
|
|
|
(188,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue (1) |
|
|
1,730,987 |
|
|
|
(1,487,799 |
) |
|
|
3,218,786 |
|
|
|
838,687 |
|
|
|
(2,249,138 |
) |
|
|
3,087,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
(13,890 |
) |
|
|
(16,305 |
) |
|
|
2,415 |
|
|
|
(16,168 |
) |
|
|
(4,709 |
) |
|
|
(11,459 |
) |
Money market and NOW |
|
|
(149,688 |
) |
|
|
(148,610 |
) |
|
|
(1,078 |
) |
|
|
(267,660 |
) |
|
|
(368,202 |
) |
|
|
100,542 |
|
Other time deposits |
|
|
(384,931 |
) |
|
|
(2,074,050 |
) |
|
|
1,689,119 |
|
|
|
(304,118 |
) |
|
|
(1,210,217 |
) |
|
|
906,099 |
|
Borrowed funds |
|
|
218,628 |
|
|
|
143,283 |
|
|
|
75,345 |
|
|
|
234,722 |
|
|
|
(241,040 |
) |
|
|
475,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(329,881 |
) |
|
|
(2,095,682 |
) |
|
|
1,765,801 |
|
|
|
(353,224 |
) |
|
|
(1,824,168 |
) |
|
|
1,470,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
2,060,868 |
|
|
$ |
607,883 |
|
|
$ |
1,452,985 |
|
|
$ |
1,191,911 |
|
|
$ |
(424,970 |
) |
|
$ |
1,616,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Interest revenue is presented on a fully taxable equivalent (FTE) basis.
Management believes providing this information on a FTE basis provides
investors with a more accurate picture of our net interest spread and net
interest income and we believe it to be the preferred industry measurement of
these calculations. See Reconciliation of Non-GAAP Measures. |
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Net interest income after provision for loan losses for the three months ended June 30, 2010
increased $562,178 or 21.95% to $3.1 million from $2.6 million for the same period in 2009.
Interest revenue increased from $4.2 million for the three months ended June 30, 2009 to $4.6
million for the same period in 2010. As discussed below and outlined in detail in the Rate/Volume
Analysis, these changes were the result of average interest earning assets growing at a faster rate
than average interest bearing liabilities. A decline in interest rates on these interest earning
assets partially offset this growth. The interest rate on interest bearing liabilities also
declined at a faster rate than the rate on interest earning assets. This resulted in an
improvement in the net interest margin which also increased net interest income.
Changes in the federal funds rate and the prime rate impact the interest rates on interest
earning assets, net interest income and net interest margin. The prime interest rate, which is the
rate banks offer to borrowers with strong credit, began 2008 at 7.25% and decreased 400 basis
points during the year. The federal funds rate also declined 400 basis points during 2008. During
the first quarter and six months of 2009 and 2010, the prime interest rate was 3.25% and the
intended federal
133
funds rate remained relatively constant at zero to 0.25%. These declines have caused the
short and long term interest yield to decline dramatically during the past two years from prior
periods. As a result, when investments and loans matured during 2009 and 2010, they were
reinvested in lower yielding securities and loans.
We offset the effect on net income caused by these declines primarily by growing total average
interest earning assets $50.6 million or 16.52% to $356.9 million for the three months ended June
30, 2010 from $306.3 million for the three months ended June 30, 2009. The growth in average
interest earning assets derived from a $26.4 million increase in average total loans, a $6.7
million increase in average interest bearing deposits and a $16.6 million increase in average
investment securities. The growth in net interest income that derived from the increase in total
average interest earning assets was partially offset by growth in average interest bearing
liabilities. The growth in average interest bearing liabilities derived primarily from the $41.8
million increase in average interest bearing deposits which increased to $257.0 million for the
three months ended June 30, 2010 from $215.2 million for the three months ended June 30, 2009. A
$7.6 million increase in average borrowed funds also contributed to the growth in interest bearing
liabilities.
Our net interest margin was 3.75% for the three months ended June 30, 2010 as compared to
3.71% for the three months ended June 30, 2009. The yield on average interest earning assets
declined during the period 38 basis points from 5.57% for the quarter ended June 30, 2009 to 5.19%
for the quarter ended June 30, 2010. This decrease was primarily because we received a lower rate
on federal funds, a lower rate on interest bearing deposits and the average rate on the loan
portfolio declined 17 basis points. As outlined above, we partially offset these rate reductions
through growth in the loan portfolio. The decline in interest rates also lowered our cost of
interest bearing deposits in the three month period to 1.56% from 2.16% and our cost of borrowed
funds to 2.41% from 2.65% in 2009.
134
|
|
The following table illustrates average balances of total interest earning assets and
total interest-bearing liabilities for the three months ended June 30, 2010 and 2009, 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 June 30, |
|
2010 |
|
|
|
|
|
|
2009 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
1,918,232 |
|
|
$ |
1,543 |
|
|
|
0.32 |
% |
|
$ |
744,817 |
|
|
$ |
305 |
|
|
|
0.16 |
% |
Interest bearing deposits |
|
|
23,062,192 |
|
|
|
54,777 |
|
|
|
0.95 |
|
|
|
16,352,452 |
|
|
|
60,123 |
|
|
|
1.47 |
|
Investment securities(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,234 |
|
|
|
2,511 |
|
|
|
3.90 |
|
U.S. government agency |
|
|
6,574,597 |
|
|
|
38,225 |
|
|
|
2.33 |
|
|
|
8,429,476 |
|
|
|
89,126 |
|
|
|
4.24 |
|
Mortgage backed securities |
|
|
42,901,651 |
|
|
|
398,261 |
|
|
|
3.72 |
|
|
|
24,142,055 |
|
|
|
256,443 |
|
|
|
4.26 |
|
Municipal securities |
|
|
2,456,788 |
|
|
|
30,512 |
|
|
|
4.98 |
|
|
|
2,526,641 |
|
|
|
31,382 |
|
|
|
4.98 |
|
Other |
|
|
2,724,246 |
|
|
|
16,869 |
|
|
|
2.48 |
|
|
|
2,760,447 |
|
|
|
13,974 |
|
|
|
2.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
54,657,282 |
|
|
|
483,867 |
|
|
|
3.55 |
|
|
|
38,116,853 |
|
|
|
393,436 |
|
|
|
4.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: (1) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
76,703,160 |
|
|
|
1,049,082 |
|
|
|
5.49 |
|
|
|
61,412,247 |
|
|
|
980,585 |
|
|
|
6.40 |
|
Mortgage |
|
|
188,752,588 |
|
|
|
2,826,331 |
|
|
|
6.01 |
|
|
|
176,590,989 |
|
|
|
2,588,507 |
|
|
|
5.88 |
|
Consumer |
|
|
14,387,378 |
|
|
|
198,188 |
|
|
|
5.53 |
|
|
|
15,407,332 |
|
|
|
227,478 |
|
|
|
5.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
279,843,126 |
|
|
|
4,073,601 |
|
|
|
5.84 |
|
|
|
253,410,568 |
|
|
|
3,796,570 |
|
|
|
6.01 |
|
Allowance for loan losses |
|
|
2,581,336 |
|
|
|
|
|
|
|
|
|
|
|
2,360,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
277,261,790 |
|
|
|
4,073,601 |
|
|
|
5.89 |
|
|
|
251,050,055 |
|
|
|
3,796,570 |
|
|
|
6.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets(1) |
|
|
356,899,496 |
|
|
|
4,613,788 |
|
|
|
5.19 |
|
|
|
306,264,177 |
|
|
|
4,250,434 |
|
|
|
5.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
7,758,921 |
|
|
|
|
|
|
|
|
|
|
|
7,880,288 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
17,231,394 |
|
|
|
|
|
|
|
|
|
|
|
13,703,787 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
12,408,417 |
|
|
|
|
|
|
|
|
|
|
|
9,962,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
394,298,228 |
|
|
|
|
|
|
|
|
|
|
$ |
337,810,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
7,985,806 |
|
|
|
7,154 |
|
|
|
0.36 |
|
|
$ |
7,232,711 |
|
|
|
6,697 |
|
|
|
0.37 |
|
Money market and NOW |
|
|
49,497,248 |
|
|
|
106,738 |
|
|
|
0.86 |
|
|
|
33,607,802 |
|
|
|
37,925 |
|
|
|
0.45 |
|
Other time deposits |
|
|
199,487,652 |
|
|
|
885,544 |
|
|
|
1.78 |
|
|
|
174,385,351 |
|
|
|
1,112,249 |
|
|
|
2.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
256,970,706 |
|
|
|
999,436 |
|
|
|
1.56 |
|
|
|
215,225,864 |
|
|
|
1,156,871 |
|
|
|
2.16 |
|
Borrowed funds |
|
|
46,772,435 |
|
|
|
281,189 |
|
|
|
2.41 |
|
|
|
39,214,888 |
|
|
|
259,463 |
|
|
|
2.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
303,743,141 |
|
|
|
1,280,625 |
|
|
|
1.69 |
|
|
|
254,440,752 |
|
|
|
1,416,334 |
|
|
|
2.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
52,343,095 |
|
|
|
|
|
|
|
|
|
|
|
39,168,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,086,236 |
|
|
|
|
|
|
|
|
|
|
|
293,609,463 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,405,463 |
|
|
|
|
|
|
|
|
|
|
|
1,651,365 |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
651,675 |
|
|
|
|
|
|
|
|
|
|
|
703,633 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
36,154,854 |
|
|
|
|
|
|
|
|
|
|
|
41,845,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
394,298,228 |
|
|
|
|
|
|
|
|
|
|
$ |
337,810,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread(1) |
|
|
|
|
|
|
|
|
|
|
3.50 |
|
|
|
|
|
|
|
|
|
|
|
3.34 |
|
|
Net interest income and Net interest
margin(1) |
|
|
|
|
|
$ |
3,333,163 |
|
|
|
3.75 |
% |
|
|
|
|
|
$ |
2,834,100 |
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE
basis adjusts for the tax favored status of these types of assets. Management
believes providing this information on a FTE basis provides investors with a more
accurate picture of our net interest spread and net interest income and we believe it
to be the preferred industry measurement of these calculations. See Reconciliation
of Non-GAAP Measures. |
|
(2) |
|
Available for sale investment securities are presented at amortized cost. |
|
(3) |
|
Average non-accruing loans for the three month periods ended June 30, 2010 and
2009 were $1,823,445 and $1,000,461, respectively. |
135
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Net interest income after provision for loan losses for the six months ended June 30, 2010
increased $1.3 million or 26.53% to $6.2 million from $4.9 million for the same period in 2009. As
discussed below and outlined in detail in the Rate/Volume Analysis, these changes were the result
of average interest earning assets growing at a faster rate than average interest bearing
liabilities. A decline in interest rates on these interest earning assets partially offset this
growth. The interest rate on interest bearing deposits also declined at a faster rate than the
rate on interest earning assets. This resulted in an improvement in the net interest margin which
also increased net interest income.
We offset the effect on net income caused by the previously discussed declines in the prime
interest rate and federal funds rate during the past two years primarily by growing total average
interest earning assets $46.1 million or 15.41% to $345.3 million for the six months ending June
30, 2010 from $299.2 million for the six months ending June 30, 2009. The growth in average
interest earning assets derived from a $27.5 million increase in average total loans, a $9.9
million increase in average interest bearing deposits and a $7.7 million increase in average
investments. The growth in net interest income that derived from the increase in total average
interest earning assets was offset by growth in average interest liabilities which grew $47.8
million. This growth in average interest bearing liabilities resulted from a $42.0 million
increase in average interest bearing deposits and a $5.7 million increase in average borrowed
funds.
Our net interest margin was 3.80% for the six months ended June 30, 2010 as compared to 3.71%
for the six months ended June 30, 2009. The yield on average interest earning assets declined 36
basis points during the period from 5.64% for the six months ending June 30, 2009 to 5.28% for the
six months ending June 30, 2010. This decrease was primarily because we received a lower rate on
federal funds, a lower rate on interest bearing deposits and the average rate on the loan portfolio
declined 13 basis points. As outlined above, we partially offset these rate reductions through
growth in the loan portfolio. The decline in interest rates also lowered our cost of interest
bearing deposits to 1.59% from 2.28% and our cost of borrowed funds to 2.44% from 2.62% in 2009.
With our new branches, our expanded commercial lending team and increased recognition in
Prince Georges and Anne Arundel Counties, and with continued growth in deposits, we anticipate
that we will continue to grow interest earning assets during 2010. If the Federal Reserve
continues to maintain the federal funds rate at current levels and the economy continues to
improve, we believe that we can continue to grow total loans and deposits for the remainder of
2010. We also believe that we will continue to maintain the net interest margin. As a result of
this growth and maintenance of the net interest margin, we expect that net interest income will
continue to increase during 2010, although there can be no guarantee that this will be the case.
136
The following table illustrates average balances of total interest earning assets and total
interest-bearing liabilities for the six months ended June 30, 2010 and 2009, 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 |
|
Six Months Ended June 30, |
|
2010 |
|
|
2009 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
1,833,761 |
|
|
$ |
2,186 |
|
|
|
0.24 |
% |
|
$ |
581,118 |
|
|
$ |
740 |
|
|
|
0.26 |
% |
Interest bearing deposits |
|
|
25,132,416 |
|
|
|
121,331 |
|
|
|
0.97 |
|
|
|
15,223,347 |
|
|
|
143,112 |
|
|
|
1.90 |
|
Investment securities(1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,427 |
|
|
|
7,647 |
|
|
|
4.07 |
|
U.S. government agency |
|
|
6,829,438 |
|
|
|
95,925 |
|
|
|
2.83 |
|
|
|
9,464,172 |
|
|
|
197,980 |
|
|
|
4.22 |
|
Mortgage backed securities |
|
|
34,609,141 |
|
|
|
673,477 |
|
|
|
3.92 |
|
|
|
24,032,348 |
|
|
|
524,364 |
|
|
|
4.40 |
|
Municipal securities |
|
|
2,405,977 |
|
|
|
58,795 |
|
|
|
4.93 |
|
|
|
2,625,545 |
|
|
|
65,092 |
|
|
|
5.00 |
|
Other |
|
|
2,778,649 |
|
|
|
37,296 |
|
|
|
2.71 |
|
|
|
2,352,172 |
|
|
|
31,918 |
|
|
|
2.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
46,623,205 |
|
|
|
865,493 |
|
|
|
3.74 |
|
|
|
38,852,664 |
|
|
|
827,001 |
|
|
|
4.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: (1) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
74,859,465 |
|
|
|
2,063,975 |
|
|
|
5.56 |
|
|
|
66,686,783 |
|
|
|
2,043,234 |
|
|
|
6.18 |
|
Mortgage |
|
|
184,842,489 |
|
|
|
5,592,113 |
|
|
|
6.10 |
|
|
|
164,613,776 |
|
|
|
4,919,728 |
|
|
|
6.03 |
|
Consumer |
|
|
14,565,119 |
|
|
|
398,535 |
|
|
|
5.52 |
|
|
|
15,483,837 |
|
|
|
435,491 |
|
|
|
5.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
274,267,073 |
|
|
|
8,054,623 |
|
|
|
5.92 |
|
|
|
246,784,396 |
|
|
|
7,398,453 |
|
|
|
6.05 |
|
Allowance for loan losses |
|
|
2,537,102 |
|
|
|
|
|
|
|
|
|
|
|
2,209,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
271,729,971 |
|
|
|
8,054,623 |
|
|
|
5.98 |
|
|
|
244,574,427 |
|
|
|
7,398,453 |
|
|
|
6.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets(1) |
|
|
345,319,353 |
|
|
|
9,043,633 |
|
|
|
5.28 |
|
|
|
299,231,556 |
|
|
|
8,369,306 |
|
|
|
5.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
8,734,201 |
|
|
|
|
|
|
|
|
|
|
|
7,077,657 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
17,260,588 |
|
|
|
|
|
|
|
|
|
|
|
13,364,204 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
12,177,262 |
|
|
|
|
|
|
|
|
|
|
|
10,054,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
383,491,404 |
|
|
|
|
|
|
|
|
|
|
$ |
329,727,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
7,778,853 |
|
|
|
13,839 |
|
|
|
0.36 |
|
|
$ |
6,594,039 |
|
|
|
12,314 |
|
|
|
0.38 |
|
Money market and NOW |
|
|
46,274,327 |
|
|
|
190,004 |
|
|
|
0.83 |
|
|
|
32,524,896 |
|
|
|
69,633 |
|
|
|
0.43 |
|
Other time deposits |
|
|
195,913,240 |
|
|
|
1,770,522 |
|
|
|
1.82 |
|
|
|
168,852,228 |
|
|
|
2,264,308 |
|
|
|
2.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
249,966,420 |
|
|
|
1,974,365 |
|
|
|
1.59 |
|
|
|
207,971,163 |
|
|
|
2,346,255 |
|
|
|
2.28 |
|
Borrowed funds |
|
|
45,837,128 |
|
|
|
554,733 |
|
|
|
2.44 |
|
|
|
40,065,587 |
|
|
|
519,774 |
|
|
|
2.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
295,803,548 |
|
|
|
2,529,098 |
|
|
|
1.72 |
|
|
|
248,036,750 |
|
|
|
2,866,029 |
|
|
|
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
49,570,865 |
|
|
|
|
|
|
|
|
|
|
|
37,785,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,374,413 |
|
|
|
|
|
|
|
|
|
|
|
285,822,486 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
1,506,457 |
|
|
|
|
|
|
|
|
|
|
|
1,609,024 |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
662,462 |
|
|
|
|
|
|
|
|
|
|
|
686,453 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
35,948,072 |
|
|
|
|
|
|
|
|
|
|
|
41,609,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
383,491,404 |
|
|
|
|
|
|
|
|
|
|
$ |
329,727,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread(1) |
|
|
|
|
|
|
|
|
|
|
3.56 |
|
|
|
|
|
|
|
|
|
|
|
3.31 |
|
|
Net interest income and
Net interest margin(1) |
|
|
|
|
|
$ |
6,514,535 |
|
|
|
3.80 |
% |
|
|
|
|
|
$ |
5,503,277 |
|
|
|
3.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest revenue is presented on a fully taxable equivalent (FTE) basis. The FTE basis
adjusts for the tax favored status of these types of assets. Management believes providing
this information on a FTE basis provides investors with a more accurate picture of our net
interest spread and net interest income and we believe it to be the preferred industry
measurement of these calculations. See Reconciliation of Non-GAAP Measures. |
|
(2) |
|
Available for sale investment securities are presented at amortized cost. |
|
(3) |
|
Average non-accruing loans for the six month periods ended June 30, 2010 and 2009 were
$1,823,445 and $1,000,461, respectively. |
137
The following tables describe the impact on our interest revenue and expense resulting
from changes in average balances and average rates for the periods indicated. We have allocated
the change in interest revenue, interest expense and net interest income due to both volume and
rate proportionately to the rate and volume variances.
Rate/Volume Variance Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended June 30, |
|
|
|
2010 compared to 2009 |
|
|
|
Variance due to: |
|
|
|
Total |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
1,238 |
|
|
$ |
880 |
|
|
$ |
358 |
|
Time deposits in other banks |
|
|
(5,346 |
) |
|
|
(42,425 |
) |
|
|
37,079 |
|
Investment Securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
(2,511 |
) |
|
|
|
|
|
|
(2,511 |
) |
U.S. government agency |
|
|
(50,901 |
) |
|
|
(45,371 |
) |
|
|
(5,530 |
) |
Mortgage backed securities |
|
|
141,818 |
|
|
|
(101,202 |
) |
|
|
243,020 |
|
Municipal securities |
|
|
(870 |
) |
|
|
(10 |
) |
|
|
(860 |
) |
Other |
|
|
2,895 |
|
|
|
3,214 |
|
|
|
(319 |
) |
Loans:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
68,497 |
|
|
|
(292,997 |
) |
|
|
361,494 |
|
Mortgage |
|
|
237,824 |
|
|
|
132,297 |
|
|
|
105,527 |
|
Consumer |
|
|
(29,290 |
) |
|
|
(23,501 |
) |
|
|
(5,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue (1) |
|
|
363,354 |
|
|
|
(369,115 |
) |
|
|
732,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
457 |
|
|
|
(521 |
) |
|
|
978 |
|
Money market and NOW |
|
|
68,813 |
|
|
|
60,929 |
|
|
|
7,884 |
|
Other time deposits |
|
|
(226,705 |
) |
|
|
(489,170 |
) |
|
|
262,465 |
|
Borrowed funds |
|
|
21,726 |
|
|
|
(51,305 |
) |
|
|
73,031 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(135,709 |
) |
|
|
(480,067 |
) |
|
|
344,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
499,063 |
|
|
$ |
110,952 |
|
|
$ |
388,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest revenue is presented on a fully taxable equivalent
(FTE) basis. Management believes providing this information on
a FTE basis provides investors with a more accurate picture of
our net interest spread and net interest income and we believe
it to be the preferred industry measurement of these
calculations. See Reconciliation of Non-GAAP Measures. |
138
Rate/Volume Variance Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months Ended June 30, |
|
|
|
2010 compared to 2009 |
|
|
|
Variance due to: |
|
|
|
Total |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold(1) |
|
$ |
1,446 |
|
|
$ |
(98 |
) |
|
$ |
1,544 |
|
Time deposits in other banks |
|
|
(21,781 |
) |
|
|
(125,088 |
) |
|
|
103,307 |
|
Investment Securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
(7,647 |
) |
|
|
|
|
|
|
(7,647 |
) |
U.S. government agency |
|
|
(102,055 |
) |
|
|
(71,861 |
) |
|
|
(30,194 |
) |
Mortgage backed securities |
|
|
149,113 |
|
|
|
(103,521 |
) |
|
|
252,634 |
|
Municipal securities |
|
|
(6,297 |
) |
|
|
(1,615 |
) |
|
|
(4,682 |
) |
Other |
|
|
5,378 |
|
|
|
(667 |
) |
|
|
6,045 |
|
Loans:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
20,741 |
|
|
|
(298,748 |
) |
|
|
319,489 |
|
Mortgage |
|
|
672,385 |
|
|
|
112,746 |
|
|
|
559,639 |
|
Consumer |
|
|
(36,956 |
) |
|
|
(17,731 |
) |
|
|
(19,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue (1) |
|
|
674,327 |
|
|
|
(506,583 |
) |
|
|
1,180,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
1,525 |
|
|
|
(1,006 |
) |
|
|
2,531 |
|
Money market and NOW |
|
|
120,371 |
|
|
|
97,991 |
|
|
|
22,380 |
|
Other time deposits |
|
|
(493,786 |
) |
|
|
(980,572 |
) |
|
|
486,786 |
|
Borrowed funds |
|
|
34,959 |
|
|
|
(55,610 |
) |
|
|
90,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(336,931 |
) |
|
|
(939,197 |
) |
|
|
602,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(1) |
|
$ |
1,011,258 |
|
|
$ |
432,614 |
|
|
$ |
578,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Interest revenue is presented on a fully taxable equivalent
(FTE) basis. Management believes providing this information on
a FTE basis provides investors with a more accurate picture of
our net interest spread and net interest income and we believe
it to be the preferred industry measurement of these
calculations. See Reconciliation of Non-GAAP Measures. |
Provision for Loan Losses
Originating loans involves a degree of risk that credit losses will occur in varying amounts
according to, among other factors, the type of loans being made, the credit-worthiness of the
borrowers over the term of the loans, the quality of the collateral for the loan, if any, as well
as general economic conditions. 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, estimated value of any underlying collateral, economic conditions (particularly as such
conditions relate to Old Line Banks market area), regulatory guidance, peer statistics,
managements judgment, past due loans in the loan portfolio, loan charge off experience and
concentrations of risk (if any). We charge losses on loans against the allowance when we believe
that collection of loan principal is unlikely. We add back recoveries on loans previously charged
to the allowance.
139
We review the adequacy of the allowance for loan losses at least quarterly. Our review
includes evaluation of impaired loans as required by ASC Topic 310-Receivables, and ASC Topic 450-
Contingencies. Also incorporated in determining the adequacy of the allowance is guidance
contained in the Securities and Exchange Commissions SAB No. 102, Loan Loss Allowance Methodology
and Documentation, the Federal Financial Institutions Examination Councils Policy Statement on
Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings
Institutions and the Interagency Policy Statement on the Allowance for Loan and Lease Losses
provided by the OCC, Federal Reserve Board, FDIC, National Credit Union Administration and Office
of Thrift Supervision.
We base the evaluation of the adequacy of the allowance for loan losses upon loan categories.
We categorize loans as 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. We apply loss ratios to each category of loan other than commercial loans. We
further divide commercial loans by risk rating and apply loss ratios by risk rating, to determine
estimated loss amounts. We evaluate delinquent loans and loans for which management has knowledge
about possible credit problems of the borrower or knowledge of problems with loan collateral
separately and assign loss amounts based upon the evaluation.
We determine loss ratios for installment and other consumer loans (other than boat loans),
boat loans and mortgage loans (commercial real estate, residential real estate and real estate
construction) based upon a review of prior 18 months delinquency trends for the category, the three
year loss ratio for the category, peer group loss ratios, probability of loss factors and industry
standards.
With respect to commercial loans, management assigns a risk rating of one through eight to
each loan at inception, with a risk rating of one having the least amount of risk and a risk rating
of eight having the greatest amount of risk. For commercial loans of less than $250,000, we may
review the risk rating annually based on, among other things, the borrowers financial condition,
cash flow and ongoing financial viability; the collateral securing the loan; the borrowers
industry; and payment history. We review the risk rating for all commercial loans in excess of
$250,000 at least annually. We evaluate loans with a risk rating of five or greater separately and
allocate a portion of the allowance for loan losses based upon the evaluation. For loans with risk
ratings between one and four, we determine loss ratios based upon a review of prior 18 months
delinquency trends, the three year loss ratio, peer group loss ratios, probability of loss factors
and industry standards.
We also identify and make any necessary allocation adjustments for any specific concentrations
of credit in a loan category that in managements estimation increase the risk inherent in the
category. If necessary, we will also make an adjustment within one or more loan categories for
economic considerations in our market area that may impact the quality of the loans in the
category. For all periods presented, there were no specific adjustments made for concentrations of
credit. As discussed below, in 2008 and 2009 we increased our provision for loan losses for the
periods in all segments of our portfolio as a result of economic considerations. We consider
qualitative or environmental factors that are likely to cause estimated credit losses associated
with our existing portfolio to differ from historical loss experience. These factors include, but
are not limited to, changes in lending policies and procedures, changes in the nature and volume of
the loan portfolio, changes in the experience, ability and depth of lending management and the
effect of other external factors such as competition and legal and regulatory requirements on the
level of estimated credit losses in our existing portfolio.
In the event that our review of the adequacy of the allowance results in any unallocated
amounts, we reallocate such amounts to our loan categories based on the percentage that each
category represents to total gross loans. We have risk management practices designed to ensure
timely identification of changes in loan risk profiles. However, undetected losses inherently
exist within the portfolio. We believe that the allocation of the unallocated portion of the
reserve in the manner described above is appropriate. Although we may allocate specific portions
of the allowance for specific credits or other factors, the entire allowance is available for any
credit that we should charge off. We will not create a separate valuation allowance unless we
consider a loan impaired.
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 is 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.
140
Year Ended December 31, 2009
The provision for loan losses was $900,000 for the year ended December 31, 2009. This
represented a $485,000 or 116.87% increase as compared to the year ended December 31, 2008. We
increased the provision for loan losses because we believe that although our asset quality remains
strong, the longer the weaknesses in the economy exist the more difficult it becomes for even our
strong borrowers to maintain profitability consistent with prior periods.
At year end, we had $1.6 million in non-performing real estate loans. We also had two loans
totaling approximately $581,000 past due between 30-89 days. As outlined below, we are currently
working towards resolution with all of these borrowers.
The provision for loan losses was $415,000 for the year ended December 31, 2008, as compared
to $318,000 for the year ended December 31, 2007, an increase of $97,000 or 30.50%. We increased
the provision for loan losses because the real estate industry encountered difficulties, there was
significant turbulence in the financial markets, unemployment was rising, and there was evidence of
weakness in the general economy. After completing the analysis outlined below, we determined
during the twelve month period ended December 31, 2008 that there were changes in economic factors
that directly impacted the quality of the loan portfolio and warranted a higher provision.
At December 31, 2009, we had three loans totaling $1.6 million past due and classified as
non-accrual. The first loan has a balance of $810,291 and is the same loan that we reported in our
December 31, 2008 financial statements. During 2009, we received $40,384 in payments on this loan.
We have obtained a lift stay on and have foreclosed on this property. The second loan is in the
amount of $223,169. The value of the collateral is sufficient to provide repayment. We have
foreclosed on the property held as collateral for the loan and hold this property in other real
estate owned. The third loan is a land development loan secured by real estate in the amount of
$553,039. The borrower on this loan has filed bankruptcy. A recent appraisal of the property
securing this loan indicates that the value of the collateral is sufficient to provide repayment.
We have received a deed in lieu of foreclosure on this property and are currently negotiating a
contract to sell the property. At December 31, 2009, we did not believe that any of these loans
were impaired and we did not designate a specific allowance for any of these non-accrual loans.
The total non-accrued interest on these loans at December 31, 2009 was $190,701.
During the year ended December 31, 2009, we charged off a loan in the amount of approximately
$195,000 to the allowance for loan losses. This charge-off was the result of one land developer
who was unable to meet all of his financial obligations and advised us that he could no longer make
any of his payments and there was no remaining value in the underlying collateral. During the
third quarter, we also repossessed a boat with a loan balance of approximately $100,000. We
charged $50,000 to the allowance for loan losses for anticipated losses on this repossession and in
the second quarter of 2010 we sold this boat with an additional loss that was immaterial.
In July 2009, we charged an additional $150,000 to the allowance for loan losses for the
deficiency balance due on a $700,000 loan that was in non-accrual status until December 2009. In
July, we restructured the remaining $550,000 of the loan balance and the borrower began remitting
monthly payments. The borrower has submitted six monthly payments in a timely manner. As a
result, we have taken this loan out of non-accrual status and we now classify it as an accrual
loan. The remaining $7,000 charged to the allowance for loan losses in 2009 and the total $18,440
in 2008 and the $12,149 in 2007 were comprised of various immaterial deficiencies on several loans.
The allowance for loan losses represented 0.93% of total loans at December 31, 2009, 0.85% at
December 31, 2008, and 0.78% at December 31, 2007. We have no exposure to foreign countries or
foreign borrowers. Based on our analysis and the satisfactory historical performance of the loan
portfolio, we believe this allowance appropriately reflects the inherent risk of loss in our
portfolio.
141
The following table represents an analysis of the allowance for loan losses for
the periods indicated:
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Balance, beginning of period |
|
$ |
1,983,751 |
|
|
$ |
1,586,737 |
|
|
$ |
1,280,396 |
|
Provision for loan losses |
|
|
900,000 |
|
|
|
415,000 |
|
|
|
318,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
(6,064 |
) |
Mortgage |
|
|
(344,825 |
) |
|
|
|
|
|
|
|
|
Consumer |
|
|
(57,210 |
) |
|
|
(18,440 |
) |
|
|
(6,085 |
) |
|
|
|
|
|
|
|
|
|
|
Total chargeoffs |
|
|
(402,035 |
) |
|
|
(18,440 |
) |
|
|
(12,149 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
454 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
|
|
|
|
454 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
Net (chargeoffs) recoveries |
|
|
(402,035 |
) |
|
|
(17,986 |
) |
|
|
(11,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
2,481,716 |
|
|
$ |
1,983,751 |
|
|
$ |
1,586,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to: |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
0.93 |
% |
|
|
0.85 |
% |
|
|
0.78 |
% |
Non-accrual loans |
|
|
156.43 |
% |
|
|
233.19 |
% |
|
|
145.93 |
% |
Ratio of net-chargeoffs during period to
average loans outstanding during period |
|
|
0.158 |
% |
|
|
0.008 |
% |
|
|
0.007 |
% |
The following table provides a breakdown of the allowance for loan losses:
Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
Consumer |
|
$ |
10,319 |
|
|
|
0.57 |
% |
|
$ |
13,391 |
|
|
|
0.50 |
% |
|
$ |
10,236 |
|
|
|
0.46 |
% |
Boat |
|
|
81,417 |
|
|
|
4.91 |
|
|
|
94,910 |
|
|
|
6.22 |
|
|
|
106,405 |
|
|
|
8.66 |
|
Mortgage |
|
|
1,845,126 |
|
|
|
66.74 |
|
|
|
1,348,850 |
|
|
|
63.21 |
|
|
|
1,080,897 |
|
|
|
63.56 |
|
Commercial |
|
|
544,854 |
|
|
|
27.78 |
|
|
|
526,600 |
|
|
|
30.07 |
|
|
|
389,199 |
|
|
|
27.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,481,716 |
|
|
|
100.00 |
% |
|
$ |
1,983,751 |
|
|
|
100.00 |
% |
|
$ |
1,586,737 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended June 30, 2010
The provision for loan losses was $170,000 for the three months ended June 30, 2010, as
compared to $250,000 for the three months ended June 30, 2009, a decrease of $80,000 or 32.00%.
After completing the analysis outlined below, during the three month period ended June 30, 2010, we
decreased the provision for loan losses primarily because our asset quality remained stable and the
economy continued to show evidence of continued improvement. As previously mentioned, while it
remains uncertain whether the economy will continue on its path towards recovery, it appears the
economy may
142
reach a sustainable recovery during 2011 and we remain cautiously optimistic that our
borrowers will continue to stay current on their loans. The $170,000 provision supported the 5.56%
growth in the loan portfolio during the period.
The provision for the six month period was $240,000. This represented a $310,000 or 56.36%
decrease as compared to the six months ended June 30, 2009. For the six months ended June 30,
2010, we decreased the provision for loan losses because we believe that in 2009 we specifically
identified and appropriately reserved for any potential deterioration in the loan portfolio caused
by the tumultuous economic climate. We believe the economy has stabilized in 2010. We also believe
that we have appropriately identified and allocated specific reserves to previously identified
borrowers that represent increased risk or potential loss. At quarter end, we had four real estate
loans totaling $4.5 million and one commercial loan in the amount of $137,000 in non-performing
loans. We have also completed foreclosure on one property that we value at $223,000. We had no
other loans past due between 30 and 89 days. As outlined below, we are currently working towards
resolution with all of these borrowers and we have allocated a specific reserve for those loans
where we consider it probable that we will incur a loss.
At June 30, 2010, we had five non-accrual loans totaling $4.7 million. During 2009, we
increased the provision because we recognized that the economy may cause increased hardships for
our borrowers and there was a higher probability that we may incur losses on these loans. As
outlined below in the Loan Portfolio section of this discussion, we have allocated a specific
valuation allowance to those loans where we anticipate a loss.
The allowance for loan losses represented 0.94% of gross loans at June 30, 2010 and 0.93% as
of December 31, 2009. We have no exposure to foreign countries or foreign borrowers. Based on our
analysis and the satisfactory historical performance of the loan portfolio, we believe this
allowance appropriately reflects the inherent risk of loss in our portfolio.
143
The following table provides an analysis of the allowance for loan losses for the periods indicated:
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
Balance, beginning of period |
|
$ |
2,481,716 |
|
|
$ |
1,983,751 |
|
|
$ |
1,983,751 |
|
Provision for loan losses |
|
|
240,000 |
|
|
|
550,000 |
|
|
|
900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
(194,969 |
) |
|
|
|
|
Mortgage |
|
|
(11,733 |
) |
|
|
|
|
|
|
(344,825 |
) |
Consumer |
|
|
(1,223 |
) |
|
|
|
|
|
|
(57,210 |
) |
|
|
|
|
|
|
|
|
|
|
Total chargeoffs |
|
|
(12,956 |
) |
|
|
(194,969 |
) |
|
|
(402,035 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
3,650 |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
4,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (chargeoffs) recoveries |
|
|
(8,787 |
) |
|
|
(194,969 |
) |
|
|
(402,035 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
2,712,929 |
|
|
$ |
2,338,782 |
|
|
$ |
2,481,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to: |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
0.94 |
% |
|
|
0.92 |
% |
|
|
0.93 |
% |
Non-accrual loans |
|
|
56.71 |
% |
|
|
132.72 |
% |
|
|
156.43 |
% |
Ratio of net-chargeoffs during period to
average total loans during period |
|
|
0.003 |
% |
|
|
0.077 |
% |
|
|
0.158 |
% |
The following table provides a breakdown of the allowance for loan losses:
Allocation of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
Consumer & others |
|
$ |
9,736 |
|
|
|
0.57 |
% |
|
$ |
9,002 |
|
|
|
0.14 |
% |
|
$ |
10,319 |
|
|
|
0.57 |
% |
Boat |
|
|
129,405 |
|
|
|
4.28 |
|
|
|
89,488 |
|
|
|
5.73 |
|
|
|
81,417 |
|
|
|
4.91 |
|
Mortgage |
|
|
2,020,334 |
|
|
|
68.21 |
|
|
|
1,834,573 |
|
|
|
65.31 |
|
|
|
1,845,126 |
|
|
|
66.74 |
|
Commercial |
|
|
553,454 |
|
|
|
26.94 |
|
|
|
405,719 |
|
|
|
28.82 |
|
|
|
544,854 |
|
|
|
27.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,712,929 |
|
|
|
100.00 |
% |
|
$ |
2,338,782 |
|
|
|
100.00 |
% |
|
$ |
2,481,716 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Non-interest Revenue
2009 compared to 2008
Non-interest revenue totaled $1.8 million for the twelve months ended December 31, 2009, an
increase of $855,835 or 88.79%. Non-interest revenue for the twelve months ended December 31, 2009
and December 31, 2008 included fee income from service charges on deposit accounts, gains on sales
of investment securities, earnings on bank owned life insurance, income from our investment in real
estate LLC (Pointer Ridge) and other fees and commissions.
The following table outlines the changes in non-interest revenue for the twelve month periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
Service charges on deposit accounts |
|
$ |
307,012 |
|
|
$ |
311,268 |
|
|
$ |
(4,256 |
) |
|
|
(1.37 |
)% |
Net gains on sales of investment securities |
|
|
158,551 |
|
|
|
(3,081 |
) |
|
|
161,632 |
|
|
|
|
|
Earnings on bank owned life insurance |
|
|
376,165 |
|
|
|
366,785 |
|
|
|
9,380 |
|
|
|
2.56 |
|
Income (loss) on investment in real estate LLC |
|
|
|
|
|
|
3,741 |
|
|
|
(3,741 |
) |
|
|
(100.00 |
) |
Pointer Ridge rent and other revenue |
|
|
567,283 |
|
|
|
53,738 |
|
|
|
513,545 |
|
|
|
955.65 |
|
Other fees and commissions |
|
|
410,756 |
|
|
|
231,481 |
|
|
|
179,275 |
|
|
|
77.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
$ |
1,819,767 |
|
|
$ |
963,932 |
|
|
$ |
855,835 |
|
|
|
88.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although the number of customers increased, service charges on deposit accounts remained
relatively stable because these customers used lower cost services. In an effort to minimize call
and prepayment risk and manage future interest rate risk, we elected to sell available-for-sale
securities during 2009. We recorded gains on these investments because the decline in market
interest rates caused an increase in the securities value. In 2008, we sold a security because it
no longer met our investment guidelines. The interest rates for these types of securities had
increased which caused the security value to decline and we experienced a loss. Other fees and
commissions increased primarily because we issued a higher dollar value of letters of credit that
caused letter of credit fees to increase. We also had higher loan fees as a result of an increase
in expired loan commitments and an increase in the number of loans that we settled during the year.
As previously outlined, in November 2008, we acquired an additional 12.50% membership interest
in Pointer Ridge. As a result of this purchase, our membership interest increased from 50.00% to
62.50%. Consequently, we consolidated Pointer Ridges results of operations from the date of
acquisition. Prior to the date of acquisition, we accounted for our investment in Pointer Ridge
using the equity method. This consolidation caused the earnings on our investment in real estate
LLC to decline and Pointer Ridge rent and other revenue to increase during 2009.
2008 compared to 2007
Non-interest revenue totaled $963,932 for the twelve months ended December 31, 2008, a
decrease of $209,382 or 17.85%. Non-interest revenue for the twelve months ended December 31, 2008
and December 31, 2007 included fee income from service charges on deposit accounts, earnings on
bank owned life insurance, income from our investment in real estate LLC (Pointer Ridge) and other
fees and commissions. For the period ended December 31, 2007, non-interest revenue also included
broker origination fees from the marine division.
145
The following table outlines the changes in non-interest revenue for the twelve month periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
|
Service charges on deposit accounts |
|
$ |
311,268 |
|
|
$ |
292,610 |
|
|
$ |
18,658 |
|
|
|
6.38 |
% |
Marine division broker origination fees |
|
|
|
|
|
|
272,349 |
|
|
|
(272,349 |
) |
|
|
(100.00 |
) |
Earnings on bank owned life insurance |
|
|
366,785 |
|
|
|
340,853 |
|
|
|
25,932 |
|
|
|
7.61 |
|
Income (loss) on investment in real estate LLC |
|
|
3,741 |
|
|
|
24,100 |
|
|
|
(20,359 |
) |
|
|
(84.48 |
) |
Other fees and commissions |
|
|
282,138 |
|
|
|
243,402 |
|
|
|
38,736 |
|
|
|
15.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
$ |
963,932 |
|
|
$ |
1,173,314 |
|
|
$ |
(209,382 |
) |
|
|
(17.85 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts increased due to increases in the number of customers
and the services they used. We did not earn any marine division broker origination fees during the
period because we closed this division at the end of the third quarter of 2007. Earnings on bank
owned life insurance increased because we invested an additional $4 million in February 2007. As a
result, we had an additional 30 days of interest income on the investment in 2008. Other fees and
commissions increased because of the consolidation of Pointer Ridges results of operations from
the date of acquisition as outlined below. Other fees and commissions also increased because in
April 2007, we began leasing the Waldorf office space that we vacated in July 2006 and because of
increases in loan income received from the repayment of a non-accrual loan. The consolidation of
Pointer Ridges results of operations, as discussed above, caused the earnings on our investment in
real estate LLC to decline and other fees and commissions to increase in 2008.
Pointer Ridges earnings declined during the year because it had two tenants that did not pay
their rent in a timely manner and they recorded a reserve for these uncollected rents.
Additionally, operating expenses on the building increased during the year.
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Non-interest revenue totaled $271,053 for the three months ended June 30, 2010, a decrease of
$263,947 or 49.34% from the 2009 amount of $535,000. Non-interest revenue for the three months
ended June 30, 2010 and June 30, 2009 included fee income from service charges on deposit accounts,
earnings on bank owned life insurance, and other fees and commissions including revenues with
respect to Pointer Ridge. The primary cause of the decline in non-interest revenue was because in
the three months ended June 30, 2009, we sold investments and recorded a gain of $157,917. For the
same period in 2010, we did not sell any investments. Additionally, the interest we earned on our
bank owned life insurance declined as a result of a decline in the interest rate paid on these
investments. Other fees and commissions (excluding Pointer Ridge) decreased $50,208 primarily
because in 2009, we received approximately $59,000 in rental income from the tenant who leased the
second floor of our branch located at 301 Crain Highway, Waldorf, Maryland. The tenant terminated
its lease in March 2010. As a result, we did not receive any rental income from this facility
during the second quarter of 2010. The loss of tenants in the building that Pointer Ridge owns
caused a $51,399 decline in the rent revenue that we earn from Pointer Ridge.
The following table outlines the changes in non-interest revenue for the three month periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Service charges on deposit accounts |
|
$ |
78,411 |
|
|
$ |
72,665 |
|
|
$ |
5,746 |
|
|
|
7.91 |
% |
Gain on sales of investment securities |
|
|
|
|
|
|
157,917 |
|
|
|
(157,917 |
) |
|
|
(100.00 |
) |
Earnings on bank owned life insurance |
|
|
83,985 |
|
|
|
94,154 |
|
|
|
(10,169 |
) |
|
|
(10.80 |
) |
Pointer Ridge rent and other revenue |
|
|
64,729 |
|
|
|
116,128 |
|
|
|
(51,399 |
) |
|
|
(44.26 |
) |
Other fees and commissions |
|
|
43,928 |
|
|
|
94,136 |
|
|
|
(50,208 |
) |
|
|
(53.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
$ |
271,053 |
|
|
$ |
535,000 |
|
|
$ |
(263,947 |
) |
|
|
(49.34 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Non-interest revenue declined $574,658 during the six month period ended June 30, 2010
primarily because of the $392,906 decline in rent and other revenue from Pointer Ridge and the
$157,917 decline in gain on sales of investment securities. During the first six months of 2009,
Pointer Ridge produced $521,605 in rental income that is included in other fees and commissions;
approximately $300,000 of that amount derived from a non-recurring lease termination fee. During
the same period in 2010, we received $128,699 in rental income from Pointer Ridge. The absence of
the lease termination fee in 2010 and the subsequent loss of additional tenants in the building
owned by Pointer Ridge were the major causes of the decline in non-interest revenue. Service
charges on deposit accounts increased $8,377 in 2010 primarily as a result of an increase in
customers. Other fees and commissions (excluding Pointer Ridge) decreased $14,705 primarily
because in 2010, we received $58,740 in rental income from the tenant who leased the second floor
of our branch located at 301 Crain Highway, Waldorf, Maryland. The tenant terminated his lease in
March 2010. As a result, rental income declined $33,210. An increase in other loan fees and
letter of credit fees offset a portion of this decline.
The following table outlines the changes in non-interest revenue for the six month periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Service charges on deposit accounts |
|
$ |
153,231 |
|
|
$ |
144,854 |
|
|
$ |
8,377 |
|
|
|
5.78 |
% |
Gain on sales of investment securities |
|
|
|
|
|
|
157,917 |
|
|
|
(157,917 |
) |
|
|
(100.00 |
) |
Earnings on bank owned life insurance |
|
|
170,108 |
|
|
|
187,615 |
|
|
|
(17,507 |
) |
|
|
(9.33 |
) |
Pointer Ridge rent and other revenue |
|
|
128,699 |
|
|
|
521,605 |
|
|
|
(392,906 |
) |
|
|
(75.33 |
) |
Other fees and commissions |
|
|
111,904 |
|
|
|
126,609 |
|
|
|
(14,705 |
) |
|
|
(11.61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
$ |
563,942 |
|
|
$ |
1,138,600 |
|
|
$ |
(574,658 |
) |
|
|
(50.47 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because of the business development efforts of our lenders, managers and the new branches that
we have opened, we expect that customer relationships will continue to grow during the remainder of
2010. We anticipate this growth will cause an increase in service charges on deposit accounts. We
expect our earnings on bank owned life insurance will remain stable during the remainder of 2010.
The tenant in our Crain Highway location has vacated the building. We do not expect to have rental
income from this facility during the remainder of 2010. We anticipate that rental income from
Pointer Ridge for each of the remaining two quarters in 2010 will remain comparable to that
received during the second quarter of 2010.
Non-interest Expense
2009 compared to 2008
Non-interest expense for the twelve months ended December 31, 2009 increased 25.55% or $1.9
million relative to the amount reported in 2008. The following chart outlines the changes in
non-interest expenses for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
Salaries |
|
$ |
4,037,027 |
|
|
$ |
3,316,219 |
|
|
$ |
720,808 |
|
|
|
21.74 |
% |
Employee benefits |
|
|
1,012,014 |
|
|
|
923,666 |
|
|
|
88,348 |
|
|
|
9.56 |
|
Occupancy |
|
|
1,085,768 |
|
|
|
1,124,838 |
|
|
|
(39,070 |
) |
|
|
(3.47 |
) |
Equipment |
|
|
354,531 |
|
|
|
313,133 |
|
|
|
41,398 |
|
|
|
13.22 |
|
Data processing |
|
|
340,870 |
|
|
|
269,632 |
|
|
|
71,238 |
|
|
|
26.42 |
|
FDIC Insurance and State of Maryland assessments |
|
|
561,850 |
|
|
|
151,149 |
|
|
|
410,701 |
|
|
|
271.72 |
|
Pointer Ridge other operating |
|
|
66,458 |
|
|
|
24,414 |
|
|
|
42,044 |
|
|
|
172.21 |
|
Other operating |
|
|
1,798,363 |
|
|
|
1,249,727 |
|
|
|
548,636 |
|
|
|
43.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
$ |
9,256,881 |
|
|
$ |
7,372,778 |
|
|
$ |
1,884,103 |
|
|
|
25.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, employee benefits, equipment, data processing expenses, and other operating expenses
increased primarily because of increased operating expenses from the two branches that we opened in
2008, two additional branches opened in 2009 and the new lending team that we hired in December
2009. As a result of the consolidation of Pointer Ridge, these
147
increases and increases in
occupancy expenses due to the new branches were partially offset by the elimination of $526,494 of
rental expenses paid to Pointer Ridge. Benefits also increased because of the increase in stock
option expenses for options granted in the first quarter of 2009. There were no options granted in
2008. In April of 2009, we converted our core data processing system to a new service provider.
In addition to the impact from the new branches, the conversion also caused an increase in data
processing costs. Non-interest expenses also increased because of a $410,701 increase in FDIC
insurance premiums and Maryland State assessments, inclusive of the approximately $149,000 special
assessment.
2008 compared to 2007
The following chart outlines the non-interest expenses for the years ended December 31, 2008
and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
|
Salaries |
|
$ |
3,316,219 |
|
|
$ |
3,045,932 |
|
|
$ |
270,287 |
|
|
|
8.87 |
% |
Employee benefits |
|
|
923,666 |
|
|
|
953,554 |
|
|
|
(29,888 |
) |
|
|
(3.13 |
) |
Occupancy |
|
|
1,124,838 |
|
|
|
934,277 |
|
|
|
190,561 |
|
|
|
20.40 |
|
Equipment |
|
|
313,133 |
|
|
|
248,182 |
|
|
|
64,951 |
|
|
|
26.17 |
|
Data processing |
|
|
269,632 |
|
|
|
221,107 |
|
|
|
48,525 |
|
|
|
21.95 |
|
Other operating |
|
|
1,425,290 |
|
|
|
1,371,499 |
|
|
|
53,791 |
|
|
|
3.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
$ |
7,372,778 |
|
|
$ |
6,774,551 |
|
|
$ |
598,227 |
|
|
|
8.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary and benefit expenses increased primarily because we opened the College Park,
Greenbelt and Annapolis branches during the year and we hired new loan officers in April and
September 2007. These increases were partially offset by the reduction in salary expense that we
realized when we closed the marine division late in the third quarter of 2007 and terminated the
employees associated with it. Additionally, stock based compensation expenses decreased from
$173,714 in 2007 to $104,541 for the same period in 2008. The stock based compensation expense
decreased because the board of directors did not receive any vested options in 2008 and they
received 10,000 vested options in 2007.
Occupancy and equipment expenses increased because of the opening of the new Greenbelt branch
in June 2007, the College Park branch in February 2008 and the Annapolis branch in September 2008,
as well as annual rental increases. Data processing costs increased because of the new locations,
new services provided by our data processor, and contractual increases. Other operating expenses
increased primarily because of increased FDIC and state of Maryland insurance assessments, higher
audit and exam fees, and increased business development expenses. The elimination of the costs
associated with the marine division partially offset these increases.
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Non-interest expense increased $337,666 for the three months ended June 30, 2010. The
following chart outlines the changes in non-interest expenses for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Salaries |
|
$ |
1,130,944 |
|
|
$ |
938,930 |
|
|
$ |
192,014 |
|
|
|
20.45 |
% |
Employee benefits |
|
|
317,803 |
|
|
|
215,422 |
|
|
|
102,381 |
|
|
|
47.53 |
|
Occupancy |
|
|
319,051 |
|
|
|
234,125 |
|
|
|
84,926 |
|
|
|
36.27 |
|
Equipment |
|
|
99,152 |
|
|
|
82,516 |
|
|
|
16,636 |
|
|
|
20.16 |
|
Data processing |
|
|
105,074 |
|
|
|
81,654 |
|
|
|
23,420 |
|
|
|
28.68 |
|
Pointer Ridge other operating |
|
|
88,700 |
|
|
|
90,096 |
|
|
|
(1,396 |
) |
|
|
(1.55 |
) |
FDIC insurance and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State of Maryland assessments |
|
|
115,553 |
|
|
|
259,531 |
|
|
|
(143,978 |
) |
|
|
(55.48 |
) |
Other operating |
|
|
433,637 |
|
|
|
369,974 |
|
|
|
63,663 |
|
|
|
17.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
$ |
2,609,914 |
|
|
$ |
2,272,248 |
|
|
$ |
337,666 |
|
|
|
14.86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
Salaries, employee benefits, occupancy, equipment, data processing and other operating
expenses increased primarily because of increased operating expenses from the branches that we
opened in 2009 and the new lending team that we hired in December 2009. In 2009, the FDIC assessed
a special assessment of approximately $150,000 during the second quarter that they did not assess
in 2010, which caused a decrease in FDIC and State of Maryland assessments in 2010.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Non-interest expense for the six months ended June 30, 2010 increased $970,318 or 22.39% to
$5.3 million compared to $4.3 million for the same period in 2009. Salaries, employee benefits,
occupancy, equipment, data processing expenses, and other operating expenses increased primarily
because of increased operating expenses from the branches that we opened in 2009 and the new
lending team that we hired in December 2009. Benefits also increased because of the increase in
stock option and restricted stock awards granted in the first quarter of 2010. As outlined above,
FDIC and State of Maryland assessments decreased because of the elimination of the special
assessment of approximately $150,000. This savings was offset by increased rates and higher
deposit levels.
The following chart outlines the changes in non-interest expenses for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Salaries |
|
$ |
2,296,359 |
|
|
$ |
1,775,987 |
|
|
$ |
520,372 |
|
|
|
29.30 |
% |
Employee benefits |
|
|
667,938 |
|
|
|
517,846 |
|
|
|
150,092 |
|
|
|
28.98 |
|
Occupancy |
|
|
652,457 |
|
|
|
466,306 |
|
|
|
186,151 |
|
|
|
39.92 |
|
Equipment |
|
|
206,028 |
|
|
|
162,394 |
|
|
|
43,634 |
|
|
|
26.87 |
|
Data processing |
|
|
199,500 |
|
|
|
156,991 |
|
|
|
42,509 |
|
|
|
27.08 |
|
Pointer Ridge other operating |
|
|
202,400 |
|
|
|
321,121 |
|
|
|
(118,721 |
) |
|
|
(36.97 |
) |
FDIC
insurance and State of Maryland assessments |
|
|
230,668 |
|
|
|
342,302 |
|
|
|
(111,634 |
) |
|
|
(32.61 |
) |
Other operating |
|
|
849,346 |
|
|
|
591,431 |
|
|
|
257,915 |
|
|
|
43.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest
expenses |
|
$ |
5,304,696 |
|
|
$ |
4,334,378 |
|
|
$ |
970,318 |
|
|
|
22.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the remainder of 2010, we anticipate non-interest expenses will remain relatively stable
and will exceed last years expenses. During the remainder of 2010, we will continue to incur
increased salary, benefits, occupancy, equipment and data processing expenses related to the new
Fairwood and Crofton locations and increased operational expenses associated with these branches.
We will also incur increased salary and benefits expenses associated with our new lending team and
increased FDIC insurance premiums as our deposits continue to grow.
Income Taxes
2009 compared to 2008
Income tax expense was $1,055,522 (33.20% of pre-tax income) for the year ended December 31,
2009 compared to $939,383 (34.91% of pre-tax income) for the same period in 2008. The decrease in
the effective tax rate is primarily due to higher tax exempt interest income.
2008 Compared to 2007
Income tax expense was $939,383 (34.91% of pre-tax income) for the year ended December 31,
2008 compared to $789,053 (33.26% of pre-tax income) for the same period in 2007. The increase in
the effective tax rate is primarily due to a decrease in interest on tax exempt securities as a
percent of pre-tax income during the period and an increase in the state tax rate.
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Income tax expense was $270,063 (34.43% of pre-tax income) for the three months ended June 30,
2010 as compared to $272,787 (33.12% of pre-tax income) for the same period in 2009.
149
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Income tax expense was $500,132 (34.40% of pre-tax income) for the six months ended June 30,
2010 as compared to $554,902 (32.31% of pre-tax income) for the same period in 2009.
Net Income Available to Common Stockholders
2009 compared to 2008
Net income attributable to Old Line Bancshares increased $280,032 or 15.95% for the twelve
month period ended December 31, 2009 to $2.0 million from $1.8 million for the twelve month period
ended December 31, 2008. After inclusion of the dividends and accretion on the preferred stock
issued under the U.S. Treasurys Capital Purchase Program in December 2008, net income available to
common stockholders for the twelve month period was $1.6 million. Earnings per basic and diluted
common share were $0.40 for the twelve months ended December 31, 2009 and $0.44 for the same period
in 2008. The increase in net income was the result of a $1.5 million increase in net interest
income after provision for loan losses and an $855,835 increase in non-interest revenue. This was
partially offset by a $1.9 million increase in non-interest expense and a $116,139 increase in
income taxes. Earnings per share decreased on a basic and diluted basis because of dividends and
accretion on the preferred stock. This was partially offset by higher earnings and because we
repurchased 217,085 shares of common stock during the year ended December 31, 2008, which caused
the average number of common shares outstanding during 2009 to decline to 3,862,364 from 3,919,903
for the same period in 2008.
2008 Compared to 2007
Net income available to common stockholders was $1.7 million or $0.44 per basic and diluted
common share for the twelve month period ending December 31, 2008, an increase of $143,680 or 9.08%
compared to net income of $1.6 million or $0.37 per basic and diluted common share for the same
period in 2007. The increase in net income was the result of a $1.1 million increase in net
interest income after provision for loan losses. This was partially offset by a $209,382 decrease
in non-interest revenue, a $598,227 increase in non-interest expense, the new 5% preferred stock
dividend payable to the U.S. Treasury for its $7 million investment, and a $150,330 increase in
income taxes. Earnings per share increased on a basic and diluted basis because of higher earnings
and because we repurchased 217,085 shares of common stock during the twelve month period ended
December 31, 2008 and 185,950 shares of common stock in the 4th quarter of 2007 that caused the
average number of common shares outstanding to decline to 3,919,903 from 4,237,266 for the same
period in 2007.
Three months ended June 30, 2010 compared to three months ended June 30, 2009
Net income attributable to Old Line Bancshares was $530,097 for the three months ended June
30, 2010 compared to $550,058 for the three month period ended June 30, 2009. Net income available
to common stockholders was $530,097 or $0.14 per basic and diluted common share for the three month
period ending June 30, 2010 compared to net income available
to common stockholders of $447,486 or $0.12 per basic and diluted common share for the same
period in 2009. The decrease in net income attributable to Old Line Bancshares for the 2010 period
was primarily the result of a $263,947 decrease in non-interest revenue and a $337,666 increase in
non-interest expense compared to the 2009 period, which were not fully offset by a $562,178
increase in net interest income after provision for loan losses and a $2,724 decrease in income
taxes compared to the same period in 2009. The increase in net income available to common
stockholders for the 2010 period was a result of our repurchase during 2009 from the U.S. Treasury
of the 7,000 shares of preferred stock that we issued to them as part of the Troubled Asset Relief
Program. As a result of this repurchase, we no longer pay dividends on the preferred stock.
Earnings per common share increased to $0.14 for the period on a basic and diluted basis because of
the items outlined above.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Net income attributable to Old Line Bancshares decreased $67,754 or 6.38% for the six months
ended June 30, 2010 to $994,631 from $1.1 million for the six month period ended June 30, 2009.
Net income available to common stockholders was $994,631 or $0.26 per basic and diluted common
share for the six month period ending June 30, 2010 compared to net income available to common
stockholders of $857,241 or $0.22 per basic and diluted common share for the same period in 2009.
The decrease in net income attributable to Old Line Bancshares for the 2010 period was primarily
the result of a $574,658 decrease in non-interest revenue and a $970,318 increase in non-interest
expense compared to the 2009 period, which were not fully offset by a $1.3 million increase in net
interest income after provision for loan losses and a $54,770 decrease in income taxes compared to
the same period in 2009. The increase in net income available to common
150
stockholders for the 2010
period was a result of our repurchase during 2009 from the U.S. Treasury the 7,000 shares of
preferred stock that we issued to them as part of the Troubled Asset Relief Program. As a result
of this repurchase, we no longer pay dividends on the preferred stock. Earnings per common share
increased to $0.26 for the period on a basic and diluted basis because of the items outlined above.
Analysis of Financial Condition
Investment Securities
Our portfolio consists primarily of time deposits in other banks, investment grade securities
including U.S. Treasury securities, U.S. government agency securities, U.S. government sponsored
entity securities, securities issued by states, counties and municipalities, mortgage backed
securities, and certain equity securities, including Federal Reserve Bank stock, Federal Home Loan
Bank stock, Maryland Financial Bank stock and Atlantic Central Bankers Bank stock. We have
prudently managed our investment portfolio to maintain liquidity and safety and we have never owned
stock in Fannie Mae or Freddie Mac or any of the more complex securities available in the market.
The portfolio provides a source of liquidity and collateral for borrowings, as well as a means of
diversifying our earning asset portfolio. While we generally intend to hold the investment
securities until maturity, we classify a significant portion of the investment securities as
available for sale. We account for investment 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 investment securities classified in the held to maturity
category at amortized cost. Although we will occasionally sell a security, generally, we invest in
securities for the yield they produce and not to profit from trading the securities. There are no
trading securities in the portfolio.
Year ended December 31, 2009
The investment securities at December 31, 2009 amounted to $33.8 million, a decrease of $3.8
million, or 10.11%, from the December 31, 2008 amount of $37.6 million. Available for sale
investment securities decreased to $28.0 million at December 31, 2009 from $29.6 million at
December 31, 2008. The decrease in the available for sale investment securities occurred primarily
because we deployed these funds into loans or other interest bearing deposits. Held to maturity
securities at December 31, 2009 decreased to $5.8 million from the $8.0 million balance on December
31, 2008 because securities matured or were called during the period. The fair value of available
for sale securities included net unrealized gains of $609,165 at December 31, 2009 (reflected as
unrealized gains of $368,880 in stockholders equity after deferred taxes) as compared to net
unrealized gains of $648,356 ($392,611 net of taxes) as of December 31, 2008. In general, the
decrease in fair value was the result of increasing market rates. We have evaluated securities
with unrealized losses for an extended period of time and determined that these losses are
temporary because, at this point in time, we expect to hold them until maturity. We have no intent
or plan to sell these securities, it is not likely that we will have to sell these securities and
we have not identified any portion of the loss that is a result of credit deterioration in the
issuer of the security. As the maturity date moves closer and/or interest rates decline, the
unrealized losses in the portfolio will decline or dissipate.
The investment securities at December 31, 2008 amounted to $37.6 million, an increase of $25.9
million, or 221.24%, from the December 31, 2007 amount of $11.7 million. Available for sale
investment securities increased to $29.6 million at December 31, 2008 from $9.4 million at December
31, 2007. Held to maturity securities at December 31, 2008 increased to $8.0 million from $2.3
million. The increase in the available for sale investment and held to maturity securities
occurred because as liquidity concerns in the market began to dissipate and interest rates declined
in the fourth quarter, we used federal funds to purchase securities. The fair value of available
for sale securities included net unrealized gains of $648,356 at December 31, 2008 (reflected as
unrealized gains of $392,611 in stockholders equity after deferred taxes) as compared to net
unrealized losses of $49,127 ($29,749 net of taxes) as of December 31, 2007. In general, the
increase in fair value was a result of maturities, decreasing interest rates on investments and
changes in investment ratings. As required, we have evaluated securities with unrealized losses
for an extended period of time and determined that these losses are temporary because, at this
point in time, we expect to hold them until maturity. As the maturity date moves closer and/or
interest rates decline, we expect the unrealized losses in the portfolio will decline or dissipate.
151
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Available For Sale Securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
|
|
|
$ |
|
|
|
$ |
998 |
|
U.S. government agency |
|
|
7,291 |
|
|
|
10,898 |
|
|
|
4,472 |
|
Municipal securities |
|
|
2,275 |
|
|
|
2,443 |
|
|
|
2,914 |
|
Mortgage backed |
|
|
18,447 |
|
|
|
16,225 |
|
|
|
1,009 |
|
|
|
|
|
|
|
|
|
|
|
Total Available for Sale Securities |
|
$ |
28,013 |
|
|
$ |
29,566 |
|
|
$ |
9,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held To Maturity Securities |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
|
|
|
$ |
500 |
|
|
$ |
2,001 |
|
Municipal securities |
|
|
301 |
|
|
|
301 |
|
|
|
301 |
|
Mortgage-backed |
|
|
5,506 |
|
|
|
7,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held to Maturity Securities |
|
$ |
5,807 |
|
|
$ |
8,003 |
|
|
$ |
2,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities |
|
$ |
2,958 |
|
|
$ |
2,127 |
|
|
$ |
2,080 |
|
|
|
|
|
|
|
|
|
|
|
152
The following table shows the maturities for the securities portfolio at December 31,
2009 and 2008:
Fair Value, Amortized Cost and Weighted Average Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
Fair |
|
|
Average |
|
|
Amortized |
|
|
Fair |
|
|
Average |
|
December 31, 2009 |
|
Cost |
|
|
Value |
|
|
Yield |
|
|
Cost |
|
|
Value |
|
|
Yield |
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3 months |
|
$ |
250,039 |
|
|
$ |
250,398 |
|
|
|
2.55 |
% |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Over 3 months through 1 year |
|
|
1,394,559 |
|
|
|
1,413,114 |
|
|
|
3.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Over one to five years |
|
|
4,440,360 |
|
|
|
4,621,900 |
|
|
|
4.00 |
% |
|
|
99,927 |
|
|
|
100,210 |
|
|
|
3.50 |
% |
Over five to ten years |
|
|
8,567,790 |
|
|
|
8,760,477 |
|
|
|
3.32 |
% |
|
|
2,279,892 |
|
|
|
2,373,515 |
|
|
|
4.40 |
% |
Over ten years |
|
|
12,751,035 |
|
|
|
12,967,059 |
|
|
|
4.16 |
% |
|
|
3,426,688 |
|
|
|
3,603,040 |
|
|
|
4.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,403,783 |
|
|
$ |
28,012,948 |
|
|
|
|
|
|
$ |
5,806,507 |
|
|
$ |
6,076,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Securities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Amortized |
|
|
Fair |
|
|
Average |
|
|
Amortized |
|
|
Fair |
|
|
Average |
|
December 31, 2008 |
|
Cost |
|
|
Value |
|
|
Yield |
|
|
Cost |
|
|
Value |
|
|
Yield |
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 3 months through 1 year |
|
$ |
1,150,265 |
|
|
$ |
1,171,205 |
|
|
|
3.18 |
% |
|
$ |
499,942 |
|
|
$ |
507,031 |
|
|
|
3.91 |
% |
Over one to five years |
|
|
11,635,121 |
|
|
|
11,957,725 |
|
|
|
3.88 |
% |
|
|
99,881 |
|
|
|
100,075 |
|
|
|
3.50 |
% |
Over five to ten years |
|
|
8,995,942 |
|
|
|
9,249,654 |
|
|
|
4.69 |
% |
|
|
2,051,611 |
|
|
|
2,091,071 |
|
|
|
4.47 |
% |
Over ten years |
|
|
7,136,292 |
|
|
|
7,187,392 |
|
|
|
4.43 |
% |
|
|
5,351,957 |
|
|
|
5,536,836 |
|
|
|
4.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,917,620 |
|
|
$ |
29,565,976 |
|
|
|
|
|
|
$ |
8,003,391 |
|
|
$ |
8,235,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Securities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Six-month period ended June 30, 2010
The investment securities at June 30, 2010 amounted to $51.6 million, an increase of $17.8
million, or 52.66%, from the December 31, 2009 amount of $33.8 million. Available for sale
investment securities decreased to $27.0 million at June 30, 2010 from $28.0 million at December
31, 2009. Held to maturity securities at June 30, 2010 increased to $24.6 million from the $5.8
million balance on December 31, 2009. Deposits and customer sweep accounts (short term borrowings)
grew at a faster rate than our loans. Therefore, we deployed the excess funds into held to
maturity securities. The fair value of available for sale securities included net unrealized gains
of $986,345 at June 30, 2010 (reflected as unrealized gains of $597,282 in stockholders equity
after deferred taxes) as compared to net unrealized gains of $609,165 ($368,880 net of taxes) as of
December 31, 2009. In general, the increase in fair value was a result of maturities, decreasing
market rates and changes in investment ratings. We have evaluated securities with unrealized
losses for an extended period of time and determined that these losses are temporary because, at
this point in time, we expect to hold them until maturity. We have no intent or plan to sell these
securities, it is not likely that we will have to sell these securities and we have not identified
any portion of the loss that is a result of credit deterioration in the issuer of the security. As
the maturity date moves closer and/or interest rates decline, the unrealized losses in the
portfolio will decline or dissipate.
153
Investment in real estate LLC
On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.s 12.50% membership
interest in Pointer Ridge, a Maryland limited liability company. As a result of this purchase, our
membership interest increased from 50.00% to 62.50%. Consequently, we consolidated Pointer Ridges
results of operations from the date of acquisition. Prior to the date of acquisition, we accounted
for our investment in Pointer Ridge using the equity method. The following table summarizes the
condensed Balance Sheets and Statements of Income for Pointer Ridge.
The following tables summarizes the condensed Balance Sheets and Statements of Income
information for Pointer Ridge.
|
|
|
|
|
Pointer Ridge Office Investment, LLC |
|
June 30, |
|
Balance Sheets |
|
2010 |
|
|
Current assets |
|
$ |
811,954 |
|
Non-current assets |
|
|
7,334,703 |
|
Liabilities |
|
|
6,436,770 |
|
Equity |
|
|
1,709,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
199,657 |
|
|
$ |
245,806 |
|
|
$ |
397,196 |
|
|
$ |
780,961 |
|
Expenses |
|
|
241,904 |
|
|
|
243,388 |
|
|
|
505,684 |
|
|
|
513,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(42,247 |
) |
|
$ |
2,418 |
|
|
$ |
(108,488 |
) |
|
$ |
267,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pointer Ridge Office Investment, LLC |
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
891,233 |
|
|
$ |
540,105 |
|
|
$ |
440,256 |
|
Non-current assets |
|
|
7,432,268 |
|
|
|
7,619,352 |
|
|
|
7,815,892 |
|
Liabilities |
|
|
6,480,230 |
|
|
|
6,548,760 |
|
|
|
6,644,206 |
|
Equity |
|
|
1,843,271 |
|
|
|
1,610,697 |
|
|
|
1,611,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,239,137 |
|
|
$ |
1,014,136 |
|
|
$ |
941,520 |
|
Expenses |
|
|
1,006,563 |
|
|
|
1,019,577 |
|
|
|
893,320 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
232,574 |
|
|
$ |
(5,441 |
) |
|
$ |
48,200 |
|
|
|
|
|
|
|
|
|
|
|
We purchased Chesapeake Custom Homes, L.L.C.s 12.50% membership interest at the book value
which was equivalent to the fair value. Accordingly, we did not record any goodwill with this
purchase.
154
We lease space for our headquarters office and branch location in the building owned by
Pointer Ridge at 1525 Pointer Ridge Place, Bowie, Maryland. We eliminate these lease payments in
consolidation. Frank Lucente, a director of Old Line Bancshares and Old Line Bank, controls 12.50%
of Pointer Ridge and controls the manager of Pointer Ridge.
Loan Portfolio
Commercial loans and loans secured by real estate comprise the majority of the loan portfolio.
Old Line Banks loan customers are generally located in the greater Washington, D.C. metropolitan
area.
Year ended December 31, 2009
The loan portfolio, net of allowance, unearned fees and origination costs, increased $33.9
million or 14.67% to $265.0 million at December 31, 2009 from $231.1 million at December 31, 2008.
Commercial business loans increased by $4.2 million (6.00%), commercial real estate loans increased
by $13.2 million (11.91%), residential real estate loans (generally home equity and fixed rate home
improvement loans) increased by $10.6 million (82.81%), real estate construction loans (primarily
commercial real estate construction) increased by $7.5 million (32.05%) and consumer loans
decreased by $1.0 million (6.41%) from their respective balances at December 31, 2008.
The loan portfolio, net of allowance, unearned fees and origination costs increased $29.2
million or 14.46% to $231.1 million at December 31, 2008 from $201.9 million at December 31, 2007.
Commercial business loans increased by $14.5 million (26.13%), commercial real estate loans
(generally owner-occupied) increased by $14.8 million (15.42%), residential real estate loans
(generally home equity and fixed rate home improvement loans) increased by $1.6 million (14.29%),
real estate construction loans increased by $1.5 million (6.85%) and consumer loans decreased by
$2.9 million (15.68%) from their respective balances at December 31, 2007.
During 2009, we received scheduled loan payoffs on construction loans that negatively impacted
our loan growth for the period. In spite of these payoffs, we experienced a 14.67% growth in the
loan portfolio. We saw loan and deposit growth generated from our entire team of lenders, branch
personnel and board of directors.
The following table summarizes the composition of the loan portfolio by dollar amount and
percentages:
Loan Portfolio
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
124,002 |
|
|
|
46.44 |
% |
|
$ |
110,826 |
|
|
|
47.63 |
% |
|
$ |
96,018 |
|
|
|
47.26 |
% |
Construction |
|
|
30,872 |
|
|
|
11.56 |
|
|
|
23,422 |
|
|
|
10.07 |
|
|
|
21,905 |
|
|
|
10.78 |
|
Residential |
|
|
23,350 |
|
|
|
8.74 |
|
|
|
12,820 |
|
|
|
5.51 |
|
|
|
11,227 |
|
|
|
5.53 |
|
Commercial |
|
|
74,175 |
|
|
|
27.78 |
|
|
|
69,961 |
|
|
|
30.07 |
|
|
|
55,513 |
|
|
|
27.32 |
|
Consumer |
|
|
14,622 |
|
|
|
5.48 |
|
|
|
15,638 |
|
|
|
6.72 |
|
|
|
18,528 |
|
|
|
9.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,021 |
|
|
|
100.00 |
% |
|
|
232,667 |
|
|
|
100.00 |
% |
|
|
203,191 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,481 |
) |
|
|
|
|
|
|
(1,983 |
) |
|
|
|
|
|
|
(1,586 |
) |
|
|
|
|
Deferred loan costs, net |
|
|
469 |
|
|
|
|
|
|
|
370 |
|
|
|
|
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
265,009 |
|
|
|
|
|
|
$ |
231,054 |
|
|
|
|
|
|
$ |
201,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
The following table presents the maturities or re-pricing periods of selected loans
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Maturity Distribution at December 31, 2009 |
|
|
|
1 year or less |
|
|
1-5 years |
|
|
After 5 years |
|
|
Total |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
26,577 |
|
|
$ |
78,954 |
|
|
$ |
18,471 |
|
|
$ |
124,002 |
|
Construction |
|
|
21,022 |
|
|
|
9,730 |
|
|
|
120 |
|
|
|
30,872 |
|
Residential |
|
|
14,577 |
|
|
|
7,880 |
|
|
|
893 |
|
|
|
23,350 |
|
Commercial |
|
|
38,954 |
|
|
|
33,573 |
|
|
|
1,648 |
|
|
|
74,175 |
|
Consumer |
|
|
680 |
|
|
|
982 |
|
|
|
12,960 |
|
|
|
14,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
101,810 |
|
|
$ |
131,119 |
|
|
$ |
34,092 |
|
|
$ |
267,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rates |
|
$ |
19,841 |
|
|
$ |
46,545 |
|
|
$ |
27,858 |
|
|
$ |
94,244 |
|
Variable Rates |
|
|
81,969 |
|
|
|
84,574 |
|
|
|
6,234 |
|
|
|
172,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
101,810 |
|
|
$ |
131,119 |
|
|
$ |
34,092 |
|
|
$ |
267,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended June 30, 2010
The loan portfolio, net of allowance, unearned fees and origination costs, increased $20.8
million or 7.85% to $285.8 million at June 30, 2010 from $265.0 million at December 31, 2009.
Commercial business loans increased by $3.4 million (4.58%), commercial real estate loans increased
by $26.1 million (21.05%), residential real estate loans (generally home equity and fixed rate home
improvement loans) increased by $1.8 million (7.69%), real estate construction loans (primarily
commercial real estate construction) decreased by $9.8 million (31.72%) and consumer loans
decreased by $644,000 (4.40%) from their respective balances at December 31, 2009. During the
first six months of 2010, we received scheduled loan payoffs on construction loans that negatively
impacted our loan growth for the period. In spite of these payoffs, we experienced a 7.85% growth
in the loan portfolio. We saw loan and deposit growth generated from our entire team of lenders,
branch personnel and board of directors. We anticipate the entire team will continue to focus
their efforts on business development during the remainder of 2010 and continue to grow the loan
portfolio. However, any deterioration in the economic climate may cause slower loan growth.
156
The following table summarizes the composition of the loan portfolio by dollar amount and
percentages:
Loan Portfolio
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
150,142 |
|
|
|
52.13 |
% |
|
$ |
124,002 |
|
|
|
46.44 |
% |
Construction |
|
|
21,142 |
|
|
|
7.34 |
|
|
|
30,872 |
|
|
|
11.56 |
|
Residential |
|
|
25,168 |
|
|
|
8.74 |
|
|
|
23,350 |
|
|
|
8.74 |
|
Commercial |
|
|
77,607 |
|
|
|
26.94 |
|
|
|
74,175 |
|
|
|
27.78 |
|
Consumer |
|
|
13,978 |
|
|
|
4.85 |
|
|
|
14,622 |
|
|
|
5.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,037 |
|
|
|
100.00 |
% |
|
|
267,021 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(2,713 |
) |
|
|
|
|
|
|
(2,481 |
) |
|
|
|
|
Deferred loan costs, net |
|
|
496 |
|
|
|
|
|
|
|
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
285,820 |
|
|
|
|
|
|
$ |
265,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality
Management performs reviews of all delinquent loans and directs relationship officers to work
with customers to resolve potential credit issues in a timely manner.
The following tables outline for the periods indicated those construction loans that have an
interest reserve included in the commitment amount and where advances on the loan currently pay the
interest due. As outlined below, at June 30, 2010 we had only two construction loans that have an
interest reserve included in the commitment amount and where advances on the loan currently pay the
interest due.
Loans With Interest Paid From Loan Advances
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
# of |
|
|
|
|
|
|
# of |
|
|
|
|
|
|
# of |
|
|
|
|
|
|
|
Borrowers |
|
|
|
|
|
|
Borrowers |
|
|
|
|
|
|
Borrowers |
|
|
|
|
|
Hotels |
|
|
1 |
|
|
$ |
950 |
|
|
|
1 |
|
|
$ |
1,741 |
|
|
|
3 |
|
|
$ |
8,563 |
|
Owner occupied |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
2,882 |
|
Single family
acquisition &
development |
|
|
1 |
|
|
|
2,495 |
|
|
|
2 |
|
|
|
4,028 |
|
|
|
5 |
|
|
|
5,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
$ |
3,445 |
|
|
|
3 |
|
|
$ |
5,769 |
|
|
|
9 |
|
|
$ |
17,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At inception, the total loan and commitment amount were equivalent to an appraised 80% or
less as is or as developed loan to value. We continually monitor these loans and where
appropriate have received new appraisals on these properties, additional collateral, a payment on
the principal, or have downgraded the risk rating on the loan and increased our loan loss provision
accordingly. In certain cases, these loans have experienced a delay in the project either as a
result of delays in receiving regulatory approvals or the borrower has elected to delay the project
because the current economic climate has caused real estate values to decline. Although payments
on these loans are current, management monitors their performance closely.
At year end, with the exception of the three non-accrual loans and two loans that were 30-89
days past due, all of our loans were performing in accordance with contractual terms. At June 30,
2010, with the exception of five non-accrual
157
loans, all of our loans were performing in accordance with contractual terms. Management has
identified eight additional potential problem loans totaling $6.2 million as of December 31, 2009
and seven potential problem loans totaling $2.0 million at June 30, 2010 that are complying with
their repayment terms. Management has concerns either about the ability of these borrowers to
continue to comply with repayment terms because of the borrowers potential operating or financial
difficulties or the underlying collateral has experienced a decline in value. These weaknesses
have caused management to heighten the attention given to these credits. During the 1st
quarter of 2010, we placed one of these loans in the amount of $442,242 on non-accrual status. We
proceeded with foreclosure on the real estate that secures this loan. At the foreclosure, there
was a buyer for the property and we did not incur any losses from this loan.
Management generally classifies loans as non-accrual when it does not expect collection of
full principal and interest under the original terms of the loan or payment of principal or
interest has become 90 days past due. Classifying a loan as non-accrual results in our 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 the borrower brings delinquent
principal and interest payments current and we expect to collect future monthly principal and
interest payments. We recognize interest on non-accrual loans only when received.
As previously discussed in the provision for loan losses section of this discussion, at June
30, 2010, we had five loans totaling $4.7 million that were 90 days past due and were classified as
non-accrual compared to three loans in the amount of $1.6 million at December 31, 2009 and one loan
in the amount of $850,675 at December 31, 2008.
During the first quarter of 2008, the borrower on the first non-accrual loan that has a
balance of $810,291 began remitting payments and advised us that the borrower planned to make all
past due interest and principal current prior to June 30, 2009. Through October 2008, the borrower
remitted regular payments plus a portion of the arrearage. In November 2008, the borrower
requested a revision to this repayment schedule with full repayment of all past due amounts to
occur by May 2010. In October 2009, the borrower re-entered bankruptcy under Chapter 11 of the
United States Bankruptcy Code. A commercial real estate property secures this loan. We have
obtained a lift stay on the property and we have proceeded with foreclosure. We are currently
waiting for the ratification of the foreclosure on the property. The loan to value at inception of
this loan was 80% and an appraisal received in 2010 indicates that the current loan principal to
value is less than 80%. Once we receive ratification of the foreclosure, we plan to list the
property for sale. The interest not accrued on this loan was $180,995 at June 30, 2010 and
$149,406 at December 31, 2009, none of which was included in net income for the three months ended
June 30, 2010 or the year ended December 31, 2009, respectively. We have not designated a specific
allowance for this non-accrual loan.
The second loan in the amount of $553,039 is a land development loan secured by real estate.
The borrower on this loan has filed bankruptcy. A recent appraisal of the property securing this
loan indicates that the value of the collateral is sufficient to provide repayment and we do not
consider this loan impaired. We expect to receive a deed in lieu of foreclosure on this property.
We are currently negotiating with a buyer a contract for the sale of this property and anticipate
that we will sell the property during the 4th quarter of 2010 for the full amount due.
The total non-accrued interest on this loan was $23,311 as of June 30, 2010 and $8,713 as of
December 31, 2009, none of which was included in net income in the three month period ended June
30, 2010 or the year ended December 31, 2009, respectively.
The third loan at December 31, 2009 is in the amount of approximately $223,000. The value of
the collateral is sufficient to provide repayment and we do not consider this loan impaired. We
have proceeded with foreclosure and received ratification of the foreclosure in March 2010. We
have not designated a specific allowance for this non-accrual loan. As of December 31, 2009, the
non-accrued interest due on this loan was $32,582 none of which was included in net income in the
twelve month period ended December 31, 2009. At June 30, 2010, we had completed foreclosure on the
commercial property that was the collateral for this loan and hold this property in other real
estate owned at a value of $223,000.
The third loan at June 30, 2010 is an unsecured credit facility in the amount of $137,151.
The borrower and a guarantor have filed bankruptcy. During the 3rd quarter of 2010, we
charged the balance of this loan to the allowance for loan losses. We have pursued legal action
against the second guarantor and obtained a judgment.
The fourth loan is a residential land acquisition and development loan with a balance of
$1,546,739 at June 30, 2010. The non-accrued interest on this loan was $18,761 at June 30, 2010,
none of which is included in interest income. We have received a deed in lieu of foreclosure on
this loan. We have received an appraisal on the property that is collateral for this loan and
based on the appraisal value and anticipated selling costs, we have charged approximately $947,000
to the allowance for loan losses and will record the balance of $600,000 in other real estate
owned.
158
The fifth loan is also a residential land acquisition and development loan with a balance of
$1,616,317 at June 30, 2010. The non-accrued interest on this loan was $46,105 at June 30, 2010,
none of which is included in interest income. We have proceeded with obtaining a judgment against
the guarantors on this loan and are currently working with the borrower towards a resolution. At
inception, the loan to value on this loan was less than 80%. During the 3rd quarter of
2010, we received an appraisal that indicated that the value of the collateral that secures this
loan has declined. At this point, we do not consider this loan impaired. Upon completion of
negotiations with the borrower for additional collateral, we plan to determine if this loan is
impaired. We have allocated $150,000 of the allowance for loan losses to this loan.
In March 2009, we reported that the borrower on an approximately $700,000 residential real
estate mortgage filed bankruptcy. After receipt of an appraisal on the property, we have
restructured this loan. In July 2009, we charged $150,000 of the previously reported $175,000
allocated allowance to the allowance for loan losses. The borrower has reaffirmed $550,000 of the
debt and began remitting payments. We returned this loan to accrual status in December 2009 after
six months of satisfactory repayment history.
159
The table below presents a breakdown of the non-performing loans and accruing past due
loans at December 31, 2009.
Non- Performing Assets and Past Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
# of |
|
|
Account |
|
|
Interest Not |
|
|
# of |
|
|
Account |
|
|
Interest Not |
|
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
3 |
|
|
$ |
1,586 |
|
|
$ |
191 |
|
|
|
1 |
|
|
$ |
851 |
|
|
$ |
86 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
|
3 |
|
|
$ |
1,586 |
|
|
$ |
191 |
|
|
|
1 |
|
|
$ |
851 |
|
|
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as
a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
|
|
|
|
0.59 |
% |
|
|
|
|
|
|
|
|
|
|
0.37 |
% |
|
|
|
|
Total assets |
|
|
|
|
|
|
0.44 |
% |
|
|
|
|
|
|
|
|
|
|
0.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing past due loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
2 |
|
|
$ |
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
2 |
|
|
$ |
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of accruing past due
loans to total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
|
|
|
|
0.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
|
|
|
|
0.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
The table below presents a breakdown of the non-performing loans, other real estate owned
and accruing past due loans at June 30, 2010.
Non-Performing Assets and Past Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Not |
|
|
|
|
|
|
|
|
|
|
Interest Not |
|
|
|
# |
|
|
Balance |
|
|
Accrued |
|
|
# |
|
|
Balance |
|
|
Accrued |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
4 |
|
|
$ |
4,527 |
|
|
$ |
269 |
|
|
|
3 |
|
|
$ |
1,586 |
|
|
$ |
191 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
1 |
|
|
|
137 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
1 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
|
6 |
|
|
$ |
4,887 |
|
|
$ |
275 |
|
|
|
3 |
|
|
$ |
1,586 |
|
|
$ |
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as
a percentage of total assets |
|
|
|
|
|
|
1.20 |
% |
|
|
|
|
|
|
|
|
|
|
0.44 |
% |
|
|
|
|
Non-performing loans as
a percentage of total gross loans |
|
|
|
|
|
|
1.62 |
% |
|
|
|
|
|
|
|
|
|
|
0.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing past due loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
2 |
|
|
|
581 |
|
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
2 |
|
|
$ |
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of accruing past due
loans to total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
0.22 |
% |
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
0.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
161
We classify any property acquired as a result of foreclosure on a mortgage loan as
foreclosed real estate 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 loan 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 December 31, 2009, 2008, and 2007,
we held no real estate acquired as a result of foreclosure.
As of June 30, 2010 we owned one property valued at $223,000 as a result of foreclosure. As
discussed above, in March 2010, we completed foreclosure on the property. We have listed that
property for sale and have accepted a contract from a non-affiliated buyer for purchase of the
property. The purchaser has requested an extension of their 60-day feasibility period. After
completion of the feasibility period, there is a 45-day settlement period. If the settlement
occurs, we anticipate that we will receive full repayment of all amounts due during the fourth
quarter of 2010.
As required by ASC Topic 310-Receivables and ASC Topic 450-Contingencies, we measure all
impaired loans, which consist of all modified loans and other loans for which collection of all
contractual principal and interest is not probable, based on the present value of expected future
cash flows discounted at the loans effective interest rate, or at the loans 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, we recognize impairment through
a valuation allowance and corresponding provision for loan losses. Old Line Bank considers
consumer loans as homogenous loans and thus does not apply the impairment test to these loans. We
write off impaired loans when collection of the loan is doubtful.
As of June 30, 2010 we had two impaired loans as outlined above and one restructured loan. At
December 31, 2009, we had no impaired loans and one restructured loan. At December 31, 2008, the
only restructured loan was the $810,291 loan outlined above. A continued decline in the economy
may adversely affect our asset quality.
Bank Owned Life Insurance
In June 2005, we purchased $3.3 million of BOLI on the lives of our executive officers,
Messrs. Cornelsen and Burnett and Ms. Rush. With a new $4 million investment made in February
2007, we increased the insurance on Messrs. Cornelsen and Burnett and expanded the coverage of the
insurance policies to insure the lives of several other officers of Old Line Bank. We anticipate
the earnings on these policies will partially offset our employee benefit expenses as well as our
obligations under our Salary Continuation Agreements and Supplemental Life Insurance Agreements
that we entered into with our executive officers in January 2006. Higher rates caused increased
earnings during 2009 and the cash surrender value of the insurance policies increased by $326,840.
During the first six months of 2010, the cash surrender value of the insurance policies increased
by $143,219 as a result of earnings on the investments.
There are no post retirement death benefits associated with the BOLI policies.
On January 3, 2006, Old Line Bank entered into Salary Continuation Agreements and Supplemental
Life Insurance Agreements, with Mr. Cornelsen, Mr. Burnett and Ms. Rush and started accruing for
the related post retirement benefits. Under these agreements, benefits accrue over time from the
date of the agreement until the executive reaches the age of 65. Upon full vesting of the benefit,
the executives will be paid the following annual amounts for 15 years: Mr. Cornelsen $159,738;
Mr. Burnett $24,651; and Ms. Rush $77,783. Mr. Burnett will receive an additional $5,895 per
year if he continues his employment with us until he reaches age 68. Under the Supplemental Life
Insurance Agreements, Old Line Bank is obligated to cause the payment of death benefits to the
executives designated beneficiaries in the following amounts: Mr. Cornelsen $1.3 million; Mr.
Burnett $703,465; Ms. Rush $797,618; and all other officers $1.8 million. Old Line Bank has
funded these obligations through the BOLI outlined above. There is no obligation to provide any of
the insured executives beneficiaries post retirement benefits from the BOLI.
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.
162
In the first quarter of 2006, we began acquiring brokered certificate of deposits through the
Promontory Interfinancial Network. Through this deposit matching network and its certificate of
deposit account registry service (CDARS), we obtained the ability to offer our customers access to
FDIC-insured deposit products in aggregate amounts exceeding current insurance limits. When we
place funds through CDARS on behalf of a customer, we receive matching deposits through the
networks reciprocal deposit program. We can also place deposits through this network without
receiving matching deposits.
Year ended December 31, 2009
At December 31, 2009, the deposit portfolio had grown to $286.3 million, a $54.9 million or
23.73% increase over the December 31, 2008 level of $231.4 million. Noninterest-bearing deposits
increased $1.0 million during the period to $40.9 million from $39.9 million primarily due to the
establishment of new customer demand deposit accounts and expansion of existing demand deposit
accounts. Interest-bearing deposits grew $53.9 million to $245.5 million from $191.6 million.
Approximately $40.3 million of the increase in interest bearing deposits was in certificates of
deposit, $11.5 million was in money market accounts and $2.1 million was in savings accounts. The
growth in these categories was the result of expansion of existing customer relationships and new
customers. Although we offer competitive interest rates on our interest bearing deposits, we
believe that our growth in these deposits is a result of the customers desire to bank with a
quality institution versus high rates.
At December 31, 2008, the deposit portfolio had grown to $231.4 million, a $53.6 million or
30.15% increase over the December 31, 2007 level of $177.8 million. Non-interest bearing deposits
increased $4.8 million during the period to $39.9 million from $35.1 million primarily due to
increases in commercial checking accounts that was caused by new accounts established in our
branches. Interest-bearing deposits grew $48.9 million to $191.6 million from $142.7 million. The
growth in interest-bearing deposits was in certificates of deposit which grew $52.0 million from
$102.2 million to $154.2 million. A $2.0 million decline in money market and NOW and a $1.1
million decline in savings accounts partially offset this growth. Certificate of deposit accounts
grew due to new customer relationships and the transfer of funds from savings accounts.
At December 31, 2009, we had $31.8 million in CDARS through the reciprocal deposit program
compared to $13.5 million at December 31, 2008. At December 31, 2009, we had received $25.2
million in deposits through the CDARS network that were not reciprocal deposits. We had $5 million
in other brokered certificates of deposit as of December 31, 2008 and $0 as of December 31, 2009
and 2007. We expect that we will continue to use brokered deposits as an element of our funding
strategy when required to maintain an acceptable loan to deposit ratio.
163
The following is a summary of the maturity distribution of certificates of deposit as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of Deposit Maturity Distribution |
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
|
|
Three Months |
|
|
to |
|
|
Over |
|
|
|
|
|
|
or |
|
|
Twelve |
|
|
Twelve |
|
|
|
|
|
|
Less |
|
|
Months |
|
|
Months |
|
|
Total |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than $100,000 |
|
$ |
55,536 |
|
|
$ |
54,587 |
|
|
$ |
22,458 |
|
|
$ |
132,581 |
|
Greater than or equal to $100,000 |
|
|
8,249 |
|
|
|
27,846 |
|
|
|
25,785 |
|
|
|
61,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
63,785 |
|
|
$ |
82,433 |
|
|
$ |
48,243 |
|
|
$ |
194,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended June 30, 2010
At June 30, 2010, the deposit portfolio had grown to $318.8 million, a $32.5 million or 8.41%
increase over the December 31, 2009 level of $286.3 million. Non-interest bearing deposits
increased $12.5 million during the period to $53.4 million from $40.9 million primarily due to the
establishment of new customer demand deposit accounts and expansion of existing demand deposit
accounts. Interest-bearing deposits grew $19.9 million to $265.4 million from $245.5 million.
Approximately $5.1 million of the increase in interest bearing deposits was in certificates of
deposit, $13.6 million was in money market accounts and $1.2 million was in savings accounts. The
growth in these categories was the result of expansion of existing customer relationships and new
customers.
At June 30, 2010, we had $27.6 million in CDARS through the reciprocal deposit program
compared to $31.8 million at December 31, 2009. We had received $25.0 million at June 30, 2010 and
$25.2 million at December 31, 2009 in deposits through the CDARS network that were not reciprocal
deposits.
Borrowings
Old Line Bank has available lines of credit, including overnight federal funds and repurchase
agreements from its correspondent banks totaling $29.5 million as of June 30, 2010 and $32.0
million as of December 31, 2009. Old Line Bank has available lines of credit, including overnight
federal funds and repurchase agreements from its correspondent banks totaling $29.5 million as of
June 30, 2010. Old Line Bank has an additional secured line of credit from the Federal Home Loan
Bank of Atlanta (FHLB) that totaled $98.8 million at June 30, 2010, $103.7 million at December 31,
2009 and $85.4 million at December 31, 2008. As a condition of obtaining the line of credit from
the FHLB, the FHLB requires that Old Line Bank purchase shares of capital stock in the FHLB. Prior
to allowing Old Line Bank to borrow under the line of credit, the FHLB also requires that Old Line
Bank provide collateral to support borrowings. Therefore, we have provided collateral to support
up to $67.0 million of borrowings as of June 30, 2010 and $39.3 million as of December 31, 2009.
Of this, we had borrowed $15.0 million at June 30, 2010 and at December 31, 2009, 2008 and 2007.
We may increase availability by providing additional collateral.
Short term borrowings at June 30, 2010 consisted of short-term promissory notes to Old Line
Banks borrowers. Short term borrowings at December 31, 2009 consisted of short term promissory
notes issued to Old Line Banks customers, federal funds purchased and advances from the FHLB. Old
Line Bank offers its commercial customers an enhancement to the basic non-interest bearing demand
deposit account. This service electronically sweeps excess funds from the customers account into
an interest bearing Master Note with Old Line Bank. These Master Notes re-price daily and have
maturities of 270 days or less. At June 30, 2010, Old Line Bank had $28.8 million outstanding in
these short term promissory notes with an average interest rate of 0.50%. At December 31, 2009,
Old Line Bank had $11.1 million outstanding in these short term promissory notes with an average
interest rate of 0.50%. At December 31, 2008, Old Line Bank had $17.8 million outstanding with an
average interest rate of 0.50%. At June 30, 2010, December 31, 2009 and December 31, 2008, Old
Line Bank did not have any borrowings in overnight federal funds.
At June 30, 2010, December 31, 2009 and December 31, 2008, Old Line Bank had three advances in
the amount of $5.0 million each, from the FHLB totaling $15.0 million. On November 24, 2007, Old
Line Bank borrowed $5.0 million
164
with an interest rate of 3.66%. Interest is due on the 23rd day of each February, May, August
and November, commencing on February 23, 2008. On November 23, 2008, or any interest payment date
thereafter, the FHLB has the option to convert the interest rate on this advance from a fixed rate
to a three month London Interbank Offer Rate (LIBOR) based variable rate. Old Line Bank must pay
this advance in full on November 23, 2010.
On December 12, 2007, Old Line Bank borrowed another $5.0 million from the FHLB. The interest
rate on this advance is 3.3575% and interest is payable on the 12th day of each March, June,
September and December, commencing on March 12, 2008. On December 12, 2008, or any interest
payment date thereafter, the FHLB has the option to convert the interest rate on this advance to a
fixed rate based on the three month LIBOR. The maturity date on this advance is December 12, 2012.
On December 19, 2007, Old Line Bank borrowed an additional $5.0 million from the FHLB. The
interest rate on this borrowing is 3.119% and is payable on the 19th day of each month. On January
22, 2008 or any interest payment date thereafter, the FHLB has the option to convert the interest
rate on this advance from a fixed rate to a one month LIBOR based variable rate. This borrowing
matures on December 19, 2012.
As outlined previously, as a result of increasing our membership interest in Pointer Ridge to
62.50%, we have consolidated their results of operation from the date of acquisition. Prior to the
date of acquisition, we accounted for our investment in Pointer Ridge using the equity method. On
August 25, 2006, Pointer Ridge entered into an Amended and Restated Promissory Note in the
principal amount of $6.6 million. This loan accrues interest at a rate of 6.28% through September
5, 2016. After September 5, 2016, the rate adjusts to the greater of (i) 6.28% plus 200 basis
points or (ii) the Treasury Rate (as defined in the Amended Promissory Note) plus 200 basis points.
At June 30, 2010, Pointer Ridge had borrowed $6.4 million under the Amended Promissory Note and at
December 31, 2009 and 2008, it had borrowed $6.5 million under the Amended Promissory Note. We
have guaranteed to the lender payment of up to 62.5% of the loan payment plus any costs the lender
incurs resulting from any omissions or alleged acts or omissions by Pointer Ridge arising out of or
relating to misapplication or misappropriation of money, rents received after an event of default,
waste or damage to the property, failure to maintain insurance, fraud or material
misrepresentation, filing of bankruptcy or Pointer Ridges failure to maintain its status as a
single purpose entity.
For additional information about our borrowings, see Notes 10 and 11 to our consolidated
financial statements for the year ending December 31, 2009.
Interest Rate Sensitivity Analysis and Interest Rate Risk Management
A principal objective of Old Line Banks 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 banks 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 Banks asset/liability policys 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. Management makes adjustments to the mix of
assets and liabilities 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 Banks 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 amount of 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
165
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 changes in
interest rates will affect net interest income. Changes in interest rates may not uniformly affect
income associated with interest earning assets and costs associated with interest bearing
liabilities. 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 rates, 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.
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 $29.5 million as of June 30, 2010.
Additionally, we may borrow funds from the Federal Home Loan Bank of Atlanta and the Federal
Reserve Bank of Richmond. We can use these credit facilities 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, federal funds sold and time
deposits in other banks. On June 30, 2010, we had $6.2 million in cash and due from banks, $19.3
million in interest bearing accounts, $3.2 million in federal funds sold, and $10.4 million in time
deposits in other banks. On December 31, 2009, we had $7.4 million in cash and due from banks,
$4.0 million in interest bearing accounts with other banks, $81,138 in federal funds sold and
overnight investments and $15.0 million in time deposits in other banks. As of December 31, 2008,
we had $8.8 million in cash and due from banks, $2.1 million in federal funds sold and other
overnight investments and $13.3 million in time deposits in other banks. Federal funds decreased
because we deployed these funds to loans.
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 Banks inability to meet anticipated or unexpected liquidity needs.
During the recent period of turmoil in the financial markets, some institutions experienced
large deposit withdrawals that caused liquidity problems. We did not have any significant
withdrawals of deposits or any liquidity issues. Although we plan for various liquidity scenarios,
if turmoil in the financial markets occurs and our depositors lose confidence in us, we could
experience liquidity issues.
Capital
Year ended December 31, 2009
Our stockholders equity amounted to $36.6 million at December 31, 2009 and $42.3 million at
December 31, 2008. We are considered well capitalized under the risk-based capital guidelines
adopted by the Federal Reserve. Stockholders equity decreased during the twelve month period
primarily because of the $7.2 million repurchase of the preferred stock and warrant issued to the
U.S. Treasury, the net value of the dividends and accretion on the preferred stock of $485,993, the
$463,483 common stock cash dividend and the $23,731 after tax unrealized loss on available for
securities. These items were partially offset by net income attributable to Old Line Bancshares of
$2.0 million and the $119,711 adjustment for stock based compensation awards. By all regulatory
measures, we remain well capitalized.
166
The following table shows Old Line Bancshares 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
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Tier 1 Capital |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred and common stock |
|
$ |
39 |
|
|
$ |
7,043 |
|
|
$ |
41 |
|
Additional paid-in capital |
|
|
29,035 |
|
|
|
28,839 |
|
|
|
30,465 |
|
Retained earnings |
|
|
6,498 |
|
|
|
5,412 |
|
|
|
4,155 |
|
Less: disallowed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 Capital |
|
$ |
35,572 |
|
|
$ |
41,294 |
|
|
$ |
34,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 2 Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
2,482 |
|
|
|
1,984 |
|
|
|
1,587 |
|
|
|
|
|
|
|
|
|
|
|
Total Risk Based Capital |
|
$ |
38,054 |
|
|
$ |
43,278 |
|
|
$ |
36,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
277,989 |
|
|
$ |
248,555 |
|
|
$ |
222,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
12.8 |
% |
|
|
16.6 |
% |
|
|
15.6 |
% |
|
|
4.00 |
% |
Total risk based capital ratio |
|
|
13.7 |
% |
|
|
17.4 |
% |
|
|
16.3 |
% |
|
|
8.00 |
% |
Leverage ratio |
|
|
10.0 |
% |
|
|
14.0 |
% |
|
|
14.6 |
% |
|
|
4.00 |
% |
Six-month period ended June 30, 2010
Our stockholders equity amounted to $37.6 million at June 30, 2010 and $36.6 million at
December 31, 2009. We are considered well capitalized under the risk-based capital guidelines
adopted by the Federal Reserve. Stockholders equity increased during the six month period
primarily because of net income attributable to Old Line Bancshares of $994,631, the $66,252
adjustment for stock based compensation awards and the $228,402 after tax unrealized gain on
available for sale securities. These items were partially offset by the $232,799 common stock cash
dividend.
167
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Average total assets |
|
$ |
341,973 |
|
|
$ |
272,661 |
|
|
$ |
228,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity |
|
|
39,010 |
|
|
|
34,820 |
|
|
|
35,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Old
Line Bancshares, Inc. |
|
|
2,036 |
|
|
|
1,756 |
|
|
|
1,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared common
stock |
|
|
463 |
|
|
|
470 |
|
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio for period |
|
|
22.74 |
% |
|
|
26.77 |
% |
|
|
31.91 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.60 |
% |
|
|
0.64 |
% |
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity |
|
|
5.13 |
% |
|
|
5.04 |
% |
|
|
4.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders equity to
average total assets |
|
|
11.41 |
% |
|
|
12.77 |
% |
|
|
15.52 |
% |
|
|
|
|
|
|
|
|
|
|
Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet
Arrangements
We are party to financial instruments with off-balance sheet risk in the normal course of
business. These financial instruments primarily include commitments to extend credit, lines of
credit and standby letters of credit. We use these financial instruments to meet the financing
needs of our customers. These financial instruments involve, to varying degrees, elements of
credit, interest rate, and liquidity risk. These commitments do not represent unusual risks and
management does not anticipate any losses that would have a material effect on Old Line Bancshares.
We also have operating lease obligations.
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. We generally require collateral to support
financial instruments with credit risk on the same basis as we do for balance sheet instruments.
Management generally bases the collateral required on the credit evaluation of the counter party.
Commitments generally have interest rates fixed at current market rates, expiration dates or other
termination clauses and may require payment of a fee. Available credit lines represent the unused
portion of lines of credit previously extended and available to the customer so long as there is no
violation of any contractual condition. These lines generally have variable interest rates. Since
we expect many of the commitments to expire without being drawn upon, and since it is unlikely that
customers will draw upon their lines of credit in full at any time, the total commitment amount or
line of credit amount does not necessarily represent future cash requirements. We evaluate each
customers credit-worthiness on a case-by-case basis. During this period of economic turmoil, we
have re-evaluated many of our commitments to extend credit. Because we conservatively underwrite
these facilities at inception, we have not had to withdraw any commitments. We are not aware of
any loss that we would incur by funding our commitments or lines of credit.
Standby letters of credit are conditional commitments issued to guarantee the performance of a
customer to a third party. Our exposure to credit loss in the event of nonperformance by the
customer is the contract amount of the commitment. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to customers. In
general, loan commitments, credit lines and letters of credit are made on the same terms, including
with respect to collateral, as outstanding loans. We evaluate each customers credit-worthiness
and the collateral required on a case-by-case basis.
168
Year ended December 31, 2009
Outstanding loan commitments and lines and letters of credit at December 31 2009, 2008 and
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
(Dollars in thousands) |
|
|
|
Commitments to extend credit and available credit lines: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
21,153 |
|
|
$ |
23,074 |
|
|
$ |
15,506 |
|
Real estate-undisbursed development and construction |
|
|
14,573 |
|
|
|
21,981 |
|
|
|
35,966 |
|
Consumer |
|
|
9,015 |
|
|
|
6,379 |
|
|
|
6,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,741 |
|
|
$ |
51,434 |
|
|
$ |
57,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
$ |
3,883 |
|
|
$ |
1,583 |
|
|
$ |
1,634 |
|
|
|
|
|
|
|
|
|
|
|
Commitments for real estate development and construction, which totaled $14.6 million, or
32.66% of the $44.7 million, are generally short-term and turn over rapidly, with principal
repayment from permanent financing arrangements upon completion of construction or from sales of
the properties financed.
We have various financial obligations, including contractual obligations and commitments. The
following table presents, as of December 31, 2009, significant fixed and determinable contractual
obligations to third parties by payment date.
Contractual Obligations
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
One to |
|
|
Three to |
|
|
Over |
|
|
|
|
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
Total |
|
Noninterest-bearing deposits |
|
$ |
40,883 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,883 |
|
Interest-bearing deposits |
|
|
197,739 |
|
|
|
42,527 |
|
|
|
5,716 |
|
|
|
|
|
|
|
245,982 |
|
Short-term borrowings |
|
|
16,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,149 |
|
Long-term borrowings |
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
6,454 |
|
|
|
16,454 |
|
Purchase obligations |
|
|
1,446,791 |
|
|
|
721,742 |
|
|
|
702,844 |
|
|
|
|
|
|
|
2,871,377 |
|
Operating leases |
|
|
650 |
|
|
|
1,327 |
|
|
|
1,157 |
|
|
|
9,245 |
|
|
|
12,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,702,212 |
|
|
$ |
775,596 |
|
|
$ |
709,717 |
|
|
$ |
15,699 |
|
|
$ |
3,203,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating lease obligations represent rental payments for eight branches, a loan
production office and our main office. We lease our main office and our Bowie branch location from
Pointer Ridge. We have excluded 62.50% of these lease payments in consolidation. The
interest-bearing obligations include accrued interest. Purchase obligations amounts represent
estimated obligations under agreements to purchase goods or services that are enforceable and
legally binding. In 2009, the purchase obligations amounts include principal and interest due on
participation loans, estimated obligations under data processing contracts, income tax payable and
accounts payable for goods and services. In subsequent years, the purchase obligations amounts
primarily relate to estimated obligations under data processing contracts.
Six-month
period ended June 30, 2010
Outstanding loan commitments and lines and letters of credit at June 30, 2010 and December 31,
2009, are as follows:
169
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Commitments to extend credit and available credit lines: |
|
|
|
|
|
|
|
|
Commercial |
|
$ |
31,495 |
|
|
$ |
21,153 |
|
Real estate-undisbursed development and construction |
|
|
17,608 |
|
|
|
14,573 |
|
Consumer |
|
|
8,032 |
|
|
|
9,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,135 |
|
|
$ |
44,741 |
|
|
|
|
|
|
|
|
Standby letters of credit |
|
$ |
5,526 |
|
|
$ |
3,883 |
|
|
|
|
|
|
|
|
Commitments for real estate development and construction, which totaled $17.6 million, or
30.82% of the $57.1 million of outstanding commitments at June 30, 2010, are generally short-term
and turn over rapidly with principal repayment from permanent financing arrangements upon
completion of construction or from sales of the properties financed.
Reconciliation of Non-GAAP Measures
Below is a reconciliation of the full tax equivalent adjustments and the GAAP basis
information presented in this section of this joint proxy statement/prospectus:
Twelve months ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
11,516,002 |
|
|
|
3.73 |
% |
|
|
3.39 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
1 |
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
59,779 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Loans |
|
|
66,590 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
126,370 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
11,642,372 |
|
|
|
3.77 |
% |
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
170
Twelve months ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
9,514,501 |
|
|
|
3.77 |
% |
|
|
3.17 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
5,169 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Investment securities |
|
|
61,834 |
|
|
|
0.03 |
|
|
|
0.03 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
67,003 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
9,581,504 |
|
|
|
3.80 |
% |
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
8,291,399 |
|
|
|
3.94 |
% |
|
|
2.94 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
25,885 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Investment securities |
|
|
72,309 |
|
|
|
0.03 |
|
|
|
0.03 |
|
Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
98,194 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
8,389,593 |
|
|
|
3.98 |
% |
|
|
2.98 |
% |
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
3,293,178 |
|
|
|
3.70 |
% |
|
|
3.45 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
12,027 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Loans |
|
|
27,958 |
|
|
|
0.04 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
39,985 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
3,333,163 |
|
|
|
3.75 |
% |
|
|
3.50 |
% |
|
|
|
|
|
|
|
|
|
|
171
Three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
2,811,000 |
|
|
|
3.68 |
% |
|
|
3.31 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
15,376 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Loans |
|
|
7,724 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
23,100 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
2,834,100 |
|
|
|
3.71 |
% |
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
6,434,834 |
|
|
|
3.75 |
% |
|
|
3.51 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
24,077 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Loans |
|
|
55,624 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
79,701 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
6,514,535 |
|
|
|
3.80 |
% |
|
|
3.56 |
% |
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
Net Interest |
|
|
|
|
|
|
Interest |
|
|
|
Income |
|
|
Yield |
|
|
Spread |
|
GAAP net interest income |
|
$ |
5,463,253 |
|
|
|
3.68 |
% |
|
|
3.28 |
% |
Tax equivalent adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
|
|
32,300 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Loans |
|
|
7,724 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Total tax equivalent adjustment |
|
|
40,024 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
Tax equivalent interest yield |
|
$ |
5,503,277 |
|
|
|
3.71 |
% |
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
172
Impact of Inflation and Changing Prices and Seasonality
Management has prepared the financial statements and related data presented herein 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 institutions 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. We strive to manage our interest sensitive assets and liabilities in
order to offset the effects of rate changes and inflation.
Application of Critical Accounting
We prepare our financial statements 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.
We base these estimates, assumptions, and judgments 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 that we follow are presented in Note 1 to the
consolidated financial statements for the year ended December 31, 2009. These policies, along with
the disclosures presented in the other financial statement notes and in this financial review,
provide information on how we value significant assets and liabilities in the financial statements
and how we determine those values. 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 allowance 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 allowance for loan losses represents managements best estimate of the losses known and
inherent in the loan portfolio that are both probable and reasonable to estimate, based on, among
other factors, prior loss experience, volume and type of lending conducted, estimated value of any
underlying collateral, economic conditions (particularly as such conditions relate to Old Line
Banks market area), regulatory guidance, peer statistics, managements judgment, past due loans in
the loan portfolio, loan charge off experience and concentrations of risk (if any). Determining
the amount of the allowance for loan losses is considered a critical accounting estimate because it
requires significant estimates, assumptions, and judgments. The loan portfolio also represents the
largest asset type on the consolidated balance sheets.
We evaluate the adequacy of the allowance for loan losses based upon loan categories except
for delinquent loans and loans for which management has knowledge about possible credit problems of
the borrower or knowledge of problems with loan collateral, which management evaluates separately
and assigns loss amounts based upon the evaluation. We apply loss ratios to each category of loan
other than commercial loans (including letters of credit and unused commitments), where we further
divide the loans by risk rating and apply loss ratios by risk rating, to determine estimated loss
amounts. Categories of loans are 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 has significant discretion in making the judgments inherent in the determination of
the provision and allowance for loan losses, including in connection with the valuation of
collateral and the financial condition of the borrower, and in establishing loss ratios and risk
ratings. The establishment of allowance factors is a continuing exercise and allowance factors may
change over time, resulting in an increase or decrease in the amount of the provision or allowance
based upon the same volume and classification of loans.
173
Changes in allowance factors or in managements interpretation of those factors will have a
direct impact on the amount of the provision, and a corresponding effect on income and assets.
Also, errors in managements perception and assessment of the allowance factors could result in the
allowance not being adequate to cover losses in the portfolio, and may result in additional
provisions or charge-offs, which would adversely affect income and capital. For additional
information regarding the allowance for loan losses, see Provision for Loan Losses.
New Authoritative Accounting Guidance
On July 1, 2009, the Accounting Standards Codification (ASC) became the Federal Accounting
Standards Boards (FASB) officially recognized source of authoritative U.S. generally accepted
accounting principles (GAAP) applicable to all public and non-public companies, non-governmental
entities, superseding existing FASB, ACIPA, EITF and related literature. Rules and interpretive
releases of the SEC under the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. All other accounting literature is considered
non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial
statements and accounting policies. Citing particular content in the ASC involves specifying the
unique numeric path to the content through the Topic, Subtopic, Section, and Paragraph structure.
FASB ASC Topic 260-Earnings Per Share. On January 1, 2009, we adopted new authoritative
accounting guidance under FASB ASC Topic 260-Earnings Per Share, which provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and entities shall include these
participating securities in the computation of earnings per share pursuant to the two-class method.
We adopted ASC Topic 260 and it did not have any impact on our consolidated results of operations
or financial position.
FASB ASC Topic 320-Investments-Debt and Equity Securities. New authoritative accounting
guidance under ASC Topic 320-Investments-Debt and Equity Securities (i) changes existing guidance
for determining whether an impairment is other than temporary to debt securities and (ii) replaces
the existing requirement that the entitys management assert it has both the intent and ability to
hold an impaired security until recovery with a requirement that management assert: (a) it does not
have the intent to sell the security; and (b) it is more likely than not it will not have to sell
the security before recovery of its cost basis. Under ASC Topic 320, entities that deem that the
declines in the fair value of held-to-maturity and available-for-sale securities below their cost
are other than temporary will reflect these other than temporary losses in earnings as realized
losses to the extent the impairment is related to credit losses. Entities will record the amount
of the impairment related to other factors in other comprehensive income. ASC Topic 320 became
effective for interim and annual reporting periods ended after June 15, 2009. Adoption of this new
guidance did not have a material impact on our consolidated results of operations or financial
position.
FASB ASC Topic 715-Compensation Retirement Benefits. New authoritative guidance under ASC
Topic 715-Compensation Retirement Benefits provides guidance related to an employers disclosure
about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC
Topic 715, disclosures should provide users of financial statements with an understanding of how
managers of the plan make allocation decisions, the factors that are pertinent to an understanding
of investment policies and strategies, the major categories of plan assets, the inputs and
valuation techniques used to measure the fair value of plan assets, the effect of fair value
measurements using significant unobservable inputs on changes in plan assets for the period and
significant concentrations of risk within plan assets. ASC Topic 715 becomes effective for
financial statements beginning with the financial statements for the year ended December 31, 2009.
Adoption of this guidance did not have a material impact on our consolidated results of operations
or financial position.
FASB ASC Topic 805- Business Combinations. The new authoritative guidance under ASC Topic
805-Business Combinations became applicable to how we account for business combinations closing on
or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one
entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon
initially obtaining control of another entity, to recognize the assets, liabilities and any
non-controlling interest in the acquiree at fair value as of the acquisition date. The acquirer
must recognize and measure at fair value contingent consideration when the acquirer can determine
the amount of that consideration beyond a reasonable doubt. The fair value approach replaces the
cost-allocation process required under previous accounting guidance whereby the cost of an
acquisition was allocated to the individual assets acquired and liabilities assumed based on their
estimated fair value. ASC Topic 805 requires the acquirer to expense acquisition related costs as
incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was
previously the case under prior accounting guidance. If the acquirer cannot reasonably estimate
the value of the asset or liability, the acquirer would generally recognize the value of the asset
or liability in accordance with ASC Topic 450-Contingencies. Under ASC Topic 805, in order for the
acquirer to accrue for a restructuring plan in purchase accounting it must meet the requirements of
ASC Topic 420-Exit or Disposal Cost
174
Obligations. The acquirer is to recognize contingencies at
fair value, unless the contingencies are not likely to materialize, in
which case, the acquirer should not recognize anything in purchase accounting and, instead,
that contingency would be subject to the probable and estimable recognition criteria of ASC Topic
450-Contingencies. We did not have any business combination closing on or after January 1, 2009
and the adoption of ASC Topic 805 did not impact our consolidated results of operations or
financial condition.
FASB ASC Topic 810-Consolidation. New authoritative guidance under ASC Topic 810 amended
prior guidance to establish accounting and reporting standards for the non-controlling interest in
a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling
interest in a subsidiary, which is sometimes referred to as a minority interest, is an ownership
interest in the consolidated entity that the consolidated entity should report as a component of
equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires
consolidated net income be reported at amounts attributable to both the parent and non-controlling
interest. It also requires disclosure, on the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the non-controlling interest. ASC Topic
810 became effective on January 1, 2009, and it affected the way we reported the non-controlling
interest in Pointer Ridge, but it did not have a material impact on our consolidated results of
operations or financial position.
Further new authoritative guidance under ASC Topic 810 amends prior guidance to change how a
company determines when an entity that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. ASC Topic 810 requires a company to determine
whether to consolidate an entity based on, among other things, an entitys purpose and design and a
companys ability to direct the activities of the entity that most significantly impact the
entitys economic performance. The new authoritative guidance requires additional disclosures
about the reporting entitys involvement with variable-interest entities and any significant
changes in risk exposure due to that involvement as well as its effect on the entitys financial
statements. The new authoritative guidance under ASC Topic 810 was effective January 1, 2010 and
it did not have a material impact on our consolidated results of operations or financial position.
FASB ASC Topic 820-Fair Value Measurements and Disclosures. New authoritative guidance under
ASC Topic 820-Fair Value Measurements and Disclosures affirms that the objective of fair value when
the market for an asset is not active is the price that the company would receive to sell the asset
in an orderly transaction, and clarifies and includes additional factors for determining whether
there is a significant decrease in market activity for an asset when the market for that asset is
not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction
was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance
to expand certain disclosure requirements. We adopted the new accounting guidance under ASC Topic
820 during the first quarter of 2009. Adoption of the new guidance did not have a material impact
on our consolidated results of operations or financial position.
Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under
ASC Topic 820 provides guidance for measuring fair value of a liability in circumstances in which a
quoted price in an active market for the identical liability is not available. In such instances,
a reporting entity must measure fair value utilizing a valuation technique that uses (i) the quoted
price of the identical liability when traded as an asset, (ii) quoted prices for similar
liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that
is consistent with the existing principles of ASC Topic 820, such as an income approach or market
approach. The new accounting guidance also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or adjustment to other
inputs relating to the existence of a restriction that prevents the transfer of the liability. The
foregoing new authoritative guidance under ASC Topic 820 was effective for our financial statements
beginning October 1, 2009 and it did not have a significant impact on our consolidated results of
operations or financial position.
FASB ASC Topic 825-Financial Instruments. New authoritative accounting guidance under ASC
Topic 825-Financial Instruments requires an entity to provide disclosures about fair value of
financial instruments in interim financial information and amends prior guidance to require these
disclosures in summarized financial information at interim reporting periods. We include the new
interim disclosures required under Topic 825 in the Notes to Consolidated Financial Statements
FASB ASC Topic 855-Subsequent Events. New authoritative guidance under ASC Topic
855-Subsequent Events establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before an entity issues financial statements or the entity
has the financial statements available for issuance. ASC Topic 855 defines (i) the period after
the balance sheet during which a reporting entitys management should evaluate events or
transactions that may occur for potential recognition or disclosure in the financial statements,
(ii) the circumstances under which an entity should recognize events or transactions occurring
after the balance sheet date in its financial statements, and (iii) the
175
disclosures an entity
should make about events or transactions that occurred after the balance sheet date. This new
authoritative guidance under ASC Topic 855 became effective for financial statements for
periods ending after June 15, 2009 and did not have a material impact on our consolidated results
of operation or financial position.
FASB ASC Topic 860-Transfers and Servicing. New authoritative guidance under ASC Topic
860-Transfers and Servicing amends prior accounting guidance to enhance reporting about transfers
of financial assets, including securitizations, and where companies have continuing exposure to the
risks related to transferred financial assets. The new authoritative accounting guidance
eliminates the concept of a qualifying special-purpose entity and changes the requirements for
derecognizing financial assets. The new authoritative accounting guidance also requires additional
disclosures about all continuing involvements with transferred financial assets including
information about gains and losses resulting from transfers during the period. The new
authoritative guidance under ASC Topic 860 was effective January 1, 2010 and it did not have a
material impact on our consolidated results of operation or financial position.
DIRECTORS AND EXECUTIVE OFFICERS OF OLD LINE BANCSHARES, INC.
Below is certain information with respect to the members of our board of directors and our
executive officers as of the date of this joint proxy statement/ prospectus.
Directors of Old Line Bancshares, Inc.
James W. Cornelsen, 56, is the President and Chief Executive Officer of Old Line Bancshares
and Old Line Bank. He joined Old Line Bank and became a member of its board of directors in 1994.
He has been a member of the board of directors of Old Line Bancshares since its incorporation in
April 2003. He currently serves as Chair of the Loan and Asset and Liability Committees. He has
over 30 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. The board of directors
believes that Mr. Cornelsens qualifications to sit on the board of directors, serve as President
and Chief Operating Officer of Old Line Bancshares and Old Line Bank and Chair of the Loan and
Asset and Liability Committees include his many years of banking experience and proven leadership
in the success of these companies.
Charles A. Bongar, Jr., 65 recently retired as a lawyer from the firm of Andrews, Bongar,
Starkey & Woodside, P.A. The firm has an office in Waldorf, Maryland. He practiced law for over
35 years and specialized in real estate transactions, estate probate, and personal injury cases.
Mr. Bongar resides in LaPlata, Maryland. He has been a member of the board of directors of Old
Line Bank since 1993 and Old Line Bancshares since its incorporation in 2003. He currently serves
as Chair of the Compensation Committee. The board of directors believes that Mr. Bongars
qualifications to sit on the board of directors and chair the Compensation Committee include his
educational qualifications, his knowledge and experience in the legal field, his long term
involvement and proven leadership with the board and his affiliations with the business community
in our market area.
Craig E. Clark, 68, retired in 2006 as President of Waldorf Carpets, Inc., a wholesale and
retail flooring company, which he established in 1969. 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 of Old Line
Bancshares since its incorporation in April 2003 and has served as a member of the board of
directors of Old Line Bank since 1988. Mr. Clark is a member of each of the board of directors
committees. Mr. Clark resides in Lusby, Maryland. The board of directors of Old Line Bancshares
and Old Line Bank believe that Mr. Clarks experience managing and operating his own business, his
affiliations within the local community and his active involvement in the founding and oversight of
Old Line Bank uniquely qualify him to be Chairman and a member of the board of directors.
John P. Davey, 58, is the Managing Director for the Law Firm OMalley, Miles, Nylen & Gilmore,
P.A. The firm has offices in Calverton, La Plata and Annapolis, Maryland and its areas of
concentration are administrative law and government regulatory matters, commercial and real estate
transactions, and litigation of general liability, employment practices and contract dispute cases.
Mr. Davey has been with the firm since 1991 and became the Managing Director in 2001. He also
sits on the board of directors of the Greater Washington Board of Trade and also serves on the
Federal City Council Executive Committee. Mr. Davey resides in University Park, Maryland. He has
been a member of the board of directors of Old Line Bank and Old Line Bancshares since 2008. He
currently serves on the Asset and Liability and the Nominating Committees. The board of directors
believes that Mr. Daveys qualifications for his positions on the board of directors of Old Line
Bancshares and Old Line Bank include his educational foundation, his legal and management expertise
as well as his experience serving on various other boards.
176
Daniel W. Deming, 61, is a Director of Deming Associates, Inc., in Accokeek, Maryland. He is
also a Director of Kanawha Roxalana Company, in West Virginia and is a Vice President of
Livingston, Ltd. All three of these companies engage 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 and Old Line Bancshares since its incorporation in 2003. He is currently a member
of the Audit and Asset and Liability Committees. The board of directors believes that Mr. Demings
educational background, real estate industry knowledge and his management and operations experience
obtained through business ownership, as well as his many years of active involvement with Old Line
Bank and Old Line Bancshares board of directors, qualify him to serve as a director of Old Line
Bank and Old Line Bancshares.
James F. Dent, 74, retired in 2006 as an owner and operator of a State Farm Insurance Agency
that he established in 1961. He resides in LaPlata, Maryland. Mr. Dent is a founder of Old Line
Bank and has served as a member of the board of directors of Old Line Bank since 1988 and Old Line
Bancshares since its incorporation in 2003. He currently serves on the Loan and Compensation
Committees. The board of directors believes that Mr. Dents qualifications for his membership on
the board of directors of Old Line Bancshares and Old Line Bank include his many years of
experience in the insurance industry in our market area as well as his active involvement in the
founding and oversight of Old Line Bank.
Nancy L. Gasparovic, 63, is owner and operator of Title Professionals, Ltd., a real estate
settlement company in LaPlata, Maryland. Ms. Gasparovic resides in Issue, Maryland. She has been
a member of the board of directors of Old Line Bank since 1993 and Old Line Bancshares since its
incorporation in 2003. She is currently a member of the Asset and Liability Committee and serves
as Chair of the Nominating Committee. The board of directors believes Ms. Gasparovics
qualifications to serve as a director of Old Line Bank and Old Line Bancshares include her many
years of active involvement with the board of directors, her experience and expertise in the real
estate settlement industry and business and personal affiliations in our market area.
Andre J. Gingles, 53, was appointed to the board of directors of Old Line Bancshares and Old
Line Bank effective June 24, 2010. Mr. Gingles is an attorney and the owner of the firm Gingles,
LLC, an entity he formed in 2003, where his practice concentrates on large mixed-use projects
involving land use, zoning and government relations. He currently serves on the Asset and
Liability Committee. Mr. Gingles resides in Laurel, Maryland. He currently serves as Chairman of
The Foundation Schools as well as on the board of directors of Tai Sophia Institute. The board of
directors believes Mr. Gingles qualifications for his positions on the boards of directors include
his legal and management expertise as well as his involvement with other boards and his personal
and business affiliates in our market area.
Frank Lucente, Jr., 68, is Chairman of Chesapeake Custom Homes, a suburban Maryland
residential home builder and developer, and Chairman of Lucente Enterprises, a land development
holding company. Mr. Lucente resides in Tequesta, Florida. He has been a member of the board of
directors of Old Line Bank since 2002 and Old Line Bancshares since its incorporation in 2003. He
has served as Vice Chairman of the board of directors of Old Line Bancshares and Old Line Bank
since 2003. He is currently a member of the Loan Committee. The board of directors believes Mr.
Lucentes qualifications for these positions include business affiliations in our market area, his
knowledge of the real estate industry and his operational and management expertise gained from
several years as a business owner.
Gail D. Manuel, 55, is the owner and a Director of Trinity Memorial Gardens and Mausoleum in
Waldorf, Maryland. She is a past member of the board of directors 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 1992 and Old Line Bancshares
since its incorporation in April 2003. Ms. Manuel serves on the Loan and Compensation Committees.
The board of directors of Old Line Bancshares and Old Line Bank believes that Ms. Manuals
qualifications for serving on the board of directors of Old Line Bank and Old Line Bancshares
include her many years of active involvement with the board of directors, her experience owning and
operating a small business in our market area and her long standing affiliations with the local
business community.
John D. Mitchell, Jr., 62, is a partner in Johel LTD Partnership, a commercial development
company located in LaPlata, Maryland. Mr. Mitchell was formerly the President of JCV, Inc., a
petroleum equipment company located in Hughesville, Maryland. Jones & Frank Corporation acquired
JCV, Inc. in 2007. Mr. Mitchell resides in Berlin, Maryland. He has been a member of the board of
directors of Old Line Bank since 1992 and Old Line Bancshares since its incorporation in 2003. He
is currently a member of the Audit and Asset and Liability Committees. The board of directors
believes that Mr. Mitchells qualifications to be a director of Old Line Bank and Old Line
Bancshares include his entrepreneurial, financial and operational expertise, knowledge of the local
business community and his many years of active involvement with the board of directors.
177
Gregory S. Proctor Jr., 46, is President and Chief Executive Officer of G.S. Proctor &
Associates, Inc., a Maryland registered lobbying and consulting firm, which he established in 1995.
He resides in Upper Marlboro, Maryland. He has been a member of the board of directors of Old
Line Bancshares and Old Line Bank since 2004. He currently serves on the Loan and Nominating
Committees. The board of directors believes his qualifications to serve as a director of Old Line
Bank and Old Line Bancshares include his legislative knowledge, his management and consulting
skills and his business affiliations in our market area.
Suhas R. Shah, CPA, 55, is a principal and member of Source One Business Services, LLC, and
has served in that capacity since 1986 and is a principal and shareholder of Regan, Russell,
Schickner & Shah, P.A. and has served in that capacity since 1986. Source One Business Services,
LLC provides cash flow and budgeting analysis, computer consulting and tax planning and preparation
for corporations, individuals, estates and trusts, as well as litigation support, financial
forecasts and merger and acquisitions advisory services to a variety of clients. Regan, Russell,
Schickner & Shah, P.A. is a certified public accounting firm. Mr. Shah resides in Marriottsville,
Maryland. He has been a member of the board of directors of Old Line Bancshares and Old Line Bank
since January 2006. He currently serves on the Asset and Liability Committee and as Chair of the
Audit Committee. The board of directors believes that Mr. Shahs qualifications for these
positions include his educational background, extensive experience with public and financial
accounting matters, his financial expertise, his accounting certification and his affiliations with
the business community in our market area.
John M. Suit, II, 65, served as Senior Vice President for Branch Banking and Trust from 2003
through his retirement in 2006. From 1996 until 2003, Mr. Suit served as Chairman of the Board of
Farmers Bank of Maryland. Mr. Suit also served as President, CEO and Director of Farmers National
Bancorp and Farmers National Bank of Maryland from 1989 to 1996. Mr. Suit lives in Annapolis,
Maryland. He has served on the board of directors of Old Line Bancshares and Old Line Bank since
January 2007. He currently serves on the Audit, Loan and Compensation Committees. The board of
directors believes his qualifications for these positions include his educational foundation, his
financial expertise and his leadership in the banking industry.
The board of directors has determined that Directors Charles A. Bongar, Craig E. Clark, John
P. Davey, Daniel W. Deming, James F. Dent, Nancy L. Gasparovic, Andre J. Gingles, Gail D. Manuel,
John D. Mitchell, Gregory S. Proctor, Jr., Suhas R. Shah and John M. Suit, II are independent as
defined under the applicable rules and listing standards of the NASDAQ Stock Market LLC.
New Directors
As discussed above, the members of the board of directors immediately prior to the merger,
with the addition of Thomas B. Watts and G. Thomas Daugherty, will serve as directors of Old Line
Bancshares after the merger. Below is certain information about Messrs. Watts and Daugherty.
Thomas B. Watts, 63 has been Chairman of the Board and Chief Executive Officer of Maryland
Bankcorp and Maryland Bank & Trust Company since 2001. He has been a Director of Maryland Bank &
Trust since 1994. He was President and Chief Executive Officer of Raley, Watts and Associates, an
insurance agency, from 1990-2001. He has served as Chairman of the Community Development
Corporation Board of Trustees in St. Marys County, Maryland and has been a member and participant
of various other community foundations and boards. The board of directors of Old Line Bancshares
believes that his qualifications to serve on the boards of Old Line Bancshares and Old Line Bank
include his extensive banking experience, his personal and business contacts in Maryland Bankcorps
market area, and his knowledge of Maryland Bank & Trusts customer base and market area.
G. Thomas Daugherty, 65, has been President of Maryland Bankcorp and Maryland Bank & Trust
since 2001. He has been a Director of Maryland Bank & Trust Company since 1995. From 1995 to
2001, Mr. Daugherty was an attorney at the law firm of G. Thomas Daugherty, Chartered (formerly,
Daugherty and Daugherty, PA), a law firm specializing in real estate and business law. He is a
member of the Maryland Bar Association and the District of Columbia Bar Association. He holds a
Juris Doctor from the University of Baltimore. He has served as Vice President of St. Marys
College of Maryland Foundation and is presently a member of the Board of Trustees of St. Marys
College of Maryland. He also serves as a board member of the Southern Maryland Navy Alliance.
Prior community activities include the Economic Development Commission, the Lexington Park
Redevelopment Commission, the Rotary Club and he served twelve years (including four years as
President) of the St. Marys Housing Authority Board. The board of directors of Old Line
Bancshares believes that Mr. Daughertys qualifications to serve on the boards of Old Line
Bancshares and Old Line Bank include his many years of banking experience, his community contacts,
and his knowledge of Maryland Bank & Trusts customer base and market area.
178
Executive Officers of Old Line Bancshares Who are not Directors
Joseph E. Burnett, 64, joined Old Line Bank as a Senior Vice President and Chief Lending
Officer in August 2001 and was promoted to Executive Vice President in May 2006. He is also an
Executive Vice President of Old Line Bancshares. He has over 44 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 12 years (1987-1999). Mr. Burnett is the brother in law
of Sandi F. Burnett.
Sandi F. Burnett, 52, Executive Vice President of Old Line Bank, joined Old Line Bank in 2005
as Senior Vice President and the team leader for the College Park loan production office. In
January 2010, she was promoted to Executive Vice President. Prior to joining Old Line Bank, she was
employed by BB&T, a major south-eastern regional bank, most recently as a City Executive, Senior
Vice President. In this capacity, she was responsible for supervising the overall team management,
portfolio quality and growth within suburban Maryland, principally Prince Georges County. Prior
to this position, she was employed by Commerce Bank, a local bank that merged into BB&T in 1999.
She started with Commerce Bank in 1994. Ms. Burnett is a career banker with over 30 years of
commercial banking experience. Ms. Burnett is the sister in law of Joseph E. Burnett.
Christine M. Rush, 54, joined Old Line Bank in 1998. She is an Executive Vice President, the
Chief Financial Officer, the Chief Credit Officer and the Secretary of Old Line Bank. She is also
an Executive Vice President, Chief Financial Officer and the Secretary of Old Line Bancshares.
Prior to joining Old Line Bank, Ms. Rush was a Vice President in Commercial Lending and Cash
Management at Signet Bank. She has over 32 years banking and financial management experience.
EXECUTIVE COMPENSATION OLD LINE BANCSHARES, INC.
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 total compensation in excess of $100,000
during 2009.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
|
|
|
|
Non-Equity |
|
|
Deferred |
|
|
All |
|
|
|
|
Name and Principal |
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
Compensation |
|
|
Other |
|
|
|
|
Position |
|
Year |
|
|
Salary |
|
|
Awards(4) |
|
|
Awards(5) |
|
|
Compensation(6) |
|
|
Earnings |
|
|
Compensation |
|
|
Total |
|
James W. Cornelsen |
|
|
2009 |
|
|
$ |
249,400 |
|
|
$ |
52,412 |
|
|
$ |
22,464 |
|
|
$ |
93,525 |
|
|
$ |
52,405 |
|
|
$ |
11,062 |
|
|
$ |
481,268 |
|
President & CEO(1) |
|
|
2008 |
|
|
|
237,600 |
|
|
|
|
|
|
|
49,600 |
|
|
|
62,000 |
|
|
|
49,237 |
|
|
|
10,462 |
|
|
|
408,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph E. Burnett
Executive Vice |
|
|
2009 |
|
|
|
172,300 |
|
|
|
24,121 |
|
|
|
10,338 |
|
|
|
52,690 |
|
|
|
42,325 |
|
|
|
8,144 |
|
|
|
309,918 |
|
President & CLO(2) |
|
|
2008 |
|
|
|
164,100 |
|
|
|
|
|
|
|
17,000 |
|
|
|
34,100 |
|
|
|
39,776 |
|
|
|
8,273 |
|
|
|
263,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christine M. Rush
Executive Vice |
|
|
2009 |
|
|
|
168,400 |
|
|
|
23,579 |
|
|
|
10,102 |
|
|
|
50,250 |
|
|
|
17,908 |
|
|
|
8,243 |
|
|
|
278,482 |
|
President & CFO(3) |
|
|
2008 |
|
|
|
156,600 |
|
|
|
|
|
|
|
16,300 |
|
|
|
32,500 |
|
|
|
16,825 |
|
|
|
7,717 |
|
|
|
229,942 |
|
|
|
|
(1) |
|
Other compensation includes: $9,200 and $9,800 in contributions to Old
Line Banks 401(k) retirement plan in 2008 and 2009 respectively; $532
in long-term disability insurance premiums paid on Mr. Cornelsens
behalf in each of 2008 and 2009; and $730 in short-term disability
insurance premiums paid on Mr. Cornelsens behalf in each of 2008 and
2009. |
|
(2) |
|
Other compensation includes: $7,011 and $6,882 in contributions to Old
Line Banks 401(k) retirement plan in 2008 and 2009 respectively; $532
in long-term disability premiums paid by Old Line Bank on Mr.
Burnetts behalf in each of 2008 and 2009; and $730 in short-term
disability premiums paid by Old Line Bank on Mr. Burnetts behalf in
each of 2008 and 2009. |
|
(3) |
|
Other compensation includes: $6,455 and $6,981 in contributions to Old
Line Banks 401(k) retirement plan in 2008 and 2009 respectively; $532
in long-term disability insurance premiums paid by Old Line Bank on
Ms. Rushs behalf in each of 2008 and 2009; and $730 in short-term
disability insurance premiums paid by Old Line Bank on Ms. Rushs
behalf in each of 2008 and 2009. |
179
|
|
|
(4) |
|
Restricted stock value is based on the share price at issuance of $7.13. Paid in February 2010 on previous years
performance under Old Line Bancshares Incentive Plan Model. |
|
(5) |
|
We estimated the weighted average fair value of the options granted at $1.47 and $1.90 using the Black-Scholes option
pricing model as outlined in footnote 20 in Item 8 Financial Statements of our 10-K for the years ended December 31,
2008 and December 31, 2009, respectively. |
|
(6) |
|
Paid in January 2009 and February 2010 on previous years performance under Old Line Bancshares Incentive Plan Model. |
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
(replacing a 1999 agreement) to serve as the President and Chief Executive Officer of Old Line Bank
and Old Line Bancshares Inc. This agreement provides for an initial term of five years and may be
extended by the board of directors, in its sole discretion, for one additional year or such greater
term as the board of directors deems appropriate. The board of directors has extended the term by
one additional year in each December subsequent to execution of the agreement. Mr. Cornelsens
employment agreement is currently set to expire in March 2015. Mr. Cornelsens agreement currently
provides for a salary of $275,000 and Mr. Cornelsen 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 4,500 shares of common stock of Old Line Bancshares, assuming such
options are available for grant under a stockholder approved stock option plan.
The agreement terminates upon Mr. Cornelsens death or by mutual written agreement. In
addition, Mr. Cornelsen may terminate the agreement within six months following (or in certain
circumstances, in anticipation of) 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. Either party may also terminate the agreement
without cause or good reason or upon Mr. Cornelsens permanent disability provided that such party
provides 60 days prior written notice to the other party.
If Mr. Cornelsen terminates the agreement for good reason, or if Old Line Bank terminates Mr.
Cornelsens 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. Mr. Cornelsen is not entitled to any severance pay under
the agreement if he terminates the agreement without good reason or for permanent disability.
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, minus any other payments he receives that
are contingent on the change in control. If the change in control payments were required to be
paid in 2010, Mr. Cornelsen would receive approximately $709,826.
Pursuant to the employment agreement, a change in control will occur if:
|
|
|
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 Bancshares, Inc, if, after the
transaction, the acquiring person (or persons) owns, controls or holds with power to
vote 25% or more of any class of voting securities of Old Line Bancshares or Old Line
Bank, as the case may be; |
|
|
|
Within any 12-month period (beginning on or after the effective date of the
employment agreement) the persons who were directors of Old Line Bancshares or 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;
|
180
|
|
|
The stockholders of Old Line Bancshares or Old Line Bank approve a reorganization,
merger or consolidation with respect to which persons who were the stockholders of Old
Line Bancshares or Old Line Bank immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote in the election of directors of the reorganized, merged or
consolidated companys then outstanding voting securities; or |
|
|
|
All or substantially all of the assets of Old Line Bancshares or Old Line Bank are
sold, transferred or assigned to any third party. |
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 on each anniversary date of the agreement automatically extends for periods of one
year unless Old Line Bank terminates the automatic renewal by giving written notice ninety days
prior to the renewal date. Old Line Bank did not provide such a notice within 90 days of March 31,
2010.
Mr. Burnetts and Ms. Rushs agreements currently provide each a salary of $181,000. Each of
these two officers may receive an annual discretionary bonus. In addition, these officers are each
entitled to receive an annual grant of options to purchase at least 2,700 shares of common stock of
Old Line Bancshares, assuming such options are available for grant under a stockholder approved
stock option plan.
Each agreement terminates upon the employees death or physical or mental incapacitation that
has left the employee unable to perform his or her duties for a period of 60 consecutive days. In
addition, the employee may terminate his or her agreement by giving Old Line Bank 60 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.
Other Executive Benefits
Incentive Plan Model and Stock Option Model
In 2005, our board of directors approved an Incentive Plan Model and a Stock Option Model for
Messrs. Cornelsen and Burnett and Ms. Rush. The Incentive Plan Model and the Stock Option Model
provided mechanisms under which the Compensation Committee could, in its discretion, authorize cash
and equity compensation bonuses to the executive officers.
The models provide the Compensation Committee with guidelines for determining discretionary
bonuses. When granted, the cash bonus under the Incentive Plan Model is calculated by multiplying
the named executives base salary by a percentage factor calculated based on our return on assets,
return on equity and earnings per share at a threshold, target and stretch level. The options to
be granted under the Stock Option Model depend on whether Old Line Bancshares met the cumulative
threshold, target and stretch levels for our return on assets, return on equity and earnings per
share. If met, options with a value equal on the date of grant to a percentage of the executives
base salary based on the Black-Scholes pricing model are issued to the executives.
Under the 2005 Incentive Plan Model, at the target levels, Mr. Cornelsen would be eligible to
receive a bonus equal to 25% of his base salary and Mr. Burnett and Ms. Rush would be eligible to
receive a bonus equal to 20% of their base salaries. Under the Stock Option Model, at the target
levels, the officers would be eligible to receive options with a value equal on the date of grant
to 20% (for Mr. Cornelsen) or 15% (for Mr. Burnett and Ms. Rush) of base salary based on
Black-Scholes pricing model.
The Compensation Committee designed the incentive structure to reward achievement based on Old
Line Bancshares return on assets, return on equity and earnings per share, and to discourage the
achievement of one metric at the expense of the others. The board of directors and the
Compensation Committee of the board of directors are authorized to adjust, modify or terminate the
models, in full or in part, at any time in their sole discretion.
As we have previously disclosed, in October 2009, the Compensation Committee retained the
services of a compensation consultant for the purpose of conducting an analysis of peer bank
executive compensation as well as to conduct a review of our existing compensation structure for
compliance and competitiveness. Based on their findings, in January 2010 our board of directors
approved a modification to the Incentive Plan Model and Stock Option Model for our named
181
Executive Officers and added a new metric for the calculation of incentives. In addition to
return on assets, return on equity and earnings per share, a threshold, target and stretch goal for
non-performing assets will be included in the calculation going forward. Incentives will be
provided to our executives in the form of restricted stock used in conjunction with a combination
of cash and stock options in order to encourage focus on long term objectives as well as short term
goals.
Under the 2010 Incentive Plan Model, at the target levels, Mr. Cornelsen would be eligible to
receive a bonus equal to 25% of his base salary and Mr. Burnett and Ms. Rush would be eligible to
receive a bonus equal to 20% of their base salaries. Under the Equity Incentive Model, at the
target levels, the officers would be eligible to receive shares of restricted stock and/or options
with a total value equal on the date of grant to 20% (for Mr. Cornelsen) or 15% (for Mr. Burnett
and Ms. Rush) of base salary based on the Black-Scholes pricing model.
The board of directors and the Compensation Committee of the board of directors have certified
that the incentive compensation arrangements do not encourage unnecessary and excessive risks that
threaten the value of Old Line Bank.
The Stock Option Model does not affect the minimum number of options that the executives are
entitled to receive as provided for in their employment agreements, subject to the terms of those
agreements.
On January 28, 2010, the Compensation Committee of the board of directors of Old Line
Bancshares and Old Line Bank, reviewed the financial performance of Old Line Bancshares and Old
Line Bank for the fiscal year ended December 31, 2009 in order to determine what, if any, cash
bonus or incentive stock option bonus should be paid to the executive officers pursuant to the
Incentive Plan Model and Stock Option Model. In making its review, the Compensation Committee
reviewed Old Line Bancshares actual financial performance.
Based on this review, effective January 28, 2010, we issued incentive stock rewards to Mr.
Cornelsen, Mr. Burnett and Ms. Rush that consisted of stock options and restricted stock as
follows:
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
of |
|
|
Exercise |
|
Name of Officer |
|
Options |
|
|
Price |
|
James W. Cornelsen |
|
|
11,823 |
|
|
$ |
7.13 |
|
Joseph E. Burnett |
|
|
5,441 |
|
|
|
7.13 |
|
Christine M. Rush |
|
|
5,317 |
|
|
|
7.13 |
|
One-third of the option grant vested as of January 28, 2010, one-third of the option
grant will vest on January 28, 2011 and one-third of the option grant will vest on January
28, 2012. The options were issued from our 2004 Equity Incentive Plan.
Effective January 28, 2010, we issued shares of restricted stock to Mr. Cornelsen, Mr.
Burnett and Ms. Rush as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Restricted |
|
|
Stock |
|
Name of Officer |
|
Shares |
|
|
Price |
|
James W. Cornelsen |
|
|
7,351 |
|
|
$ |
7.13 |
|
Joseph E. Burnett |
|
|
3,383 |
|
|
|
7.13 |
|
Christine M. Rush |
|
|
3,307 |
|
|
|
7.13 |
|
The restricted stock also has a three year vesting schedule; one-third of the
restricted stock grant will vest on January 28, 2011, one-third of the restricted grant
will vest on January 28, 2012 and one-third of the restricted stock will vest on January
28, 2013.
Salary Continuation Agreements and Supplemental Life Insurance Agreements
On January 3, 2006, Old Line Bank entered into Supplemental Life Insurance Agreements and
Salary Continuation Agreements and started accruing for a related annual expense, with Mr.
Cornelsen, Mr. Burnett and Ms. Rush. On February 26, 2010, the Salary Continuation Agreements were
modified to include an increased benefit to each executive.
182
Under the Supplemental Life Insurance Agreements, Old Line Bank is obligated to cause the
payment of death benefits to the executives designated beneficiaries in the following amounts: Mr.
Cornelsen $1,260,777; Mr. Burnett $703,465 and Ms. Rush $797,618.
Under the Salary Continuation Agreements, and in accordance with the conditions specified
therein, benefits accrue over time from the date of the agreement until the executive reaches the
age of 65. Upon full vesting of the benefit, the executives will be paid the following annual
amounts for 15 years: Mr. Cornelsen $159,783; Mr. Burnett $24,651; and Ms. Rush $77,783. Mr.
Burnett will receive an additional $5,895 per year if he continues his employment with us until he
reaches age 68. The agreements provide for early termination and disability benefits. The
agreements also provide for 100% vesting in the event of a separation from service (defined as the
termination of the executives employment for any reason other than death or disability) following
a change in control (as defined in the agreements). Change in control is defined in the agreements
by reference to the definition in Section 409A of the Internal Revenue Code and the regulations
promulgated thereunder.
183
The following charts show the annual amount of payments that will be made to the
executives pursuant to the Salary Continuation Agreements:
James W. Cornelsen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early |
|
|
|
|
|
|
|
Assumed |
|
|
|
|
|
Termination |
|
|
Disability |
|
|
Change in |
|
Separation |
|
|
|
|
|
Annual |
|
|
Annual |
|
|
Control Annual |
|
Date |
|
Age |
|
|
Benefit(1) |
|
|
Benefit(1) |
|
|
Benefit(2) |
|
1/1/2010 |
|
|
55 |
|
|
|
38,793 |
|
|
|
38,793 |
|
|
|
100,753 |
|
1/1/2011 |
|
|
56 |
|
|
|
51,456 |
|
|
|
51,456 |
|
|
|
105,790 |
|
1/1/2012 |
|
|
57 |
|
|
|
64,120 |
|
|
|
64,120 |
|
|
|
111,079 |
|
1/1/2013 |
|
|
58 |
|
|
|
76,783 |
|
|
|
76,783 |
|
|
|
116,634 |
|
1/1/2014 |
|
|
59 |
|
|
|
89,446 |
|
|
|
89,446 |
|
|
|
122,465 |
|
1/1/2015 |
|
|
60 |
|
|
|
102,109 |
|
|
|
102,109 |
|
|
|
128,589 |
|
1/1/2016 |
|
|
61 |
|
|
|
114,774 |
|
|
|
114,774 |
|
|
|
135,018 |
|
1/1/2017 |
|
|
62 |
|
|
|
127,437 |
|
|
|
127,437 |
|
|
|
141,769 |
|
1/1/2018 |
|
|
63 |
|
|
|
140,100 |
|
|
|
140,100 |
|
|
|
148,858 |
|
1/1/2019 |
|
|
64 |
|
|
|
152,763 |
|
|
|
152,763 |
|
|
|
156,301 |
|
6/23/2019(3) |
|
|
65 |
|
|
|
159,738 |
|
|
|
159,738 |
|
|
|
159,738 |
|
Joseph E. Burnett
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early |
|
|
|
|
|
|
|
Assumed |
|
|
|
|
|
Termination |
|
|
Disability |
|
|
Change in |
|
Separation |
|
|
|
|
|
Annual |
|
|
Annual |
|
|
Control Annual |
|
Date |
|
Age |
|
|
Benefit(1) |
|
|
Benefit(1) |
|
|
Benefit(2) |
|
1/1/2010 |
|
|
64 |
|
|
|
18,446 |
|
|
|
18,446 |
|
|
|
27,013 |
|
12/10/2010(3) |
|
|
65 |
|
|
|
24,651 |
|
|
|
24,651 |
|
|
|
28,269 |
|
1/1/2012 |
|
|
66 |
|
|
|
2,948 |
|
|
|
2,948 |
|
|
|
5,347 |
|
1/1/2013 |
|
|
67 |
|
|
|
4,421 |
|
|
|
4,421 |
|
|
|
5,614 |
|
12/10/2013(3) |
|
|
68 |
|
|
|
5,895 |
|
|
|
5,895 |
|
|
|
5,895 |
|
Christine M. Rush
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early |
|
|
|
|
|
|
|
Assumed |
|
|
|
|
|
Termination |
|
|
Disability |
|
|
Change in |
|
Separation |
|
|
|
|
|
Annual |
|
|
Annual |
|
|
Control Annual |
|
Date |
|
Age |
|
|
Benefit(1) |
|
|
Benefit(1) |
|
|
Benefit(2) |
|
1/1/2010 |
|
|
53 |
|
|
|
14,784 |
|
|
|
14,784 |
|
|
|
45,054 |
|
1/1/2011 |
|
|
54 |
|
|
|
20,358 |
|
|
|
20,358 |
|
|
|
47,307 |
|
1/1/2012 |
|
|
55 |
|
|
|
25,932 |
|
|
|
25,932 |
|
|
|
49,672 |
|
1/1/2013 |
|
|
56 |
|
|
|
31,507 |
|
|
|
31,507 |
|
|
|
52,156 |
|
1/1/2014 |
|
|
57 |
|
|
|
37,081 |
|
|
|
37,081 |
|
|
|
54,764 |
|
1/1/2015 |
|
|
58 |
|
|
|
42,655 |
|
|
|
42,655 |
|
|
|
57,502 |
|
1/1/2016 |
|
|
59 |
|
|
|
48,229 |
|
|
|
48,229 |
|
|
|
60,377 |
|
1/1/2017 |
|
|
60 |
|
|
|
53,804 |
|
|
|
53,804 |
|
|
|
63,396 |
|
1/1/2018 |
|
|
61 |
|
|
|
59,378 |
|
|
|
59,378 |
|
|
|
66,566 |
|
1/1/2019 |
|
|
62 |
|
|
|
64,952 |
|
|
|
64,952 |
|
|
|
69,894 |
|
1/1/2020 |
|
|
63 |
|
|
|
70,526 |
|
|
|
70,526 |
|
|
|
73,389 |
|
1/1/2021 |
|
|
64 |
|
|
|
76,101 |
|
|
|
76,101 |
|
|
|
77,058 |
|
3/6/2021(3) |
|
|
65 |
|
|
|
77,773 |
|
|
|
77,773 |
|
|
|
77,773 |
|
|
|
|
(1) |
|
Payments are made in 180 equal monthly installments commencing within 60 days following normal retirement age. |
|
(2) |
|
Payments are made in 180 equal month installments commencing at separation of service. |
|
(3) |
|
This is the date the executive reaches normal retirement age. |
184
The following table discloses information about unexercised options and equity incentive
plan awards outstanding as of the end of the Companys last fiscal year.
OUTSTANDING EQUITY AWARDS
AT FISCAL YEAR-END
DECEMBER 31, 2009
Option Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
Underlying Unexercised |
|
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
|
Options: |
|
|
Option Exercise |
|
|
Option |
|
|
|
Options:Exercisable |
|
|
Unexercisable(1) |
|
|
Price |
|
|
Expiration Date |
|
James W. Cornelsen |
|
|
11,267 |
|
|
|
22,533 |
|
|
|
6.3000 |
|
|
|
01/22/2019 |
|
|
|
|
12,133 |
|
|
|
6,067 |
|
|
|
7.7500 |
|
|
|
01/31/2018 |
|
|
|
|
15,000 |
|
|
|
|
|
|
|
10.4800 |
|
|
|
01/25/2017 |
|
|
|
|
19,700 |
|
|
|
|
|
|
|
10.4400 |
|
|
|
12/31/2015 |
|
|
|
|
10,800 |
|
|
|
|
|
|
|
9.8250 |
|
|
|
12/31/2014 |
|
|
|
|
4,500 |
|
|
|
|
|
|
|
9.5833 |
|
|
|
12/31/2013 |
|
|
|
|
4,500 |
|
|
|
|
|
|
|
4.9440 |
|
|
|
12/31/2012 |
|
|
|
|
4,500 |
|
|
|
|
|
|
|
4.3889 |
|
|
|
12/31/2011 |
|
|
|
|
4,500 |
|
|
|
|
|
|
|
3.6000 |
|
|
|
12/31/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
86,900 |
|
|
|
28,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph E. Burnett |
|
|
2,900 |
|
|
|
5,800 |
|
|
|
6.3000 |
|
|
|
01/22/2019 |
|
|
|
|
6,533 |
|
|
|
3,267 |
|
|
|
7.7500 |
|
|
|
01/31/2018 |
|
|
|
|
5,200 |
|
|
|
|
|
|
|
10.4800 |
|
|
|
01/25/2017 |
|
|
|
|
8,800 |
|
|
|
|
|
|
|
10.4400 |
|
|
|
12/31/2015 |
|
|
|
|
3,960 |
|
|
|
|
|
|
|
9.8250 |
|
|
|
12/31/2014 |
|
|
|
|
2,700 |
|
|
|
|
|
|
|
9.5833 |
|
|
|
12/31/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
30,093 |
|
|
|
9,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christine M. Rush |
|
|
2,717 |
|
|
|
5,433 |
|
|
|
6.3000 |
|
|
|
01/22/2019 |
|
|
|
|
6,200 |
|
|
|
3,100 |
|
|
|
7.7500 |
|
|
|
01/31/2018 |
|
|
|
|
5,000 |
|
|
|
|
|
|
|
10.4800 |
|
|
|
01/25/2017 |
|
|
|
|
8,300 |
|
|
|
|
|
|
|
10.4400 |
|
|
|
12/31/2015 |
|
|
|
|
3,960 |
|
|
|
|
|
|
|
9.8250 |
|
|
|
12/31/2014 |
|
|
|
|
2,700 |
|
|
|
|
|
|
|
9.5833 |
|
|
|
12/31/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,877 |
|
|
|
8,533 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
1/2 of unexercisable options with an expiration date of 01/22/2019 will become
exercisable on January 22, 2010 and 1/2 will become exercisable on January 22,
2011. Unexercisable options with an expiration date of 01/31/2018 will become
exercisable on January 31, 2010 |
185
Director Compensation
The following table discloses all fees and other payments to each director for the
fiscal year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned |
|
|
Value |
|
|
|
|
|
|
or |
|
|
of |
|
|
|
|
Name |
|
Paid in Cash |
|
|
Option Awards(2)(3) |
|
|
Total |
|
Charles A. Bongar |
|
$ |
8,200 |
|
|
|
1,470 |
|
|
$ |
9,670 |
|
Craig E. Clark |
|
|
30,000 |
|
|
|
1,470 |
|
|
|
31,470 |
|
James W. Cornelsen(1) |
|
|
|
|
|
|
|
|
|
|
|
|
John P. Davey |
|
|
8,200 |
|
|
|
1,470 |
|
|
|
9,670 |
|
Daniel W. Deming |
|
|
9,400 |
|
|
|
1,470 |
|
|
|
10,870 |
|
James F. Dent |
|
|
9,200 |
|
|
|
1,470 |
|
|
|
10,670 |
|
Nancy Gasparovic |
|
|
7,400 |
|
|
|
1,470 |
|
|
|
8,870 |
|
Frank Lucente |
|
|
15,000 |
|
|
|
1,470 |
|
|
|
16,470 |
|
Gail D. Manuel |
|
|
8,600 |
|
|
|
1,470 |
|
|
|
10,070 |
|
John D. Mitchell |
|
|
9,200 |
|
|
|
1,470 |
|
|
|
10,670 |
|
Gregory S. Proctor |
|
|
9,400 |
|
|
|
1,470 |
|
|
|
10,870 |
|
Suhas Shah |
|
|
7,800 |
|
|
|
1,470 |
|
|
|
9,270 |
|
John M. Suit, II |
|
|
11,400 |
|
|
|
1,470 |
|
|
|
12,870 |
|
|
|
|
(1) |
|
Mr. Cornelsen is an executive officer and is not
compensated for his services as a director. |
|
(2) |
|
The aggregate number of options
outstanding is disclosed in the Security Ownership of
Management and Certain Security Holders table. |
|
(3) |
|
We estimated the weighted average fair
value of the options granted at $1.47 using the
Black-Scholes option pricing model as outlined in
footnote 20 in Item 8 Financial Statements of our 10-K
for the year ended December 31, 2009. |
For 2009, each non-employee director of Old Line Bank, other than the Chairman of the
Board and the Vice Chairman of the Board, received $400 for each attended meeting of the board of
directors, and $200 for each attended meeting of the asset & Liability Committee, the Loan/Loan
Review Committee and the Nominating Committee. Each non-employee director of Old Line Bank, other
than the Chairman of the Board and the Vice Chairman of the Board, also received $300 for each
attended meeting of the Compensation Committee and the Audit Committee. Each non-employee director
of Old Line Bank, other than the Chairman of the Board and the Vice Chairman of the Board, also
received a $250 quarterly retainer. During 2009, the Chairman of the Board received annual
compensation of $30,000 and the Vice Chairman received annual compensation of $15,000.
In December 2009, the board of directors of Old Line Bank approved an amended compensation
structure for the Directors of Old Line Bank. Beginning in January 2010, each non-employee
director of Old Line Bank, other than the Chairman of the Board and the Vice Chairman of the Board,
receives $400 for each attended meeting of the board of directors, and $200 for each attended
meeting of the Loan/Loan Review Committee and the Nominating Committee. Each non-employee director
of Old Line Bank, other than the Chairman and Vice-Chairman, receives $300 for each attended
meeting of the Asset & Liability Committee. Each non-employee director of Old Line Bank, other
than the Chairman of the Board and the Vice Chairman of the Board, also receives $300 for each
attended meeting of the Compensation Committee and the Audit Committee. The Chairmen of the Audit
Committee and Compensation Committee receive an additional $300 for each attended meeting of their
respective committees. Each non-employee director of Old Line Bank, other than the Chairman of the
Board and the Vice Chairman of the Board, also receive a $2,000 quarterly retainer. During 2010, the
186
Chairman of the Board receives annual compensation of $40,000 and the Vice Chairman receives
annual compensation of $20,000.
Old Line Bancshares has paid no cash remuneration, direct or otherwise, to its directors since
its incorporation. We expect that unless and until Old Line Bancshares becomes actively involved
in additional businesses other than owning all the capital stock of Old Line Bank, no separate cash
compensation will be paid to the directors of Old Line Bancshares in addition to that paid to them
by Old Line Bank in their capacities as directors of Old Line Bank. However, we may determine in
the future that such separate cash compensation is appropriate.
In addition to cash compensation, since 1997, Old Line Bancshares or Old Line Bank (prior to
Old Line Banks reorganization into the holding company structure) has granted options in December
of each year to its non-employee directors. Historically, each non-employee director was granted
an option to purchase 900 shares. In 2007, Old Line Bancshares granted 1,000 shares. In 2008, Old
Line Bancshares did not grant options to non-employee directors.
Old Line Bancshares granted an option to each non-employee director in January 2009 to
purchase 1,000 shares. All options were granted at fair market value, are exercisable immediately,
and expire on the tenth anniversary of the grant date. Also, the options terminate (if not
exercised) on the first anniversary of the termination of the directors service on the board of
directors.
Old Line Bancshares granted 300 shares of restricted stock to each non-employee director in
January 2010. All stock was granted at market value and will vest on December 31, 2010. All
shares terminate, if not vested, upon termination of the directors service on the board of
directors.
OLD LINE BANCSHARES, INC. 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 and on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans to unrelated persons. In the
opinion of management, these transactions do not and will not involve more than the normal risk of
collectability 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 to Old Line Banks directors, executive officers and their
affiliates at December 31, 2009 was approximately $1.5 million and at December 31, 2008 was
approximately $890,000.
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 $21,566 and $15,481 during
the years ended December 31, 2009 and December 31, 2008, respectively.
Old Line Bancshares has a 62.50% or $1.1 million investment in Pointer Ridge. Frank Lucente, a
director of Old Line Bancshares and Old Line Bank, controls 12.50% of Pointer Ridge and controls
the manager of Pointer Ridge. In 2009 and 2008, Old Line Bank paid Pointer Ridge $526,495 and
$513,939, respectively. We have paid Pointer Ridge $450,573 to date during 2010.
187
INFORMATION ABOUT MARYLAND BANKCORP, INC. AND MARYLAND BANK & TRUST COMPANY, N.A.
In this section references to we and our refer to Maryland Bankcorp, Inc. and its
subsidiaries collectively, and the Bank refers to Maryland Bank & Trust Company, N.A., unless the
context requires otherwise.
BUSINESS OF MARYLAND BANKCORP, INC.
Maryland Bankcorp, Inc. was organized on September 28, 2001, at the direction of the board of
directors of the Bank, to acquire the stock of the Bank and to engage in such other business
activities permitted by law for bank holding companies. On September 28, 2001, after board of
directors, stockholder and regulatory approval, each outstanding share of common stock of the Bank
was exchanged for one share of Maryland Bankcorps common stock. As a result of the exchange of
shares, the stockholders of the Bank became stockholders of Maryland Bankcorp and Maryland Bankcorp
became the sole stockholder of the Bank.
Our primary business is to own all of the capital stock of the Bank.
BUSINESS OF MARYLAND BANK & TRUST COMPANY, N.A.
General
The Bank was originally incorporated in 1959 under the laws of the State of Maryland, and
effective August 1, 1997, became a national bank. The Bank provides a full range of banking
services to individuals and corporate customers primarily in Southern Maryland. The Bank is
subject to competition from other financial institutions and is subject to the regulations of
certain federal and state agencies.
We are headquartered in Lexington Park, Maryland, approximately 60 miles south-east of
Washington, D.C. We provide a variety of products and services to individuals and businesses in
our market area. Deposit accounts include savings, checking (including NOW accounts), money
market, individual retirement accounts and certificates of deposit. Our lending products include
real estate loans, personal loans and commercial loans. The loan products also include charge
cards, overdraft protection, home equity loans and others. We offer other services such as money
orders, safe deposit boxes, ACH origination, payroll direct deposit services, ATMs and remote cash
dispensers, direct and remote deposit and banking by mail. We offer a Visa Check (Debit) Card
product and a telephone banking service. Additionally, we provide a PC banking product for both
personal and commercial customers and a business cash management service as well as an Internet
bill pay product. We emphasize meeting the needs of our local consumers and businesses while
subscribing to strong community reinvestment activities and a committed to quality bank image.
Our current primary market area is Southern Maryland.
Recent Business Developments
Formal Agreement with the OCC
In February 2006 we signed a formal written agreement with the OCC under which we have agreed,
among other things, to improve our credit administration process, commercial loan underwriting and
loan asset quality, compliance with regulatory and policy requirements (including the Bank Secrecy
Act and Regulation O), board of director committee structure and processes and personnel
management. We are also required to maintain higher than normal risk-based and leverage capital
levels. We believe that we have resolved the issues set forth in the formal written agreement, and
have met, and continue to meet, the minimum capital requirements under the formal written
agreement. See The Merger Agreement and the Merger Regulatory Matters Regarding Maryland Bank
& Trust for more information.
Fiftieth Anniversary
In 2009 we celebrated the 50th anniversary of the founding of the Bank.
Growth
Over the last five to ten years, we have taken advantage of growth opportunities resulting
largely from the Base Realignment and Closing legislation (BRAC) mandated by Congress. The
Patuxent River Naval Air Station and other
188
military bases in our market area have produced an
influx of over 25,000 residents, many of whom have high-paying jobs. This prosperity and our close
proximity to Washington, D.C. and Baltimore, Maryland have provided the Bank growth opportunities.
Location and Market Area
We consider our current primary market area to be Southern Maryland. Our headquarters and a
branch of the Bank are located at Lexington Park, St. Marys County, Maryland. We currently have a
support center in Waldorf, Maryland, and a total of ten branches in Waldorf, Lexington Park, Bryans
Road, Fort Washington, La Plata (two branches), California, Callaway, Solomons and Prince
Frederick, Maryland.
Competition
We experience substantial competition both in attracting and retaining deposits and in the
making of loans. We compete for deposits with other commercial banks, savings institutions and
credit unions located in our primary market area. Additional competition for deposits comes from
mutual funds and corporate and government debt securities. The primary factors in competing for
deposits and loans are interest rates and loan origination fees and the range of services offered
by the various financial institutions. Competition for origination of real estate and other loans
normally comes from other commercial banks, thrift institutions, mortgage bankers, mortgage brokers
and insurance companies.
Employees
As of September 30, 2010, the Bank had 98 full time and 14 part time employees. No collective
bargaining unit represents any of our employees and we believe that relations with our employees
are good. Maryland Bankcorp has five appointed executive officers, who at the present time do not
receive compensation for their services to Maryland Bankcorp.
Lending Activities
General. Our lending activity consists mainly of construction lending, commercial business
lending, commercial real estate lending, home mortgage and home equity lending and consumer lending
in our primary market area. We have always taken pride in our local community reinvestment
achievements and we remain committed to providing loans locally while ensuring high standards for
customer satisfaction.
All credit decisions in excess of a lending officers lending authority must be approved by a
majority vote of our loan committee consisting of the board of directors, Chief Credit Officer and
Chief Lending Officer. We believe that we employ experienced lending officers, secure appropriate
collateral and carefully monitor the financial condition of our borrowers and the concentrations of
loans in our portfolio. Senior management monitors the loan portfolio closely to ensure that we
minimize past due loans and that we promptly address potential problem loans.
The Bank also retains an outside, independent credit review firm to supplement and validate
the review of its loan portfolio. This firm performs detailed reviews of the Banks loan portfolio
semi-annually. We use the results of the firms report to validate our internal loan ratings and
we utilize their commentary on our loan portfolio and on our loan administration activities in
order to improve our business and operations. In addition, the Banks regulator and independent
auditor may conduct reviews of our loan portfolio.
Commercial Business Lending. Commercial business loans generally have a higher degree of risk
than loans secured by real property but have higher yields. To manage this risk, we generally
obtain appropriate collateral and personal guarantees from the borrowers principal owners and
monitor the financial condition of our business borrowers. The ability of our business borrowers
to repay the commercial business loans is substantially dependent on the success of the business
itself. We have a loan review and monitoring process to regularly assess the repayment ability of
commercial borrowers. For loans in excess of $325,000, monitoring usually includes a review of the
borrowers annual tax returns and updated financial statements.
Commercial Real Estate Lending. Commercial real estate loans comprise our largest loan
category. At June 30, 2010, commercial real estate loans totaled $121.4 million, or 53.49% of our
total loans. We generally will lend up to 80% of the secured propertys appraised value.
Commercial real estate loans typically involve larger loan balances concentrated with single
borrowers or group of related borrowers. Additionally, the payment of loans secured by income
producing properties is typically dependent on the successful operation of a business or a real
estate project, and thus may be subject to a greater
189
extent to adverse conditions in the real
estate market or in the economic environment. Our commercial real estate loan underwriting
criteria require an examination of debt service coverage ratios, the borrowers creditworthiness
and prior credit history and reputation and we often require personal guarantees or endorsements of
the borrowers principal owners. We also carefully evaluate the location of the property securing
the loan. For loans of this type in excess of $325,000, we monitor the financial condition and
operating performance of the borrower through a review of annual tax returns and updated financial
statements, and will meet with the borrower or perform site visits as required.
Construction and Development Lending. We make local construction and land acquisition and
development loans. Residential houses and commercial real estate under construction and the
underlying land secure construction loans. These loans are concentrated in our local markets.
These loans typically mature in less than one year. Construction lending entails significant
additional risks compared to residential mortgage lending. Construction loans often involve large
loan balances concentrated with single borrowers or groups of related borrowers. In addition, it
is difficult to estimate the value and cost of the building under construction. Thus, it is
difficult to evaluate accurately the total loan funds required to complete a project and related
loan-to-value ratios. To mitigate the risks associated with construction lending, we generally
limit loan amounts to 75% of appraised value in addition to analyzing the creditworthiness of our
borrowers. During construction, we may advance funds on these loans on a percentage of completion
basis, and will inspect each project as needed prior to advancing funds during the term of the
construction loan.
Residential Real Estate Lending. We offer a variety of consumer-oriented residential real
estate mortgage loans. The majority of these loans are in our primary market area. In connection
with our residential real estate loans, we generally require title insurance, hazard insurance and
if required, flood insurance. We do not have any sub-prime residential real estate loans. We also
offer home equity lines of credit and loans.
Consumer Lending. We also offer our customers secured and unsecured consumer loans, including
unsecured personal loans and lines of credit, automobile loans, installment and demand loans and
credit cards. The underwriting standards we employ to mitigate the risk related to consumer loans
include a determination of the applicants payment history on other debts and an assessment of the
applicants ability to meet existing obligations and payments on the proposed loan, sources of
income, and an analysis of the value of any security in relation to the proposed loan amount. We
typically make such loans to customers with whom we have a pre-existing relationship.
Consumer loans may present greater credit risk than residential mortgage loans, particularly
loans that are unsecured, or secured by rapidly depreciable assets such as automobiles.
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 borrowers continuing financial stability,
and thus are more likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Also, various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount we can recover on such loans.
Lending Limit. As of June 30, 2010, our legal lending limit for loans to one borrower was
approximately $4.9 million. As part of our risk management strategy, we may attempt to participate
a portion of larger loans to other financial institutions. This strategy allows the Bank to
maintain customer relationships yet reduce credit exposure. However, this strategy may not always
be available.
Investments and Funding
Our investment portfolio at June 30, 2010 was $85.1 million. This investment portfolio
consists of interest-bearing deposits with banks and short-term money market securities, as well as
U.S. Treasury securities, corporate bonds, Federal Reserve Bank and Federal Home Loan Bank stock
and other investments. The investment portfolio may increase or decrease depending upon the
comparative returns on investments in relation to our loans.
Other Banking Products
We offer other services such as money orders, safe deposit boxes, ACH origination, payroll
direct deposit services, ATMs and remote cash dispensers, overdraft protection, direct and remote
deposit and banking by mail. We offer a Visa
Check (Debit) Card product and a telephone banking service. Additionally, we provide a PC
banking product for both personal and commercial customers and a business cash management service
as well as an Internet bill pay product.
190
Deposit Activities
We offer a broad array of deposit products that include savings, checking (including NOW
accounts), money market, individual retirement accounts and certificates of deposit. We believe
that we pay competitive rates on our interest bearing deposits. Through the Promontory
Interfinancial Network we provide the certificate of deposit account registry service (CDARS).
This product offers our customers access to FDIC-insured deposit products in aggregate amounts
exceeding current insurance limits.
Supervision and Regulation
Maryland Bankcorp and Maryland Bank & Trust 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. 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.
Maryland Bankcorp, Inc.
Maryland Bankcorp is a Maryland corporation registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended. We are subject to regulation and examination by the
Federal Reserve Board, and are 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 bank holding
company of control of more than 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.
Subject to certain time and deposit base requirements, we can 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 of its subsidiary
banks 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 Acts 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, Maryland Bankcorp is expected to act as a
source of financial strength to the Bank and to commit resources to support the Bank in
circumstances in which Maryland Bankcorp 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 Reserves 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 institutions financial condition.
The Federal Reserve Board imposes risk-based capital measures on bank holding companies in
order to insure their capital adequacy. Additionally, the Dodd-Frank Act requires the Federal
Reserve Board to issue consolidated regulatory capital requirements for holding companies that are
at least as stringent as those applicable to the Bank. However, the Dodd-Frank Act appears to
allow the Federal Reserve Board to continue to exempt bank holding companies of less than $500
million in consolidated assets from the holding company capital requirements.
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. In approving the application, the Maryland
Commissioner must consider whether the acquisition may be detrimental to the safety and soundness
of the entity
191
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 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 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 is not required due to an exemption under Maryland law, or
for which federal law authorizes the transaction without application to the Maryland Commissioner,
the parties to the acquisition must provide written notice to the Maryland Commissioner at least 15
days before the effective date of the transaction.
The status of Maryland Bankcorp as a registered bank holding company under the Bank Holding
Company Act does not exempt it from certain federal and state laws and regulations applicable to
Maryland corporations generally, including, without limitation, certain provisions of the federal
securities laws.
Maryland Bank & Trust Company, N.A.
Maryland Bank & Trust is a national banking association, and the FDIC insures its deposit
accounts up to the maximum legal limits. It is subject to regulation, supervision and regular
examination by the OCC. The Bank is also subject to applicable banking provisions of Maryland law
insofar as they do not conflict with or are not preempted by federal law. The regulations of these
various agencies govern most aspects of the Banks 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 the Bank generally have been
promulgated to protect depositors and the deposit insurance fund, and not for the purpose of
protecting its stockholders.
As discussed above, we are subject to a formal written agreement with the OCC.
The following references to the laws and regulations which regulate Maryland Bank & Trust are
brief summaries thereof, do not purport to be complete, and are qualified in their entirety by
reference to such laws and regulations.
Capital Adequacy Guidelines
The Federal Reserve Board, the OCC 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.
National 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 Tier 1 Capital. In general, this requirement is
similar to the capital that a bank must have in order to be considered adequately capitalized
under the prompt corrective action regulations. See Prompt Corrective Action. Under our
written agreement with the OCC we are required to maintain capital levels as follows: Tier 1
Risk-Based Capital of 12%; Total Risk-Based Capital of 14%; and Tier 1 Leverage Capital of 8%. We
believe that the Bank meets, and will continue to be able to meet, the required higher risk-based
and leverage capital minimums as set forth in the written agreement.
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. 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.
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In addition to the risk-based capital requirements, the OCC and the FDIC have established a
minimum 3.0% Leverage Capital Ratio (Tier 1 Capital to total adjusted assets) requirement for the
most highly-rated national 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 the OCC and FDIC determine
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 national bank or bank
holding company having less than the minimum Leverage Capital Ratio requirement must, within 60
days of the date as of which it fails to comply with such requirement, submit to the applicable
regulatory agency for review a reasonable plan describing the means and timing by which the bank
will achieve its minimum Leverage Capital Ratio requirement. A national bank or bank holding
company that fails to file such a plan is deemed to be operating in an unsafe and unsound manner,
and could be subject to a cease-and-desist order.
The OCC and FDIC regulations also provide that any insured depository institution with a
Leverage Capital Ratio less than 2% is deemed to be operating in an unsafe or unsound condition.
Operating in an unsafe or unsound manner could lead the FDIC to terminate 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 with the
OCC and FDIC to increase its Leverage Capital Ratio to such level as the OCC or FDIC deems
appropriate 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 by the OCC or the FDIC or their respective designee(s) 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. Such directive is enforceable in
the same manner as a final cease-and-desist order.
On September 3, 2009, the U. S. Treasury issued a policy statement (the Treasury Policy
Statement) entitled Principles for Reforming the U.S. and International Regulatory Capital
Framework for Banking Firms. The U.S. Treasury developed this statement in consultation with the
U.S. bank regulatory agencies and contemplates changes to the existing regulatory capital regime
that would involve substantial revisions to the regulatory capital and liquidity regime for
regulated banking organizations and other systemically important institutions. The Treasury Policy
Statement calls for, among other things, higher and stronger capital requirements for all banking
firms. The Treasury Policy Statement suggested that changes to the regulatory capital framework be
phased in over a period of several years. The recommended schedule provides for a comprehensive
international agreement by December 31, 2010, with the implementation of reforms by December 31,
2012, although it does remain possible that U.S. bank regulatory agencies could officially adopt,
or informally implement new capital standards at an earlier date.
On December 17, 2009, the Basel Committee on Banking Supervision (Basel Committee) issued a
set of proposals (the Capital Proposals) that would significantly revise the definitions of Tier
1 Capital and Tier 2 Capital, with the most significant changes being to Tier 1 Capital. Most
notably, the Capital Proposals would also re-emphasize that common equity is the predominant
component of Tier 1 Capital by adding a minimum common equity to risk-weighted assets ratio and
requiring that goodwill, general intangibles and certain other items that currently must be
deducted from Tier 1 Capital instead be deducted from common equity as a component of Tier 1
Capital. The Capital Proposals also leave open the possibility that the Basel Committee will
recommend changes to the minimum Tier 1 Capital and total capital ratios of 4.0% and 8.0%,
respectively.
Concurrently with the release of the Capital Proposals, the Basel Committee also released a
set of proposals related to liquidity risk exposure (the Liquidity Proposals, and together with
the Capital Proposals, the 2009 Basel Committee Proposals). The Liquidity Proposals have three
key elements, including the implementation of (i) a liquidity coverage ratio designed to ensure
that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the
banks liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a
net stable funding ratio designed to promote more medium and long term funding of the assets and
activities of banks over a one year time horizon, and (iii) a set of monitoring tools that the
Basel Committee indicates should be considered as the minimum types of information that banks
should report to supervisors and that supervisors should use in monitoring the liquidity risk
profiles of supervised entities.
Comments on the 2009 Basel Committee Proposals were due by April 16, 2010, with the
expectation that the Basel Committee will release a comprehensive set of proposals by December 31,
2010 and that final provisions will be implemented by December 31, 2012. The U.S. bank regulators
urged comment on the 2009 Basel Committee Proposals. Ultimate implementation of such proposals in
the U.S. will be subject to the discretion of the U.S. bank regulators and the
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regulations or
guidelines adopted by such agencies may differ from the 2009 Basel Committee Proposals and other
proposals that the Basel Committee may promulgate in the future.
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 institutions 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 will
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.
Immediately upon becoming undercapitalized, an institution becomes 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 institutions 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 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.
A critically undercapitalized institution will 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.
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Additionally, under Section 11(c)(5) of the FDIA, a conservator or receiver may be appointed
for an institution where: (i) an institutions obligations exceed its assets; (ii) there is
substantial dissipation of the institutions 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 institutions 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 institutions 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.
As a result of the written agreement with the OCC, although it exceeds its ratio minimums,
Maryland Bank & Trust is considered adequately capitalized.
Deposit Insurance Assessments
The DIF insures substantially all of the Banks deposits. The FDIC maintains a risk based
assessment system for determining deposit insurance premiums. The FDIC has established four risk
categories (I-IV), each subject to different premium rates, based upon an institutions status as
well capitalized, adequately capitalized or under capitalized, and the institutions supervisory
rating. In December 2008, the FDIC raised the then current assessment rates uniformly by 7 basis
points for the first quarter of 2009 assessment, which resulted in annualized assessment rates for
institutions in Risk Category 1 (well capitalized institutions, perceived as posing the least risk
to the insurance fund) from 12 to 14 basis points. In February 2009, the FDIC issued final rules
to amend the DIF restoration plan, change the risk-based assessment system and set assessment rates
for Risk Category 1 institutions beginning in the second quarter of 2009. As a result of this
final rule the annualized assessment rates for institutions in Risk Category 1 range from 12 to 16
basis points. The Banks annualized base assessment rate is 16 basis points.
The FDIC has authority to further increase insurance assessments. In addition, the Dodd-Frank
Act requires that the FDIC amend its assessment system to base it on total assets less tangible
equity rather than deposits. A significant increase in insurance premiums would likely have an
adverse effect on the operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.
Under the FDIA, the FDIC may terminate insurance of deposits upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Deposit Insurance
Because of the recent difficult economic conditions, deposit insurance per account owner had
been raised to $250,000 for all types of accounts until January 1, 2014. That level was made
permanent by the newly enacted Dodd-Frank Act. In addition, the FDIC adopted an optional Temporary
Liquidity Guarantee Program under which, for a fee, noninterest-bearing transaction accounts would
receive unlimited insurance coverage until June 30, 2010, subsequently extended to December 31,
2010. The Dodd-Frank Act extends the unlimited coverage of noninterest-bearing transaction
accounts until December 31, 2012 without providing an opt out. The TLGP also included a debt
component under which certain senior unsecured debt issued by institutions and their holding
companies between October 13, 2008 and October 31, 2009 would be guaranteed by the FDIC through
June 30, 2012, or in some cases, December 31, 2012.
Regulatory Enforcement Authority
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) included
substantial enhancement to the enforcement powers available to federal banking regulators,
including the Federal Reserve Board. 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
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regulatory authorities. FIRREA significantly increased the amount of and grounds for civil
money penalties and requires, except under certain circumstances, public disclosure of final
enforcement actions by the federal banking agencies.
Dividends
Maryland Bankcorp is a legal entity separate and distinct from Maryland Bank & Trust.
Virtually all of Maryland Bankcorps revenue available for the payment of dividends on its common
stock results from dividends paid to Maryland Bankcorp by the Bank. All such dividends are subject
to limitations imposed by federal and state laws and by regulations and policies adopted by federal
and state regulatory agencies. As a national association, Maryland Bank & Trust is required by
federal law to obtain the approval of the OCC for the payment of dividends if the total of all
dividends declared by the board of directors of the Bank in any calendar year will exceed the total
of the Banks net income for that year and the retained net income for the preceding two years,
less any required transfers to surplus or a fund for the retirement of any preferred stock, subject
to the further limitations that a national association can pay dividends only to the extent that
the national association would not become undercapitalized as defined under federal law.
Dividends may be further restricted if, in the opinion of the OCC, the national association or
bank holding company under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice.
Community Reinvestment Act
The 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 the Bank, the OCC
evaluates the record of the 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 institutions 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, among other things, 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. The Bank received a Satisfactory rating in its latest CRA examination.
USA Patriot Act
The USA Patriot Act of 2001 (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 Patriot Act requires financial institutions, including banks, to establish
anti-money laundering programs, including employee training and independent audit requirements,
meet minimum standards specified by the Act, follow minimum standards for customer identification
and maintenance of customer identification records, and regularly compare customer lists against
lists of suspected terrorists, terrorist organizations and money launderers. The U.S. Treasury has
issued a number of implementing regulations that apply to various requirements of the USA Patriot
Act to financial institutions such as the Bank. Those regulations impose obligations on financial
institutions to maintain appropriate policies, procedures and controls to detect, prevent and
report money laundering and terrorist financing.
Failure of a financial institution to comply with the USA Patriot Acts requirements could
have serious legal and reputational consequences for the institution. The 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 the U.S. Treasurys
regulations.
The costs or other effects of the compliance burdens imposed by the Patriot Act or future
anti-terrorist, homeland security or anti-money laundering legislation or regulations cannot be
predicted with certainty.
Consumer Protection Laws
Maryland Bank & Trust is subject to a number of federal and state laws designed to protect
borrowers and promote lending to various sectors of the economy. These laws include the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions
Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement
Procedures Act, and various state law counterparts.
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In addition, federal law currently contains extensive customer privacy protection provisions.
Under these provisions, a financial institution must provide to its customers, at the inception of
the customer relationship and annually thereafter, the institutions policies and procedures
regarding the handling of customers nonpublic personal financial information. These provisions
also provide that, except for certain limited exceptions, a financial institution may not provide
such personal information to unaffiliated third parties unless the institution discloses to the
customer that such information may be so provided and the customer is given the opportunity to opt
out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances,
to obtain or attempt to obtain customer information of a financial nature by fraudulent or
deceptive means.
The Dodd-Frank Act transferred responsibility for the implementation of financial consumer
protection laws to a new independent agency in the Federal Reserve Board. The new agency, the
Consumer Financial Protection Bureau, will issue rules and regulations governing consumer financial
protection. However, depository institutions of less than $10 billion in assets will continue to
be examined for compliance with consumer protection laws by the prudential regulators which will
also have enforcement authority.
Effective July 1, 2010, the Electronic Fund Transfer Act prohibits financial institutions from
charging consumers fees for paying overdrafts on ATMs and one-time debit card transactions, unless
a consumer consents, or opts in, to the overdraft service for those types of transactions. If a
consumer does not opt in, any ATM transaction or debit that overdraws the consumers account will
be denied. Overdrafts on the payment of checks and regular electronic bill payments are not
covered by this new rule. Before opting in, the consumer must be provided a notice that explains
the financial institutions overdraft services, including the fees associated with the service, and
the consumers choices. Financial institutions must provide consumers who do not opt in with the
same account terms, conditions and features (including pricing) that they provide to consumers who
do opt in.
Financial Regulatory Legislation
The previously referenced Dodd-Frank Act contains a wide variety of provisions affecting the
regulation of depository institutions in addition to those already mentioned. Those include
restrictions related to mortgage originations, risk retention requirements as to securitized loans
and the noted newly created consumer protection agency. The full impact of the Dodd-Frank Act on
our business and operations will not be known for years until regulations implementing the statute
are written and adopted. The Dodd-Frank Act may have a material impact on our operations,
particularly through increased compliance costs resulting from possible future consumer and fair
lending regulations.
In addition to the Dodd-Frank Act and the regulations that will be promulgated thereunder, new
regulations and statutes are regularly proposed that contain wide-ranging proposals for altering
the structures, regulations, and competitive relationships of the nations financial institutions.
We cannot predict whether or in what form any proposed regulation or statute will be adopted or the
extent to which any new regulation or statute may affect our business.
Insider Transactions
The Bank is subject to the provisions of Section 23A and 23B of the Federal Reserve Act and
Regulation W of the Federal Reserve Boards regulations (collectively, Regulation W), which place
limits on the amount of loans or extensions of credit to affiliates (including Maryland Bankcorp),
investments in or certain other transactions with affiliates and on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. Regulation W limits the
aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of
the Bank, and also limits the aggregate amount of transactions with all affiliates to 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 the regulation.
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Federal law and Regulation W, among other things, prohibit an institution from engaging in
certain transactions with certain affiliates (as defined in the Federal Reserve Act) 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. In addition, under Regulation W:
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a bank and its subsidiaries may not purchase a low-quality asset from an affiliate; |
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covered transactions and other specified transactions between a bank or its
subsidiaries and an affiliate must be on terms and conditions that are consistent with
safe and sound banking practices; and |
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with some exceptions, each loan or extension of credit by a bank to an affiliate
must be secured by collateral with a market value ranging from 100% to 130%, depending
on the type of collateral, of the amount of the loan or extension of credit. |
Regulation W generally excludes all nonbank and nonsavings association subsidiaries of banks
from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat
these subsidiaries as affiliates.
The Bank is also subject to the restrictions contained in Section 22(h) of the Federal Reserve
Act and the Federal Reserve Boards Regulation O thereunder (collectively Regulation O), which
govern loans and extensions of credit to executive officers, directors and principal stockholders.
Under Section 22(h), loans to a director, an executive officer or a greater-than-10% stockholder of
a bank as well as certain affiliated interests of any of the foregoing may not exceed, together
with all other outstanding loans to such person and affiliated interests, the loans-to-one-borrower
limit applicable to national banks (generally 15% of the institutions unimpaired capital and
surplus), and all loans to all such persons in the aggregate may not exceed the institutions
unimpaired capital and unimpaired surplus. Regulation O also prohibits the making of loans in an
amount greater than $25,000 or 5% of capital and surplus but in any event not over $500,000, to
directors, executive officers and greater-than-10% stockholders of a bank, and their respective
affiliates, unless such loans are approved in advance by a majority of its board of directors with
any interested director not participating in the voting. Further, Regulation O requires that
loans to directors, executive officers and principal stockholders be made on terms substantially
the same as those that are offered in comparable transactions to unrelated third parties unless the
loans are made pursuant to a benefit or compensation program that is widely available to all
employees of the bank and does not give preference to insiders over other employees. Regulation O
also prohibits a depository institution from paying overdrafts over $1,000 of any of its executive
officers or directors unless they are paid pursuant to written pre-authorized extension of credit
or transfer of funds plans.
All of the Banks loans to its and Maryland Bankcorps executive officers, directors and
greater-than-10% stockholders, and affiliated interests of such persons, comply with the
requirements of Regulation W and Regulation O.
Loans to One Borrower
As a national bank, the 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 national bank may have to any one borrower at any one time is 15% of the banks unimpaired
capital and surplus. A national bank may lend an additional 10% on top of the 15% if the amount
that exceeds 15% of the banks unimpaired capital and surplus is fully secured by readily
marketable collateral.
Liquidity
The Bank is subject to the reserve requirements of the Federal Reserve Boards Regulation D,
which applies to all depository institutions with transaction accounts or non-personal time
deposits. Specifically, amounts in transaction accounts above $10.7 million and up to $55.2
million must have reserves held against them in the ratio of 3 percent of the amount. Amounts
above $55.2 million require reserves of $1.355 million plus 10 percent of the amount in excess of
$55.2 million. The Bank is in compliance with the applicable liquidity requirements.
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Other Matters
Federal and state law also contain a wide variety of other provisions that affect the
operations of Maryland Bankcorp and the Bank, including, but not limited to, certain reporting and
disclosure requirements; standards and guidelines for underwriting, account management and other
aspects of lending activities; laws that prohibit discrimination; restrictions on establishing and
closing branches; limitations on transactions with affiliates; restrictions on loans to insiders;
and requirements relating to privacy and data security.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies
of the United States government and its agencies. The Federal Reserve Boards monetary policies
have had, and are likely to continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in order, among other
things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve
Board affect the levels of bank loans, investments and deposits through its control over the
issuance of United States government securities, its regulation of the discount rate applicable to
member banks and its influence over reserve requirements to which member banks are subject. We
cannot predict the nature or impact of future changes in monetary and fiscal policies.
Legal Proceedings
From time to time, Maryland Bankcorp or the Bank may be involved in litigation relating to
claims arising out of its normal course of business. As of the date of this joint proxy
statement/prospectus, we did not have any material pending legal matters or litigation for Maryland
Bankcorp or the Bank.
MARYLAND BANKCORP MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Some of the matters discussed below include forward-looking statements. Forward-looking
statements often use words such as believe, expect, plans, 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 no relate strictly to historical or current
facts. Our actual results and the actual outcome of our expectations and strategies could be
different from those anticipated or estimated for the reason discussed below and under the heading
Caution Regarding Forward Looking Statements. The following discussion is intended to further
your understanding of Maryland Bankcorps consolidated financial condition and results of
operations for the periods indicated, and should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this joint proxy statement/prospectus.
Overview
Maryland Bankcorp was organized on September 28, 2001 at the direction of the Board of
Directors of Maryland Bank & Trust to acquire the stock of the Bank and to engage in such other
business activities permitted by law for bank holding companies. On September 28, 2001, each
outstanding share of common stock of the Bank was exchanged for one share of the common stock of
Maryland Bankcorp. As a result of the exchange of shares, the stockholders of the Bank became
stockholders of Maryland Bankcorp and Maryland Bankcorp became the sole stockholder of the Bank.
The Bank was originally incorporated in 1959 under the laws of the State of Maryland, and
effective August 1, 1997, became a national bank. The Bank provides a full range of banking
services to individuals and corporate customers primarily in Southern Maryland.
As we have previously discussed in this joint proxy statement/prospectus, the Bank operates
under a formal written agreement with the OCC dated February 10, 2006. Pursuant to the written
agreement, the Bank formally agreed to, among other things, maintain higher than normal risk-based
and leverage capital minimums as follows: Tier 1 Risk-Based capital of 12%; Total Risk-Based
capital of 14%; and Tier 1 leverage capital of 8%. We currently exceed these minimums and expect
to exceed them in the foreseeable future. We believe the Bank is in substantial compliance with
all aspects of the written agreement.
199
Summary of Recent Performance and Other Activities
Year Ended December 31, 2009
The recession of 2008 and 2009 has shaken many of the worlds financial markets and Southern
Maryland was no exception to that reality. It has always been our focus to lend money to help
people in Southern Maryland build homes and enable them to start and grow their businesses. As a
result, much of the collateral for those types of loans is centered in real estate or associated
with real estate construction and development. Lending challenges resulting from decreased values
and demand for home and real estate loans presented increased credit quality issues to go along
with a sudden drop in interest rates and an unprecedented increase in fees imposed on banks by the
government. We responded to the increase in credit quality issues and charge offs by increasing
our allowance for loan losses from $2.6 million at December 31, 2008 to $6.2 million at December
31, 2009. This increase in the allowance for loan losses contributed largely to our $3.8 million
loss in 2009.
The following events occurred during 2009:
|
|
|
Total assets grew over $43.4 million or 14.08%. |
|
|
|
|
Gross loans grew $27.5 million or 12.42%. |
|
|
|
|
We took a $5.7 million provision for loan losses allowing the allowance for loan
losses to increase by $3.6 million from $2.6 million to $6.2 million. |
|
|
|
|
We had charged-off loans of $2.6 million and an increase of $1.8 million in
nonaccrual loans. |
|
|
|
|
Investment portfolio grew by $20.5 million or 30.01%. |
|
|
|
|
Total deposits grew $38.6 million or 14.78%. |
|
|
|
|
The Bank maintained Tier 1 Risk-Based Capital, Total Risk-Based Capital and Tier 1
Leverage Capital ratios of 13.10%, 14.36% and 8.83%, respectively, at year end,
exceeding the required regulatory capital minimums. |
|
|
|
|
We obtained a line of credit of $3.5 million and a $2.0 million loan as measures to
assure the protection of the Banks capital ratios. |
|
|
|
|
We recorded $551,000 net gains from sales on investment securities. |
|
|
|
|
We incurred a $552,000 increase in FDIC insurance premiums inclusive of special
assessments of $264,000. |
Six-Month Period Ended June 30, 2010
Increased credit quality issues and increased credit losses required an increase in the
allowance for loan losses to $6.6 million at June 30, 2010 from $6.2 million at December 31, 2009
and $2.6 million at June 30, 2009. The provision for loan losses of $2.4 million for the six-month
period ended June 30, 2010 compares to $456,000 for the six-month period ended June 30, 2009 and
$5.7 million for the year ended December 31, 2009. The credit losses of $2.1 million for the
six-month period ended June 30, 2010 compares to $497,000 for the six-month period ended June 30,
2009 and $2.6 million for the year ended December 31, 2009. The increase to the allowance for loan
losses contributed largely to our $1.1 million net loss during the six-month period ended June 30,
2010 compared to the $192,000 net loss for the six-month period ended June 30, 2009.
The following is an overview of key factors affecting the Banks results from continuing
operations for the period ended June 30, 2010.
|
|
|
Net interest income before the provision for loan losses increased by $845,000 to
$6.3 million for the six-month period ended June 30, 2010 as compared to $5.4 million
for the same period in 2009. |
200
|
|
|
Other operating expenses increased by $438,000 to $6.7 million for the six-month
period ended June 30, 2010 as compared to $6.3 million for the same period in 2009. |
|
|
|
|
The provision for loan losses increased by $2.0 million to $2.4 million for the
six-month period ended June 30, 2010 as compared to $456,000 for the same period in
2009. |
|
|
|
|
Other real estate owned (OREO) assets grew by $5.0 million to $6.9 million at June
30, 2010 as compared to $1.8 million at the same period in 2009. |
|
|
|
|
The Bank maintained Tier 1 Risk-Based Capital, Total Risk-Based Capital and Tier 1
Leverage Capital ratios of 13.21%, 14.48%, and 8.49% respectively at June 30, 2010,
exceeding the required regulatory capital minimums. |
|
|
|
|
The Bank recorded $261,000 net gains from sales on investment securities for the
six-month period ended June 30, 2010 as compared to $42,000 for the same period in
2009. |
Results of Operations
Net Interest Income
2009 compared to 2008
Net interest income before the provision for loan losses for the year ended December 31, 2009
was $11.5 million compared to $11.6 million for the year ended December 31, 2008. Net interest
income to average earning assets was 3.77% for year ended December 31, 2009 compared to 4.34% for
year ended December 31, 2008.
Despite a low interest rate environment, total interest income increased to $16.5 million for
the year ended December 31, 2009 compared to $16.1 million for the year ended December 31, 2008, an
increase of $436,469 or 2.71%. Total interest income increased during 2009 primarily as a result
of an increase in interest and fees on loans, partially offset by decreases in interest on interest
bearing deposits and federal funds sold. Interest and fees on loans increased to $13.9 million in
2009 compared to $13.2 million in 2008, an increase of $649,619 or 4.91%. Interest and fees on
loans increased primarily as a result of higher interest rates on and an increased volume of loans
during the 2009 period. Interest income on investment securities increased $9,341 or .36%,
remaining at $2.6 million during both 2009 and 2008.
These increases were partially offset by decreases of $80,458 in interest on interest-bearing
deposits and $142,033 in interest on federal funds sold during 2009 compared to 2008. These
decreases were the result of lower interest rates paid on our deposits and federal funds during
2009 compared to 2008. The average interest rate on our deposits at other banks decreased to 0.39%
during 2009 compared to 2.24% during 2008, and the average interest rate on federal funds sold
decreased to 0.24% during 2009 compared to 2.55% during 2008.
Interest income to average earning assets was 5.41% during the year ended December 31, 2009
compared to 6.01% for the year ended December 31, 2008.
Total interest expense was $5.0 million during the year ended December 31, 2009 compared to
$4.5 million during the year ended December 31, 2008, an increase of $555,767 or 12.44%, primarily
as a result of an increase in interest paid on deposits. Interest expense on deposits grew to $4.8
million in 2009 compared to $4.3 million in 2008, an increase of $505,185 or 11.81%. This increase
was primarily attributable to increased volumes in interest bearing deposits, offset by downward
repricing in interest rates and the mix in deposits that helped maintain the Banks low cost of
funds. Non-interest bearing deposits non-maturity interest bearing deposits represent 57.73% and
53.98% of all deposits at June 30, 2010 and December 31, 2009, respectively. Other interest
expenses were $242,390 in 2009 compared to $191,808 in 2008, an increase of $50,582 or 26.37%.
This increase was primarily a result of an increase on interest paid on demand notes partially
offset by decreases in interest on federal funds purchased and capital leases.
Interest expense to average earning assets was 1.64% during the year ended December 31, 2009
compared to 1.67% during the year ended December 31, 2008.
The provision for loan losses increased to $5.7 million during the year ended December 31,
2009 compared to $991,262 during the year ended December 31, 2008, as a result of increased credit
quality issues and charge offs. As a result
201
of this increase and the factors discussed above, net interest income after the provision for
loan losses decreased $4.8 million to $5.8 million for the year ended December 31, 2009 from $10.6
million during the year ended December 31, 2008.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Net interest income before the provision for loan losses for the six-month period ended June
30, 2010 was $6.3 million compared to $5.4 million for the six-month period ended June 30, 2009, an
increase of $845,000 or 15.62%. Net interest income to average earning assets was 3.92% at June
30, 2010 compared to 3.65% at June 30, 2009.
Despite a low interest rate environment, total interest income increased to $8.4 million for
the six-month period ended June 30, 2010 compared to $8.0 million for the six-month period ended
June 30, 2009, an increase of $313,000 or 3.89%. Total interest income increased during the 2010
period primarily as a result of increased interest income and fees on loans. Interest and fees on
loans grew to $7.1 million for the six-month period ended June 30, 2010 compared to $6.8 million
for the same period in 2009, an increase of $276,000 or 4.06%. Interest and fees on loans
increased during the 2010 period primarily as a result of higher interest rates on and an increased
volume of loans during the 2010 period. Interest income on investment securities and other
investments increased $36,818 or 2.95% to $1.3 million for the six-month period ended June 30, 2010
compared to $1.2 million for the six-month period ended June 30, 2009, primarily as a result of an
increase in interest-earning securities assets.
Interest income to average earning assets was 5.23% for the six-month period ended June 30,
2010 compared to 5.43% for the same period in 2009.
Total interest expense was $2.1 million for the six-month period ended June 30, 2010 compared
to $2.6 million for the six-month period ended June 30, 2010, a decrease of $532,000 or 20.22%.
Total interest expense decreased primarily as a result of decreased interest expense on deposits,
partially offset by increases in other interest expenses. Interest expense on deposits decreased
to $1.9 million for the six-month period ended June 30, 2010 compared to $2.5 million for the same
period in 2009, a decrease of $590,000 or 23.59%. This decrease was mostly attributable to
decreased volumes in certificates of deposit balances, which pay interest at higher rates than most
deposit products, and a shift in the mix of deposits to lower interest cost products along with an
overall downward repricing in interest rates. Other interest expenses increased to $187,000 for
the six-month period ended June 30, 2010 compared to $129,000 in the same period of 2009, an
increase of $59,000 or 45.55%. This increase was primarily attributable to our paying more
interest on demand notes in the 2010 period.
Interest expense to average earning assets was 1.32% for the six-month period ended June 30,
2010 compared to 1.78% for the same period ended June 30, 2009.
202
The following tables illustrate 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. 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
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, |
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
15,274 |
|
|
$ |
36 |
|
|
|
0.24 |
% |
|
$ |
6,987 |
|
|
$ |
178 |
|
|
|
2.55 |
% |
Interest bearing deposits |
|
|
4,562 |
|
|
|
18 |
|
|
|
0.39 |
|
|
|
4,378 |
|
|
|
98 |
|
|
|
2.24 |
|
Investment securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
1,374 |
|
|
|
48 |
|
|
|
3.49 |
|
|
|
1,341 |
|
|
|
55 |
|
|
|
4.10 |
|
U.S. government agency |
|
|
15,585 |
|
|
|
544 |
|
|
|
3.49 |
|
|
|
16,387 |
|
|
|
673 |
|
|
|
4.11 |
|
Mortgage backed securities |
|
|
31,473 |
|
|
|
1,238 |
|
|
|
3.93 |
|
|
|
23,503 |
|
|
|
1,027 |
|
|
|
4.37 |
|
Municipal securities |
|
|
19,114 |
|
|
|
714 |
|
|
|
3.74 |
|
|
|
20,416 |
|
|
|
790 |
|
|
|
3.87 |
|
Other |
|
|
1,468 |
|
|
|
58 |
|
|
|
3.95 |
|
|
|
1,215 |
|
|
|
48 |
|
|
|
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
69,014 |
|
|
|
2,602 |
|
|
|
3.77 |
|
|
|
62,862 |
|
|
|
2,593 |
|
|
|
4.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
24,536 |
|
|
|
1,428 |
|
|
|
5.82 |
|
|
|
20,124 |
|
|
|
1,408 |
|
|
|
7.00 |
|
Mortgage |
|
|
190,270 |
|
|
|
12,040 |
|
|
|
6.33 |
|
|
|
170,788 |
|
|
|
11,397 |
|
|
|
6.67 |
|
Consumer |
|
|
5,145 |
|
|
|
414 |
|
|
|
8.05 |
|
|
|
4,971 |
|
|
|
428 |
|
|
|
8.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
219,951 |
|
|
|
13,882 |
|
|
|
6.31 |
|
|
|
195,883 |
|
|
|
13,233 |
|
|
|
6.76 |
|
Allowance for loan losses |
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
2,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
216,837 |
|
|
|
13,882 |
|
|
|
|
|
|
|
193,561 |
|
|
|
13,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
|
305,687 |
|
|
|
16,538 |
|
|
|
5.41 |
|
|
|
267,788 |
|
|
|
16,102 |
|
|
|
6.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
8,738 |
|
|
|
|
|
|
|
|
|
|
|
9,828 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
3,335 |
|
|
|
|
|
|
|
|
|
|
|
3,275 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
14,642 |
|
|
|
|
|
|
|
|
|
|
|
12,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
332,402 |
|
|
|
|
|
|
|
|
|
|
$ |
293,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
42,647 |
|
|
|
194 |
|
|
|
0.45 |
|
|
$ |
41,849 |
|
|
|
194 |
|
|
|
0.46 |
|
Money market and NOW |
|
|
26,381 |
|
|
|
107 |
|
|
|
0.41 |
|
|
|
26,922 |
|
|
|
110 |
|
|
|
0.41 |
|
Other time deposits |
|
|
135,681 |
|
|
|
4,480 |
|
|
|
3.30 |
|
|
|
101,735 |
|
|
|
3,972 |
|
|
|
3.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
204,709 |
|
|
|
4,781 |
|
|
|
2.34 |
|
|
|
170,506 |
|
|
|
4,276 |
|
|
|
2.51 |
|
Borrowed funds |
|
|
12,124 |
|
|
|
242 |
|
|
|
2.00 |
|
|
|
13,111 |
|
|
|
192 |
|
|
|
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
216,833 |
|
|
|
5,023 |
|
|
|
2.32 |
|
|
|
183,617 |
|
|
|
4,468 |
|
|
|
2.43 |
|
Non-interest bearing deposits |
|
|
80,452 |
|
|
|
|
|
|
|
|
|
|
|
75,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,285 |
|
|
|
5,023 |
|
|
|
|
|
|
|
258,654 |
|
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
5,122 |
|
|
|
|
|
|
|
|
|
|
|
5,639 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
29,995 |
|
|
|
|
|
|
|
|
|
|
|
29,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
332,402 |
|
|
|
|
|
|
|
|
|
|
$ |
293,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.09 |
|
|
|
|
|
|
|
|
|
|
|
3.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
11,515 |
|
|
|
3.77 |
% |
|
|
|
|
|
$ |
11,634 |
|
|
|
4.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Available for sale investment securities are presented at
amortized cost. |
203
Average Balances, Interest and Yields
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2010 |
|
|
2009 |
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
balance |
|
|
Interest |
|
|
Yield |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
8,694 |
|
|
$ |
12 |
|
|
|
0.28 |
% |
|
$ |
21,080 |
|
|
$ |
24 |
|
|
|
0.23 |
% |
Interest bearing deposits |
|
|
10,042 |
|
|
|
11 |
|
|
|
0.22 |
|
|
|
4,305 |
|
|
|
59 |
|
|
|
2.74 |
|
Investment securities(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
1,482 |
|
|
|
22 |
|
|
|
2.97 |
|
|
|
1,342 |
|
|
|
25 |
|
|
|
3.73 |
|
U.S. government agency |
|
|
14,838 |
|
|
|
226 |
|
|
|
3.05 |
|
|
|
14,184 |
|
|
|
270 |
|
|
|
3.81 |
|
Mortgage backed securities |
|
|
41,107 |
|
|
|
686 |
|
|
|
3.34 |
|
|
|
23,956 |
|
|
|
492 |
|
|
|
4.11 |
|
Municipal securities |
|
|
17,090 |
|
|
|
299 |
|
|
|
3.50 |
|
|
|
18,743 |
|
|
|
352 |
|
|
|
3.76 |
|
|
Other |
|
|
1,315 |
|
|
|
28 |
|
|
|
4.26 |
|
|
|
1,293 |
|
|
|
25 |
|
|
|
3.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
75,832 |
|
|
|
1,261 |
|
|
|
3.33 |
|
|
|
59,518 |
|
|
|
1,164 |
|
|
|
3.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
22,146 |
|
|
|
636 |
|
|
|
5.74 |
|
|
|
24,589 |
|
|
|
711 |
|
|
|
5.78 |
|
Mortgage |
|
|
202,987 |
|
|
|
6,225 |
|
|
|
6.13 |
|
|
|
183,872 |
|
|
|
5,874 |
|
|
|
6.39 |
|
Consumer |
|
|
5,151 |
|
|
|
207 |
|
|
|
8.04 |
|
|
|
4,991 |
|
|
|
207 |
|
|
|
8.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
230,284 |
|
|
|
7,068 |
|
|
|
6.14 |
|
|
|
213,452 |
|
|
|
6,792 |
|
|
|
6.36 |
|
|
Allowance for loan losses |
|
|
5,670 |
|
|
|
|
|
|
|
|
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of allowance |
|
|
224,614 |
|
|
|
7,068 |
|
|
|
|
|
|
|
211,059 |
|
|
|
6,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
|
319,182 |
|
|
|
8,352 |
|
|
|
5.23 |
|
|
|
295,962 |
|
|
|
8,039 |
|
|
|
5.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing cash |
|
|
8,789 |
|
|
|
|
|
|
|
|
|
|
|
9,179 |
|
|
|
|
|
|
|
|
|
Premises and equipment |
|
|
3,383 |
|
|
|
|
|
|
|
|
|
|
|
3,303 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
20,910 |
|
|
|
|
|
|
|
|
|
|
|
14,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
352,264 |
|
|
|
|
|
|
|
|
|
|
$ |
322,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
46,004 |
|
|
|
105 |
|
|
|
0.46 |
|
|
$ |
41,886 |
|
|
|
94 |
|
|
|
0.45 |
|
Money market and NOW |
|
|
31,315 |
|
|
|
62 |
|
|
|
0.40 |
|
|
|
25,573 |
|
|
|
54 |
|
|
|
0.42 |
|
Other time deposits |
|
|
135,316 |
|
|
|
1,745 |
|
|
|
2.58 |
|
|
|
133,433 |
|
|
|
2,354 |
|
|
|
3.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
212,635 |
|
|
|
1,912 |
|
|
|
1.80 |
|
|
|
200,892 |
|
|
|
2,502 |
|
|
|
2.49 |
|
Borrowed funds |
|
|
14,954 |
|
|
|
187 |
|
|
|
2.50 |
|
|
|
11,596 |
|
|
|
129 |
|
|
|
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
|
227,589 |
|
|
|
2,099 |
|
|
|
1.84 |
|
|
|
212,488 |
|
|
|
2,631 |
|
|
|
2.48 |
|
Non-interest bearing deposits |
|
|
89,300 |
|
|
|
|
|
|
|
|
|
|
|
74,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316,889 |
|
|
|
2,099 |
|
|
|
|
|
|
|
287,202 |
|
|
|
2,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
5,115 |
|
|
|
|
|
|
|
|
|
|
|
5,580 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
30,260 |
|
|
|
|
|
|
|
|
|
|
|
29,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
|
$ |
352,264 |
|
|
|
|
|
|
|
|
|
|
$ |
322,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
3.39 |
|
|
|
|
|
|
|
|
|
|
|
2.96 |
|
|
Net interest income |
|
|
|
|
|
$ |
6,253 |
|
|
|
3.92 |
|
|
|
|
|
|
$ |
5,408 |
|
|
|
3.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
|
Available for sale investment securities are presented at amortized cost. |
204
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
Twelve Months Ended December 31, |
|
|
|
2010 compared to 2009 |
|
|
2009 compared to 2008 |
|
|
|
Variance due to: |
|
|
Variance due to: |
|
|
|
Total |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
Rate |
|
|
Volume |
|
Interest earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
$ |
(12 |
) |
|
$ |
7 |
|
|
$ |
(19 |
) |
|
$ |
(142 |
) |
|
$ |
(245 |
) |
|
$ |
103 |
|
Interest bearing deposits |
|
|
(48 |
) |
|
|
23 |
|
|
|
(71 |
) |
|
|
(80 |
) |
|
|
(84 |
) |
|
|
4 |
|
Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
(3 |
) |
|
|
(7 |
) |
|
|
4 |
|
|
|
(6 |
) |
|
|
(7 |
) |
|
|
1 |
|
U.S. government agency |
|
|
(44 |
) |
|
|
(62 |
) |
|
|
18 |
|
|
|
(129 |
) |
|
|
(97 |
) |
|
|
(32 |
) |
Mortgage backed securities |
|
|
194 |
|
|
|
(176 |
) |
|
|
370 |
|
|
|
211 |
|
|
|
(110 |
) |
|
|
321 |
|
Municipal securities |
|
|
(53 |
) |
|
|
(32 |
) |
|
|
(21 |
) |
|
|
(76 |
) |
|
|
(27 |
) |
|
|
(49 |
) |
Other |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(76 |
) |
|
|
(9 |
) |
|
|
(67 |
) |
|
|
20 |
|
|
|
(259 |
) |
|
|
279 |
|
Mortgage |
|
|
352 |
|
|
|
(379 |
) |
|
|
731 |
|
|
|
642 |
|
|
|
(611 |
) |
|
|
1,253 |
|
Consumer |
|
|
|
|
|
|
(9 |
) |
|
|
9 |
|
|
|
(14 |
) |
|
|
(29 |
) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue |
|
|
313 |
|
|
|
(641 |
) |
|
|
954 |
|
|
|
436 |
|
|
|
(1,469 |
) |
|
|
1,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
|
11 |
|
|
|
3 |
|
|
|
8 |
|
|
|
|
|
|
|
(4 |
) |
|
|
4 |
|
Money market and NOW |
|
|
8 |
|
|
|
(6 |
) |
|
|
14 |
|
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
Other time deposits |
|
|
(609 |
) |
|
|
(658 |
) |
|
|
49 |
|
|
|
508 |
|
|
|
(678 |
) |
|
|
1,186 |
|
Borrowed funds |
|
|
58 |
|
|
|
27 |
|
|
|
31 |
|
|
|
50 |
|
|
|
(295 |
) |
|
|
345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(532 |
) |
|
|
(634 |
) |
|
|
102 |
|
|
|
555 |
|
|
|
(978 |
) |
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
845 |
|
|
$ |
(7 |
) |
|
$ |
852 |
|
|
$ |
(119 |
) |
|
$ |
(491 |
) |
|
$ |
372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality, Provision for Loan Losses and Allowance for Loan Losses
Originating loans involves a degree of risk that credit losses will occur in varying amounts
according to, among other factors, the composition and risk of the loan portfolio, volume trends,
the credit-worthiness of the borrower over the term of the loans, the quality of the collateral for
the loan, if any, as well as general economic conditions. We charge the provision for loan losses
to earnings to maintain the 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, estimated value of any underlying collateral, economic conditions,
regulatory guidance, peer statistics, managements judgment, delinquencies, charge off experience
and concentrations of risk (if any). We charge recognized loan losses to the allowance for loan
losses when we believe that collection of loan principal is unlikely and add back recoveries on loans
previously written off to the allowance for loan losses.
205
Accounting principles generally accepted in the United States of America require that the
impairment of loans that have been separately identified for evaluation be measured based on the
present value of expected future cash flow or, alternatively, the observable market price of the
loans or the fair value of the collateral. For those loans that are collateral dependent (that is,
if repayment of the loan is expected to be provided solely by the underlying collateral) and for
which the Bank has determined foreclosure is probable, the measure of impairment of those loans is
based on the fair value of the collateral.
2009 compared to 2008
Nonaccrual loans increased in the reporting period by $1.8 million or 22.78% and amounted to
$9.7 million and $7.9 million at December 31, 2009 and 2008, respectively. Loss of income from
nonaccrual loans approximated $684,000 and $310,000 for the years ended December 31, 2009 and 2008,
respectively. Accruing loans, which were 90 days or more past due, totaled $274,000 and $0 as of
December 31, 2009 and 2008, respectively.
The provision for loan losses was $5,669,565 for the year ended December 31, 2009 compared to
$991,262 for the year ended December 31, 2008. The increase in the allowance for loan losses was
necessary primarily to meet the challenges of increased credit quality issues of our loan customers
brought about largely by the weak economy as well as other factors.
The allowance for loan losses was $6.2 million or approximately 2.66% of total loans at
December 31, 2009 compared to $2.6 million or approximately 1.20% at December 31, 2008. Total
loans charged off were $2.6 million in the 2009 period compared to $1.1 million in the 2008 period.
Total recoveries were $515,034 in the 2009 period compared to $121,672 in the 2008 period.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Nonaccrual loans at the six-month period ended June 30, 2010 amounted to $11.2 million
compared to $8.3 million at June 30, 2009 and $9.7 million at December 31, 2009. Accruing loans,
which were 90 days or more past due, totaled $526,000 at June 30, 2010 compared to $0 at June 30,
2009 and $274,000 at December 31, 2009.
The provision for loan losses was $2.4 million for the six-month period ended June 30, 2010
compared to $456,000 for the six-month period ended June 30, 2009. The increase in the allowance
for loan losses was necessary primarily to meet the challenges of increased credit quality issues
of our loan customers brought about largely by the weak economy as well as other factors.
The allowance for loan losses was $6.6 million or approximately 2.89% of total loans at June
30, 2010 compared to $2.6 million or approximately 1.20% at June 30, 2009 and 2.66% at December 31,
2009. Total loans charged off were $2.1 million for the six-month period ended June 30, 2010
compared to $497,000 for the same period in 2009. Total recoveries were $62,000 in the 2010 period
compared to $51,000 in the 2009 period.
Management believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions. In addition, regulatory agencies,
as an integral part of their examination process and independent consultants engaged by the Bank,
periodically review the Banks allowance for loan losses. Such reviews may require additions to
the allowance for loan losses based on their analysis of the information available to them at the
time of their examination.
206
The following table provides an analysis of the allowance for loan losses for the periods
indicated:
Allowance for Loan Losses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
Balance, beginning of period |
|
$ |
6,191 |
|
|
$ |
2,590 |
|
|
$ |
2,590 |
|
Provision for loan losses |
|
|
2,435 |
|
|
|
456 |
|
|
|
5,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeoffs: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
(2,047 |
) |
|
|
(375 |
) |
|
|
|
|
Mortgage |
|
|
(48 |
) |
|
|
|
|
|
|
(2,583 |
) |
Consumer |
|
|
(39 |
) |
|
|
(122 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total chargeoffs |
|
|
(2,134 |
) |
|
|
(497 |
) |
|
|
(2,583 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
45 |
|
|
|
23 |
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
515 |
|
Consumer |
|
|
17 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
62 |
|
|
|
51 |
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
Net (chargeoffs) recoveries |
|
|
(2,072 |
) |
|
|
(446 |
) |
|
|
(2,068 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
6,554 |
|
|
$ |
2,600 |
|
|
$ |
6,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses to: |
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
2.89 |
% |
|
|
1.20 |
% |
|
|
2.66 |
% |
Non-accrual loans |
|
|
58.50 |
% |
|
|
31.48 |
% |
|
|
63.67 |
% |
Ratio of net-chargeoffs during period
to average total loans during period |
|
|
1.800 |
% |
|
|
0.418 |
% |
|
|
0.940 |
% |
The following table provides a breakdown of the allowance for loan losses:
Allocation of Allowance for Loan Losses
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
% of Loans |
|
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
|
|
|
in Each |
|
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
|
Amount |
|
|
Category |
|
|
Consumer & others |
|
$ |
156 |
|
|
|
2.38 |
% |
|
$ |
188 |
|
|
|
7.23 |
% |
|
$ |
153 |
|
|
|
2.47 |
% |
Mortgage |
|
|
6,026 |
|
|
|
91.94 |
|
|
|
1,949 |
|
|
|
74.96 |
|
|
|
5,330 |
|
|
|
86.09 |
|
Commercial |
|
|
372 |
|
|
|
5.68 |
|
|
|
463 |
|
|
|
17.81 |
|
|
|
708 |
|
|
|
11.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,554 |
|
|
|
100.00 |
% |
|
$ |
2,600 |
|
|
|
100.00 |
% |
|
$ |
6,191 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207
Other Operating Income
Other operating income consists of services charges on deposit accounts, other fees,
commissions and miscellaneous income, and net gains on sales or calls of investment securities.
2009 compared to 2008
Total other operating income was $2.3 million in the year ended December 31, 2009 compared to
$1.9 million in the year ended December 31, 2008. This increase is primarily a result of an
increase in net gains on sales or calls in the amount of $439,491 in the 2009 period over the 2008
period as a result of taking advantage of net gains on sales opportunities while helping to protect
the Banks risk-based capital ratio levels.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Total other operating income was $1.1 million for the six-month period ended June 30, 2010
compared to $877,000 for the same period in 2009, an increase of $180,000 or 20.55%. This increase
includes an increase in net gains on sales and calls in the amount of $219,000 for the six-month
period ended June 30, 2010 compared to the same period in 2009 as a result of taking advantage of
net gains on sales opportunities while helping to protect the Banks risk-based capital ratio
levels.
Other Operating Expenses
Other operating expenses consist of salaries and employee benefits, occupancy and equipment,
and other expenses such as data processing expenses and FDIC insurance expenses.
2009 compared to 2008
Total other operating expenses were $13.1 million for the year ended December 31, 2009
compared to $12.4 million for the year ended December 31, 2008, an increase of $690,000 or 5.55%.
This increase was a result of increases in salaries and employee benefits and other expenses
partially offset by a decrease in occupancy and equipment expenses. Salaries and employee benefits
increased $170,303 or 2.49%, primarily as a result of employee insurance costs and costs relating
to ASC 310-20 Receivables Nonrefundable Fees and Other increasing $163,278 and $240,949,
respectively, partially offset by a $519,576 reduction in salaries and payroll tax expenses as a
result of staff reductions. Occupancy and equipment expenses decreased $201,050 to $1.8 million in
2009 compared to $2.0 million in 2008 primarily as a result of reduced depreciation and repair
expenses. Other expenses increased to $4.3 million in 2009 compared to $3.6 million in 2008, an
increase of $720,765 or 20.19%, primarily as a result of increased foreclosure expenses of $140,271
on OREO properties and increased FDIC insurance premiums of $552,000 during 2009 compared to 2008.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
Total other operating expenses were $6.7 million for the six-month period ended June 30, 2010
compared to $6.3 million for the six-month period ended June 30, 2009, an increase of $438,000 or
6.96%. This increase is primarily attributable to increased losses on foreclosure expenses of
$415,000 during the 2010 period compared to the 2009 period.
(Loss) Income before Income Taxes
2009 compared to 2008
For the year ended December 31, 2009 we had a loss before income taxes of $4,996,013 compared
to income before taxes of $90,834 for the year ended December 31, 2008.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
For the six-month period ended June 30, 2010 we had a loss before income taxes of $1,860,109
compared to a loss before income taxes of $467,655 for the same period in 2009.
208
Income Tax Benefit
2009 compared to 2008
For the year ended December 31, 2009 we had an income tax benefit of $1,164,236 compared to an
income tax benefit of $245,181 for the year ended December 31, 2008.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
For the six-month period ended June 30, 2010 we had an income tax benefit of $722,692 compared
to an income tax benefit of $275,157 for the same period in 2009.
Net (Loss) Income
2009 compared to 2008
For the year ended December 31, 2009 we had a net loss of $3,831,777 compared to net income of
$336,015 for the year ended December 31, 2008. The basic and diluted earnings per share of common
stock were $(5.93) and $.52 per share for the years ended December 31, 2009 and December 31, 2008,
respectively.
Six months ended June 30, 2010 compared to six months ended June 30, 2009
For the six-month period ended June 30, 2010 we had a net loss of $1,137,417 compared to a net
loss of $192,498 for the six-month period ended June 30, 2009.
Analysis of Financial Condition
Investment Securities
Our investment portfolio consists primarily of time deposits in other banks, investment grade
securities including U. S. Treasury securities, obligations of U. S. government agencies,
obligations of states and political subdivisions, mortgage backed securities, and certain equity
securities, including Federal Reserve Bank stock, Federal Home Loan Bank stock, and Atlantic
Central Bankers Bank stock. We have prudently managed our investment portfolio to maintain
liquidity and safety. The portfolio provides a source of liquidity, collateral for borrowings and
pledging as well as a means of diversifying our earning asset portfolio. While we generally intend
to hold the investment securities until maturity, we classify all of the investment securities as
available for sale. We account for investment 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 investment securities classified in the held to maturity
category at amortized cost. Although we will occasionally sell a security, generally, we invest in
securities for the yield they produce and not to profit from trading the securities. There are no
trading securities in the portfolio.
2009 compared to 2008
The investment portfolio at December 31, 2009 amounted to $88.8 million, an increase of $20.5
million, or 30.01%, from the December 31, 2008 amount of $68.3 million. All our investment
securities were classified as available for sale at December 31, 2009. At December 31, 2009
investment securities having an amortized cost of $24.0 million were pledged as
collateral for deposit and customer sweep accounts (short term borrowings) compared to $22.6
million at December 31, 2008. We have evaluated securities with unrealized losses for an extended
period of time and determined that these losses are temporary because, at this point in time, we
expect to hold them until maturity. We have no intent or plan to sell these securities, it is not
likely that we will have to sell these securities and we have not identified any portion of the
loss that is a result of credit deterioration in the issuer of the security. As the maturity date
moves closer and/or interest rates decline, the unrealized losses in the portfolio will decline or
dissipate.
Six-month period ended June 30, 2010
The investment portfolio at June 30, 2010 amounted to $85.1 million, a decrease of $3.7
million, or 4.3%, from $88.8 million at December 31, 2009. All investment securities were
classified as available for sale at June 30, 2010. At June 30, 2010, investment securities having
an amortized cost of $25.9 million were pledged as collateral for deposit and customer
209
sweep accounts (short term borrowings) compared to $22.8 million at June 30, 2009 and $24.0 million at
December 31, 2009. We have evaluated securities with unrealized losses for an extended period of
time and determined that these losses are temporary because, at this point in time, we expect to
hold them until maturity. We have no intent or plan to sell these securities, it is not likely
that we will have to sell these securities and we have not identified any portion of the loss that
is a result of credit deterioration in the issuer of the security. As the maturity date moves
closer and/or interest rates decline, the unrealized losses in the portfolio will decline or
dissipate.
The following table shows the maturities for the securities portfolio at December 31, 2009:
Fair Value, Amortized Cost and Weighted Average Yield
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
Amortized |
|
|
Fair |
|
|
Weighted Average |
|
December 31, 2009 |
|
Cost |
|
|
Value |
|
|
Yield |
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
Less than 3 months |
|
$ |
3,316 |
|
|
$ |
3,322 |
|
|
|
3.45 |
% |
Over 3 months through 1 year |
|
|
9,948 |
|
|
|
9,997 |
|
|
|
3.46 |
% |
Over one to five years |
|
|
34,805 |
|
|
|
35,333 |
|
|
|
3.46 |
% |
Over five to ten years |
|
|
18,096 |
|
|
|
18,151 |
|
|
|
4.06 |
% |
Over ten years |
|
|
10,732 |
|
|
|
10,748 |
|
|
|
4.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76,897 |
|
|
$ |
77,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged Securities |
|
$ |
24,057 |
|
|
$ |
24,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the maturities for the securities portfolio at December 31,
2009:
Loan Portfolio
Commercial loans, construction loans and loans secured by real estate comprise the majority of
our loan portfolio. The Banks loan customers are generally located in the Southern Maryland
region.
2009 compared to 2008
The loan portfolio, net of the allowance for loan losses and deferred loan fees, increased
$13.7 million or 6.45% to $226.2 million at December 31, 2009 from $212.5 million at December 31,
2008. Construction loans increased $3.3 million (21.15%), mortgage loans increased $28.6 million
(16.93%), commercial loans decreased $4.7 million (14.69%), and consumer loans increased $300,000
(6.00%) from their respective balances at December 31 ¸ 2008. We saw loan and deposit growth
generated throughout our market area. We have reinvested over $52 million in new loans back into
our market area in 2009. We continue to take great pride in our community reinvestment activity while
focusing on the success of businesses and individuals working and living in Southern Maryland.
Six-month period ended June 30, 2010
The loan portfolio, net of the allowance for loan losses and deferred loan fees, decreased
$5.8 million or 2.58% to $220.4 million at June 30, 2010 from $226.2 million at December 31, 2009.
The decrease in loans from December 31, 2009 resulted from normal run-off, a low loan demand and
the sale of approximately $4 million in participations back to Atlantic Central Bankers Bank to
help protect the Banks risked-based capital ratios.
210
The following table summarizes the composition of the loan portfolio by dollar amount and
percentages:
Loan Portfolio
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
72,381 |
|
|
|
31.29 |
% |
|
$ |
64,554 |
|
|
|
30.15 |
% |
Construction |
|
|
36,178 |
|
|
|
15.64 |
|
|
|
27,743 |
|
|
|
12.96 |
|
Residential |
|
|
82,180 |
|
|
|
35.53 |
|
|
|
80,462 |
|
|
|
37.59 |
|
Commercial |
|
|
35,322 |
|
|
|
15.27 |
|
|
|
36,380 |
|
|
|
16.99 |
|
Consumer |
|
|
5,248 |
|
|
|
2.27 |
|
|
|
4,941 |
|
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,309 |
|
|
|
100.00 |
% |
|
|
214,080 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses |
|
|
(6,191 |
) |
|
|
|
|
|
|
(2,590 |
) |
|
|
|
|
Deferred loan costs, net |
|
|
1,086 |
|
|
|
|
|
|
|
1,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
226,204 |
|
|
|
|
|
|
$ |
212,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the maturities or re-pricing periods of selected loans
outstanding at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Maturity Distribution at December 31, 2009 |
|
|
|
1 year or less |
|
|
1-5 years |
|
|
After 5 years |
|
|
Total |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
7,713 |
|
|
$ |
14,633 |
|
|
$ |
50,035 |
|
|
$ |
72,381 |
|
Construction |
|
|
13,541 |
|
|
|
12,133 |
|
|
|
10,504 |
|
|
|
36,178 |
|
Residential |
|
|
8,094 |
|
|
|
10,342 |
|
|
|
63,744 |
|
|
|
82,180 |
|
Commercial |
|
|
11,179 |
|
|
|
5,078 |
|
|
|
19,065 |
|
|
|
35,322 |
|
Consumer |
|
|
1,749 |
|
|
|
2,763 |
|
|
|
736 |
|
|
|
5,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
42,276 |
|
|
$ |
44,949 |
|
|
$ |
144,084 |
|
|
$ |
231,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rates |
|
$ |
38,670 |
|
|
$ |
36,017 |
|
|
$ |
83,532 |
|
|
$ |
158,219 |
|
Variable Rates |
|
|
3,606 |
|
|
|
8,932 |
|
|
|
60,552 |
|
|
|
73,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
42,276 |
|
|
$ |
44,949 |
|
|
$ |
144,084 |
|
|
$ |
231,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
Please refer to matters as previously discussed in Results of Operations Asset Quality,
Provision for Loan Losses and Allowance for Loan Losses.
2009 compared to 2008
The allowance for loan losses represented approximately 2.66% of total loans outstanding at
December 31, 2009 compared approximately 1.20% of total loans outstanding at December 31, 2008.
Six-month period ended June 30, 2010
The allowance for loan losses represented approximately 2.89% of total loans outstanding at
June 30, 2010 compared to 2.66% of total loans outstanding at December 31, 2009.
211
Other Real Estate Owned
Other real estate owned (OREO) represents property acquired through, or in lieu of, loan
foreclosure and is initially recorded at fair value less estimated costs to dispose at the date of
foreclosure. After foreclosure, valuations are periodically performed and the real estate is
carried at the lower of (1) cost or (2) fair value based on an appraised value minus estimated
costs to dispose. Adjustments are subsequently made to mark the property below this amount if
circumstances warrant. At the date of acquisition, losses arising from foreclosure transactions
are charged against the allowance for loan losses. Costs to maintain real estate owned and any
subsequent gains or losses are included in the Banks consolidated Statements of Operations.
2009 compared to 2008
The total OREO balance at December 31, 2009 was $1.9 million compared to $1.7 million at
December 31, 2008. During 2009, the Bank foreclosed on four real estate properties originating
from three borrowers. The outstanding principal balances of the loans totaled $3.2 million at the
time of their foreclosures. The Bank charged $1.4 million to reduce the carrying value of the OREO
to their approximate fair values less costs to sell. Also during 2009, the Bank sold two of its
foreclosed assets for $1.7 million. There were no gains or losses on these sales. As of December
31, 2009 the Bank is pursuing opportunities to market the remaining foreclosed collateral for sale.
Six-month period ended June 30, 2010
The total OREO balance at June 30, 2010 was $6.9 million compared to $1.9 million at December
31, 2009. In February 2010, the Bank foreclosed on a participatory commercial real estate loan
that had been classified as impaired as of December 31, 2009. The Banks portion of the loan had a
balance of $4.4 million as of December 31, 2009 with a specific reserve of $1.5 million. The Bank
charged off $1.5 million and recorded OREO in the amount of $4.3 million in the first quarter 2010.
The Bank is pursuing opportunities to market all of the foreclosed collateral for sale.
212
The table below presents a breakdown of the non-performing loans and accruing past due loans at
December 31, 2009 and 2008.
Non- Perfoming Assets andPast Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
2009 |
|
|
2008 |
|
|
|
# of |
|
|
Account |
|
|
Interest Not |
|
|
# of |
|
|
Account |
|
|
Interest Not |
|
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
8 |
|
|
$ |
7,867 |
|
|
$ |
622 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
2 |
|
|
|
573 |
|
|
|
23 |
|
|
|
5 |
|
|
|
6,343 |
|
|
|
282 |
|
Commercial |
|
|
7 |
|
|
|
480 |
|
|
|
39 |
|
|
|
3 |
|
|
|
400 |
|
|
|
28 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
4 |
|
|
|
1,939 |
|
|
|
|
|
|
|
|
|
|
|
1,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
|
21 |
|
|
$ |
10,859 |
|
|
$ |
684 |
|
|
|
8 |
|
|
$ |
8,469 |
|
|
$ |
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as
a percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans |
|
|
|
|
|
|
4.67 |
% |
|
|
|
|
|
|
|
|
|
|
3.94 |
% |
|
|
|
|
Total assets |
|
|
|
|
|
|
3.11 |
% |
|
|
|
|
|
|
|
|
|
|
2.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing past due loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
31 |
|
|
$ |
4,785 |
|
|
|
|
|
|
|
32 |
|
|
$ |
8,597 |
|
|
|
|
|
90 or more days past due |
|
|
7 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
38 |
|
|
$ |
5,060 |
|
|
|
|
|
|
|
32 |
|
|
$ |
8,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of accruing past due
loans to total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
|
|
|
|
2.06 |
% |
|
|
|
|
|
|
|
|
|
|
4.00 |
% |
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
|
|
|
|
2.18 |
% |
|
|
|
|
|
|
|
|
|
|
4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213
The table below presents a breakdown of the non-performing loans, other real estate owned
and accruing past due loans at June 30, 2010 and December 31, 2009.
Non-Performing
Assets and Past Due Loans
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
# of |
|
|
|
|
|
|
Interest Not |
|
|
# of |
|
|
Account |
|
|
Interest Not |
|
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
|
Borrowers |
|
|
Balance |
|
|
Accrued |
|
|
Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
13 |
|
|
$ |
10,972 |
|
|
$ |
964 |
|
|
|
8 |
|
|
$ |
7,867 |
|
|
$ |
622 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
1 |
|
|
|
103 |
|
|
|
3 |
|
|
|
2 |
|
|
|
573 |
|
|
|
23 |
|
Commercial |
|
|
2 |
|
|
|
127 |
|
|
|
8 |
|
|
|
7 |
|
|
|
480 |
|
|
|
39 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
4 |
|
|
|
6,852 |
|
|
|
|
|
|
|
4 |
|
|
|
1,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
|
20 |
|
|
$ |
18,054 |
|
|
$ |
975 |
|
|
|
21 |
|
|
$ |
10,859 |
|
|
$ |
684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets as
a percentage of total assets |
|
|
|
|
|
|
5.19 |
% |
|
|
|
|
|
|
|
|
|
|
4.67 |
% |
|
|
|
|
Non-performing loans as
a percentage of total gross loans |
|
|
|
|
|
|
7.96 |
% |
|
|
|
|
|
|
|
|
|
|
3.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruing past due loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
29 |
|
|
$ |
2,122 |
|
|
|
|
|
|
|
31 |
|
|
$ |
4,785 |
|
|
|
|
|
90 or more days past due |
|
|
2 |
|
|
|
526 |
|
|
|
|
|
|
|
7 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
31 |
|
|
$ |
2,648 |
|
|
|
|
|
|
|
38 |
|
|
$ |
5,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of accruing past due
loans to total loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days past due |
|
|
|
|
|
|
0.94 |
% |
|
|
|
|
|
|
|
|
|
|
2.06 |
% |
|
|
|
|
90 or more days past due |
|
|
|
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accruing past due loans |
|
|
|
|
|
|
1.18 |
% |
|
|
|
|
|
|
|
|
|
|
2.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214
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.
2009 compared to 2008
At December 31, 2009, deposits had grown to $299.8 million, a $38.6 million or 14.78% increase
over the December 31, 2008 level of $261.2 million. Non-interest bearing deposits increased $12.1
million (15.61%) over the period to $89.6 million from $77.5 million. Interest bearing deposits
increased $26.5 million (14.43%) over the same period to $210.2 million from $183.7 million.
Non-maturity interest bearing deposits contributed $9.0 million (34.03%) to the interest bearing
deposits increase while certificates of deposit (time deposits) contributed $17.5 million (65.97%).
The Banks deposit mix primarily continues to be a positive, meaning approximately two-thirds of
the deposit base is at low cost funding. The core deposit base and low cost of funds continue to
reflect a favorable benefit to the Bank. Our deposit products, pricing strategies, and customer
satisfaction and loyalty also continue to contribute to our deposit base.
Six-month period ended June 30, 2010
At June 30, 2010, the deposits had grown to $297.0 million, a $2.8 million or 0.93% decrease
from the December 31, 2009 level of $299.8 million. Although the level of deposits at June 30,
2010 compares similarly to the December 31, 2009 level, the Banks core deposits increased by $7.0
million or 2.87% to $249.2 million from $242.2 million at December 31, 2009. As mentioned
previously, certain deposits, such as matured large non-core certificates of deposits balances,
shifted to non-maturity deposits in the six-month period ended June 30, 2010 benefiting interest
expense costs. The Banks deposit mix primarily continues to be a positive, meaning approximately
two-thirds of the deposit base is at low cost funding. The core deposit base and low cost of funds
continue to reflect a favorable benefit to the Bank. Our deposit products, pricing strategies and
customer satisfaction and loyalty also continue to contribute to our deposit base.
The following is a summary of the maturity distribution of certificates of deposit as of
December 31, 2009:
Certificate of Deposit Maturity Distribution
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
Three |
|
|
|
|
|
|
|
|
|
Months or |
|
|
Months to |
|
|
Over |
|
|
|
|
|
|
Less |
|
|
Twelve Months |
|
|
Twelve Months |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than $100,000 |
|
$ |
10,621 |
|
|
$ |
45,239 |
|
|
$ |
26,230 |
|
|
$ |
82,090 |
|
Greater than or equal to $100,000 |
|
|
3,081 |
|
|
|
29,933 |
|
|
|
22,857 |
|
|
|
55,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,702 |
|
|
$ |
75,172 |
|
|
$ |
49,087 |
|
|
$ |
137,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
The Bank has available lines of credit, including overnight federal funds from its
correspondent banks totaling $40.6 million as of June 30, 2010 and $38.6 million as of December 31,
2009. The Bank had an unused secured line of credit from the Federal Home Loan Bank of Atlanta
(FHLB) of $25.6 million, an unused secured line of credit from M & T Bank of $10.0 million and an
unused unsecured line of credit from the Atlantic Central Bankers Bank of $5.0 million as of June
30, 2010. No such borrowings were outstanding at June 30, 2010 or 2009 or at December 31, 2009.
Other short-term borrowings consist of short-term funds the Bank offers its commercial
customers in overnight repurchase agreements which are obligations to the Banks cash management or
sweep account funds. As of June 30, 2010 and December 31, 2009, other short-term borrowings were
$14.8 million and $15.1 million, respectively.
On December 15, 2008, we received a $2.0 million unsecured loan from an affiliated
stockholder. The loan is for five years with a maturity date of December 15, 2013 at which time a
balloon payment of the entire indebtedness then
215
remaining unpaid is required. The rate of interest is equal to 7.00% with interest payable
semi-annually. Interest expense for the six-month period ended June 30, 2010 and the year ended
December 31, 2009 was $68,970 and $140,365, respectively. The loan is current at June 30, 2010.
On December 30, 2009, we obtained a line of credit note of $3.5 million from Atlantic Central
Bankers Bank. This line of credit is secured by capital stock of the Bank and accrues interest
equal to the greater of 4.75% or the prime rate charged by large commercial banks as reported in
the Wall Street Journal. Monthly payments of interest only commence on February 1, 2011 and the
principal balance matures on December 30, 2011, with the option to extend an additional year. As
of June 30, 2010 and December 31, 2010 the amount drawn on the line of credit was $3.2 million.
The loan is current at June 30, 2010.
The purpose of the two abovementioned loans by Maryland Bankcorp was to provide funds for
capital infusion into the Bank in order to protect the Banks required risk-based and leverage
capital ratios minimums under the Banks Formal Agreement with the OCC as described in
Overview.
Capital
As previously discussed in Overview, the Bank operates under a formal written agreement
with the OCC signed on February 10, 2006 in which the Bank formally agreed to among other things,
to maintain higher than normal risk-based and leverage capital minimums. The minimum ratios
required are as follows: Tier 1 Risk-Based Capital of 12.00%; Total Risk-Based Capital of 14.00%;
and Tier 1 Leverage Capital of 8.00%. The actual respective ratios as of December 31, 2009 were
13.10%, 14.36% and 8.83%, and 13.76%, 14.97% and 9.81% as of December 31, 2008. We currently
exceed these minimum ratios and expect to continue to exceed them in the foreseeable future.
At a special stockholders meeting held on December 3, 2008, our stockholders approved our
Amended and Restated Articles of Incorporation to authorize 5,000,000 shares of preferred stock,
par value $0.01 per share, and to eliminate preemptive rights for holders of the preferred stock.
The primary objective in establishing a class of preferred stock was to provide maximum flexibility
with respect to a future financing transaction, including, but not limited to, the preparation for
the possible participation in the Capital Purchase Program (CPP) established by the U.S. Treasury
Department pursuant to the Emergency Economic Stabilization Act of 2008. We initially filed an
application to participate in the CPP but subsequently withdrew the application due to the
emergence of details of the program. As of June 30, 2010, and December 31, 2009 and 2008, there
were no shares of preferred stock issued or outstanding.
2009 compared to 2008
Our stockholders equity amounted to $26.1 million at December 31, 2009 and $29.3 million at
December 31, 2008. Stockholders equity decreased by $3.2 million during such twelve month period
primarily because of the $3.8 million net loss and the $670,000 change in unrealized gain on
securities, net of tax. We did not pay a common stock cash dividend in 2009 compared to a
$259,000, or a $.40 per share, cash dividend paid in 2008.
Six-month period ended June 30, 2010
Our stockholders equity amounted to $25.2 million at June 30, 2010 compared to $26.1 million
at December 31, 2009. Stockholders equity decreased by $886,000 during the six-month period
ending June 30, 2010 primarily because of the $1.1 million net loss and the $251,000 change in
accumulated other comprehensive income, net of tax. We did not pay a common stock cash dividend in
the six-month period ended June 30, 2010 or in the year ended December 31, 2009.
216
The following table shows Maryland Bankcorps regulatory capital ratios and the minimum
capital ratios currently required by its banking regulator.
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
Tier 1 Capital |
|
|
|
|
|
|
|
|
Preferred and common stock |
|
$ |
8,876 |
|
|
$ |
6,466 |
|
Additional paid-in capital |
|
|
8,876 |
|
|
|
6,466 |
|
Retained earnings |
|
|
12,757 |
|
|
|
16,481 |
|
Less: disallowed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 Capital |
|
$ |
30,509 |
|
|
$ |
29,413 |
|
|
|
|
|
|
|
|
|
|
Tier 2 Capital: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
2,952 |
|
|
|
2,590 |
|
|
|
|
|
|
|
|
Total Risk Based Capital |
|
$ |
33,461 |
|
|
$ |
32,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk weighted assets |
|
$ |
277,989 |
|
|
$ |
213,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
|
|
|
Minimum |
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 risk based capital ratio |
|
|
13.1 |
% |
|
|
13.8 |
% |
|
|
12.00 |
% |
Total risk based capital ratio |
|
|
14.4 |
% |
|
|
15.0 |
% |
|
|
14.00 |
% |
Leverage ratio |
|
|
8.8 |
% |
|
|
9.8 |
% |
|
|
8.00 |
% |
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:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
|
(Dollars in thousands) |
Average total assets |
|
$ |
332,293 |
|
|
$ |
293,570 |
|
Average equity |
|
|
29,142 |
|
|
|
29,339 |
|
Net loss attributable to Maryland Bankcorp,
Inc. |
|
|
(3,832 |
) |
|
|
336 |
|
Cash dividends declared on common stock |
|
|
0 |
|
|
|
259 |
|
Dividend payout ratio for period |
|
|
0.00 |
% |
|
|
76.98 |
% |
Return on average assets |
|
|
(1.15 |
)% |
|
|
0.11 |
% |
Return on average equity |
|
|
(13.16 |
)% |
|
|
1.15 |
% |
Average stockholders equity to average total
assets |
|
|
8.77 |
% |
|
|
9.99 |
% |
217
Contractual Obligations
The following table presents, as of December 31, 2009, significant fixed and determinable
contractual obligations to third parties by payment date.
Contractual Obligations
(Dollars in thousands)
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within |
|
|
One to |
|
|
Three to |
|
|
Over |
|
|
|
|
|
|
one year |
|
|
three years |
|
|
five years |
|
|
five years |
|
|
Total |
|
Noninterest-bearing
deposits |
|
$ |
89,578 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
89,578 |
|
Interest-bearing deposits |
|
|
160,358 |
|
|
|
46,110 |
|
|
|
3,710 |
|
|
|
|
|
|
|
210,178 |
|
Short-term borrowings |
|
|
15,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,056 |
|
Long-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit/Due to
Affiliate |
|
|
|
|
|
|
3,168 |
|
|
|
2,000 |
|
|
|
|
|
|
|
5,168 |
|
Capital lease |
|
|
48 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
60 |
|
Operating leases |
|
|
558 |
|
|
|
1,053 |
|
|
|
916 |
|
|
|
2,083 |
|
|
|
4,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
265,598 |
|
|
$ |
50,343 |
|
|
$ |
6,626 |
|
|
$ |
2,083 |
|
|
$ |
324,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the normal course
of business. These financial instruments include mortgage loan commitments, unfunded construction
loans, undisbursed lines of credit, unused lines of credit related to check loans, and standby
letters of credit. These instruments involve, to varying degrees, elements of credit, liquidity
and interest rate risk in excess of the amount recognized in the balance sheet. These commitments
do not represent unusual risk and the Bank does not anticipate any losses which would have material
effect on it.
2009 compared to 2008
The Bank had $27.7 million in commitments to extend credit and available credit lines and $2.7
million in standby letters of credit at December 31, 2009 compared to $28.9 million and $1.7
million respectively at December 31, 2008.
Six-month period ended June 30, 2010
The Bank had $28.4 million in commitments to extend credit and available credit lines and $3.1
million in standby letters of credit at June 30, 2010 compared to $27.7 million and $2.7 million
respectively at December 31, 2009.
Liquidity Management and Interest Rate Sensitivity
The Asset/Liability Committee (ALCO) of the board of directors oversees the review of
liquidity management and interest rate sensitivity.
A principal objective of the Banks Asset/Liability Management Policy is to ensure the
availability of sufficient cash flow to meet all financial commitments and to capitalize on
opportunities for business expansion. Our liquidity management addresses our need to maintain
adequate liquidity to fund asset growth and deposit runoff. Liquidity is managed on a daily basis
enabling the Bank to monitor changes in liquidity and to react accordingly to fluctuations in
market conditions. Primary sources of liquidity include funding available from growth of its
existing deposit base, new deposits, and cash flow from the investment and loan portfolios. We have
credit lines secured and unsecured available from correspondent banks (including the FHLB),
totaling $40.4 million. Additionally, we may borrow funds from the Federal Reserve Bank of
218
Richmond. The ALCO believes it has the necessary reporting and sources in place to determine
liquidity needs and that it has sufficient liquidity to meet its loan commitments as well as
fluctuations in deposit. The Bank is not aware of any demands, trends commitments, or event that
would result in the Banks inability to meet anticipated or unexpected liquidity needs.
The goal of interest rate sensitivity management is to avoid fluctuating net interest margins,
and to enhance consistent growth of net interest income through periods of changing interest rates.
Such sensitivity is measured as the difference in the volume of assets and liabilities in the
existing portfolio that are subject to repricing in a future time period. The Banks interest rate
sensitivity, or its gap position, within one year (or short term) has a positive gap which
suggests that the net yield on interest earning assets may increase during periods of rising
interest rates. The tool the Bank uses to evaluate interest rate risk is a computer simulation
model that assesses the impact of changes in interest rates on net interest income and net income
under various interest rate forecasts and scenarios. The ALCO has set acceptable limits of risk
within its Asset/Liability Management Policy and monitors the results of the simulations against
these limits quarterly. The ALCO monitors interest rate risk as a regular part of the Bank
management with the intention of maintaining a stable net interest margin and net economic value.
Management makes adjustments to the mix of assets and liabilities periodically in an effort to
achieve dependable, steady growth in net interest income regardless of the behavior of interest
rates in general.
WHERE YOU CAN FIND MORE INFORMATION
Old Line Bancshares files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other information on
file with the SEC at the SECs public reference room located at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference
room. SEC filings are also available to the public at the SECs website at http://www.sec.gov.
Further, Old Line Bancshares makes available, free of charge through its website,
http://www.oldlinebank.com, Old Line Bancshares reports on Forms 10-K, 10-Q and 8-K, and amendments
to those reports, as soon as reasonably practicable after such reports are filed with or furnished
to the SEC.
Old Line Bancshares has filed a registration statement on Form S-4 to register with the SEC
the shares of Old Line Bancshares common stock that Maryland Bankcorp stockholders will receive in
the merger. This joint proxy statement/prospectus is part of the registration statement of Old
Line Bancshares on Form S-4 and is a prospectus of Old Line Bancshares and a proxy statement of Old
Line Bancshares and Maryland Bankcorp for the Old Line Bancshares and Maryland Bankcorp special
meetings, respectively.
Neither Old Line Bancshares nor Maryland Bankcorp has authorized anyone to give any
information or make any representation about the merger or the special meetings that is different
from, or in addition to, that contained in this joint proxy statement/ prospectus or in any of the
materials that are incorporated by reference into this joint proxy statement/prospectus.
Therefore, if anyone does give you information of this sort, you should not rely on it. This joint
proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to
purchase, the securities offered by this joint proxy statement/prospectus, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such
offer, solicitation of an offer or proxy solicitation in such jurisdiction. Neither the delivery
of this joint proxy statement/prospectus nor any distribution of securities pursuant to this joint
proxy statement/prospectus shall, under any circumstances, create any implication that there has
been no change in the information set forth or incorporated into this joint proxy
statement/prospectus by reference or in our affairs since the date of this joint proxy
statement/prospectus. The information contained in this proxy joint statement/prospectus with
respect to Old Line Bancshares was provided by Old Line Bancshares, and the information contained
in this joint proxy statement/prospectus with respect to Maryland Bankcorp was provided by Maryland
Bankcorp. The information contained in this joint proxy statement/prospectus speaks only as of the
date of this joint proxy statement/prospectus unless the information specifically indicates that
another date applies.
219
FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET AND
STATEMENT OF INCOME
The following unaudited pro forma condensed combined balance sheet at June 30, 2010 and
unaudited pro forma condensed combined statements of income for the six months ended June 30, 2010
and twelve months ended December 31, 2009 illustrate the effect of the proposed merger. We have
based the unaudited pro forma condensed combined financial statements on the unaudited consolidated
balance sheet and consolidated statements of income of Old Line Bancshares and Maryland Bankcorp
for the six months ended June 30, 2010 and twelve months ended December 31, 2009.
As required by FASB ASC Topic 805-Business combinations, we have used the acquisition method
of accounting and adjusted the acquired assets and liabilities of Maryland Bankcorp to fair value
as of the balance sheet date. Under this method, we will record Maryland Bankcorps assets and
liabilities as of the date of the acquisition at their respective fair values and add them to those
of Old Line Bancshares. We will record in goodwill any difference between the purchase price for
Maryland Bankcorp and the fair value of the identifiable net assets acquired (including core
deposit intangibles). We will not expense the amortization of the goodwill that results from the
acquisition, if any, but will review it for impairment at least annually. To the extent there is
an impairment of the goodwill, we will expense the impairment. We will amortize to expense core
deposit and other intangibles with definite useful lives that we record in conjunction with the
merger. Financial statements that Old Line Bancshares issues after the acquisition will reflect
the results attributable to the acquired operations of Maryland Bankcorp beginning on the date of
completion of the acquisition.
In connection with the acquisition, Old Line Bancshares and Maryland Bankcorp are currently
working to further develop their preliminary plans to consolidate their operations. During the
next several months, we expect to refine the specific details. We are currently in the process of
assessing the two companies personnel, benefit plans, premises, equipment, computer systems and
service contracts to determine where we may take advantage of redundancies. We will record cost
associated with such decisions and any other merger related costs as incurred and have not included
them in the pro forma adjustments to the pro form consolidated statements of income. We anticipate
that we can reduce consolidated operating expenses by 25% to 35%. We have not included these
savings in the pro forma consolidated statements of income and there are no assurances that we will
realize these reductions.
We have provided the unaudited pro forma information for information purposes only. The pro
forma financial information presented is not necessarily indicative of the actual results that we
would have achieved had we consummated the merger on the dates or at the beginning of the periods
presented, and it is not necessarily indicative of future results. You should read the unaudited
pro forma financial information in conjunction with notes thereto and the audited and unaudited
consolidated financial statements and the notes thereto of Old Line Bancshares and Maryland
Bankcorp contained in this joint proxy statement/prospectus.
The unaudited pro forma stockholders equity and net income derived from the above assumptions
are qualified by the statements set forth under this caption and you should not consider them
indicative of the market value of Old Line Bancshares common stock, its financial condition or the
actual or future results of operations of Old Line Bancshares for any periods. Actual results may
be materially different than the pro forma data presented.
We have made certain reclassification adjustments to the pro forma financial statements to
conform to Old Line Bancshares financial statement presentation.
F-1
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Proforma Balance Sheets with Maryland Bankcorp
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line |
|
|
Maryland |
|
|
Proforma |
|
|
Proforma |
|
|
|
Bancshares |
|
|
Bankcorp |
|
|
Adjustments |
|
|
Combined |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
|
|
|
Assets
|
Cash and due from banks |
|
$ |
6,164,751 |
|
|
$ |
10,505,450 |
|
|
$ |
(6,244,370 |
) (1)(9) |
|
$ |
10,425,831 |
|
Interest bearing accounts |
|
|
19,329,598 |
|
|
|
17,839,414 |
|
|
|
|
|
|
|
37,169,012 |
|
Federal funds sold |
|
|
3,177,084 |
|
|
|
4,168,181 |
|
|
|
|
|
|
|
7,345,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
28,671,433 |
|
|
|
32,513,045 |
|
|
|
(6,244,370 |
) |
|
|
54,940,108 |
|
Time deposits in other banks |
|
|
10,379,857 |
|
|
|
|
|
|
|
|
|
|
|
10,379,857 |
|
Investment securities available for sale |
|
|
27,001,553 |
|
|
|
65,906,630 |
|
|
|
|
|
|
|
92,908,183 |
|
Investment securities held to maturity |
|
|
24,572,928 |
|
|
|
|
|
|
|
|
|
|
|
24,572,928 |
|
Loans, net of deferred fees and costs |
|
|
288,532,817 |
|
|
|
226,918,793 |
|
|
|
(11,649,281 |
) (5)(6) |
|
|
503,802,329 |
|
Allowance for loan losses |
|
|
(2,712,929 |
) |
|
|
(6,554,281 |
) |
|
|
6,554,281 |
(6) |
|
|
(2,712,929 |
) |
Restricted equity securities at cost |
|
|
2,747,650 |
|
|
|
1,323,739 |
|
|
|
|
|
|
|
4,071,389 |
|
Premises and equipment |
|
|
17,187,953 |
|
|
|
3,726,946 |
|
|
|
463,708 |
(12) |
|
|
21,378,607 |
|
Accrued interest receivable |
|
|
1,162,564 |
|
|
|
1,371,662 |
|
|
|
|
|
|
|
2,534,226 |
|
Prepaid income taxes |
|
|
28,458 |
|
|
|
1,159,663 |
|
|
|
|
|
|
|
1,188,121 |
|
Deferred income taxes |
|
|
66,505 |
|
|
|
3,676,314 |
|
|
|
2,996,422 |
(4)(10) |
|
|
6,739,241 |
|
Bank owned life insurance |
|
|
8,566,098 |
|
|
|
7,320,462 |
|
|
|
|
|
|
|
15,886,560 |
|
Prepaid pension costs |
|
|
|
|
|
|
1,130,859 |
|
|
|
|
|
|
|
1,130,859 |
|
Other real estate owned |
|
|
223,169 |
|
|
|
6,852,087 |
|
|
|
(4,790,000 |
)(7) |
|
|
2,285,256 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
306,188 |
(1) |
|
|
306,188 |
|
Other intangible assets, net |
|
|
|
|
|
|
|
|
|
|
4,759,835 |
(3) |
|
|
4,759,835 |
|
Other assets |
|
|
1,781,510 |
|
|
|
2,718,032 |
|
|
|
|
|
|
|
4,499,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
408,209,566 |
|
|
$ |
348,063,951 |
|
|
$ |
(7,603,217 |
) |
|
$ |
748,670,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
53,408,446 |
|
|
$ |
105,955,607 |
|
|
$ |
|
|
|
$ |
159,364,053 |
|
Interest bearing |
|
|
265,370,631 |
|
|
|
190,914,120 |
|
|
|
1,968,000 |
(8) |
|
|
458,252,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
318,779,077 |
|
|
|
296,869,727 |
|
|
|
1,968,000 |
|
|
|
617,616,804 |
|
Short term borrowings |
|
|
33,790,253 |
|
|
|
20,034,106 |
|
|
|
(5,244,370 |
)(9) |
|
|
48,579,989 |
|
Long term borrowings |
|
|
16,413,098 |
|
|
|
|
|
|
|
|
|
|
|
16,413,098 |
|
Accrued interest payable |
|
|
461,053 |
|
|
|
124,497 |
|
|
|
|
|
|
|
585,550 |
|
Deferred compensation and supplemental benefits |
|
|
555,592 |
|
|
|
3,068,598 |
|
|
|
|
|
|
|
3,624,190 |
|
Other liabilities |
|
|
571,895 |
|
|
|
2,756,673 |
|
|
|
1,895,000 |
(10) |
|
|
5,223,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
370,570,968 |
|
|
|
322,853,601 |
|
|
|
(1,381,370 |
) |
|
|
692,043,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
38,800 |
|
|
|
6,466 |
|
|
|
17,123 |
(1)(2) |
|
|
62,389 |
|
Additional paid-in capital |
|
|
29,101,030 |
|
|
|
20,845,536 |
|
|
|
(1,880,622 |
)(1)(2) |
|
|
48,065,944 |
|
Retained earnings |
|
|
7,260,278 |
|
|
|
4,100,755 |
|
|
|
(4,100,755 |
)(1)(2) |
|
|
7,260,278 |
|
Accumulated other comprehensive income |
|
|
597,282 |
|
|
|
257,593 |
|
|
|
(257,593 |
)(1)(2) |
|
|
597,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
36,997,390 |
|
|
|
25,210,350 |
|
|
|
(6,221,847 |
) |
|
|
55,985,893 |
|
Non-controlling interest |
|
|
641,208 |
|
|
|
|
|
|
|
|
|
|
|
641,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
37,638,598 |
|
|
|
25,210,350 |
|
|
|
(6,221,847 |
) |
|
|
56,627,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$ |
408,209,566 |
|
|
$ |
348,063,951 |
|
|
$ |
(7,603,217 |
) |
|
$ |
748,670,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-2
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Proforma Statement of Income with Maryland Bankcorp
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line |
|
|
Maryland |
|
|
Proforma |
|
|
Proforma |
|
|
|
Bancshares |
|
|
Bankcorp |
|
|
Adjustments |
|
|
Combined |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
| |
|
Interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
7,998,999 |
|
|
$ |
7,068,076 |
|
|
$ |
949,169 |
(5),(6) |
|
$ |
16,016,244 |
|
U.S. Treasury securities |
|
|
|
|
|
|
5,466 |
|
|
|
|
|
|
|
5,466 |
|
U.S. government agency securities |
|
|
90,697 |
|
|
|
243,015 |
|
|
|
(137,859 |
)(4) |
|
|
195,853 |
|
Mortgage backed securities |
|
|
673,477 |
|
|
|
685,658 |
|
|
|
|
|
|
|
1,359,135 |
|
Municipal securities |
|
|
40,360 |
|
|
|
310,010 |
|
|
|
|
|
|
|
350,370 |
|
Federal funds sold |
|
|
2,186 |
|
|
|
11,651 |
|
|
|
|
|
|
|
13,837 |
|
Other |
|
|
158,213 |
|
|
|
27,896 |
|
|
|
|
|
|
|
186,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue |
|
|
8,963,932 |
|
|
|
8,351,772 |
|
|
|
811,310 |
|
|
|
18,127,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,974,365 |
|
|
|
1,911,745 |
|
|
|
(164,328 |
)(8) |
|
|
3,721,782 |
|
Borrowed funds |
|
|
554,733 |
|
|
|
187,102 |
|
|
|
|
|
|
|
741,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
2,529,098 |
|
|
|
2,098,847 |
|
|
|
(164,328 |
) |
|
|
4,463,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
6,434,834 |
|
|
|
6,252,925 |
|
|
|
975,638 |
|
|
|
13,663,397 |
|
Provision for loan losses |
|
|
240,000 |
|
|
|
2,435,000 |
|
|
|
|
|
|
|
2,675,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
6,194,834 |
|
|
|
3,817,925 |
|
|
|
975,638 |
|
|
|
10,988,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
153,231 |
|
|
|
712,887 |
|
|
|
|
|
|
|
866,118 |
|
Gains on sales of investment securities |
|
|
|
|
|
|
260,878 |
|
|
|
|
|
|
|
260,878 |
|
Earnings on bank owned life insurance |
|
|
170,108 |
|
|
|
114,144 |
|
|
|
|
|
|
|
284,252 |
|
Other fees and commissions |
|
|
240,603 |
|
|
|
83,201 |
|
|
|
|
|
|
|
323,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
|
563,942 |
|
|
|
1,171,110 |
|
|
|
|
|
|
|
1,735,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
2,296,359 |
|
|
|
2,548,511 |
|
|
|
|
|
|
|
4,844,870 |
|
Employee benefits |
|
|
667,938 |
|
|
|
1,029,495 |
|
|
|
(86,340 |
)(4) |
|
|
1,611,093 |
|
Occupancy |
|
|
652,457 |
|
|
|
925,552 |
|
|
|
7,729 |
(12) |
|
|
1,585,738 |
|
Equipment |
|
|
206,028 |
|
|
|
1,696 |
|
|
|
|
|
|
|
207,724 |
|
Data processing |
|
|
199,500 |
|
|
|
343,724 |
|
|
|
|
|
|
|
543,224 |
|
FDIC insurance and State of Maryland assessments |
|
|
230,668 |
|
|
|
260,525 |
|
|
|
|
|
|
|
491,193 |
|
Other operating |
|
|
1,051,746 |
|
|
|
1,739,641 |
|
|
|
432,712 |
(3) |
|
|
3,224,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
5,304,696 |
|
|
|
6,849,144 |
|
|
|
354,101 |
|
|
|
12,507,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,454,080 |
|
|
|
(1,860,109 |
) |
|
|
621,537 |
|
|
|
215,508 |
|
Income taxes |
|
|
500,132 |
|
|
|
(722,692 |
) |
|
|
|
|
|
|
(222,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
953,948 |
|
|
|
(1,137,417 |
) |
|
|
621,537 |
|
|
|
438,068 |
|
Less: Net Income (loss) attributable to the
noncontrolling interest |
|
|
(40,683 |
) |
|
|
|
|
|
|
|
|
|
|
(40,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
994,631 |
|
|
$ |
(1,137,417 |
) |
|
$ |
621,537 |
|
|
$ |
478,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.26 |
|
|
$ |
(1.76 |
) |
|
$ |
|
|
|
$ |
0.08 |
|
Diluted earnings (loss) per common share |
|
$ |
0.26 |
|
|
$ |
(1.76 |
) |
|
$ |
|
|
|
$ |
0.08 |
|
Dividend per common share |
|
$ |
0.06 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.06 |
|
F-3
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Proforma Statement of Income with Maryland Bankcorp
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Line |
|
|
Maryland |
|
|
Proforma |
|
|
Proforma |
|
|
|
Bancshares |
|
|
Bankcorp |
|
|
Adjustments |
|
|
Combined |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
|
Interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
15,304,608 |
|
|
$ |
13,882,947 |
|
|
$ |
1,898,338 |
(5)(6) |
|
$ |
31,085,893 |
|
U.S. Treasury securities |
|
|
7,230 |
|
|
|
28,081 |
|
|
|
|
|
|
|
35,311 |
|
U.S. government agency securities |
|
|
296,560 |
|
|
|
564,048 |
|
|
|
(275,717 |
)(4) |
|
|
584,891 |
|
Mortgage backed securities |
|
|
1,059,386 |
|
|
|
1,237,582 |
|
|
|
|
|
|
|
2,296,968 |
|
Municipal securities |
|
|
84,797 |
|
|
|
727,985 |
|
|
|
|
|
|
|
812,782 |
|
Federal funds sold |
|
|
1,148 |
|
|
|
35,504 |
|
|
|
|
|
|
|
36,652 |
|
Other |
|
|
342,127 |
|
|
|
62,185 |
|
|
|
|
|
|
|
404,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue |
|
|
17,095,856 |
|
|
|
16,538,332 |
|
|
|
1,622,621 |
|
|
|
35,256,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
4,553,099 |
|
|
|
4,781,040 |
|
|
|
(328,656 |
)(8) |
|
|
9,005,483 |
|
Borrowed funds |
|
|
1,026,755 |
|
|
|
242,390 |
|
|
|
|
|
|
|
1,269,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,579,854 |
|
|
|
5,023,430 |
|
|
|
(328,656 |
) |
|
|
10,274,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
11,516,002 |
|
|
|
11,514,902 |
|
|
|
1,951,277 |
|
|
|
24,982,181 |
|
Provision for loan losses |
|
|
900,000 |
|
|
|
5,669,565 |
|
|
|
|
|
|
|
6,569,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
10,616,002 |
|
|
|
5,845,337 |
|
|
|
1,951,277 |
|
|
|
18,412,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
307,012 |
|
|
|
1,541,142 |
|
|
|
|
|
|
|
1,848,154 |
|
Gains on sales of investment securities |
|
|
158,551 |
|
|
|
550,833 |
|
|
|
|
|
|
|
709,384 |
|
Earnings on bank owned life insurance |
|
|
376,165 |
|
|
|
223,647 |
|
|
|
|
|
|
|
599,812 |
|
Other fees and commissions |
|
|
978,039 |
|
|
|
195,089 |
|
|
|
|
|
|
|
1,173,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
|
1,819,767 |
|
|
|
2,510,711 |
|
|
|
|
|
|
|
4,330,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
4,037,027 |
|
|
|
5,417,894 |
|
|
|
|
|
|
|
9,454,921 |
|
Employee benefits |
|
|
1,012,014 |
|
|
|
1,810,487 |
|
|
|
(172,680 |
)(4) |
|
|
2,649,821 |
|
Occupancy |
|
|
1,085,768 |
|
|
|
1,832,341 |
|
|
|
15,457 |
(12) |
|
|
2,933,566 |
|
Equipment |
|
|
354,531 |
|
|
|
193 |
|
|
|
|
|
|
|
354,724 |
|
Data processing |
|
|
340,870 |
|
|
|
646,138 |
|
|
|
|
|
|
|
987,008 |
|
FDIC insurance and State of Maryland assessments |
|
|
561,850 |
|
|
|
113,409 |
|
|
|
|
|
|
|
675,259 |
|
Other operating |
|
|
1,864,821 |
|
|
|
3,531,599 |
|
|
|
865,425 |
(3) |
|
|
6,261,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
9,256,881 |
|
|
|
13,352,061 |
|
|
|
708,202 |
|
|
|
23,317,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,178,888 |
|
|
|
(4,996,013 |
) |
|
|
1,243,075 |
|
|
|
(574,050 |
) |
Income taxes |
|
|
1,055,522 |
|
|
|
(1,164,236 |
) |
|
|
|
|
|
|
(108,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
2,123,366 |
|
|
|
(3,831,777 |
) |
|
|
1,243,075 |
|
|
|
(465,336 |
) |
Less: Net Income (loss) attributable to the
noncontrolling interest |
|
|
87,216 |
|
|
|
|
|
|
|
|
|
|
|
87,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
2,036,150 |
|
|
|
(3,831,777 |
) |
|
|
1,243,075 |
|
|
|
(552,552 |
) |
Preferred stock dividends and discount accretion |
|
|
485,993 |
|
|
|
|
|
|
|
|
|
|
|
485,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
1,550,157 |
|
|
$ |
(3,831,777 |
) |
|
$ |
1,243,075 |
|
|
$ |
(1,038,545 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share |
|
$ |
0.40 |
|
|
$ |
(5.93 |
) |
|
$ |
|
|
|
$ |
(0.17 |
) |
Diluted earnings (loss) per common share |
|
$ |
0.40 |
|
|
$ |
(5.93 |
) |
|
$ |
|
|
|
$ |
(0.17 |
) |
Dividend per common share |
|
$ |
0.12 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.12 |
|
F-4
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET AND
STATEMENT OF INCOME
1. |
|
Old Line Bancshares will issue shares of its stock to stockholders of Maryland Bankcorp to
effect the acquisition. The exchange ratio is based on a pricing mechanism that adjusts based
on the average price as defined in the merger agreement. The unaudited pro forma combined
financial information assumes that Old Line Bancshares exchanges each share of Maryland
Bankcorp stock for 3.84 shares of Old Line Bancshares common stock and that there are no
further reductions in the consideration as a result of Maryland Bankcorp incurring operating
losses, further deterioration in credit quality or expenses that exceed those outlined in the
merger agreement. |
|
|
|
It is anticipated that Maryland Bankcorp stockholders will own approximately 37.81% of the
voting stock of the combined company after the acquisition. The shares of Old Line
Bancshares common stock illustrated in this pro forma were assumed to be recorded at $8.05
per share, the average sales price of Old Line Bancshares common stock on September 30,
2010. The final accounting acquisition price assigned to record the shares issued in the
acquisition will be based on the average price of Old Line Bancshares common stock on the
effective date of the acquisition. Old Line Bancshares and Maryland Bankcorp cannot predict
what the value or average price of Old Line Bancshares stock will be at the closing of the
transaction or how the value or price of Old Line Bancshares stock may trade at any time,
including the date hereof. The pro forma financial statements assume that 5% of Maryland
Bankcorp stockholders elect to receive cash consideration for a total cash payment of $1
million. |
|
|
|
Old Line Bancshares will determine the final allocation of the purchase price after it has
completed additional analysis to determine the fair values of Maryland Bankcorp tangible and
identifiable intangible assets and liabilities as of the date of the acquisition. Changes
in the fair value of the net assets of Maryland Bankcorp as of the date of the acquisition
will likely change the amount of the purchase price allocable to goodwill. The further
refinement of transaction costs, changes in Maryland Bankcorps shareholders equity
including net income between June 30, 2010 and the date of the acquisition will likely
change the amount of goodwill recorded. The final adjustments may be materially different
from the unaudited pro forma adjustments presented herein. Old Line Bancshares has prepared
the pro forma financial information to include the estimated adjustments necessary to record
the assets and liabilities of Maryland Bankcorp at their respective fair values and
represents managements best estimate based upon the information available at this time.
The pro forma adjustments included herein are subject to change as additional information
becomes available and as we perform additional analyses. Furthermore, Old Line Bancshares
will determine the final allocation of the acquisition price after we complete the
consolidation. The final acquisition accounting adjustments may be materially different
from the pro forma adjustment presented herein. Increases or decreases in the fair value of
certain balance sheet amounts including loans, securities, deposits and related intangibles
and debt will result in adjustments to the balance sheet and statement of operations. Such
adjustments, when compared to the information shown in this document, may change the amount
of the purchase price allocated to goodwill while changes to other assets and liabilities
may impact the statement of income due to adjustments in the yield and/or
amortization/accretion of the adjusted assets and liabilities. We have included the
unaudited pro forma combined financial statements only as of and for the six months ended
June 30, 2010 and the year ended December 31, 2010. The unaudited pro forma combined
financial information presented herein does not necessarily provide an indication of the
combined results of operations or the combined financial position that would have resulted
had we actually completed the consolidation as of the assumed consummation date, nor is it
indicative of the results of operations in future periods or the future financial position
of the combined company. |
|
|
|
The total estimated purchase price for the purpose of this pro forma financial information
is $20.0 million. The following table provides the calculation and allocation of the
purchase price used in the pro forma financial statements and a reconcilement of pro forma
shares outstanding assuming that 5% of Maryland Bankcorp stockholders elect to receive cash
consideration for a total cash payment of $1 million: |
F-5
Summary of Purchase Price Calculation and Goodwill Resutling from
Merger And Reconciliation of Pro Forma Shares Outstanding at June 30, 2010
($ in thousands except share and per share data)
|
|
|
|
|
Purchase Price Consideration-Common Stock |
|
June 30, 2010 |
|
Maryland Bankcorp shares outstanding exchanged for stock |
|
|
614,295 |
|
Exchange ratio |
|
|
3.84 |
|
Old Line Bancshares to be issued to Maryland Bankcorp stockholders |
|
|
2,358,892 |
|
Purchase price per Maryland Bankcorp common share |
|
$ |
30.9298 |
|
Cash consideration |
|
$ |
1,000 |
|
Purchase price assigned to shares exchanged for stock |
|
|
18,989 |
|
|
|
|
|
Total purchase price |
|
$ |
19,989 |
|
|
|
|
|
|
Maryland Bankcorp shareholders equity |
|
$ |
25,210 |
|
|
|
|
|
|
Estimated adjustments to reflect assets acquired at fair value: |
|
|
|
|
Investments/Pension Assets |
|
|
|
|
Loans |
|
|
(11,649 |
) |
Allowance for loan losses |
|
|
6,554 |
|
Core deposit intangible |
|
|
4,760 |
|
Fixed Assets |
|
|
464 |
|
Deferred tax assets |
|
|
2,996 |
|
Other real estate owned |
|
|
(4,790 |
) |
|
|
|
|
|
Estimated adjustments to reflect liabilities acquired at fair value: |
|
|
|
|
Interest bearing deposits |
|
|
(1,968 |
) |
Merger liabilities accrued at closing |
|
|
(1,895 |
) |
|
|
|
|
|
|
|
19,682 |
|
|
|
|
|
Goodwill resulting from merger |
|
$ |
307 |
|
|
|
|
|
|
|
|
|
|
Reconcilement of Pro Forma Shares Outstanding |
|
|
|
|
Maryland Bankcorp shares outstanding |
|
|
646,626 |
|
Less 5% elect cash consideration |
|
|
(32,331 |
) |
|
|
|
|
Maryland Bankcorp shares converted |
|
|
614,295 |
|
Exchange ratio |
|
|
3.84 |
|
Old Line Bancshres to be issued to Maryland Bankcorp stockholders |
|
|
2,358,892 |
|
Old Line Bancshares shares outstanding |
|
|
3,880,005 |
|
|
|
|
|
Pro forma Old Line Bancshares shares outstanding |
|
|
6,238,897 |
|
Pro forma % ownership by Maryland Bankcorp |
|
|
37.81 |
% |
Pro forma % ownership by legacy Old Line Bancshares |
|
|
62.19 |
% |
2. |
|
Adjustment to reflect the issuance of common shares of Old Line Bancshares common stock with
a $0.01 par value in connection with the merger and the adjustments to stockholders equity
for the reclassification of Maryland Bankcorps historical equity accounts (common stock,
accumulated other comprehensive income and retained earnings) into additional paid-in capital. |
|
3. |
|
Adjustment of $4.8 million to core deposit intangible to reflect the fair value of this asset
and the related amortization adjustment based upon an expected life of 10 years and using a
sum of the years digit method. We expect the amortization of the core deposit intangible to
increase pro forma before tax non-interest expense by $865 thousand in the first year
following consummation. |
|
4. |
|
Since all investments were recorded as available for sale and at fair value and pension
assets were recorded at fair value, no balance sheet adjustment is necessary, except to
reclassify this amount from accumulated comprehensive income to the deferred tax asset. There
is no net effect on the balance sheet. Statement of income adjustments reflect amortization
of the investment premium and accretion of the pension discount
which we will prospectively amortize based on an expected life of 4 years using the sum of
the years digits |
F-6
|
|
method. We expect this adjustment to decrease pro forma before tax
interest income by $275 thousand and decrease employee benefits expense by $173 thousand in
the first year following consummation. |
|
5. |
|
Adjustment of $3.7 million to increase the fair values of loans based on current interest
rates of similar loans. We will recognize this adjustment using the level yield amortization
method based upon the expected life of the loans. We expect this adjustment will decrease pro
forma before tax interest income by $802 thousand in the first year following consummation. |
|
6. |
|
Adjustments to reflect the fair value of loans include: |
|
|
|
An adjustment of $6.6 million to reflect the removal of the allowance for loan
losses in connection with applying acquisition accounting under ASC 805. We expect this
adjustment will increase pro forma before tax interest income by $1.2 million in the
first year following consummation of the merger. |
|
|
|
|
An adjustment of $500 thousand for loans within the scope of ASC 310-30 (ASC 310-30
occurs as a result of the accounting for the differences between contractual cash flows
and cash flows expected to be collected from an investors initial investment in loans,
including those acquired in a business combination, if those differences are
attributable, at least in part, to credit quality considerations). Old Line Banks
management and independent loan review personnel determined this amount based on a
review of Maryland Bankcorps loans. This review considered payment history, relevant
collateral values, debt service coverage ratios and other factors. There is no
estimated accretion for this credit quality adjustment in the pro forma statement of
income. |
|
|
|
|
An adjustment of $8.3 million for loans determined not to be within the scope of ASC
310-30. To determine the fair value of the loans that are not within the scope of ASC
310-30, Old Line Banks management and independent loan review personnel evaluated
Maryland Bankcorps loan portfolio and considered the risk characteristics inherent
within the remaining portfolio. This review included payment history, concentrations,
quality of underwriting, and economic weaknesses. We will recognize this credit
quality adjustment over approximately 10 years using an amortization method based upon
the expected life of the loans using sum of the years digits method. We anticipate
this adjustment will increase pro forma before tax interest income by $1.5 million. |
7. |
|
An adjustment of $4.8 million to reflect the fair value of other real estate owned, based on
Old Line Banks management detailed analysis of these assets that included site visits where
possible, review of appraisals by a MAI certified appraiser, and current tax assessed values. |
|
8. |
|
Adjustment of $2.0 million to reflect the fair values of interest bearing time deposit
liabilities based on current interest rates for similar instruments. We will recognize this
adjustment using a level yield amortization method based upon the maturities of the deposit
liabilities. We expect this adjustment will decrease pro forma before tax interest expense by
$329 thousand the first year following consummation. |
|
9. |
|
Adjustment of $5.2 million to reflect the repayment of short term borrowings by Maryland
Bankcorp concurrent with the merger. |
|
10. |
|
Adjustment relates to recognition of estimated merger obligations and costs of $1.9 million
before tax that we expect to record as a liability on the closing date. Neither company had
expensed any merger costs prior to June 30, 2010. |
|
11. |
|
Adjustment to reflect the net deferred tax at a rate of 34% related to fair value adjustments
on the balance sheet and a statutory tax rate of 34% for book tax expense. We have not taken
a tax benefit for certain merger obligations and cost that we do not consider tax deductible.
This adjustment also includes the removal of a $1 million valuation allowance recorded by
Maryland Bankcorp which we believe will be recoverable after the merger. |
|
12. |
|
Adjustment of $463 thousand to reflect the increase in fair value for premises and equipment.
We have presented the amortization of the fair value adjustment over a 30 year period. We
expect this adjustment to increase pro forma occupancy and equipment expense by $16 thousand
in the first year of consummation. |
F-7
OLD LINE BANCSHARES, INC. & SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 AND 2009
F-8
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
Assets |
|
Cash and due from banks |
|
$ |
6,164,751 |
|
|
$ |
7,402,137 |
|
Interest bearing accounts |
|
|
19,329,598 |
|
|
|
3,953,312 |
|
Federal funds sold |
|
|
3,177,084 |
|
|
|
81,138 |
|
|
|
|
|
|
|
|
Total cash and cash
equivalents |
|
|
28,671,433 |
|
|
|
11,436,587 |
|
Time deposits in other banks |
|
|
10,379,857 |
|
|
|
15,031,102 |
|
Investment securities available
for sale |
|
|
27,001,553 |
|
|
|
28,012,948 |
|
Investment securities held to
maturity |
|
|
24,572,928 |
|
|
|
5,806,507 |
|
Loans, less allowance for loan losses |
|
|
285,819,888 |
|
|
|
265,008,669 |
|
Restricted equity securities at cost |
|
|
2,747,650 |
|
|
|
2,957,650 |
|
Premises and equipment |
|
|
17,187,953 |
|
|
|
17,326,099 |
|
Accrued interest receivable |
|
|
1,162,564 |
|
|
|
1,055,249 |
|
Prepaid income taxes |
|
|
28,458 |
|
|
|
|
|
Deferred income taxes |
|
|
66,505 |
|
|
|
178,574 |
|
Bank owned life insurance |
|
|
8,566,098 |
|
|
|
8,422,879 |
|
Other real estate owned |
|
|
223,169 |
|
|
|
|
|
Other assets |
|
|
1,781,510 |
|
|
|
1,982,262 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
408,209,566 |
|
|
$ |
357,218,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
Deposits |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
53,408,446 |
|
|
$ |
40,883,419 |
|
Interest bearing |
|
|
265,370,631 |
|
|
|
245,464,373 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
318,779,077 |
|
|
|
286,347,792 |
|
Short term borrowings |
|
|
33,790,253 |
|
|
|
16,149,939 |
|
Long term borrowings |
|
|
16,413,098 |
|
|
|
16,454,067 |
|
Accrued interest payable |
|
|
461,053 |
|
|
|
517,889 |
|
Income tax payable |
|
|
|
|
|
|
175,543 |
|
Other liabilities |
|
|
1,127,487 |
|
|
|
941,165 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
370,570,968 |
|
|
|
320,586,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share; authorized 15,000,000 shares;
issued and outstanding 3,880,005 in 2010 and 3,862,364 in 2009 |
|
|
38,800 |
|
|
|
38,624 |
|
Additional paid-in capital |
|
|
29,101,030 |
|
|
|
29,034,954 |
|
Retained earnings |
|
|
7,260,278 |
|
|
|
6,498,446 |
|
Accumulated other comprehensive income |
|
|
597,282 |
|
|
|
368,880 |
|
|
|
|
|
|
|
|
Total Old Line Bancshares, Inc. stockholders equity |
|
|
36,997,390 |
|
|
|
35,940,904 |
|
Non-controlling interest |
|
|
641,208 |
|
|
|
691,227 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
37,638,598 |
|
|
|
36,632,131 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
408,209,566 |
|
|
$ |
357,218,526 |
|
|
|
|
|
|
|
|
F-9
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
4,045,643 |
|
|
$ |
3,788,846 |
|
|
$ |
7,998,999 |
|
|
$ |
7,390,729 |
|
U.S. Treasury securities |
|
|
|
|
|
|
2,374 |
|
|
|
|
|
|
|
7,230 |
|
U.S. government agency securities |
|
|
36,142 |
|
|
|
84,269 |
|
|
|
90,697 |
|
|
|
187,190 |
|
Mortgage backed securities |
|
|
398,261 |
|
|
|
256,443 |
|
|
|
673,477 |
|
|
|
524,364 |
|
Municipal securities |
|
|
20,727 |
|
|
|
21,000 |
|
|
|
40,360 |
|
|
|
43,999 |
|
Federal funds sold |
|
|
1,543 |
|
|
|
305 |
|
|
|
2,186 |
|
|
|
740 |
|
Other |
|
|
71,487 |
|
|
|
74,097 |
|
|
|
158,213 |
|
|
|
175,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue |
|
|
4,573,803 |
|
|
|
4,227,334 |
|
|
|
8,963,932 |
|
|
|
8,329,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
999,436 |
|
|
|
1,156,871 |
|
|
|
1,974,365 |
|
|
|
2,346,255 |
|
Borrowed funds |
|
|
281,189 |
|
|
|
259,463 |
|
|
|
554,733 |
|
|
|
519,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
1,280,625 |
|
|
|
1,416,334 |
|
|
|
2,529,098 |
|
|
|
2,866,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
3,293,178 |
|
|
|
2,811,000 |
|
|
|
6,434,834 |
|
|
|
5,463,253 |
|
Provision for loan losses |
|
|
170,000 |
|
|
|
250,000 |
|
|
|
240,000 |
|
|
|
550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
3,123,178 |
|
|
|
2,561,000 |
|
|
|
6,194,834 |
|
|
|
4,913,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
78,411 |
|
|
|
72,665 |
|
|
|
153,231 |
|
|
|
144,854 |
|
Gains on sales of investment securities |
|
|
|
|
|
|
157,917 |
|
|
|
|
|
|
|
157,917 |
|
Earnings on bank owned life insurance |
|
|
83,985 |
|
|
|
94,154 |
|
|
|
170,108 |
|
|
|
187,615 |
|
Other fees and commissions |
|
|
108,657 |
|
|
|
210,264 |
|
|
|
240,603 |
|
|
|
648,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
|
271,053 |
|
|
|
535,000 |
|
|
|
563,942 |
|
|
|
1,138,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
1,130,944 |
|
|
|
938,930 |
|
|
|
2,296,359 |
|
|
|
1,775,987 |
|
Employee benefits |
|
|
317,803 |
|
|
|
215,422 |
|
|
|
667,938 |
|
|
|
517,846 |
|
Occupancy |
|
|
319,051 |
|
|
|
234,125 |
|
|
|
652,457 |
|
|
|
466,306 |
|
Equipment |
|
|
99,152 |
|
|
|
82,516 |
|
|
|
206,028 |
|
|
|
162,394 |
|
Data processing |
|
|
105,074 |
|
|
|
81,654 |
|
|
|
199,500 |
|
|
|
156,991 |
|
FDIC insurance and State of Maryland assessments |
|
|
115,553 |
|
|
|
259,531 |
|
|
|
230,668 |
|
|
|
342,302 |
|
Other operating |
|
|
522,337 |
|
|
|
460,070 |
|
|
|
1,051,746 |
|
|
|
912,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
2,609,914 |
|
|
|
2,272,248 |
|
|
|
5,304,696 |
|
|
|
4,334,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
784,317 |
|
|
|
823,752 |
|
|
|
1,454,080 |
|
|
|
1,717,475 |
|
Income taxes |
|
|
270,063 |
|
|
|
272,787 |
|
|
|
500,132 |
|
|
|
554,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
514,254 |
|
|
|
550,965 |
|
|
|
953,948 |
|
|
|
1,162,573 |
|
Less: Net Income (loss) attributable to the
noncontrolling interest |
|
|
(15,843 |
) |
|
|
907 |
|
|
|
(40,683 |
) |
|
|
100,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to Old Line Bancshares, Inc. |
|
|
530,097 |
|
|
|
550,058 |
|
|
|
994,631 |
|
|
|
1,062,385 |
|
Preferred stock dividends and discount accretion |
|
|
|
|
|
|
102,572 |
|
|
|
|
|
|
|
205,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
530,097 |
|
|
$ |
447,486 |
|
|
$ |
994,631 |
|
|
$ |
857,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.26 |
|
|
$ |
0.22 |
|
Diluted earnings per common share |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.26 |
|
|
$ |
0.22 |
|
Dividend per common share |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.06 |
|
|
$ |
0.06 |
|
F-10
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statement of Changes in Stockholders Equity
Six Months Ended June 30, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
Common stock |
|
|
paid-in |
|
|
Retained |
|
|
comprehensive |
|
|
Comprehensive |
|
|
Non-controlling |
|
|
|
Shares |
|
|
Par value |
|
|
capital |
|
|
earnings |
|
|
income |
|
|
income |
|
|
Interest |
|
|
|
|
Balance, December 31, 2009 |
|
|
3,862,364 |
|
|
$ |
38,624 |
|
|
$ |
29,034,954 |
|
|
$ |
6,498,446 |
|
|
$ |
368,880 |
|
|
$ |
|
|
|
$ |
691,227 |
|
Net income attributable
to Old Line Bancshares, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
994,631 |
|
|
|
|
|
|
|
994,631 |
|
|
|
|
|
Distributions to minority member(s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,336 |
) |
Unrealized gain on
securities available for sale,
net of income tax benefit
of $148,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,402 |
|
|
|
228,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,223,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,683 |
) |
Stock based compensation awards |
|
|
17,641 |
|
|
|
176 |
|
|
|
66,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividend
$0.06 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
|
3,880,005 |
|
|
$ |
38,800 |
|
|
$ |
29,101,030 |
|
|
$ |
7,260,278 |
|
|
$ |
597,282 |
|
|
|
|
|
|
$ |
641,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-11
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2010 |
|
|
2009 |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
8,941,021 |
|
|
$ |
8,278,210 |
|
Fees and commissions received |
|
|
420,723 |
|
|
|
816,712 |
|
Interest paid |
|
|
(2,585,934 |
) |
|
|
(2,852,210 |
) |
Cash paid to suppliers and employees |
|
|
(4,447,524 |
) |
|
|
(6,305,052 |
) |
Income taxes paid |
|
|
(740,843 |
) |
|
|
(473,574 |
) |
|
|
|
|
|
|
|
|
|
|
1,587,443 |
|
|
|
(535,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Net change in time deposits in other banks |
|
|
4,651,245 |
|
|
|
(7,683,404 |
) |
Purchase of investment securities |
|
|
|
|
|
|
|
|
Held to maturity |
|
|
(20,316,548 |
) |
|
|
|
|
Available for sale |
|
|
(3,140,625 |
) |
|
|
(9,624,892 |
) |
Proceeds from disposal of investment securities |
|
|
|
|
|
|
|
|
Held to maturity at maturity or call |
|
|
1,513,869 |
|
|
|
1,360,050 |
|
Available for sale at maturity or call |
|
|
4,454,506 |
|
|
|
4,207,792 |
|
Available for sale securities sold |
|
|
|
|
|
|
4,243,654 |
|
Loans made, net of principal collected |
|
|
(21,247,839 |
) |
|
|
(23,082,772 |
) |
Redemption (Purchase) of equity securities |
|
|
210,000 |
|
|
|
(831,100 |
) |
Purchase of premises, equipment and software |
|
|
(265,700 |
) |
|
|
(2,466,938 |
) |
|
|
|
|
|
|
|
|
|
|
(34,141,092 |
) |
|
|
(33,877,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net increase (decrease) in |
|
|
|
|
|
|
|
|
Time deposits |
|
|
5,177,927 |
|
|
|
24,963,989 |
|
Other deposits |
|
|
27,253,358 |
|
|
|
10,704,530 |
|
Increase in short-term borrowings |
|
|
17,640,314 |
|
|
|
(2,497,662 |
) |
Decrease in long-term borrowings |
|
|
(40,969 |
) |
|
|
(38,488 |
) |
Cash dividends paid-preferred stock |
|
|
|
|
|
|
(155,556 |
) |
Cash dividends paid-common stock |
|
|
(232,799 |
) |
|
|
(231,742 |
) |
Distributions to minority members |
|
|
(9,336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,788,495 |
|
|
|
32,745,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
17,234,846 |
|
|
|
(1,668,453 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
11,436,587 |
|
|
|
10,963,695 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
28,671,433 |
|
|
$ |
9,295,242 |
|
|
|
|
|
|
|
|
F-12
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
2010 |
|
|
2009 |
|
|
Reconciliation of net income to net cash
provided by operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
953,948 |
|
|
$ |
1,162,573 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net
cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
403,846 |
|
|
|
334,698 |
|
Provision for loan losses |
|
|
240,000 |
|
|
|
550,000 |
|
Change in deferred loan fees net of costs |
|
|
(26,549 |
) |
|
|
(58,598 |
) |
Gain on sale of securities |
|
|
|
|
|
|
(158,837 |
) |
Amortization of premiums and discounts |
|
|
110,953 |
|
|
|
45,550 |
|
Deferred income taxes |
|
|
(36,710 |
) |
|
|
(31,568 |
) |
Stock based compensation awards |
|
|
66,252 |
|
|
|
90,584 |
|
Increase (decrease) in |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
(56,836 |
) |
|
|
13,819 |
|
Income tax payable |
|
|
(175,543 |
) |
|
|
77,247 |
|
Other liabilities |
|
|
186,322 |
|
|
|
(3,012,266 |
) |
Decrease (increase) in |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
(107,315 |
) |
|
|
(38,024 |
) |
Bank owned life insurance |
|
|
(143,219 |
) |
|
|
(163,051 |
) |
Prepaid income taxes |
|
|
(28,458 |
) |
|
|
35,649 |
|
Other assets |
|
|
200,752 |
|
|
|
616,310 |
|
|
|
|
|
|
|
|
|
|
$ |
1,587,443 |
|
|
$ |
(535,914 |
) |
|
|
|
|
|
|
|
Supplemental Disclosure: |
|
|
|
|
|
|
|
|
Loans transferred to other real estate owned |
|
$ |
223,169 |
|
|
$ |
|
|
|
|
|
|
|
|
|
F-13
1. |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
Organization and Description of Business-Old Line Bancshares, Inc. (Old Line Bancshares) was
incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the
holding company of Old Line Bank. The primary business of Old Line Bancshares is to own all
of the capital stock of Old Line Bank. We provide a full range of banking services to
customers located in Prince Georges, Charles, Anne Arundel, and St. Marys counties in
Maryland and surrounding areas. |
|
|
|
On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.s 12.5% membership
interest in Pointer Ridge Office Investment, LLC (Pointer Ridge), a real estate investment
company. The effective date of the purchase was November 1, 2008. As a result of this
purchase, our membership interest increased from 50.0% to 62.5%. Consequently, we
consolidated Pointer Ridges results of operations from the date of acquisition. Prior to
the date of acquisition, we accounted for our investment in Pointer Ridge using the equity
method. |
|
|
|
Basis of Presentation and Consolidation-The accompanying consolidated financial statements
include the activity of Old Line Bancshares and its wholly owned subsidiary, Old Line Bank,
and its majority owned subsidiary Pointer Ridge. We have eliminated all significant
intercompany transactions and balances. |
|
|
|
We report the non-controlling interest in Pointer Ridge separately in the consolidated
balance sheet. We reported the income of Pointer Ridge attributable to Old Line Bancshares
from the date of our acquisition of majority interest on the consolidated statement of
income. |
|
|
|
The foregoing consolidated financial statements are unaudited; however, in the opinion of
management we have included all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the results of the interim period. We derived the
balances as of December 31, 2009 from audited financial statements. These statements should
be read in conjunction with Old Line Bancshares financial statements and accompanying notes
included in Old Line Bancshares Form 10-K for the year ended December 31, 2009. We have
made no significant changes to Old Line Bancshares accounting policies as disclosed in the
Form 10-K. |
|
|
|
The accounting and reporting policies of Old Line Bancshares conform to accounting principles
generally accepted in the United States of America. |
|
|
|
Accounting Standards Codification-The Financial Accounting Standards Boards (FASB)
Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, ASC
became FASBs officially recognized source of authoritative United States (U.S.) generally
accepted accounting principles (GAAP) applicable to all public and non-public,
non-governmental entities, superseding existing FASB, American Institute of Certified Public
Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and
interpretive releases of the United States Securities and Exchange Commission (SEC) under the
authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. All other accounting literature is considered non-authoritative. The switch to
ASC affects the way companies refer to U.S. GAAP in financial statements and accounting
policies. Citing particular content in the ASC involves specifying the unique numeric path
to the content through the Topic, Subtopic, Section and Paragraph structure. |
|
|
|
Reclassifications-We have made certain reclassifications to the 2009 financial presentation
to conform to the 2010 presentation. |
|
|
|
Subsequent Events-We evaluated subsequent events after June 30, 2010 through July 28, 2010,
the date this report was available to be issued. No significant subsequent events were
identified which would affect the presentation of the financial statements. |
F-14
2. |
|
INVESTMENT SECURITIES |
|
|
|
As Old Line Bank purchases securities, management determines if we should classify the
securities as held to maturity, available for sale or trading. We record the securities
which management has the intent and ability to hold to maturity at amortized cost which is
cost adjusted for amortization of premiums and accretion of discounts to maturity. We
classify securities which we may sell before maturity as available for sale and carry these
securities 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. |
|
|
|
We record gains and losses on the sale of securities on the trade date and determine these
gains or losses using the specific identification method. We amortize premiums and accrete
discounts using the interest method. Presented below is a summary of the amortized cost and
estimated fair value of securities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Estimated |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
fair value |
|
|
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency |
|
$ |
5,365,191 |
|
|
$ |
120,953 |
|
|
$ |
(9,532 |
) |
|
$ |
5,476,612 |
|
Municipal securities |
|
|
2,000,965 |
|
|
|
33,618 |
|
|
|
(235 |
) |
|
|
2,034,348 |
|
Mortgage-backed |
|
|
18,649,052 |
|
|
|
841,541 |
|
|
|
|
|
|
|
19,490,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,015,208 |
|
|
$ |
996,112 |
|
|
$ |
(9,767 |
) |
|
$ |
27,001,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
$ |
682,817 |
|
|
$ |
7,592 |
|
|
$ |
(15,632 |
) |
|
$ |
674,777 |
|
Mortgage-backed |
|
|
23,890,111 |
|
|
|
614,870 |
|
|
|
|
|
|
|
24,504,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,572,928 |
|
|
$ |
622,462 |
|
|
$ |
(15,632 |
) |
|
$ |
25,179,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency |
|
$ |
7,133,657 |
|
|
$ |
171,946 |
|
|
$ |
(14,928 |
) |
|
$ |
7,290,675 |
|
Municipal securities |
|
|
2,253,107 |
|
|
|
36,759 |
|
|
|
(14,294 |
) |
|
|
2,275,572 |
|
Mortgage-backed |
|
|
18,017,019 |
|
|
|
429,682 |
|
|
|
|
|
|
|
18,446,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,403,783 |
|
|
$ |
638,387 |
|
|
$ |
(29,222 |
) |
|
$ |
28,012,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
$ |
300,779 |
|
|
$ |
2,714 |
|
|
$ |
|
|
|
$ |
303,493 |
|
Mortgage-backed |
|
|
5,505,728 |
|
|
|
267,544 |
|
|
|
|
|
|
|
5,773,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,806,507 |
|
|
$ |
270,258 |
|
|
$ |
|
|
|
$ |
6,076,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
2. |
|
INVESTMENT SECURITIES (Continued) |
|
|
|
As of June 30, 2010, securities with unrealized losses segregated by length of impairment
were as follows: |
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
June 30, 2010 |
|
value |
|
|
losses |
|
|
Unrealized losses less than 12 months |
|
|
|
|
|
|
|
|
U.S. government agency |
|
$ |
1,826,836 |
|
|
$ |
9,532 |
|
Municipal securities |
|
|
466,399 |
|
|
|
15,632 |
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses less than 12 months |
|
|
2,293,235 |
|
|
|
25,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses greater than 12 months |
|
|
|
|
|
|
|
|
Municipal securities |
|
|
200,318 |
|
|
|
235 |
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses greater than 12 months |
|
|
200,318 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses |
|
|
|
|
|
|
|
|
U.S. government agency |
|
|
1,826,836 |
|
|
|
9,532 |
|
Municipal securities |
|
|
666,717 |
|
|
|
15,867 |
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses |
|
$ |
2,493,553 |
|
|
$ |
25,399 |
|
|
|
|
|
|
|
|
|
|
We consider all unrealized losses on securities as of June 30, 2010 to be temporary losses
because we will redeem each security at face value at or prior to maturity. We have the
ability and intent to hold these securities until recovery or maturity. As of June 30, 2010,
we do not have the intent to sell any of the securities classified as available for sale and
believe that it is more likely than not that we will not have to sell any such securities
before a recovery of cost. In most cases, market interest rate fluctuations cause a
temporary impairment in value. We expect the fair value to recover as the investments
approach their maturity date or repricing date or if market yields for these investments
decline. We do not believe that credit quality caused the impairment in any of these
securities. Because we believe these impairments are temporary, we have not realized any
loss in our consolidated statement of income. |
|
|
In the three month period ended June 30, 2010, we did not record any gains or losses from the
sale of available for sale securities. In the three month period ended June 30, 2009, we
recorded gross realized gains of $157,917 from the sale of available-for-sale
securities. |
F-16
2. |
|
INVESTMENT SECURITIES (Continued) |
|
|
|
Contractual maturities and pledged securities at June 30, 2010 are shown below. Actual
maturities will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties. We classify mortgage backed
securities based on maturity date. However, we receive payments on a monthly basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
June 30, 2010 |
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
395,000 |
|
|
$ |
395,036 |
|
|
$ |
|
|
|
$ |
|
|
Over one to five years |
|
|
4,588,674 |
|
|
|
4,747,404 |
|
|
|
|
|
|
|
|
|
Over five to ten years |
|
|
10,822,269 |
|
|
|
11,168,645 |
|
|
|
4,994,073 |
|
|
|
5,148,237 |
|
Over ten years |
|
|
10,209,265 |
|
|
|
10,690,468 |
|
|
|
19,578,855 |
|
|
|
20,031,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,015,208 |
|
|
$ |
27,001,553 |
|
|
$ |
24,572,928 |
|
|
$ |
25,179,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. |
|
POINTER RIDGE OFFICE INVESTMENT, LLC |
|
|
|
In 2008, we purchased Chesapeake Custom Homes, L.L.C.s 12.5% membership interest in Pointer
Ridge. As a result of this purchase, we own 62.5% of Pointer Ridge and consolidated their
results of operations from the date of acquisition. |
|
|
|
The following table summarizes the condensed Balance Sheets and Statements of Income
information for Pointer Ridge. |
|
|
|
Pointer Ridge Office Investment, LLC |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
Balance Sheets |
|
2010 |
|
|
2009 |
|
|
Current assets |
|
$ |
811,954 |
|
|
$ |
891,233 |
|
Non-current assets |
|
|
7,334,703 |
|
|
|
7,432,268 |
|
Liabilities |
|
|
6,436,770 |
|
|
|
6,480,230 |
|
Equity |
|
|
1,709,887 |
|
|
|
1,843,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
199,657 |
|
|
$ |
245,806 |
|
|
$ |
397,196 |
|
|
$ |
780,961 |
|
Expenses |
|
|
241,904 |
|
|
|
243,388 |
|
|
|
505,684 |
|
|
|
513,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(42,247 |
) |
|
$ |
2,418 |
|
|
$ |
(108,488 |
) |
|
$ |
267,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
4. |
|
INCOME TAXES |
|
|
|
The provision for income taxes includes taxes payable for the current year and deferred
income taxes. We determine deferred tax assets and liabilities 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 we expect the differences to reverse. We have not
recorded a valuation allowance against deferred tax assets as management believes that it is
more likely than not that we will realize all of the deferred tax assets because they were
supported by recoverable taxes paid in prior years. We allocate tax expense and tax benefits
to Old Line Bank and Old Line Bancshares based on their proportional share of taxable income. |
|
5. |
|
EARNINGS PER COMMON SHARE |
|
|
|
Effective January 1, 2009, we adopted the new authoritative accounting guidance under FASB
ASC Topic 260, Earnings Per Share, which provides that non-vested share based payment awards
that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of basic
earnings per common share pursuant to the two class method. We have determined that our
outstanding stock option awards are not participating securities and do not include them in
the computation of basic earnings per common share. We have determined that our restricted
stock awards are participating securities and include them in the computation of basic
earnings per common share. We calculate basic earnings per common share by dividing net
income by the weighted average number of shares of common stock outstanding giving
retroactive effect to stock dividends. |
|
|
|
We calculate diluted earnings per common share by 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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Weighted average number of shares |
|
|
3,880,005 |
|
|
|
3,862,364 |
|
|
|
3,876,789 |
|
|
|
3,862,364 |
|
Dilutive average number of shares |
|
|
20,595 |
|
|
|
6,713 |
|
|
|
17,300 |
|
|
|
6,358 |
|
6. |
|
STOCK-BASED COMPENSATION |
|
|
|
We account for stock options and restricted stock awards under the fair value method of
accounting using a Black-Scholes valuation model to measure stock-based compensation expense
at the date of grant. We recognize compensation expense related to stock-based compensation
awards in our income statements over the period during which we require an individual to
provide service in exchange for such award. For the six months ended June 30, 2010 and 2009,
we recorded stock-based compensation expense of $66,252 and $90,584, respectively. For the
three months ended June 30, 2010 and 2009, we recorded stock-based compensation expense of
$25,982 and $19,975, respectively. |
|
|
|
We only recognize tax benefits for options that ordinarily will result in a tax deduction
when the grant is exercised (non-qualified options). There were no non-qualified options
included in the expense calculation during the three months and six months ended June 30,
2010 or the three months ended June 30, 2009. We recognized an $8,298 tax benefit associated
with the portion of the expense that was related to the issuance of non-qualified options for
the six months ended June 30, 2009. |
F-18
6. |
|
STOCK-BASED COMPENSATION (Continued) |
|
|
|
We have two stock option plans under which we may issue stock options and restricted stock,
the 2001 Incentive Stock Option Plan, as amended, and the 2004 Equity Incentive Plan. Our
Compensation Committee administers the equity incentive plans. As the plans outline, the
Compensation Committee approves stock option and restricted stock grants to directors and
employees, determines the number of shares, the type of option, the option or share price,
the term (not to exceed 10 years from the date of issuance), the restrictions, and the
vesting period of options and restricted stock issued.
The Compensation |
|
|
|
Committee has approved and we have granted options vesting immediately as well as over
periods of two, three and five years and restricted stock awards that vest over periods of
twelve months to three years. We recognize the compensation expense associated with these
grants over their respective vesting periods. |
|
|
|
At June 30, 2010, there was $140,335 of total unrecognized compensation cost related to
non-vested stock options and restricted stock awards that we expect to realize over the next
3 years. As of June 30, 2010, there were 31,308 shares remaining available for future
issuance under the equity incentive plans. Directors and officers did not exercise any
options during the three month or six month periods ended June 30, 2010 or 2009. At the 2010
Annual Meeting of Stockholders, the stockholders approved the 2010 Equity Incentive Plan,
which makes an additional 250,000 common shares available for issuance of various stock
awards |
|
|
|
A summary of the stock option activity during the six month period follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
average |
|
|
Number |
|
|
average |
|
|
|
of shares |
|
|
exercise price |
|
|
of shares |
|
|
exercise price |
|
|
|
Outstanding, beginning of period |
|
|
299,270 |
|
|
$ |
8.50 |
|
|
|
236,620 |
|
|
$ |
9.09 |
|
Options granted |
|
|
22,581 |
|
|
|
7.13 |
|
|
|
62,650 |
|
|
|
6.30 |
|
Options forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
321,851 |
|
|
$ |
8.41 |
|
|
|
299,270 |
|
|
$ |
8.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to options as of June 30, 2010 follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options |
|
|
Exercisable options |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
average |
|
|
average |
|
|
Number |
|
|
average |
|
Exercise |
|
of shares at |
|
|
remaining |
|
|
exercise |
|
|
of shares at |
|
|
exercise |
|
price |
|
June 30, 2010 |
|
|
term |
|
|
price |
|
|
June 30, 2010 |
|
|
price |
|
$ 3.33 $ 4.17 |
|
|
11,700 |
|
|
|
0.50 |
|
|
$ |
3.44 |
|
|
|
11,700 |
|
|
$ |
3.44 |
|
$ 4.18 $ 5.00 |
|
|
18,000 |
|
|
|
2.06 |
|
|
|
4.69 |
|
|
|
18,000 |
|
|
|
4.69 |
|
$ 5.01 $ 7.64 |
|
|
85,231 |
|
|
|
8.84 |
|
|
|
6.52 |
|
|
|
53,294 |
|
|
|
6.42 |
|
$ 7.65 $ 8.65 |
|
|
37,300 |
|
|
|
7.59 |
|
|
|
7.75 |
|
|
|
37,300 |
|
|
|
7.75 |
|
$ 8.66 $10.00 |
|
|
46,620 |
|
|
|
4.14 |
|
|
|
9.74 |
|
|
|
46,620 |
|
|
|
9.74 |
|
$10.01 $11.31 |
|
|
123,000 |
|
|
|
5.81 |
|
|
|
10.43 |
|
|
|
119,000 |
|
|
|
10.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,851 |
|
|
|
6.18 |
|
|
$ |
8.41 |
|
|
|
285,914 |
|
|
$ |
8.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of outstanding options
where the market value exceeds the
exercise price |
|
$ |
182,735 |
|
Intrinsic value of exercisable options
where the market value exceeds the
exercise price |
|
$ |
156,585 |
|
F-19
6. |
|
STOCK-BASED COMPENSATION (Continued) |
|
|
|
During the six months ended June 30, 2010, we granted 17,641 restricted common stock awards.
Of these, 8,280 will vest on December 31, 2010, 4,681 will vest on December 31, 2011 and
4,680 will vest on December 31, 2012. We did not grant any restricted common stock awards
during the six months ended June 30, 2009. A summary of the restricted stock awards during
the six month period follows: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2010 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
average |
|
|
|
Number |
|
|
grant date |
|
|
|
of shares |
|
|
fair value |
|
|
Outstanding, beginning of period |
|
|
|
|
|
$ |
|
|
Restricted stock granted |
|
|
17,641 |
|
|
|
7.13 |
|
Restricted stock forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period |
|
|
17,641 |
|
|
$ |
7.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of outstanding restricted
stock awards |
|
|
|
|
|
$ |
132,484 |
|
Intrinsic value of vested restricted
stock awards |
|
|
|
|
|
$ |
|
|
7. |
|
RETIREMENT PLAN |
|
|
|
Eligible employees participate in a profit sharing plan that qualifies under Section 401(k)
of the Internal Revenue Code. The plan allows for elective employee deferrals and Old Line
Bank makes matching contributions of up to 4% of eligible employee compensation. Our
contributions to the plan, included in employee benefit expenses, for the six months ended
June 30, 2010 and 2009 were $78,950 and $63,621, respectively. Old Line Banks contribution
to the plan for the three months ended June 30, 2010 and 2009 were $41,280 and $32,245,
respectively. |
|
|
|
Old Line Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive
officers providing for retirement income benefits. We accrue the present value of the SERPs
over the remaining number of years to the executives retirement dates. Old Line Banks
expenses for the SERPs for the six month periods ended June 30, 2010 and 2009 were $102,676
and $61,169, respectively. The SERP expense for the three month periods ended June 30, 2010
and 2009 were $58,728 and $29,811, respectively. The SERPs are non-qualified defined benefit
pension plans that we have not funded. |
|
8. |
|
FAIR VALUE MEASUREMENTS |
|
|
|
On January 1, 2008, we adopted FASB ASC Topic 820 Fair Value Measurements and Disclosures
which defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability, or, in the absence of a principal market,
the most advantageous market for the asset or liability. The price in the principal (or most
advantageous) market used to measure the fair value of the asset or liability shall not be
adjusted for transaction costs. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for marketing
activities that are usual and customary for transactions involving such assets and
liabilities; it is not a forced transaction. Market participants are |
F-20
8. |
|
FAIR VALUE MEASUREMENTS (Continued) |
|
|
|
buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact and (iv) willing to transact. We value investment securities
classified as available for sale at fair value. |
|
|
|
The fair value hierarchy established in FASB ASC Topic 820 defines three input levels for
fair value measurement. Level 1 is based on quoted market prices in active markets for
identical assets. Level 2 is based on significant observable inputs other than those in
Level 1. Level 3 is based on significant unobservable inputs. |
|
|
|
We value investment securities classified as available for sale at fair value on a recurring
basis. We value treasury securities, government sponsored entity securities, and some agency
securities under Level 1, and collateralized mortgage obligations and some agency securities
under Level 2. At June 30, 2010, we established values for available for sale investment
securities as follows (000s); |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
June 30, 2010 |
|
|
Inputs |
|
|
Inputs |
|
|
Inputs |
|
Investment securities available for sale |
|
$ |
27,002 |
|
|
$ |
3,650 |
|
|
$ |
23,352 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our valuation methodologies may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. While management believes our
methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value. Furthermore, we have not
comprehensively revalued the fair value amounts since the presentation dates, and therefore,
estimates of fair value after the balance sheet date may differ significantly from the above
presented amounts. |
|
|
|
We use the following methodologies for estimating fair values of financial instruments that
we do not measure on a recurring basis. The estimated fair values of financial instruments
equal the carrying value of the instruments except as noted. |
|
|
|
Time Deposits-The fair value of time deposits in other banks is an estimate determined by
discounting future cash flows using current rates offered for deposits of similar remaining
maturities. |
|
|
|
Investment Securities-We base the fair values of investment securities upon quoted market
prices or dealer quotes. |
|
|
|
Loans-We estimate the fair value of loans by discounting future cash flows using current
rates for which we would make similar loans to borrowers with similar credit histories. |
|
|
|
Interest bearing deposits-The fair value of demand deposits and savings accounts is the
amount payable on demand. We estimate the fair value of fixed maturity certificates of
deposit using the rates currently offered for deposits of similar remaining maturities. |
|
|
|
Long and short term borrowings-The fair value of long and short term fixed rate borrowings is
estimated by discounting the value of contractual cash flows using rates currently offered
for advances with similar terms and remaining maturities. |
|
|
|
Loan Commitments, Standby and Commercial Letters of Credit-Lending commitments have variable
interest rates and escape clauses if the customers credit quality deteriorates.
Therefore, the fair value of these items is insignificant and we have not included it in the
following table. |
F-21
8. |
|
FAIR VALUE MEASUREMENTS (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
$ |
10,379,857 |
|
|
$ |
10,394,570 |
|
|
$ |
15,031,102 |
|
|
$ |
15,491,899 |
|
Investment securities |
|
|
51,574,481 |
|
|
|
52,181,311 |
|
|
|
33,819,455 |
|
|
|
34,089,713 |
|
Loans |
|
|
285,819,888 |
|
|
|
288,825,168 |
|
|
|
265,008,669 |
|
|
|
269,907,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
|
265,370,631 |
|
|
|
266,902,785 |
|
|
$ |
245,464,373 |
|
|
$ |
247,456,675 |
|
Short term borrowings |
|
|
33,790,253 |
|
|
|
33,850,717 |
|
|
|
16,149,939 |
|
|
|
16,297,360 |
|
Long term borrowings |
|
|
16,413,098 |
|
|
|
17,079,907 |
|
|
|
16,454,067 |
|
|
|
17,261,757 |
|
|
|
|
|
|
We measure certain financial assets and financial liabilities at fair value on a
non-recurring basis. These assets and liabilities are subject to fair value adjustments in
certain circumstances such as when there is evidence of impairment. We did not have any
financial assets or liabilities measured at fair value on a non-recurring basis during the
six months ended June 30, 2010 or year ended December 31, 2009. |
|
|
|
We also measure certain non-financial assets such as other real estate owned and repossessed
or foreclosed property at fair value on a non-recurring basis. Generally, we estimate the
fair value of these items using Level 2 inputs based on observable market data or Level 3
inputs based on discounting criteria. At June 30, 2010, other real estate owned measured at
fair value using Level 2 valuation inputs was $223,169 and we did not have any repossessed
property. |
|
9. |
|
ACCOUNTING STANDARDS UPDATES |
|
|
|
Accounting Standards Updates (ASU) No. 2009-16, Transfers and Servicing (Topic-
860)-Accounting for Transfers of Financial Assets amends prior accounting guidance to
enhance reporting about transfers of financial assets, including securitizations, and where
companies have continuing exposure to the risks related to transferred financial assets. ASU
2009-16 also requires additional disclosures about all continuing involvement with
transferred financial assets including information about gains and losses resulting from
transfers during the period. The provisions of ASU 2009-16 became effective on January 1,
2010 and did not have a significant impact on our consolidated results of operations or
financial position. |
|
|
|
ASU No. 2009-17, Consolidations (Topic 810)-Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities amends prior guidance to change how a
company determines when an entity that is sufficiently capitalized or is not controlled
through voting (or similar rights) should be consolidated. The determination of whether a
company is required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the entity that most
significantly impact the entitys economic performance. ASU 2009-17 requires additional
disclosures about the reporting entitys involvement with variable interest entities and any
significant changes in risk exposure due to that involvement as well as its affect on the
entitys financial statements. As further discussed below, ASU No. 2010-10, Consolidations
(Topic 810), deferred the effective date of ASU 2009-17 for a reporting entitys interests
in investment companies. The provisions of ASU 2009-17 became effective on January 1, 2010
and they did not have a material impact on our consolidated results of operations or
financial position. |
F-22
9. |
|
ACCOUNTING STANDARDS UPDATES (Continued) |
|
|
|
ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures
About Fair Value Measurements requires expanded disclosures related to fair value
measurements including (i)
the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the
fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of
assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant
transfers disclosed separately, (iii) the policy for determining when transfers between the
levels of the fair value hierarchy are recognized and (iv) for recurring fair value
measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross
presentation of information about purchases, sales, issuances and settlements. ASU 2010-06
further clarifies that (i) companies should provide fair value measurement disclosures for
each class of assets and liabilities (rather than major category), which would generally be a
subset of assets or liabilities within a line item in the statement of financial position and
(ii) companies should provide disclosures about the valuation techniques and inputs used to
measure fair value for both recurring and non-recurring fair value measurements for each
class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. ASU
No. 2010-06 requires the disclosures related to the gross presentation of purchases, sales,
issuances and settlements of assets and liabilities included in Level 3 of the fair value
hierarchy beginning January 1, 2011. The remaining disclosure requirements and
clarifications made by ASU 2010-06 became effective on January 1, 2010. See Note 8-Fair
Value Measurements. |
|
|
|
ASU No. 2010-10, Consolidations (Topic 810)-Amendments for Certain Investment Funds defers
the effective date of the amendments to the consolidation requirements made by ASU 2009-17 to
a companys interest in an entity (i) that has all of the attributes of an investment
company, as specified under ASC Topic 946, Financial Services-Investment Companies, or (ii)
for which it is industry practice to apply measurement principles of financial reporting that
are consistent with those in ASC Topic 946. As a result of the deferral, companies are not
required to apply the ASU 2009-17 amendments to the Subtopic 810-10 consolidation
requirements to its interest in an entity that meets the criteria to qualify for the
deferral. ASU 2010-10 also clarifies that any interest held by a related party should be
treated as though it is an entitys own interest when evaluating the criteria for determining
whether such interest represents a variable interest. ASU 2010-10 also clarifies that
companies should not use a quantitative calculation as the sole basis for evaluating whether
a decision makers or service providers fee is variable interest. The provisions of ASU
2010-10 became effective as of January 1, 2010 and did not have a material impact on our
consolidated results of operations or financial position. |
|
|
|
ASU No. 2010-11, Derivatives and Hedging (Topic 815)-Scope Exception Related to Embedded
Credit Derivatives clarifies that the only form of an embedded credit derivative that is
exempt from embedded derivative bifurcation requirement are those that relate to the
subordination of one financial instrument to another. Entities that have contracts
containing an embedded credit derivative feature in a form other than subordination may need
to separately account for the embedded credit derivative feature. The provisions of ASU
2010-11 will be effective on July 1, 2010. We do not anticipate that it will have a material
impact on our consolidated results of operations or financial position. |
F-23
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Old Line Bancshares, Inc.
Bowie, Maryland
We have audited the accompanying consolidated balance sheets of Old Line Bancshares, Inc. and
Subsidiaries as of December 31, 2009, 2008, and 2007, and the related consolidated statements of
income, changes in stockholders equity, and cash flows for each of the years in the three-year
period ended December 31, 2009. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board 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. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Old Line Bancshares, Inc. and Subsidiaries as of
December 31, 2009, 2008, and 2007, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
Baltimore, Maryland
March 22, 2010
101 E. Chesapeake Avenue, Suite 300, Baltimore, Maryland 21286
410-583-6990 FAX 410-583-7061
Website: www.Rowles.com
F-24
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Assets |
|
Cash and due from banks |
|
$ |
7,402,137 |
|
|
$ |
8,823,170 |
|
|
$ |
3,172,089 |
|
Interest bearing accounts |
|
|
3,953,312 |
|
|
|
|
|
|
|
|
|
Federal funds sold |
|
|
81,138 |
|
|
|
2,140,525 |
|
|
|
9,822,079 |
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash
equivalents |
|
|
11,436,587 |
|
|
|
10,963,695 |
|
|
|
12,994,168 |
|
Time deposits in other banks |
|
|
15,031,102 |
|
|
|
13,267,000 |
|
|
|
2,000,000 |
|
Investment securities available
for sale |
|
|
28,012,948 |
|
|
|
29,565,976 |
|
|
|
9,393,356 |
|
Investment securities held to maturity |
|
|
5,806,507 |
|
|
|
8,003,391 |
|
|
|
2,301,591 |
|
Loans, less allowance for loan losses |
|
|
265,008,669 |
|
|
|
231,053,618 |
|
|
|
201,941,667 |
|
Restricted equity securities at
cost |
|
|
2,957,650 |
|
|
|
2,126,550 |
|
|
|
2,080,250 |
|
Investment in real estate LLC |
|
|
|
|
|
|
|
|
|
|
805,971 |
|
Premises and equipment |
|
|
17,326,099 |
|
|
|
12,388,046 |
|
|
|
4,207,395 |
|
Accrued interest receivable |
|
|
1,055,249 |
|
|
|
1,091,560 |
|
|
|
918,078 |
|
Prepaid income taxes |
|
|
|
|
|
|
35,649 |
|
|
|
|
|
Deferred income taxes |
|
|
178,574 |
|
|
|
|
|
|
|
161,940 |
|
Bank owned life insurance |
|
|
8,422,879 |
|
|
|
8,096,039 |
|
|
|
7,769,290 |
|
Other assets |
|
|
1,982,262 |
|
|
|
1,139,101 |
|
|
|
637,570 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
357,218,526 |
|
|
$ |
317,730,625 |
|
|
$ |
245,211,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
40,883,419 |
|
|
$ |
39,880,119 |
|
|
$ |
35,141,289 |
|
Interest bearing |
|
|
245,464,373 |
|
|
|
191,550,521 |
|
|
|
142,670,944 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
286,347,792 |
|
|
|
231,430,640 |
|
|
|
177,812,233 |
|
Short term borrowings |
|
|
16,149,939 |
|
|
|
17,773,934 |
|
|
|
16,347,096 |
|
Long term borrowings |
|
|
16,454,067 |
|
|
|
21,531,133 |
|
|
|
15,000,000 |
|
Accrued interest payable |
|
|
517,889 |
|
|
|
625,446 |
|
|
|
693,868 |
|
Income tax payable |
|
|
175,543 |
|
|
|
|
|
|
|
238,226 |
|
Deferred income taxes |
|
|
|
|
|
|
65,651 |
|
|
|
|
|
Other liabilities |
|
|
941,165 |
|
|
|
4,012,968 |
|
|
|
488,599 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
320,586,395 |
|
|
|
275,439,772 |
|
|
|
210,580,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share and additional paid in
capital; 7,000 shares issued and outstanding in 2008 |
|
|
|
|
|
|
6,703,591 |
|
|
|
|
|
Common stock, par value $0.01 per share; authorized 15,000,000 shares;
issued and outstanding 3,862,364 in 2009 and 2008 and 4,075,849 in 2007 |
|
|
38,624 |
|
|
|
38,624 |
|
|
|
40,758 |
|
Additional paid-in capital |
|
|
29,034,954 |
|
|
|
28,838,810 |
|
|
|
30,465,013 |
|
Warrants to purchase 141,892 shares of common stock |
|
|
|
|
|
|
301,434 |
|
|
|
|
|
Retained earnings |
|
|
6,498,446 |
|
|
|
5,411,772 |
|
|
|
4,155,232 |
|
Accumulated other comprehensive income |
|
|
368,880 |
|
|
|
392,611 |
|
|
|
(29,749 |
) |
|
|
|
|
|
|
|
|
|
|
Total Old Line Bancshares, Inc. stockholders equity |
|
|
35,940,904 |
|
|
|
41,686,842 |
|
|
|
34,631,254 |
|
Non-controlling interest |
|
|
691,227 |
|
|
|
604,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
36,632,131 |
|
|
|
42,290,853 |
|
|
|
34,631,254 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
357,218,526 |
|
|
$ |
317,730,625 |
|
|
$ |
245,211,276 |
|
|
|
|
|
|
|
|
|
|
|
F-25
|
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
15,304,608 |
|
|
$ |
14,240,545 |
|
|
$ |
12,768,154 |
|
U.S. Treasury securities |
|
|
7,230 |
|
|
|
69,079 |
|
|
|
115,597 |
|
U.S. government agency securities |
|
|
296,560 |
|
|
|
181,792 |
|
|
|
288,161 |
|
Mortgage backed securities |
|
|
1,059,386 |
|
|
|
356,398 |
|
|
|
48,946 |
|
Municipal securities |
|
|
84,797 |
|
|
|
95,822 |
|
|
|
107,852 |
|
Federal funds sold |
|
|
1,148 |
|
|
|
285,619 |
|
|
|
1,116,822 |
|
Other |
|
|
342,127 |
|
|
|
194,981 |
|
|
|
108,826 |
|
|
|
|
|
|
|
|
|
|
|
Total interest revenue |
|
|
17,095,856 |
|
|
|
15,424,236 |
|
|
|
14,554,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
4,553,099 |
|
|
|
5,101,608 |
|
|
|
5,689,554 |
|
Borrowed funds |
|
|
1,026,755 |
|
|
|
808,127 |
|
|
|
573,405 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,579,854 |
|
|
|
5,909,735 |
|
|
|
6,262,959 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
11,516,002 |
|
|
|
9,514,501 |
|
|
|
8,291,399 |
|
Provision for loan losses |
|
|
900,000 |
|
|
|
415,000 |
|
|
|
318,000 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
10,616,002 |
|
|
|
9,099,501 |
|
|
|
7,973,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts |
|
|
307,012 |
|
|
|
311,268 |
|
|
|
292,610 |
|
Marine division broker origination fees |
|
|
|
|
|
|
|
|
|
|
272,349 |
|
Net gains on sales of investment securities |
|
|
158,551 |
|
|
|
(3,081 |
) |
|
|
|
|
Earnings on bank owned life insurance |
|
|
376,165 |
|
|
|
366,785 |
|
|
|
340,853 |
|
Income on investment in real estate LLC |
|
|
|
|
|
|
3,741 |
|
|
|
24,100 |
|
Other fees and commissions |
|
|
978,039 |
|
|
|
285,219 |
|
|
|
243,402 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
|
1,819,767 |
|
|
|
963,932 |
|
|
|
1,173,314 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
4,037,027 |
|
|
|
3,316,219 |
|
|
|
3,045,932 |
|
Employee benefits |
|
|
1,012,014 |
|
|
|
923,666 |
|
|
|
953,554 |
|
Occupancy |
|
|
1,085,768 |
|
|
|
1,124,838 |
|
|
|
934,277 |
|
Equipment |
|
|
354,531 |
|
|
|
313,133 |
|
|
|
248,182 |
|
Data processing |
|
|
340,870 |
|
|
|
269,632 |
|
|
|
221,107 |
|
FDIC insurance and State of Maryland assessments |
|
|
561,850 |
|
|
|
151,149 |
|
|
|
87,766 |
|
Other operating |
|
|
1,864,821 |
|
|
|
1,274,141 |
|
|
|
1,283,733 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
9,256,881 |
|
|
|
7,372,778 |
|
|
|
6,774,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,178,888 |
|
|
|
2,690,655 |
|
|
|
2,372,162 |
|
Income taxes |
|
|
1,055,522 |
|
|
|
939,383 |
|
|
|
789,053 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
2,123,366 |
|
|
|
1,751,272 |
|
|
|
1,583,109 |
|
Less: Net income (loss) attributable to the
non-controlling interest |
|
|
87,216 |
|
|
|
(4,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Old Line Bancshares, Inc. |
|
|
2,036,150 |
|
|
|
1,756,118 |
|
|
|
1,583,109 |
|
Preferred stock dividends and discount accretion |
|
|
485,993 |
|
|
|
29,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
1,550,157 |
|
|
$ |
1,726,789 |
|
|
$ |
1,583,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.40 |
|
|
$ |
0.44 |
|
|
$ |
0.37 |
|
Diluted earnings per common share |
|
|
0.40 |
|
|
|
0.44 |
|
|
|
0.37 |
|
Dividend per common share |
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
F-26
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
stock |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
& |
|
|
Common stock |
|
|
paid-in |
|
|
Retained |
|
|
comprehensive |
|
|
Comprehensive |
|
|
Non-controlling |
|
|
|
warrants |
|
|
Shares |
|
|
Par value |
|
|
capital |
|
|
earnings |
|
|
income |
|
|
income |
|
|
interest |
|
|
Balance, December 31, 2006 |
|
$ |
|
|
|
|
4,253,699 |
|
|
$ |
42,537 |
|
|
$ |
31,868,025 |
|
|
$ |
3,077,313 |
|
|
$ |
(171,921 |
) |
|
|
|
|
|
$ |
|
|
Common stock repurchased |
|
|
|
|
|
|
(185,950 |
) |
|
|
(1,860 |
) |
|
|
(1,621,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Old Line Bancshares, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,583,109 |
|
|
|
|
|
|
|
1,583,109 |
|
|
|
|
|
Unrealized gain on
securities available for sale,
net of income taxes of $92,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,172 |
|
|
|
142,172 |
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,725,281 |
|
|
|
|
|
Stock based compensation awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividend
$0.12 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(505,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised including
tax benefit of $6,345 |
|
|
|
|
|
|
8,100 |
|
|
|
81 |
|
|
|
44,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
|
|
|
|
4,075,849 |
|
|
|
40,758 |
|
|
|
30,465,013 |
|
|
|
4,155,232 |
|
|
|
(29,749 |
) |
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
|
|
|
|
(217,085 |
) |
|
|
(2,170 |
) |
|
|
(1,749,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable
to Old Line Bancshares, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,756,118 |
|
|
|
|
|
|
|
1,756,118 |
|
|
|
|
|
Unrealized gain on
securities available for sale,
net of income taxes of $275,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
422,360 |
|
|
|
422,360 |
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,178,478 |
|
|
|
|
|
Recognition of non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
608,857 |
|
Net income (loss) attributable
to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,846 |
) |
Stock based compensation awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividend
$0.12 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(470,249 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock & warrants |
|
|
7,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend payable
and accretion |
|
|
5,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,329 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised including
tax benefit of $2,777 |
|
|
|
|
|
|
3,600 |
|
|
|
36 |
|
|
|
18,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
$ |
7,005,025 |
|
|
|
3,862,364 |
|
|
$ |
38,624 |
|
|
$ |
28,838,810 |
|
|
$ |
5,411,772 |
|
|
$ |
392,611 |
|
|
|
|
|
|
$ |
604,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Changes in Stockholders Equity (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
stock |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
& |
|
|
Common stock |
|
|
paid-in |
|
|
Retained |
|
|
comprehensive |
|
|
Comprehensive |
|
|
Non-controlling |
|
|
|
warrants |
|
|
Shares |
|
|
Par value |
|
|
capital |
|
|
earnings |
|
|
income |
|
|
income |
|
|
interest |
|
|
Balance, December 31, 2008 |
|
$ |
7,005,025 |
|
|
|
3,862,364 |
|
|
$ |
38,624 |
|
|
$ |
28,838,810 |
|
|
$ |
5,411,772 |
|
|
$ |
392,611 |
|
|
|
|
|
|
$ |
604,011 |
|
Net income attributable
to Old Line Bancshares, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,036,150 |
|
|
|
|
|
|
|
2,036,150 |
|
|
|
|
|
Unrealized loss on
securities available for sale,
net of income tax benefit of $15,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,731 |
) |
|
|
(23,731 |
) |
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,012,419 |
|
|
|
|
|
Net income attributable
to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,216 |
|
Stock based compensation awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cash dividend
$0.12 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(463,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of preferred stock and
warrant |
|
|
(7,301,433 |
) |
|
|
|
|
|
|
|
|
|
|
76,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend and
accretion |
|
|
296,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(485,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
|
|
|
|
3,862,364 |
|
|
$ |
38,624 |
|
|
$ |
29,034,954 |
|
|
$ |
6,498,446 |
|
|
$ |
368,880 |
|
|
|
|
|
|
$ |
691,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest received |
|
$ |
17,125,737 |
|
|
$ |
15,224,058 |
|
|
$ |
14,349,483 |
|
Fees and commissions received |
|
|
1,339,179 |
|
|
|
438,955 |
|
|
|
853,995 |
|
Interest paid |
|
|
(5,687,411 |
) |
|
|
(5,978,157 |
) |
|
|
(6,198,648 |
) |
Cash paid to suppliers and employees |
|
|
(12,328,485 |
) |
|
|
(3,101,842 |
) |
|
|
(6,636,141 |
) |
Income taxes paid |
|
|
(1,073,097 |
) |
|
|
(1,260,789 |
) |
|
|
(909,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(624,077 |
) |
|
|
5,322,225 |
|
|
|
1,459,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net change in time deposits in other banks |
|
|
(1,764,102 |
) |
|
|
(11,267,000 |
) |
|
|
(2,000,000 |
) |
Purchase of investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
(8,237,285 |
) |
|
|
|
|
Available for sale |
|
|
(12,868,441 |
) |
|
|
(27,029,054 |
) |
|
|
|
|
Proceeds from disposal of investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity at maturity or call |
|
|
2,203,921 |
|
|
|
2,539,088 |
|
|
|
500,000 |
|
Available for sale at maturity or call |
|
|
10,197,347 |
|
|
|
7,399,382 |
|
|
|
4,952,894 |
|
Available for sale sold |
|
|
4,243,654 |
|
|
|
141,919 |
|
|
|
|
|
Loans made, net of principal collected |
|
|
(34,755,829 |
) |
|
|
(29,494,324 |
) |
|
|
(51,735,025 |
) |
Purchase of equity securities |
|
|
(831,100 |
) |
|
|
(46,300 |
) |
|
|
(504,700 |
) |
Investment in bank owned life insurance |
|
|
|
|
|
|
|
|
|
|
(4,000,000 |
) |
Return of principal from (investment in) real estate LLC |
|
|
|
|
|
|
(205,050 |
) |
|
|
11,843 |
|
Purchase of premises, equipment and software |
|
|
(5,642,201 |
) |
|
|
(1,006,641 |
) |
|
|
(630,950 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
28,315 |
|
|
|
102,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,216,751 |
) |
|
|
(67,176,950 |
) |
|
|
(53,303,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in |
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
40,266,481 |
|
|
|
52,043,034 |
|
|
|
7,316,708 |
|
Other deposits |
|
|
14,650,671 |
|
|
|
1,575,373 |
|
|
|
823,680 |
|
Short term borrowings |
|
|
(1,623,995 |
) |
|
|
1,408,972 |
|
|
|
7,153,705 |
|
Long term borrowings |
|
|
(5,077,066 |
) |
|
|
|
|
|
|
12,000,000 |
|
Proceeds from stock options exercised, including tax benefit |
|
|
|
|
|
|
18,777 |
|
|
|
44,593 |
|
Proceeds from issuance of preferred stock & warrants |
|
|
|
|
|
|
7,000,000 |
|
|
|
|
|
Repurchase of preferred stock & warrants |
|
|
(7,225,000 |
) |
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
(1,751,655 |
) |
|
|
(1,623,098 |
) |
Cash dividends paid-preferred stock |
|
|
(213,888 |
) |
|
|
|
|
|
|
|
|
Cash dividends paid-common stock |
|
|
(463,483 |
) |
|
|
(470,249 |
) |
|
|
(505,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
40,313,720 |
|
|
|
59,824,252 |
|
|
|
25,210,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
472,892 |
|
|
|
(2,030,473 |
) |
|
|
(26,634,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
10,963,695 |
|
|
|
12,994,168 |
|
|
|
39,628,195 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
11,436,587 |
|
|
$ |
10,963,695 |
|
|
$ |
12,994,168 |
|
|
|
|
|
|
|
|
|
|
|
F-29
Old Line Bancshares, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Reconciliation of net income to net cash
provided (used) by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,123,365 |
|
|
$ |
1,751,272 |
|
|
$ |
1,583,109 |
|
Adjustments to reconcile net income to net
cash provided (used) by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
699,345 |
|
|
|
447,529 |
|
|
|
359,720 |
|
Provision for loan losses |
|
|
900,000 |
|
|
|
415,000 |
|
|
|
318,000 |
|
Loss on sale of equipment |
|
|
4,803 |
|
|
|
3,099 |
|
|
|
7,372 |
|
Change in deferred loan fees net of costs |
|
|
(99,222 |
) |
|
|
(32,627 |
) |
|
|
(107,425 |
) |
(Gain) loss on sale of securities |
|
|
(158,551 |
) |
|
|
3,081 |
|
|
|
|
|
Amortization of premiums and discounts |
|
|
92,792 |
|
|
|
5,931 |
|
|
|
4,162 |
|
Deferred income taxes |
|
|
(228,766 |
) |
|
|
(47,531 |
) |
|
|
(23,861 |
) |
Stock based compensation awards |
|
|
119,711 |
|
|
|
104,541 |
|
|
|
173,714 |
|
(Income) loss from investment in real estate LLC |
|
|
|
|
|
|
3,741 |
|
|
|
(24,100 |
) |
Increase (decrease) in |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
(107,557 |
) |
|
|
(68,422 |
) |
|
|
64,311 |
|
Income tax payable |
|
|
175,543 |
|
|
|
(238,226 |
) |
|
|
(96,270 |
) |
Other liabilities |
|
|
(3,047,499 |
) |
|
|
3,941,133 |
|
|
|
3,181 |
|
Decrease (increase) in |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
36,311 |
|
|
|
(173,482 |
) |
|
|
(97,450 |
) |
Bank owned life insurance |
|
|
(326,840 |
) |
|
|
(326,749 |
) |
|
|
(311,225 |
) |
Prepaid income taxes |
|
|
35,649 |
|
|
|
(35,649 |
) |
|
|
|
|
Other assets |
|
|
(843,161 |
) |
|
|
(430,416 |
) |
|
|
(393,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(624,077 |
) |
|
$ |
5,322,225 |
|
|
$ |
1,459,505 |
|
|
|
|
|
|
|
|
|
|
|
On November 1, 2008, Old Line Bancshares, Inc. acquired a 12.5% membership interest in Pointer
Ridge, LLC. As a result of this purchase, our membership interest in Pointer Ridge increased to
62.5%. The fair values of the non-cash assets acquired and liabilities assumed were $7.7 million
and $6.6 million.
F-30
1. |
|
Summary of Significant Accounting Policies |
|
|
|
Organization and Description of Business-Old Line Bancshares, Inc. (Bancshares) is the
holding company for Old Line Bank (Bank). We provide a full range of banking services to
customers located in Anne Arundel, Charles, Prince Georges and St. Marys counties in
Maryland and surrounding areas. |
|
|
|
On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.s 12.5% membership
interest in Pointer Ridge Office Investment, LLC (Pointer Ridge), a real estate investment
company. The effective date of the purchase was November 1, 2008. As a result of this
purchase, our membership interest increased from 50.0% to 62.5%. Consequently, we
consolidated Pointer Ridges results of operations from the date of acquisition. Prior to
the date of acquisition, we accounted for our investment in Pointer Ridge using the equity
method. |
|
|
|
Basis of Presentation and Consolidation-The accompanying consolidated financial statements
include the activity of Bancshares, its wholly owned subsidiary, Old Line Bank, and its
majority owned membership interest in Pointer Ridge. We have eliminated all significant
intercompany transactions and balances. |
|
|
|
We report the non-controlling interests in Pointer Ridge separately in the consolidated
balance sheet. We reported the income of Pointer Ridge attributable to Bancshares from the
date of our acquisition of majority interest on the consolidated statement of income. |
|
|
|
Use of estimates-The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. These estimates and assumptions
may affect the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. A material estimate that is particularly
susceptible to significant change in the near term relates to the determination of the
allowance for loan losses. |
|
|
|
Cash and cash equivalents-For purposes of the Consolidated Statements of Cash Flows, cash
and cash equivalents include cash on hand, amounts due from banks, and federal funds sold.
Generally, we purchase and sell federal funds for one-day periods. |
|
|
|
Time deposits in other banks-We record time deposits in other banks at cost. All time
deposits in other banks mature within one year. |
|
|
|
Investment securities-As we purchase securities, management determines if we should classify
the securities as held to maturity, available for sale or trading. We record the securities
which management has the intent and ability to hold to maturity at amortized cost which is
cost adjusted for amortization of premiums and accretion of discounts to maturity. We
classify securities which we may sell before maturity as available for sale and carry these
securities 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. |
|
|
|
We record gains and losses on the sale of securities on the trade date and determine
these gains or losses using the specific identification method. We amortize premiums and
accrete discounts using the interest method. |
|
|
|
Stock options-We account for individual stock options under the fair value method of
accounting using a Black-Scholes valuation model to measure stock-based compensation expense
at the date of grant. For the years ended December 31, 2009, 2008 and 2007, we recorded
stock-based compensation expense of $119,711, $104,541, and $173,714 respectively. |
F-31
1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
|
We may only recognize tax benefits for options that ordinarily will result in a tax
deduction when the grant is exercised (non-qualified options). For the year ended December
31, 2009, we recognized an $8,298 tax benefit associated with the portion of the expense
that was related to the issuance of non-qualified options. There were no non-qualified
options included in the expense calculation for the year ended December 31, 2008. For the
year ended December 31, 2007, we recognized a $12,141 tax benefit. |
|
|
|
Premises and equipment-We record premises and equipment at cost less accumulated
depreciation. Generally we compute depreciation using the straight-line method over the
estimated useful life of the assets. |
|
|
|
Foreclosed real estate-We record real estate acquired through foreclosure at the lower of
cost or fair market value on the date acquired. We charge losses incurred at the time of
acquisition of the property to the allowance for loan losses. We include subsequent
reductions in the estimated value of the property in non-interest expense. |
|
|
|
Advertising-We expense advertising costs over the life of ad campaigns. We expense general
purpose advertising as we incur it. |
|
|
|
Loans and allowance for loan losses-We report loans at face value plus deferred origination
costs, less deferred origination fees and the allowance for loan losses. We accrue interest
on loans based on the principal amounts outstanding. We amortize origination fees and costs
to income over the terms of the loans using an approximate interest method. |
|
|
|
We discontinue the accrual of interest when any portion of the principal or interest is
ninety days past due and collateral is insufficient to discharge the debt in full. Based on
current information, we consider loans impaired when management determines that it is
unlikely that the borrower will make principal and interest payments according to
contractual terms. Generally, we do not review loans for impairment until we have
discontinued the accrual of interest. We consider several factors in determining impairment
including payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Usually, we do not classify loans that experience
insignificant payment delays and payment shortfalls as impaired. Management determines the
significance of payment delays and payment shortfalls on a case by case basis. We consider
all of the circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. We measure impairment on a loan
by loan basis for commercial and real estate loans by determining either the present value
of expected future cash flows discounted at the loans effective interest rate, the loans
obtainable market price or the fair value of the collateral if the loan is collateral
dependent. If it is doubtful that we will collect principal, we apply all payments to
principal. |
|
|
|
We collectively evaluate large groups of smaller balance homogeneous loans for impairment.
Accordingly, we do not separately identify individual consumer and residential loans for
impairment unless such loans are the subject of a restructuring agreement. |
|
|
|
The allowance for loan losses represents an amount which, in managements judgment, will be
adequate to absorb probable losses on existing loans and other extensions of credit that may
become uncollectible. Management bases its judgment in determining the adequacy of the
allowance on evaluations of the collectibility of loans. Management takes 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
continues to suffer a severe downturn, we may need to increase the estimate for
uncollectible accounts. We charge off loans which we deem uncollectible and deduct them
from the allowance. We add recoveries on loans previously charged off to the allowance. |
F-32
1. |
|
Summary of Significant Accounting Policies (Continued) |
|
|
|
Income taxes-The provision for income taxes includes taxes payable for the current year and
deferred income taxes. We determine deferred tax assets and liabilities 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 we expect the differences to reverse. We
allocate tax expense and tax benefits to Bancshares and its subsidiaries based on their
proportional share of taxable income. |
|
|
|
Earnings per share-We determine basic earnings per common share by dividing net income
available to common stockholders by the weighted average number of shares of common stock
outstanding giving retroactive effect to stock dividends. |
|
|
|
We calculate diluted earnings per common share by including the average dilutive common
stock equivalents outstanding during the period. Dilutive common equivalent shares consist
of stock options and warrants, calculated using the treasury stock method. |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Weighted average number of shares |
|
|
3,862,364 |
|
|
|
3,919,903 |
|
|
|
4,237,266 |
|
Dilutive average number of shares |
|
|
7,102 |
|
|
|
3,320 |
|
|
|
6,038 |
|
|
|
Comprehensive income-Comprehensive income includes net income attributable to
Bancshares and the unrealized gain (loss) on investment securities available for sale net of
related income taxes. |
|
|
|
Accounting Standards Codification-The Financial Accounting Standards Boards (FASB)
Accounting Standards Codification (ASC) became effective on July 1, 2009. At that date, ASC
became FASBs officially recognized source of authoritative United States (U.S.) generally
accepted accounting principles (GAAP) applicable to all public and non-public,
non-governmental entities, superseding existing FASB, American Institute of Certified Public
Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. Rules and
interpretive releases of the United States Securities and Exchange Commission (SEC) under
the authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. All other accounting literature is considered non-authoritative. The switch
to ASC affects the way companies refer to U.S. GAAP in financial statements and accounting
policies. Citing particular content in the ASC involves specifying the unique numeric path
to the content through the Topic, Subtopic, Section and Paragraph structure. |
|
|
|
Reclassifications-We have made certain reclassifications to the 2008 and 2007 financial
presentation to conform to the 2009 presentation. |
|
2. |
|
Cash and Equivalents |
|
|
|
The Bank may carry balances with other banks that exceed the federally
insured limit. In 2009, the average balance exceeded the federally
insured limit by $11,263,538. The average balances in 2008 and 2007
did not exceed the federally insured limit. The Bank also sells
federal funds on an unsecured basis to the same banks. The average
balance sold was $458,457, $13,342,150 and $21,525,420 in 2009, 2008
and 2007, respectively. |
|
|
|
Federal banking regulators require banks to carry non-interest bearing cash reserves at
specified percentages of deposit balances. The Banks normal amount of cash on hand and on
deposit with other banks is sufficient to satisfy the reserve requirements. |
F-33
3. |
|
Investment Securities |
|
|
|
Investment securities are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
value |
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agency |
|
$ |
7,133,657 |
|
|
$ |
171,946 |
|
|
$ |
(14,928 |
) |
|
$ |
7,290,675 |
|
Municipal securities |
|
|
2,253,107 |
|
|
|
36,759 |
|
|
|
(14,294 |
) |
|
|
2,275,572 |
|
Mortgage-backed |
|
|
18,017,019 |
|
|
|
429,682 |
|
|
|
|
|
|
|
18,446,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,403,783 |
|
|
$ |
638,387 |
|
|
$ |
(29,222 |
) |
|
$ |
28,012,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities |
|
$ |
300,779 |
|
|
$ |
2,714 |
|
|
$ |
|
|
|
$ |
303,493 |
|
Mortgage-backed |
|
|
5,505,728 |
|
|
|
267,544 |
|
|
|
|
|
|
|
5,773,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,806,507 |
|
|
$ |
270,258 |
|
|
$ |
|
|
|
$ |
6,076,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. government agency |
|
$ |
10,578,928 |
|
|
$ |
318,722 |
|
|
$ |
|
|
|
$ |
10,897,650 |
|
Municipal securities |
|
|
2,425,036 |
|
|
|
21,547 |
|
|
|
(3,105 |
) |
|
|
2,443,478 |
|
Mortgage-backed |
|
|
15,913,656 |
|
|
|
311,457 |
|
|
|
(265 |
) |
|
|
16,224,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,917,620 |
|
|
$ |
651,726 |
|
|
$ |
(3,370 |
) |
|
$ |
29,565,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury |
|
$ |
499,942 |
|
|
$ |
7,089 |
|
|
$ |
|
|
|
$ |
507,031 |
|
Municipal securities |
|
|
300,866 |
|
|
|
194 |
|
|
|
(2,753 |
) |
|
|
298,307 |
|
Mortgage-backed |
|
|
7,202,583 |
|
|
|
227,092 |
|
|
|
|
|
|
|
7,429,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,003,391 |
|
|
$ |
234,375 |
|
|
$ |
(2,753 |
) |
|
$ |
8,235,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury |
|
$ |
999,398 |
|
|
$ |
|
|
|
$ |
(1,117 |
) |
|
$ |
998,281 |
|
U. S. government agency |
|
|
4,499,658 |
|
|
|
|
|
|
|
(27,480 |
) |
|
|
4,472,178 |
|
Municipal securities |
|
|
2,924,037 |
|
|
|
2,984 |
|
|
|
(12,902 |
) |
|
|
2,914,119 |
|
Mortgage-backed |
|
|
1,019,390 |
|
|
|
|
|
|
|
(10,612 |
) |
|
|
1,008,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,442,483 |
|
|
$ |
2,984 |
|
|
$ |
(52,111 |
) |
|
$ |
9,393,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Treasury |
|
$ |
2,000,638 |
|
|
$ |
4,436 |
|
|
$ |
(2,183 |
) |
|
$ |
2,002,891 |
|
Municipal securities |
|
|
300,953 |
|
|
|
183 |
|
|
|
(6,688 |
) |
|
|
294,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,301,591 |
|
|
$ |
4,619 |
|
|
$ |
(8,871 |
) |
|
$ |
2,297,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
3. |
|
Investment Securities (Continued) |
|
|
|
The table below summarizes investment securities with unrealized losses and the length of
time the securities have been in an unrealized loss position as of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
December 31, 2009 |
|
value |
|
|
losses |
|
|
Unrealized losses less than 12 months |
|
|
|
|
|
|
|
|
U.S. government agency |
|
$ |
2,554,652 |
|
|
$ |
14,928 |
|
Municipal securities |
|
|
800,059 |
|
|
|
14,294 |
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses less than 12 months |
|
|
3,354,711 |
|
|
|
29,222 |
|
|
|
|
|
|
|
|
Unrealized losses greater than 12 months |
|
|
|
|
|
|
|
|
U.S. government agency |
|
|
|
|
|
|
|
|
Municipal securities |
|
|
|
|
|
|
|
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses greater than 12 months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses |
|
|
|
|
|
|
|
|
U.S. government agency |
|
|
2,554,652 |
|
|
|
14,928 |
|
Municipal securities |
|
|
800,059 |
|
|
|
14,294 |
|
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized losses |
|
$ |
3,354,711 |
|
|
$ |
29,222 |
|
|
|
|
|
|
|
|
|
|
We consider all unrealized losses on securities as of December 31, 2009 to be temporary
losses because we will redeem each security at face value at or prior to maturity. In most
cases, market interest rate fluctuations cause a temporary impairment in value. The Bank
has the intent and ability to hold these securities until recovery or maturity. |
|
|
|
During the year ended December 31, 2009, we received $4,243,654 in proceeds from the sale of
investment securities and recorded gross realized gains of $158,551 from the sale of
available-for-sale securities. During 2008, proceeds from sales of investment securities
were $141,919 resulting in gross losses of $3,081. There were no sales of securities in
2007. |
F-35
3. |
|
Investment Securities (Continued) |
|
|
|
Contractual maturities and pledged securities at December 31, 2009, 2008 and 2007, are shown
below. Actual maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties. We classify
mortgage backed securities based on maturity date. However, the Bank receives payments on a
monthly basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
1,644,598 |
|
|
$ |
1,663,512 |
|
|
$ |
|
|
|
$ |
|
|
Over one to five years |
|
|
4,440,360 |
|
|
|
4,621,900 |
|
|
|
99,927 |
|
|
|
100,210 |
|
Over five to ten years |
|
|
8,567,790 |
|
|
|
8,760,477 |
|
|
|
2,279,892 |
|
|
|
2,373,515 |
|
Over ten years |
|
|
12,751,035 |
|
|
|
12,967,059 |
|
|
|
3,426,688 |
|
|
|
3,603,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,403,783 |
|
|
$ |
28,012,948 |
|
|
$ |
5,806,507 |
|
|
$ |
6,076,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
1,150,265 |
|
|
$ |
1,171,205 |
|
|
$ |
499,942 |
|
|
$ |
507,031 |
|
Over one to five years |
|
|
11,635,121 |
|
|
|
11,957,725 |
|
|
|
99,881 |
|
|
|
100,075 |
|
Over five to ten years |
|
|
8,995,942 |
|
|
|
9,249,654 |
|
|
|
2,051,611 |
|
|
|
2,091,071 |
|
Over ten years |
|
|
7,136,292 |
|
|
|
7,187,392 |
|
|
|
5,351,957 |
|
|
|
5,536,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
28,917,620 |
|
|
$ |
29,565,976 |
|
|
$ |
8,003,391 |
|
|
$ |
8,235,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
3,994,083 |
|
|
$ |
3,977,436 |
|
|
$ |
1,500,855 |
|
|
$ |
1,498,672 |
|
Over one to five years |
|
|
3,530,043 |
|
|
|
3,512,777 |
|
|
|
599,618 |
|
|
|
604,237 |
|
Over five to ten years |
|
|
1,707,775 |
|
|
|
1,693,237 |
|
|
|
201,118 |
|
|
|
194,430 |
|
Over ten years |
|
|
210,582 |
|
|
|
209,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,442,483 |
|
|
$ |
9,393,356 |
|
|
$ |
2,301,591 |
|
|
$ |
2,297,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pledged securities |
|
$ |
5,921,558 |
|
|
$ |
5,890,011 |
|
|
$ |
2,000,638 |
|
|
$ |
2,002,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, we pledged securities to secure a line of credit from the Federal Home Loan Bank. |
F-36
4. |
|
Credit Commitments |
|
|
|
The Bank is party to financial instruments with off balance sheet
risk in the normal course of business in order to meet the
financing needs of customers. These financial instruments include
commitments to extend credit, available credit lines and standby
letters of credit. |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Commitments to extend credit and available credit lines: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
21,153,839 |
|
|
$ |
23,073,938 |
|
|
$ |
15,506,189 |
|
Real estate undisbursed development and construction |
|
|
14,573,064 |
|
|
|
21,980,974 |
|
|
|
35,966,127 |
|
Consumer |
|
|
9,014,671 |
|
|
|
6,378,630 |
|
|
|
6,142,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,741,574 |
|
|
$ |
51,433,542 |
|
|
$ |
57,614,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
$ |
3,882,806 |
|
|
$ |
1,582,717 |
|
|
$ |
1,634,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Banks 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. |
5. |
|
Loans |
|
|
|
Major classifications of loans are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
124,002,072 |
|
|
$ |
110,826,321 |
|
|
$ |
96,017,558 |
|
Construction |
|
|
30,872,499 |
|
|
|
23,422,258 |
|
|
|
21,905,237 |
|
Residential |
|
|
23,350,018 |
|
|
|
12,819,445 |
|
|
|
11,227,505 |
|
Commercial |
|
|
74,174,400 |
|
|
|
69,961,313 |
|
|
|
55,513,122 |
|
Consumer |
|
|
14,622,153 |
|
|
|
15,638,011 |
|
|
|
18,527,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,021,142 |
|
|
|
232,667,348 |
|
|
|
203,191,010 |
|
Allowance for loan losses |
|
|
(2,481,716 |
) |
|
|
(1,983,751 |
) |
|
|
(1,586,737 |
) |
Deferred loan costs, net |
|
|
469,243 |
|
|
|
370,021 |
|
|
|
337,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
265,008,669 |
|
|
$ |
231,053,618 |
|
|
$ |
201,941,667 |
|
|
|
|
|
|
|
|
|
|
|
F-37
5. |
|
Loans (Continued) |
|
|
|
The following table outlines the maturity and rate repricing distribution of the loan
portfolio. For purposes of this disclosure, we have classified non-accrual loans as
immediately repricing or maturing. |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Within one year |
|
$ |
101,809,560 |
|
|
$ |
91,649,352 |
|
|
$ |
84,698,659 |
|
Over one to five years |
|
|
131,119,339 |
|
|
|
118,762,804 |
|
|
|
90,379,861 |
|
Over five years |
|
|
34,092,243 |
|
|
|
22,255,192 |
|
|
|
28,112,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
267,021,142 |
|
|
$ |
232,667,348 |
|
|
$ |
203,191,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions in the allowance for loan losses were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Beginning balance |
|
$ |
1,983,751 |
|
|
$ |
1,586,737 |
|
|
$ |
1,280,396 |
|
Provision charged to operations |
|
|
900,000 |
|
|
|
415,000 |
|
|
|
318,000 |
|
Recoveries |
|
|
|
|
|
|
454 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,883,751 |
|
|
|
2,002,191 |
|
|
|
1,598,886 |
|
Loans charged off |
|
|
402,035 |
|
|
|
18,440 |
|
|
|
12,149 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
2,481,716 |
|
|
$ |
1,983,751 |
|
|
$ |
1,586,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we had three loans totaling $1,586,499 past due and classified as
non-accrual. The first loan is the same loan that we reported in our December 31, 2008
financial statements and described below. During 2009, we received $40,384 in payments on
this loan and the current balance is $810,291. In October 2009, the Borrower re-entered
bankruptcy under Chapter 11 of the United States Bankruptcy Code. We have a hearing
scheduled to obtain a lift stay on the commercial property that secures this loan.
Assuming the court provides the lift stay on the property, we plan to proceed with
foreclosure on the property. The second loan is in the amount of $223,169. The value of
the collateral is sufficient to provide repayment and we do not consider this loan impaired.
We have foreclosed on the property and were awaiting ratification from the court. Once we
receive ratification, we anticipate that we will hold the real estate for future sale. The
third loan is a land development loan secured by real estate in the amount of $553,039. The
borrower on this loan has filed bankruptcy. A recent appraisal of the property securing
this loan indicates that the value of the collateral is sufficient to provide repayment and
we do not consider this loan impaired. We plan to proceed with foreclosure on this
property. We have not designated a specific allowance for any of these non-accrual loans.
The total non-accrued interest on these loans at December 31, 2009 was $190,701. |
|
|
|
At December 31, 2008, we had one loan past due and classified as non-accrual in the amount
of $850,675. The borrower on this loan filed for bankruptcy protection in November, 2007.
A commercial real estate property secures this loan. The loan to value at inception of this
loan was 80%. We anticipate that we will receive repayment for all of the balance due on
this loan. As of December 31, 2008, the interest not accrued on this loan was $85,706. During the year ended
December 31, 2008, we applied $80,099 in interest payments to the principal balance on the
loan. We have not designated a specific allowance for this non-accrual loan. |
|
|
|
At December 31, 2007, we had two loans totaling $1,061,144 that were 90 days past due and
were classified as non-accrual. We received payment in full on one of these loans in June
2008. |
|
|
|
There were no accruing loans 90 days or more past due or considered impaired at December 31,
2009, 2008 and 2007. |
F-38
5. |
|
Loans (Continued) |
|
|
|
The company has pledged loans totaling $114,160,379 to support Federal Home Loan Bank
borrowings. |
|
|
|
The Bank makes loans to customers located in the Maryland suburbs of Washington D.C.
Residential and commercial real estate secure substantial portions of the Banks loans.
Although the loan portfolio is diversified, the regional real estate market and economy will
influence its performance. |
|
6. |
|
Restricted Equity Securities |
|
|
|
We own the following restricted equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Federal Reserve Bank stock |
|
$ |
1,037,050 |
|
|
$ |
827,050 |
|
|
$ |
827,050 |
|
Atlantic Central Bankers Bank stock |
|
|
12,000 |
|
|
|
12,000 |
|
|
|
12,000 |
|
Federal Home Loan Bank stock |
|
|
1,733,600 |
|
|
|
1,112,500 |
|
|
|
1,066,200 |
|
Maryland Financial Bank stock |
|
|
175,000 |
|
|
|
175,000 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,957,650 |
|
|
$ |
2,126,550 |
|
|
$ |
2,080,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
We have recorded these securities at cost and have not evaluated them for impairment. |
|
7. |
|
Pointer Ridge Office Investment, LLC |
|
|
|
On November 17, 2008, we purchased Chesapeake Custom Homes, L.L.C.s 12.5% membership
interest in Pointer Ridge. The effective date of the purchase was November 1, 2008. As a
result of this purchase, we own 62.5% of Pointer Ridge and consolidated their results of
operations from the date of the acquisition. Prior to the acquisition date of a majority
interest, we accounted for our investment in Pointer Ridge using the equity method. The
following table summarizes the condensed Balance Sheets and Statements of Income information
for Pointer Ridge. |
|
|
|
Pointer Ridge Office Investment, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
891,233 |
|
|
$ |
540,105 |
|
|
$ |
440,256 |
|
Non-current assets |
|
|
7,432,268 |
|
|
|
7,619,352 |
|
|
|
7,815,892 |
|
Liabilities |
|
|
6,480,230 |
|
|
|
6,548,760 |
|
|
|
6,644,206 |
|
Equity |
|
|
1,843,271 |
|
|
|
1,610,697 |
|
|
|
1,611,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,239,137 |
|
|
$ |
1,014,136 |
|
|
$ |
941,520 |
|
Expenses |
|
|
1,006,563 |
|
|
|
1,019,577 |
|
|
|
893,320 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
232,574 |
|
|
$ |
(5,441 |
) |
|
$ |
48,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
We purchased Chesapeake Custom Homes, L.L.C.s 12.5% membership interest at the book value
which was equivalent to the fair value. Accordingly, we did not record any goodwill with
this purchase. |
F-39
8. |
|
Premises and Equipment |
|
|
|
A summary of our premises and equipment and the related depreciation follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
Useful lives |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Land |
|
|
|
|
|
$ |
5,061,583 |
|
|
$ |
2,959,864 |
|
|
$ |
487,673 |
|
Building |
|
5-50 years |
|
|
10,188,380 |
|
|
|
7,351,089 |
|
|
|
1,600,297 |
|
Leasehold improvements |
|
3-30 years |
|
|
2,171,310 |
|
|
|
1,890,119 |
|
|
|
1,380,032 |
|
Furniture and equipment |
|
3-23 years |
|
|
2,384,207 |
|
|
|
2,005,424 |
|
|
|
1,743,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,805,480 |
|
|
|
14,206,496 |
|
|
|
5,211,825 |
|
Accumulated depreciation |
|
|
|
|
|
|
2,479,381 |
|
|
|
1,818,450 |
|
|
|
1,004,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premises and equipment |
|
|
|
|
|
$ |
17,326,099 |
|
|
$ |
12,388,046 |
|
|
$ |
4,207,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
$ |
676,127 |
|
|
$ |
420,595 |
|
|
$ |
336,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer software included in other assets, and related amortization, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
3 years |
|
$ |
224,028 |
|
|
$ |
214,670 |
|
|
$ |
205,564 |
|
Accumulated amortization |
|
|
|
|
|
|
204,280 |
|
|
|
181,063 |
|
|
|
154,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net computer software |
|
|
|
|
|
$ |
19,748 |
|
|
$ |
33,607 |
|
|
$ |
50,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
|
|
|
$ |
23,218 |
|
|
$ |
26,934 |
|
|
$ |
22,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. |
|
Deposits |
|
|
|
Major classifications of interest bearing deposits are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Money market and NOW |
|
$ |
43,424,979 |
|
|
$ |
31,852,127 |
|
|
$ |
33,935,011 |
|
Savings |
|
|
7,578,780 |
|
|
|
5,504,261 |
|
|
|
6,584,834 |
|
Other time deposits-$100,000 and over |
|
|
58,681,241 |
|
|
|
44,319,687 |
|
|
|
41,150,781 |
|
Other time deposits |
|
|
135,779,373 |
|
|
|
109,874,446 |
|
|
|
61,000,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
245,464,373 |
|
|
$ |
191,550,521 |
|
|
$ |
142,670,944 |
|
|
|
|
|
|
|
|
|
|
|
Time deposits mature as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Within three months |
|
$ |
63,785,047 |
|
|
$ |
44,327,104 |
|
|
$ |
33,624,666 |
|
Over three to twelve months |
|
|
82,433,333 |
|
|
|
55,066,817 |
|
|
|
55,367,386 |
|
Over one to three years |
|
|
42,526,579 |
|
|
|
46,923,119 |
|
|
|
12,392,117 |
|
Over three to five years |
|
|
5,715,655 |
|
|
|
7,877,093 |
|
|
|
766,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
194,460,614 |
|
|
$ |
154,194,133 |
|
|
$ |
102,151,099 |
|
|
|
|
|
|
|
|
|
|
|
F-40
9. |
|
Deposits (Continued) |
|
|
|
Interest on deposits for the years ended December 31, 2009, 2008, and 2007, consisted of the
following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Money market and NOW |
|
$ |
171,476 |
|
|
$ |
321,164 |
|
|
$ |
588,824 |
|
Savings |
|
|
25,602 |
|
|
|
39,492 |
|
|
|
55,660 |
|
Other time deposits $100,000 and over |
|
|
1,608,367 |
|
|
|
1,490,587 |
|
|
|
1,503,715 |
|
Other time deposits |
|
|
2,747,654 |
|
|
|
3,250,365 |
|
|
|
3,541,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,553,099 |
|
|
$ |
5,101,608 |
|
|
$ |
5,689,554 |
|
|
|
|
|
|
|
|
|
|
|
10. |
|
Short Term Borrowings |
|
|
|
The Bank has available lines of credit including overnight federal funds and reverse
repurchase agreements from its correspondent banks totaling $32.0 million as of December 31,
2009. The Bank has an additional secured line of credit from the Federal Home Loan Bank of
Atlanta (FHLB) of $103.7 million. Prior to allowing the Bank to borrow under the line of
credit, the FHLB requires that the Bank provide collateral to support borrowings. At
December 31, 2009, we had provided $39.3 million in collateral value and as outlined below
have borrowed $15.0 million. We have additional available borrowing capacity of $24.3
million. We may increase this availability by pledging additional collateral. As a
condition of obtaining the line of credit from the FHLB, the FHLB also requires that the
Bank purchase shares of capital stock in the FHLB. |
|
|
|
Short term borrowings consist of promissory notes sold to the Banks customers, federal
funds purchased and advances from the FHLB. The 3.66% FHLB borrowing matures November 23,
2010. Interest is payable on the 23rd day of each February, May, August, and
November. On any interest payment date, the FHLB has the option to convert the interest
rate on this advance from a fixed rate to a three (3) month LIBOR based variable rate. |
|
|
|
The Bank sells short term promissory notes to its customers. These notes reprice daily and
have maturities of 270 days or less. Federal funds purchased are unsecured, overnight
borrowings from other financial institutions. |
|
|
|
Information relating to short term borrowings is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
Amount outstanding at year end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term promissory notes |
|
$ |
11,149,939 |
|
|
|
0.50 |
% |
|
$ |
17,773,934 |
|
|
|
0.50 |
% |
|
$ |
16,347,096 |
|
|
|
2.53 |
% |
FHLB advance due Nov. 2010 |
|
|
5,000,000 |
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,149,939 |
|
|
|
|
|
|
$ |
17,773,934 |
|
|
|
|
|
|
$ |
16,347,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term promissory notes |
|
$ |
14,928,391 |
|
|
|
0.62 |
% |
|
$ |
18,954,799 |
|
|
|
1.36 |
% |
|
$ |
13,674,099 |
|
|
|
3.23 |
% |
FHLB advance due Jan. 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,862 |
|
|
|
5.65 |
% |
FHLB advance due Nov. 2010 |
|
|
1,837,268 |
|
|
|
3.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
603 |
|
|
|
0.66 |
% |
|
|
253,338 |
|
|
|
0.66 |
% |
|
|
55,069 |
|
|
|
5.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,766,262 |
|
|
|
|
|
|
$ |
19,208,137 |
|
|
|
|
|
|
$ |
13,899,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
11. |
|
Long Term Borrowings |
|
|
|
At December 31, 2009, the Bank had two advances, in the amount of $5,000,000 each, from the
Federal Home Loan Bank (FHLB) totaling $10,000,000. The 3.3575% FHLB borrowing matures
December 12, 2012. Interest is payable on the 12th day of each March, June,
September and December. On any interest payment date, the FHLB has the option to convert
the interest rate on this advance from a fixed rate to a three (3) month LIBOR based
variable rate. |
|
|
|
The 3.119% FHLB borrowing matures December 19, 2012. Interest is payable on the
19th day of each month. On any interest payment date, the FHLB has the option to
convert the interest rate on this advance from a fixed rate to a one (1) month LIBOR based
variable rate. |
|
|
|
The Senior note is an obligation of Pointer Ridge. It has a 10 year fixed interest rate of
6.28% and matures on September 5, 2016. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
|
Amount |
|
|
Rate |
|
Amount outstanding at year end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advance due Nov. 2010 |
|
$ |
|
|
|
|
|
% |
|
$ |
5,000,000 |
|
|
|
3.660 |
% |
|
$ |
5,000,000 |
|
|
|
3.660 |
% |
FHLB advance due Dec. 2012 |
|
|
5,000,000 |
|
|
|
3.358 |
|
|
|
5,000,000 |
|
|
|
3.358 |
|
|
|
5,000,000 |
|
|
|
3.358 |
|
FHLB advance due Dec. 2012 |
|
|
5,000,000 |
|
|
|
3.119 |
|
|
|
5,000,000 |
|
|
|
3.119 |
|
|
|
5,000,000 |
|
|
|
3.119 |
|
Senior note |
|
|
6,454,067 |
|
|
|
6.280 |
|
|
|
6,531,133 |
|
|
|
6.280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,454,067 |
|
|
|
|
|
|
$ |
21,531,133 |
|
|
|
|
|
|
$ |
15,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advance due Nov. 2010 |
|
$ |
4,561,644 |
|
|
|
3.660 |
% |
|
$ |
5,000,000 |
|
|
|
3.660 |
% |
|
$ |
520,548 |
|
|
|
3.660 |
% |
FHLB advance due Dec. 2012 |
|
|
5,000,000 |
|
|
|
3.358 |
|
|
|
5,000,000 |
|
|
|
3.358 |
|
|
|
260,274 |
|
|
|
3.358 |
|
FHLB advance due Dec. 2012 |
|
|
5,000,000 |
|
|
|
3.119 |
|
|
|
5,000,000 |
|
|
|
3.119 |
|
|
|
164,384 |
|
|
|
3.119 |
|
FHLB advance due July 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,652,055 |
|
|
|
5.328 |
|
Senior note, fixed at 6.28% |
|
|
6,489,559 |
|
|
|
6.280 |
|
|
|
546,018 |
|
|
|
6.280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,051,203 |
|
|
|
|
|
|
$ |
15,546,018 |
|
|
|
|
|
|
$ |
2,597,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long term debt obligations are due as follows:
|
|
|
|
|
Year |
|
Amount |
|
2010 |
|
$ |
83,297 |
|
2011 |
|
|
88,743 |
|
2012 |
|
|
10,094,545 |
|
2013 |
|
|
100,727 |
|
2014 |
|
|
107,312 |
|
Remaining |
|
|
5,979,443 |
|
|
|
|
|
|
|
$ |
16,454,067 |
|
|
|
|
|
F-42
12. |
|
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 $21,566,
$15,481, and $110, during the years ended December 31, 2009, 2008, and
2007, respectively. |
|
|
|
Effective November 1, 2008, we purchased Chesapeake Custom Homes,
L.L.C.s 12.5% membership interest in Pointer Ridge for the book value
of $205,000. This purchase increased Bancshares membership interest
from 50.0% to 62.5%. Frank Lucente, a director of Bancshares and the
Bank, is the President and 52.0% stockholder of Lucente Enterprises,
Inc. Lucente Enterprises, Inc. is the manager and majority member of
Chesapeake Custom Homes, L.L.C. Lucente Enterprises has retained its
12.5% membership interest in Pointer Ridge. In 2009 and 2008, the
Bank paid Pointer Ridge $526,494 and $513,939 in lease payments,
respectively. In 2007, the Bank paid Pointer Ridge $496,272 in lease
payments and $24,005 for leasehold improvements. |
|
|
|
The directors, executive officers and their affiliated companies maintained deposits with
the Bank of $8,798,695, $11,026,340, and $9,117,683, at December 31, 2009, 2008, and 2007,
respectively. |
|
|
|
The schedule below summarizes changes in amounts of loans outstanding to directors and
executive officers or their affiliated companies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Balance at beginning of year |
|
$ |
889,630 |
|
|
$ |
4,260,564 |
|
|
$ |
4,756,505 |
|
Additions |
|
|
967,630 |
|
|
|
454,252 |
|
|
|
877,550 |
|
Repayments |
|
|
(393,145 |
) |
|
|
(3,825,186 |
) |
|
|
(1,373,491 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
1,464,115 |
|
|
$ |
889,630 |
|
|
$ |
4,260,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the outstanding balances, the directors and executive officers or affiliated
companies have $941,050 in unused commitments as of December 31, 2009. 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. |
|
13. |
|
Income Taxes |
|
|
|
The components of income tax expense are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,024,750 |
|
|
$ |
786,677 |
|
|
$ |
715,134 |
|
State |
|
|
259,538 |
|
|
|
200,237 |
|
|
|
97,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,284,288 |
|
|
|
986,914 |
|
|
|
812,914 |
|
Deferred |
|
|
(228,766 |
) |
|
|
(47,531 |
) |
|
|
(23,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,055,522 |
|
|
$ |
939,383 |
|
|
$ |
789,053 |
|
|
|
|
|
|
|
|
|
|
|
F-43
13. |
|
Income Taxes (Continued) |
|
|
|
The components of deferred income taxes are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Provision for loan losses |
|
$ |
(171,316 |
) |
|
$ |
(163,697 |
) |
|
$ |
(135,333 |
) |
Nonaccrual interest |
|
|
6,110 |
|
|
|
(22,633 |
) |
|
|
(11,174 |
) |
Organization costs |
|
|
|
|
|
|
5,132 |
|
|
|
5,190 |
|
Director stock option expense |
|
|
(8,298 |
) |
|
|
|
|
|
|
(12,141 |
) |
Supplemental executive retirement plan |
|
|
(52,760 |
) |
|
|
(47,036 |
) |
|
|
(42,586 |
) |
Deferred loan origination costs, net |
|
|
(114,426 |
) |
|
|
57,172 |
|
|
|
94,909 |
|
Depreciation |
|
|
111,924 |
|
|
|
123,531 |
|
|
|
77,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(228,766 |
) |
|
$ |
(47,531 |
) |
|
$ |
(23,861 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred tax assets and liabilities are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
933,688 |
|
|
$ |
762,372 |
|
|
$ |
598,675 |
|
Nonaccrual interest |
|
|
27,697 |
|
|
|
33,807 |
|
|
|
11,174 |
|
Organization costs |
|
|
|
|
|
|
|
|
|
|
5,132 |
|
Director stock option expense |
|
|
20,439 |
|
|
|
12,141 |
|
|
|
12,141 |
|
Supplemental executive retirement plan |
|
|
178,652 |
|
|
|
125,892 |
|
|
|
78,856 |
|
Net unrealized loss on securities available for sale |
|
|
|
|
|
|
|
|
|
|
19,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,160,476 |
|
|
|
934,212 |
|
|
|
725,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan origination costs |
|
|
292,879 |
|
|
|
407,305 |
|
|
|
350,133 |
|
Depreciation |
|
|
448,738 |
|
|
|
336,814 |
|
|
|
213,283 |
|
Net unrealized gain on securities available for sale |
|
|
240,285 |
|
|
|
255,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
981,902 |
|
|
|
999,863 |
|
|
|
563,416 |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
|
$ |
178,574 |
|
|
$ |
(65,651 |
) |
|
$ |
161,940 |
|
|
|
|
|
|
|
|
|
|
|
F-44
13. |
|
Income Taxes (Continued) |
|
|
|
The differences between the federal income tax rate of 34 percent and our effective tax rate
are reconciled as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Statutory federal income tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Increase (decrease) resulting from |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit |
|
|
4.0 |
|
|
|
4.3 |
|
|
|
2.3 |
|
Tax exempt income |
|
|
(1.8 |
) |
|
|
(0.9 |
) |
|
|
(1.2 |
) |
Stock based compensation awards |
|
|
1.1 |
|
|
|
1.3 |
|
|
|
2.1 |
|
Other nondeductible expenses |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.6 |
|
Bank owned life insurance |
|
|
(3.5 |
) |
|
|
(4.1 |
) |
|
|
(4.5 |
) |
Net income attributable to the non-controlling interest |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
33.2 |
% |
|
|
34.9 |
% |
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
14. |
|
Retirement Plan |
|
|
|
Eligible employees participate in a profit sharing plan that qualifies under Section 401(k)
of the Internal Revenue Code. The plan allows for elective employee deferrals and the Bank
makes matching contributions of up to 4% of eligible employee compensation. Our
contributions to the plan, included in employee benefit expenses, were $132,284, $128,189,
and $122,901 for 2009, 2008, and 2007, respectively. |
|
|
|
The Bank also offers Supplemental Executive Retirement Plans (SERPs) to its executive
officers providing for retirement income benefits. We accrue the present value of the SERPs
over the remaining number of years to the executives expected retirement dates. The Banks
expenses for the SERPs were $133,758, $119,245, and $105,997 in 2009, 2008, and 2007,
respectively. |
F-45
15. |
|
Capital Standards |
|
|
|
The Federal Deposit Insurance Corporation and the Federal Reserve
Board have 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, 2009,
2008, and 2007, the capital ratios and minimum capital requirements
are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum capital |
|
|
To be well |
|
(in thousands) |
|
Actual |
|
|
adequacy |
|
|
capitalized |
|
December 31, 2009 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Total capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
38,088 |
|
|
|
13.7 |
% |
|
$ |
22,239 |
|
|
|
8.0 |
% |
|
$ |
27,799 |
|
|
|
10.0 |
% |
Old Line Bank |
|
$ |
36,444 |
|
|
|
12.8 |
% |
|
$ |
22,700 |
|
|
|
8.0 |
% |
|
$ |
28,385 |
|
|
|
10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
35,571 |
|
|
|
12.8 |
% |
|
$ |
11,120 |
|
|
|
4.0 |
% |
|
$ |
16,679 |
|
|
|
6.0 |
% |
Old Line Bank |
|
$ |
36,444 |
|
|
|
12.0 |
% |
|
$ |
11,354 |
|
|
|
4.0 |
% |
|
$ |
17,031 |
|
|
|
6.0 |
% |
Tier 1 capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
35,571 |
|
|
|
10.0 |
% |
|
$ |
14,228 |
|
|
|
4.0 |
% |
|
$ |
17,785 |
|
|
|
5.0 |
% |
Old Line Bank |
|
$ |
36,444 |
|
|
|
9.6 |
% |
|
$ |
14,181 |
|
|
|
4.0 |
% |
|
$ |
17,727 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Total capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
43,278 |
|
|
|
17.4 |
% |
|
$ |
19,884 |
|
|
|
8.0 |
% |
|
$ |
24,856 |
|
|
|
10.0 |
% |
Old Line Bank |
|
$ |
41,596 |
|
|
|
16.8 |
% |
|
$ |
19,766 |
|
|
|
8.0 |
% |
|
$ |
24,707 |
|
|
|
10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
41,294 |
|
|
|
16.6 |
% |
|
$ |
9,942 |
|
|
|
4.0 |
% |
|
$ |
14,913 |
|
|
|
6.0 |
% |
Old Line Bank |
|
$ |
39,612 |
|
|
|
16.0 |
% |
|
$ |
9,883 |
|
|
|
4.0 |
% |
|
$ |
14,824 |
|
|
|
6.0 |
% |
Tier 1 capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
41,294 |
|
|
|
14.0 |
% |
|
$ |
11,767 |
|
|
|
4.0 |
% |
|
$ |
14,708 |
|
|
|
5.0 |
% |
Old Line Bank |
|
$ |
39,612 |
|
|
|
13.5 |
% |
|
$ |
11,707 |
|
|
|
4.0 |
% |
|
$ |
14,634 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Total capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
36,248 |
|
|
|
16.3 |
% |
|
$ |
17,763 |
|
|
|
8.0 |
% |
|
$ |
22,203 |
|
|
|
10.0 |
% |
Old Line Bank |
|
$ |
32,913 |
|
|
|
15.0 |
% |
|
$ |
17,583 |
|
|
|
8.0 |
% |
|
$ |
21,979 |
|
|
|
10.0 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
34,661 |
|
|
|
15.6 |
% |
|
$ |
8,881 |
|
|
|
4.0 |
% |
|
$ |
13,322 |
|
|
|
6.0 |
% |
Old Line Bank |
|
$ |
31,326 |
|
|
|
14.3 |
% |
|
$ |
8,791 |
|
|
|
4.0 |
% |
|
$ |
13,187 |
|
|
|
6.0 |
% |
Tier 1 capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
34,661 |
|
|
|
14.6 |
% |
|
$ |
9,480 |
|
|
|
4.0 |
% |
|
$ |
11,850 |
|
|
|
5.0 |
% |
Old Line Bank |
|
$ |
31,326 |
|
|
|
13.3 |
% |
|
$ |
9,390 |
|
|
|
4.0 |
% |
|
$ |
11,738 |
|
|
|
5.0 |
% |
|
|
Tier 1 capital consists of common and preferred stock, additional paid-in capital and
retained earnings. 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 our ability to pay dividends and accept
deposits and may significantly affect our operations. |
|
|
|
In the most recent regulatory report, we were categorized as well capitalized under the
prompt corrective action regulations. Management knows of no events or conditions that
should change this classification. |
F-46
16. |
|
Commitments and Contingencies |
|
|
|
We lease seven branch locations and one loan production office from non-related parties
under lease agreements expiring through 2040. We lease our corporate headquarters and one
branch location from Pointer Ridge. Each of the leases provides extension options. |
|
|
|
The approximate future minimum lease commitments under the operating leases as of December
31, 2009, are presented below. We have eliminated 62.5% of lease commitments to Pointer
Ridge in consolidation. |
|
|
|
|
|
Year |
|
Amount |
|
2010 |
|
$ |
650,104 |
|
2011 |
|
|
664,590 |
|
2012 |
|
|
662,468 |
|
2013 |
|
|
608,461 |
|
2014 |
|
|
548,274 |
|
Remaining |
|
|
9,244,843 |
|
|
|
|
|
|
|
$ |
12,378,740 |
|
|
|
|
|
|
|
Rent expense was $475,113, $796,429, and $671,110, for the years ended December 31, 2009,
2008, and 2007, respectively. |
|
|
|
On August 25, 2006, Pointer Ridge entered into a loan agreement with an unrelated bank, in
an original principal amount of $6.6 million to finance the commercial office building
located at 1525 Pointer Ridge Place, Bowie, Maryland. We lease approximately half of this
building for our main office and operate a branch from this address. Pursuant to the terms
of a guaranty between the bank and Bancshares dated August 25, 2006, Bancshares has
guaranteed up to 62.5% of the loan amount plus costs incurred by the lender resulting from
any acts, omissions or alleged acts or omissions. |
|
|
|
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 Banks financial statements. |
F-47
17. |
|
Fair Value of Financial Instruments |
|
|
|
On January 1, 2008, we adopted FASB ASC Topic 820 Fair Value Measurements and Disclosures
which defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability, or, in the absence of a principal
market, the most advantageous market for the asset or liability. The price in the principal
(or most advantageous) market used to measure the fair value of the asset or liability shall
not be adjusted for transaction costs. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for marketing
activities that are usual and customary for transactions involving such assets and
liabilities; it is not a forced transaction. Market participants are buyers and sellers in
the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact
and (iv) willing to transact. The Bank values investment securities classified as available
for sale at fair value. The fair value hierarchy established in FASB ASC Topic 820 defines
three input levels for fair value measurement. Level 1 is based on quoted market prices in
active markets for identical assets. Level 2 is based on significant observable inputs
other than those in Level 1. Level 3 is based on significant unobservable inputs. |
|
|
|
We value investment securities classified as available for sale at fair value on a recurring
basis. We value treasury securities, government sponsored entity securities, and some
agency securities under Level 1, and collateralized mortgage obligations and some agency
securities under Level 2. At December 31, 2009, we established values for available for
sale investment securities as follows (000s); |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
December 31, 2009 |
|
|
Inputs |
|
|
Inputs |
|
|
Inputs |
|
Investment securities available for sale |
|
$ |
28,013 |
|
|
$ |
4,708 |
|
|
$ |
23,305 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our valuation methodologies may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values. While management
believes our methodologies are appropriate and consistent with other market participants,
the use of different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different estimate of fair value. Furthermore, we
have not comprehensively revalued the fair value amounts since the presentation dates, and
therefore, estimates of fair value after the balance sheet date may differ significantly
from the above presented amounts.
F-48
17. |
|
Fair Value of Financial Instruments (Continued) |
|
|
|
We use the following methodologies for estimating fair values of
financial instruments that we do not measure on a recurring basis.
The estimated fair values of financial instruments equal the carrying
value of the instruments except as noted. |
|
|
|
Time Deposits-The fair value of time deposits in other banks is an estimate determined by
discounting future cash flows using current rates offered for deposits of similar remaining
maturities. |
|
|
|
Investment Securities-The fair values of investment securities are based upon quoted market
prices or dealer quotes. |
|
|
|
Loans-The fair value of loans is an estimate determined by discounting future cash flows
using current rates for which the Bank would make similar loans to borrowers with similar
credit histories. |
|
|
|
Interest bearing deposits-The fair value of demand deposits and savings accounts is the
amount payable on demand. The fair value of fixed maturity certificates of deposit is an
estimate using the rates currently offered for deposits of similar remaining maturities. |
|
|
|
Long and short term borrowings-The fair value of long and short term fixed rate borrowings
is estimated by discounting the value of contractual cash flows using rates currently
offered for advances with similar terms and remaining maturities. |
|
|
|
Loan Commitments, Standby and Commercial Letters of Credit-Lending commitments have variable
interest rates and escape clauses if the customers credit quality deteriorates.
Therefore, the fair value of these items is insignificant and is not included in the
following table. |
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
Fair |
|
|
amount |
|
value |
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
Time deposits |
|
$ |
15,031,102 |
|
|
$ |
15,491,899 |
|
Investment securities |
|
|
33,819,455 |
|
|
|
34,089,713 |
|
Loans |
|
|
265,008,669 |
|
|
|
269,907,318 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
245,464,373 |
|
|
$ |
247,456,675 |
|
Short term borrowings |
|
|
16,149,939 |
|
|
|
16,297,360 |
|
Long term borrowings |
|
|
16,454,067 |
|
|
|
17,261,757 |
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
Time deposits |
|
$ |
13,267,000 |
|
|
$ |
13,276,560 |
|
Investment securities |
|
|
37,569,367 |
|
|
|
37,800,989 |
|
Loans |
|
|
231,053,618 |
|
|
|
233,640,929 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
191,550,521 |
|
|
$ |
194,267,851 |
|
Long term borrowings |
|
|
21,531,133 |
|
|
|
22,314,640 |
|
|
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
Time deposits |
|
$ |
2,000,000 |
|
|
$ |
2,003,325 |
|
Investment securities |
|
|
11,694,947 |
|
|
|
11,690,695 |
|
Loans |
|
|
201,941,667 |
|
|
|
200,202,101 |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
Interest bearing deposits |
|
$ |
142,670,944 |
|
|
$ |
143,517,303 |
|
Long term borrowings |
|
|
15,000,000 |
|
|
|
14,980,071 |
|
|
|
|
F-49
18. |
|
Other Operating Expenses |
|
|
|
Other operating expenses that are significant are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Advertising |
|
$ |
41,787 |
|
|
$ |
30,102 |
|
|
$ |
46,797 |
|
Audit & exam fees |
|
|
60,500 |
|
|
|
67,000 |
|
|
|
54,000 |
|
Branch security costs |
|
|
44,020 |
|
|
|
45,417 |
|
|
|
50,422 |
|
Broker referrals |
|
|
|
|
|
|
|
|
|
|
27,565 |
|
Business development |
|
|
116,819 |
|
|
|
96,418 |
|
|
|
78,935 |
|
Courier fees |
|
|
15,680 |
|
|
|
30,435 |
|
|
|
81,067 |
|
Director fees |
|
|
137,698 |
|
|
|
124,450 |
|
|
|
120,400 |
|
Organizational & legal expenses |
|
|
68,491 |
|
|
|
43,944 |
|
|
|
36,734 |
|
Stationery & supplies |
|
|
64,037 |
|
|
|
75,107 |
|
|
|
75,180 |
|
Other |
|
|
1,315,789 |
|
|
|
761,268 |
|
|
|
712,633 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,864,821 |
|
|
$ |
1,274,141 |
|
|
$ |
1,283,733 |
|
|
|
|
|
|
|
|
|
|
|
F-50
19. |
|
Parent Company Financial Information |
|
|
|
The balance sheets, statements of income, and statements of cash flows for Bancshares
(Parent Company) follow: |
Old Line Bancshares, Inc.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Assets |
Cash and due from banks |
|
$ |
95,232 |
|
|
$ |
164,263 |
|
|
$ |
985,479 |
|
Loans |
|
|
275,920 |
|
|
|
551,752 |
|
|
|
1,424,317 |
|
Investment in real estate LLC |
|
|
1,152,044 |
|
|
|
1,006,686 |
|
|
|
805,971 |
|
Investment in Old Line Bank |
|
|
34,331,418 |
|
|
|
40,004,678 |
|
|
|
31,296,637 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
5,132 |
|
Other assets |
|
|
120,918 |
|
|
|
9,321 |
|
|
|
189,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,975,532 |
|
|
$ |
41,736,700 |
|
|
$ |
34,706,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
Accounts payable |
|
$ |
34,628 |
|
|
$ |
49,858 |
|
|
$ |
75,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
6,703,591 |
|
|
|
|
|
Common stock |
|
|
38,624 |
|
|
|
38,624 |
|
|
|
40,758 |
|
Additional paid-in capital |
|
|
29,034,954 |
|
|
|
28,838,810 |
|
|
|
30,465,013 |
|
Warrants to purchase common stock |
|
|
|
|
|
|
301,434 |
|
|
|
|
|
Retained earnings |
|
|
6,498,446 |
|
|
|
5,411,772 |
|
|
|
4,155,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,572,024 |
|
|
|
41,294,231 |
|
|
|
34,661,003 |
|
Accumulated other comprehensive
income |
|
|
368,880 |
|
|
|
392,611 |
|
|
|
(29,749 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
35,940,904 |
|
|
|
41,686,842 |
|
|
|
34,631,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,975,532 |
|
|
$ |
41,736,700 |
|
|
$ |
34,706,601 |
|
|
|
|
|
|
|
|
|
|
|
F-51
19. |
|
Parent Company Financial Information (Continued) |
Old Line Bancshares, Inc.
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Interest and dividend revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend from Old Line Bank |
|
$ |
653,067 |
|
|
$ |
445,943 |
|
|
$ |
505,189 |
|
Interest on money market and certificates of deposit |
|
|
612 |
|
|
|
5,921 |
|
|
|
128,775 |
|
Interest on loans |
|
|
37,019 |
|
|
|
76,783 |
|
|
|
54,170 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend revenue |
|
|
690,698 |
|
|
|
528,647 |
|
|
|
688,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on investment in real estate LLC |
|
|
145,359 |
|
|
|
(4,335 |
) |
|
|
24,100 |
|
Other fees |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest revenue |
|
|
145,359 |
|
|
|
(4,335 |
) |
|
|
29,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
129,134 |
|
|
|
117,381 |
|
|
|
105,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
706,923 |
|
|
|
406,931 |
|
|
|
612,177 |
|
Income tax expense (benefit) |
|
|
21,243 |
|
|
|
(14,775 |
) |
|
|
41,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685,680 |
|
|
|
421,706 |
|
|
|
570,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of Old Line Bank |
|
|
1,350,470 |
|
|
|
1,334,412 |
|
|
|
1,012,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,036,150 |
|
|
$ |
1,756,118 |
|
|
$ |
1,583,109 |
|
|
|
|
|
|
|
|
|
|
|
F-52
19. |
|
Parent Company Financial Information (Continued) |
Old Line Bancshares, Inc.
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends received |
|
$ |
692,352 |
|
|
$ |
530,833 |
|
|
$ |
683,087 |
|
Income taxes (refund received) |
|
|
(8,613 |
) |
|
|
(35,894 |
) |
|
|
35,894 |
|
Reimbursement received (cash paid)
for operating expenses |
|
|
(126,231 |
) |
|
|
219,457 |
|
|
|
(30,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
557,508 |
|
|
|
714,396 |
|
|
|
688,632 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Loans made, net of principal collected |
|
|
275,832 |
|
|
|
872,565 |
|
|
|
(1,424,317 |
) |
Investment in Old Line Bank |
|
|
7,000,000 |
|
|
|
(7,000,000 |
) |
|
|
|
|
Return of principal from (investment in) real estate LLC |
|
|
|
|
|
|
(205,050 |
) |
|
|
11,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,275,832 |
|
|
|
(6,332,485 |
) |
|
|
(1,412,474 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock options exercised |
|
|
|
|
|
|
16,000 |
|
|
|
32,706 |
|
Tax benefit from stock options exercised |
|
|
|
|
|
|
2,777 |
|
|
|
11,887 |
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
7,000,000 |
|
|
|
|
|
Repurchase of preferred stock & warrants |
|
|
(7,225,000 |
) |
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
|
|
|
|
(1,751,655 |
) |
|
|
(1,623,098 |
) |
Cash dividends paid-preferred stock |
|
|
(213,888 |
) |
|
|
|
|
|
|
|
|
Cash dividends paid-common stock |
|
|
(463,483 |
) |
|
|
(470,249 |
) |
|
|
(505,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,902,371 |
) |
|
|
4,796,873 |
|
|
|
(2,083,695 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(69,031 |
) |
|
|
(821,216 |
) |
|
|
(2,807,537 |
) |
Cash and cash equivalents at beginning of year |
|
|
164,263 |
|
|
|
985,479 |
|
|
|
3,793,016 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
95,232 |
|
|
$ |
164,263 |
|
|
$ |
985,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,036,150 |
|
|
$ |
1,756,118 |
|
|
$ |
1,583,109 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of Old Line Bank |
|
|
(1,350,470 |
) |
|
|
(1,334,412 |
) |
|
|
(1,012,251 |
) |
Stock based compensation awards |
|
|
119,711 |
|
|
|
104,541 |
|
|
|
173,714 |
|
Decrease in deferred income taxes |
|
|
|
|
|
|
5,132 |
|
|
|
5,190 |
|
(Income) Loss from investment in real estate LLC |
|
|
(145,359 |
) |
|
|
4,335 |
|
|
|
(24,100 |
) |
Increase (Decrease) in other liabilities |
|
|
9,073 |
|
|
|
(1,063 |
) |
|
|
41,086 |
|
(Increase) decrease in other assets |
|
|
(111,597 |
) |
|
|
179,745 |
|
|
|
(78,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
557,508 |
|
|
$ |
714,396 |
|
|
$ |
688,632 |
|
|
|
|
|
|
|
|
|
|
|
F-53
20. |
|
Stockholders Equity |
|
|
|
Stock Options |
|
|
|
We have two stock option plans under which we may issue options, the 2001 Incentive Stock
Option Plan, as amended, and the 2004 Equity Incentive Plan. Our Compensation Committee
administers the stock option plans. As the plans outline, the Compensation Committee
approves stock option grants to directors and employees, determines the number of shares,
the type of option, the option price, the term (not to exceed 10 years from the date of
issuance) and the vesting period of options issued. The Compensation Committee has approved
and we have granted options vesting immediately as well as over periods of two, three and
five years. We recognize the compensation expense associated with these grants over their
respective vesting period. As of December 31, 2009, there were 71,530 shares remaining
available for future issuance under the stock option plans. |
|
|
|
The intrinsic value of the options that directors and
officers exercised for the years ended
December 31, 2009, 2008, and 2007 was $0, $7,040, and $26,432, respectively.
|
|
|
|
A summary of the status of the outstanding options follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
average |
|
|
Number |
|
|
average |
|
|
Number |
|
|
average |
|
|
|
of shares |
|
|
exercise price |
|
|
of shares |
|
|
exercise price |
|
|
of shares |
|
|
exercise price |
|
|
|
|
Outstanding, beginning of year |
|
|
236,620 |
|
|
$ |
9.09 |
|
|
|
216,920 |
|
|
$ |
9.37 |
|
|
|
182,820 |
|
|
$ |
8.91 |
|
Options granted |
|
|
62,650 |
|
|
|
6.30 |
|
|
|
37,300 |
|
|
|
7.75 |
|
|
|
47,200 |
|
|
|
10.57 |
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
(3,600 |
) |
|
|
4.44 |
|
|
|
(8,100 |
) |
|
|
4.72 |
|
Options expired |
|
|
|
|
|
|
|
|
|
|
(14,000 |
) |
|
|
11.09 |
|
|
|
(5,000 |
) |
|
|
11.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
299,270 |
|
|
$ |
8.50 |
|
|
|
236,620 |
|
|
$ |
9.09 |
|
|
|
216,920 |
|
|
$ |
9.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options |
|
|
|
Exercisable options |
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number |
|
|
average |
|
|
average |
|
|
Number |
|
|
average |
|
Exercise |
|
of shares at |
|
|
remaining |
|
|
exercise |
|
|
of shares at |
|
|
exercise |
|
price |
|
December 31, 2009 |
|
|
term in years |
|
|
price |
|
|
December 31, 2009 |
|
|
price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.33-$4.17 |
|
|
11,700 |
|
|
|
1.00 |
|
|
$ |
3.44 |
|
|
|
11,700 |
|
|
$ |
3.44 |
|
$4.18-$5.00 |
|
|
18,000 |
|
|
|
2.55 |
|
|
|
4.69 |
|
|
|
18,000 |
|
|
|
4.69 |
|
$5.01-$7.64 |
|
|
62,650 |
|
|
|
9.07 |
|
|
|
6.30 |
|
|
|
28,884 |
|
|
|
6.30 |
|
$7.65-$8.65 |
|
|
37,300 |
|
|
|
8.09 |
|
|
|
7.75 |
|
|
|
24,866 |
|
|
|
7.75 |
|
$8.66-$10.00 |
|
|
46,620 |
|
|
|
4.64 |
|
|
|
9.74 |
|
|
|
46,620 |
|
|
|
9.74 |
|
$10.01-11.31 |
|
|
123,000 |
|
|
|
6.31 |
|
|
|
10.43 |
|
|
|
117,000 |
|
|
|
10.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,270 |
|
|
|
6.41 |
|
|
$ |
8.50 |
|
|
|
247,070 |
|
|
$ |
8.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of vested exercisable
options where the market value exceeds
the exercise price |
|
$ |
79,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of outstanding options
where the market value exceeds the
exercise price |
|
$ |
89,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
20. |
|
Stockholders Equity (Continued) |
|
|
|
At December 31, 2009, there was $37,862 of total unrecognized
compensation cost related to non-vested stock options that we
expect to realize over the next 3.5 years. The following table
summarizes the fair values of the options granted and
weighted-average assumptions used to calculate the fair values.
We used the Black-Scholes option pricing model. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
2009 |
|
2008 |
|
2007 |
|
Expected dividends |
|
|
2 |
% |
|
|
2 |
% |
|
|
1 |
% |
Risk free interest rate |
|
|
2.15 |
% |
|
|
3.31 |
% |
|
|
4.64 |
% |
Expected volatility |
|
|
25.40 |
% |
|
|
20.80 |
% |
|
|
20.2-20.4 |
% |
Weighted average volatility |
|
|
25.39 |
% |
|
|
20.79 |
% |
|
|
20.31 |
% |
Expected life in years |
|
|
6.8-10.0 |
|
|
|
7.80 |
|
|
|
6.0-7.0 |
|
Weighted average fair value of options granted |
|
$ |
1.57 |
|
|
$ |
1.94 |
|
|
$ |
2.92 |
|
Preferred stock
On December 5, 2008, Bancshares issued 7,000 shares of Fixed Rate Cumulative Preferred
Stock, Series A, $1 par value (Series A Preferred Stock) with a liquidation preference per
share equal to $1,000 and a ten year warrant to purchase up to 141,892 shares of Bancshares
common stock, $0.01 par value per share, at an exercise price of $7.40 per share, for a
total purchase price of $7 million in cash as part of the Troubled Asset Relief
Program-Capital Purchase Program of the U.S. Treasury (Treasury). Bancshares allocated
the cash proceeds between the Series A Preferred Stock and the warrant to purchase common
stock based on the relative estimated fair values at the date of issuance.
In July of 2009, we repurchased from the Treasury the 7,000 shares of preferred stock that
we issued to them. We paid Treasury $7,058,333 to repurchase the preferred stock which
reflects the liquidation value of the preferred stock and $58,333 of accrued but unpaid
dividends. In August, we also repurchased at a fair market value of $225,000 the warrant to
purchase 141,892 shares of our common stock.
F-55
21. |
|
Quarterly Results of Operations (Unaudited) |
|
|
|
The following is a summary of the unaudited quarterly results of operations |
Three months ended
(Dollars in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
December 31, |
|
September 30, |
|
June 30, |
|
March 31, |
|
Interest revenue |
|
$ |
4,374 |
|
|
$ |
4,392 |
|
|
$ |
4,227 |
|
|
$ |
4,102 |
|
Interest expense |
|
|
1,308 |
|
|
|
1,406 |
|
|
|
1,416 |
|
|
|
1,450 |
|
Net interest income |
|
|
3,066 |
|
|
|
2,986 |
|
|
|
2,811 |
|
|
|
2,652 |
|
Provision for loan losses |
|
|
140 |
|
|
|
210 |
|
|
|
250 |
|
|
|
300 |
|
Net income available to common stockholders |
|
|
466 |
|
|
|
227 |
|
|
|
447 |
|
|
|
410 |
|
Earnings per share-basic |
|
|
0.12 |
|
|
|
0.06 |
|
|
|
0.12 |
|
|
|
0.11 |
|
Earnings per share-diluted |
|
|
0.12 |
|
|
|
0.06 |
|
|
|
0.12 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
December 31, |
|
September 30, |
|
June 30, |
|
March 31, |
|
Interest revenue |
|
$ |
3,991 |
|
|
$ |
3,937 |
|
|
$ |
3,726 |
|
|
$ |
3,770 |
|
Interest expense |
|
|
1,543 |
|
|
|
1,460 |
|
|
|
1,366 |
|
|
|
1,541 |
|
Net interest income |
|
|
2,448 |
|
|
|
2,477 |
|
|
|
2,360 |
|
|
|
2,229 |
|
Provision for loan losses |
|
|
70 |
|
|
|
180 |
|
|
|
127 |
|
|
|
38 |
|
Net income available to common stockholders |
|
|
352 |
|
|
|
433 |
|
|
|
497 |
|
|
|
445 |
|
Earnings per share-basic |
|
|
0.09 |
|
|
|
0.11 |
|
|
|
0.13 |
|
|
|
0.11 |
|
Earnings per share-diluted |
|
|
0.09 |
|
|
|
0.11 |
|
|
|
0.13 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
December 31, |
|
September 30, |
|
June 30, |
|
March 31, |
|
Interest revenue |
|
$ |
3,817 |
|
|
$ |
3,786 |
|
|
$ |
3,523 |
|
|
$ |
3,428 |
|
Interest expense |
|
|
1,594 |
|
|
|
1,666 |
|
|
|
1,536 |
|
|
|
1,467 |
|
Net interest income |
|
|
2,223 |
|
|
|
2,120 |
|
|
|
1,987 |
|
|
|
1,961 |
|
Provision for loan losses |
|
|
112 |
|
|
|
120 |
|
|
|
30 |
|
|
|
56 |
|
Net income available to common stockholders |
|
|
519 |
|
|
|
328 |
|
|
|
408 |
|
|
|
328 |
|
Earnings per share-basic |
|
|
0.13 |
|
|
|
0.08 |
|
|
|
0.10 |
|
|
|
0.08 |
|
Earnings per share-diluted |
|
|
0.13 |
|
|
|
0.08 |
|
|
|
0.10 |
|
|
|
0.08 |
|
F-56
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS REPORT
MARYLAND BANKCORP, INC.
AND SUBSIDIARY
DECEMBER 31, 2009 AND 2008
F-57
Maryland Bankcorp, Inc. and Subsidiary
TABLE OF CONTENTS
F-58
|
|
|
|
|
Reznick Group, P.C.
500 East Pratt Street
Suite 200
Baltimore, MD 21202-3100
Tel: (410) 783-4900 |
INDEPENDENT AUDITORS REPORT
To the Stockholders and Board of Directors
Maryland Bankcorp, Inc.
We have audited the accompanying consolidated balance sheets of Maryland Bankcorp, Inc. and
Subsidiary as of December 31, 2009 and 2008, and the related consolidated statements of operations,
changes in stockholders equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Maryland Bankcorp, Inc.s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with 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 consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Maryland Bankcorp, Inc. and Subsidiary at December 31,
2009 and 2008, and the results of their operations, their changes in stockholders equity and their
cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.
Baltimore, Maryland
March 25, 2010
F-59
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
8,572,465 |
|
|
$ |
9,562,795 |
|
Federal funds sold |
|
|
2,910,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
11,482,465 |
|
|
|
9,562,795 |
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with banks |
|
|
10,009,722 |
|
|
|
4,297,534 |
|
Investment securities available for sale |
|
|
77,550,787 |
|
|
|
62,677,201 |
|
Investment securities held to maturity |
|
|
|
|
|
|
200,004 |
|
Federal Home Loan Bank stock, at cost |
|
|
555,600 |
|
|
|
515,700 |
|
Federal Reserve Bank and other stock, at cost |
|
|
677,939 |
|
|
|
605,939 |
|
Loans, net of allowance for loan losses of $6,191,001 and $2,589,790, respectively |
|
|
226,203,937 |
|
|
|
212,504,825 |
|
Accrued interest receivable |
|
|
1,461,226 |
|
|
|
1,418,949 |
|
Bank premises and equipment, net |
|
|
3,786,332 |
|
|
|
3,432,536 |
|
Other real estate owned |
|
|
1,938,715 |
|
|
|
1,726,317 |
|
Deferred tax asset |
|
|
3,851,189 |
|
|
|
2,968,291 |
|
Other assets |
|
|
14,238,573 |
|
|
|
8,425,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
351,756,485 |
|
|
$ |
308,335,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
299,756,234 |
|
|
$ |
261,165,487 |
|
Other short-term borrowings |
|
|
15,056,327 |
|
|
|
8,598,237 |
|
Federal funds purchased |
|
|
|
|
|
|
1,767,000 |
|
Line of credit |
|
|
3,167,500 |
|
|
|
|
|
Due to affiliate |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Accrued expenses and other liabilities |
|
|
1,956,325 |
|
|
|
2,155,158 |
|
Deferred compensation and supplemental benefits |
|
|
3,437,150 |
|
|
|
3,038,731 |
|
Capital lease obligations |
|
|
55,091 |
|
|
|
93,225 |
|
Deferred income |
|
|
231,350 |
|
|
|
260,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
325,659,977 |
|
|
|
279,077,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value per share, 5,000,000 shares authorized as
of December 31, 2009 and 2008, and 0 shares outstanding as of December 31, 2009 and 2008 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value per share, 10,000,000 shares authorized; authorized; 646,626 shares issued and outstanding as of December 31, 2009 and 2008 |
|
|
6,466 |
|
|
|
6,466 |
|
Additional paid-in capital |
|
|
20,845,536 |
|
|
|
20,845,536 |
|
Retained earnings |
|
|
5,618,726 |
|
|
|
9,450,503 |
|
Accumulated other comprehensive loss |
|
|
(374,220 |
) |
|
|
(1,044,605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
26,096,508 |
|
|
|
29,257,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
351,756,485 |
|
|
$ |
308,335,816 |
|
|
|
|
|
|
|
|
F-60
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
INTEREST INCOME |
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
13,882,947 |
|
|
$ |
13,233,328 |
|
Interest on investment securities |
|
|
2,602,343 |
|
|
|
2,593,002 |
|
Interest on interest bearing deposits |
|
|
17,538 |
|
|
|
97,996 |
|
Interest on federal funds sold |
|
|
35,504 |
|
|
|
177,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
16,538,332 |
|
|
|
16,101,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
4,781,040 |
|
|
|
4,275,855 |
|
Interest on demand notes |
|
|
231,455 |
|
|
|
121,013 |
|
Interest on federal funds purchased |
|
|
637 |
|
|
|
55,100 |
|
Interest on capital leases |
|
|
10,298 |
|
|
|
15,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
5,023,430 |
|
|
|
4,467,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
11,514,902 |
|
|
|
11,634,200 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
5,669,565 |
|
|
|
991,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
5,845,337 |
|
|
|
10,642,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER OPERATING INCOME |
|
|
|
|
|
|
|
|
Service charges |
|
|
1,541,142 |
|
|
|
1,524,189 |
|
Fees, commissions and miscellaneous |
|
|
195,089 |
|
|
|
250,761 |
|
Gain on sale or call of investment securities |
|
|
550,833 |
|
|
|
111,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
2,287,064 |
|
|
|
1,886,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
7,004,734 |
|
|
|
6,834,431 |
|
Occupancy and equipment expenses |
|
|
1,832,534 |
|
|
|
2,033,584 |
|
Other expenses |
|
|
4,291,146 |
|
|
|
3,570,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expense |
|
|
13,128,414 |
|
|
|
12,438,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(4,996,013 |
) |
|
|
90,834 |
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
(1,164,236 |
) |
|
|
(245,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,831,777 |
) |
|
$ |
336,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share of common stock |
|
$ |
(5.93 |
) |
|
$ |
0.52 |
|
|
|
|
|
|
|
|
F-61
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Comprehen- |
|
|
comprehen- |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
paid-in |
|
|
Retained |
|
|
sive income |
|
|
sive income |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
earnings |
|
|
(loss) |
|
|
(loss) |
|
|
Total |
|
Balance, December
31, 2007 |
|
|
|
|
|
$ |
|
|
|
|
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
9,373,138 |
|
|
|
|
|
|
$ |
(342,081 |
) |
|
$ |
29,883,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
336,015 |
|
|
$ |
336,015 |
|
|
|
|
|
|
|
336,015 |
|
Other
comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,227,844 |
) |
|
|
|
|
|
|
|
|
Change in
unrealized
gain
on
securities,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,320 |
|
|
|
(702,524 |
) |
|
|
(702,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
compreh
ensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(366,509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend $.40
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,650 |
) |
|
|
|
|
|
|
|
|
|
|
(258,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2008 |
|
|
|
|
|
|
|
|
|
|
646,626 |
|
|
|
6,466 |
|
|
|
20,845,536 |
|
|
|
9,450,503 |
|
|
|
|
|
|
|
(1,044,605 |
) |
|
|
29,257,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,831,777 |
) |
|
$ |
(3,831,777 |
) |
|
|
|
|
|
|
(3,831,777 |
) |
Other
comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
unrealized
gain
on
securities,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670,385 |
|
|
|
670,385 |
|
|
|
670,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
compreh-
ensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,161,392 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
5,618,726 |
|
|
|
|
|
|
$ |
(374,220 |
) |
|
$ |
26,096,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
16,496,055 |
|
|
$ |
16,109,710 |
|
Fees and commissions received |
|
|
1,851,303 |
|
|
|
1,524,382 |
|
Interest paid |
|
|
(5,052,913 |
) |
|
|
(4,440,302 |
) |
Cash paid to suppliers and employees |
|
|
(16,542,700 |
) |
|
|
(10,027,475 |
) |
Income taxes paid |
|
|
(275,646 |
) |
|
|
(169,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(3,523,901 |
) |
|
|
2,996,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities held to maturity |
|
|
200,000 |
|
|
|
750,000 |
|
Proceeds from sales, calls and maturities of investment
securities available for sale |
|
|
42,780,629 |
|
|
|
27,989,669 |
|
Purchase of investment securities available for sale |
|
|
(57,871,929 |
) |
|
|
(25,513,136 |
) |
Net change in loans |
|
|
(19,509,574 |
) |
|
|
(33,032,753 |
) |
Net change in interest bearing deposits |
|
|
(5,712,188 |
) |
|
|
102,478 |
|
Capital expenditures |
|
|
(854,570 |
) |
|
|
(128,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(40,967,632 |
) |
|
|
(29,832,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
38,590,747 |
|
|
|
15,326,473 |
|
Increase in short-term borrowings |
|
|
6,458,090 |
|
|
|
1,977,942 |
|
Proceeds from line of credit and note payable |
|
|
3,167,500 |
|
|
|
2,000,000 |
|
Federal funds sold (purchased) |
|
|
(1,767,000 |
) |
|
|
1,767,000 |
|
Repayment of capital lease obligations |
|
|
(38,134 |
) |
|
|
(33,336 |
) |
Dividends paid to stockholders |
|
|
|
|
|
|
(260,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
46,411,203 |
|
|
|
20,777,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |
|
|
1,919,670 |
|
|
|
(6,057,684 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
9,562,795 |
|
|
|
15,620,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
11,482,465 |
|
|
$ |
9,562,795 |
|
|
|
|
|
|
|
|
|
Supplementary schedule of noncash investing activities |
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate owned |
|
$ |
212,398 |
|
|
$ |
1,726,317 |
|
|
|
|
|
|
|
|
F-63
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
Years ended December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Reconciliation of net (loss) income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,831,777 |
) |
|
$ |
336,015 |
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(920,122 |
) |
|
|
(1,508,328 |
) |
Deferred gain on sale of branch locations |
|
|
(28,728 |
) |
|
|
(28,749 |
) |
Amortization/accretion of premiums and discounts on investment securities |
|
|
215,301 |
|
|
|
34,904 |
|
Gain on sale or call of investment securities |
|
|
(550,833 |
) |
|
|
(111,342 |
) |
Increase in cash value of life insurance |
|
|
(39,413 |
) |
|
|
(244,120 |
) |
Provision for loan losses |
|
|
5,669,565 |
|
|
|
991,262 |
|
Depreciation and amortization |
|
|
500,774 |
|
|
|
600,458 |
|
Changes in net assets and liabilities |
|
|
|
|
|
|
|
|
(Increase) decrease in accrued interest receivable |
|
|
(42,277 |
) |
|
|
7,847 |
|
Increase in deferred loan fees and costs, net |
|
|
(71,501 |
) |
|
|
(256,723 |
) |
(Increase) decrease in other assets |
|
|
(4,624,476 |
) |
|
|
2,419,139 |
|
Increase in accrued expenses and other liabilities |
|
|
199,586 |
|
|
|
756,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
(3,523,901 |
) |
|
$ |
2,996,991 |
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities
Net unrealized gain on investment securities available for sale (before income tax effect)
was $654,087 and $544,604 at December 31, 2009 and 2008, respectively.
F-64
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Maryland Bankcorp, Inc. (the Holding Company), was organized on September 28, 2001 at the
direction of the Board of Directors of Maryland Bank & Trust Company, N.A. (the Bank) to acquire
the stock of the Bank and to engage in such other business activities permitted by law for bank
holding companies. On September 28, 2001, after Board of Directors, shareholder and regulatory
approval, each outstanding share of Bank common stock was exchanged for one share of Holding
Company common stock. As a result of the exchange of shares, the shareholders of the Bank
became shareholders of the Holding Company and the Holding Company became the sole shareholder
of the Bank.
The Bank was originally incorporated in 1959 under the laws of the State of Maryland, and
effective August 1, 1997, became a national bank. The Bank provides a full range of banking
services to individual and corporate customers primarily in Southern Maryland. The Bank is
subject to competition from other financial institutions and is subject to the regulations of
certain Federal and State agencies.
As of March 31, 2006, the Holding Company operates as a bank holding company under section 4(c)8
of the Bank Holding Company Act and section 225.83 of Regulation Y.
Basis of Presentation
The financial statements are presented on a consolidated basis. All material intercompany
transactions and balances have been eliminated in the consolidation. In preparing the financial
statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the
date of the consolidated balance sheet and reported income and expenses for the reporting
period. The Parent only financial statements of the Holding Company accounts for its investment
in the Bank using the equity method of accounting. (See note 17)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates.
F-65
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due
from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day
periods.
Fair Value of Financial Instruments
The Bank measures certain financial assets and liabilities at fair value based on the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction
between market participants. Under generally accepted accounting principles, the Bank is
required to disclose how fair value is determined for assets and liabilities and use an
established fair value hierarchy for which these assets and liabilities must be grouped, based
on significant levels of inputs.
Investment securities are classified as held to maturity and available for sale.
Investment securities classified as held to maturity consist of bonds, notes, and debentures
which the Bank has the intent and ability to hold to maturity and which are carried at cost,
adjusted for amortization of premiums and accretion of discounts computed by the straight-line
method.
Investment securities classified as available for sale are those debt and equity securities that
the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any
decision to sell a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix of the Banks
assets and liabilities, liquidity needs, regulatory capital considerations, and other similar
factors. Investment securities available for sale are carried at fair value. Unrealized gains
or losses are reported as increases or decreases in other comprehensive income, net of the
related tax effect, on the consolidated statements of change in stockholders equity. Realized
gains or losses, determined on the basis of the cost of specific securities sold, are included
in earnings. Reclassification adjustments are recorded when the Bank realizes a gain or loss on
the sale or a call of investment securities that had previously recognized an unrealized gain or
loss as increases or decreases in stockholders equity, net of the related tax effect.
F-66
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Loans
Loans are stated at their outstanding unpaid principal balances, net of participations sold,
deferred fees and costs and the allowance for loan losses.
Interest income on loans is accrued over the term of the loans based on the principal amounts
outstanding.
When scheduled principal or interest payments are past due 90 days or more on any loan not fully
secured or in process of collection, the accrual of interest is discontinued and recognized as
income in the period the loan becomes current.
Loan origination fees and direct loan origination costs are capitalized and recognized as an
adjustment of the yield of the related loans.
Interest Bearing Deposits
Interest bearing deposits in banks have no maturity date and are carried at cost.
Allowance for Loan Losses
The Banks policy is to charge recognized loan losses to the allowance for loan losses and add
recoveries on previously written off loans to the allowance. The allowance is increased by
provisions which are charged to operations. The adequacy of the allowance for loan losses is
determined by management after reviewing the composition and risk of the loan portfolio, trends
in loan volume by category, delinquencies, economic conditions, the Banks previous loan loss
experience and other related matters. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers ability to pay.
The allowance for loan losses is based on estimates, and ultimate losses, if any, may vary from
the current estimates.
Accounting principles generally accepted in the United States of America require that the
impairment of loans that have been separately identified for evaluation be measured based on the
present value of expected future cash flow or, alternatively, the observable market price of the
loans or the fair value of the collateral. For those loans that are collateral dependent (that
is, if repayment of the loan is expected to be provided solely by the underlying collateral) and
for which management has determined foreclosure is probable, the measure of impairment of those
loans is based on the fair value of the collateral.
F-67
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Management believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Banks
allowance for loan losses and may require additions to the allowance based on their judgments
about information available to them at the time of their examination.
Bank Premises and Equipment
Bank premises and equipment are stated at cost. Depreciation and amortization are computed
principally by accelerated methods over the estimated useful lives of the properties. The
estimated useful lives for computing depreciation and amortization are as follows:
|
|
|
|
|
|
|
Years |
|
Land improvements |
|
|
10 |
|
Buildings and improvements |
|
|
15 to 40 |
|
Furnishings and equipment |
|
|
3 to 10 |
|
Automobiles |
|
|
3 |
|
Leasehold improvements |
|
|
5 to 20 |
|
When properties are sold or otherwise disposed of, the cost and related accumulated depreciation
and amortization are removed from the accounts with any resulting gain or loss reflected in
income. Expenditures for repairs, maintenance, and minor improvements are expensed in the year
incurred.
Other Real Estate Owned
Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair
value less estimated costs to dispose at the date of foreclosure. After foreclosure, valuations
are periodically performed by management and the real estate is carried at the lower of (1) cost
or (2) fair value minus estimated costs to dispose. At date of acquisition, losses are charged
to the allowance for loan losses. The Bank recognizes income from income producing properties
held in other real estate owned on a current basis.
During 2009, the Bank foreclosed on four real estate properties originating from three
borrowers. The outstanding principal balances of the loans totaled $3,215,126 at the time of
their foreclosures. The Bank charged $1,394,034 to reduce the carrying value of the other real
estate to their approximate fair values less costs to sell.
F-68
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
During 2009, the Bank sold two of its foreclosed assets for $1,651,490. There were no gains or
losses on these sales. As of December 31, 2009 the Bank is pursuing opportunities to market the
remaining foreclosed collateral for sale.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $68,997 and $93,514 for the
years ended December 31, 2009 and 2008, respectively.
Deferred Income
Deferred income resulting from the sale of the Lexington Park Branch is being amortized over the
life of the lease, which is 20 years.
Deferred Rent
Minimum rental payments and tenant allowances are recognized on a straight-line basis over the
term of the lease, regardless of when payments are due.
Comprehensive Income
General accounting principles for reporting comprehensive income, requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net income.
Income Taxes
The Bank accounts for income taxes using the liability method. Income taxes are provided based
on earnings reported for financial statement purposes adjusted for permanent differences between
items of income or expense reported in the financial statements and those reported for tax
purposes. Under the liability method, deferred income taxes are recognized for the estimated
future tax effects of temporary differences in the bases of assets and liabilities measured at
the enacted tax rates. A valuation allowance is recorded if, based upon the evidence available,
it is more likely than not that some portion or all of the net deferred tax assets will not be
realized.
F-69
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
In June 2006, the FASB issued an accounting interpretation relating to accounting for
uncertainty in income taxes. The effective date of the interpretation was for fiscal years
beginning after December 31, 2006. The effective date was delayed in 2007 and was delayed
again in 2008 for nonpublic companies. The new effective date for nonpublic companies is for
fiscal years beginning after December 15, 2008. The Bank adopted the accounting interpretation
on January 1, 2009. Under this interpretation, a tax position is recognized as a benefit only if
it is more likely than not that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For tax positions not
meeting the more likely than not test, no tax benefit is recorded. The adoption of this
standard did not have a material impact on the Banks financial statements.
Earnings Per Share
Basic earnings per share is calculated by dividing net earnings available to common stockholders
by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is calculated on the basis of the weighted average number of shares of common
stock plus the effect of dilutive potential common shares outstanding during the period using
the treasury stock method. Weighted average common shares and diluted common shares outstanding
in 2009 and 2008 were 646,626, respectively.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued a new accounting
standard related to fair value measurements. The new standard defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. The
Bank adopted the provisions of fair value measurements and disclosures for assets and
liabilities recognized at fair value on January 1, 2008. In February 2008, the FASB issued a
new position, which delayed the effective date of fair value measurements and disclosures for
all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). On January 1, 2009
the Bank adopted the provisions of the new position. In August 2009, the FASB issued an update
to existing guidance around fair value measurements and disclosure in relation to the fair value
measurement of liabilities. The Bank adopted the provisions of the update in the fourth quarter
of 2009 and does not expect the adoption to have a material impact on its consolidated financial
statements.
F-70
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
In May 2009, the FASB issued an accounting standard related to accounting for and disclosure of
subsequent events in its financial statements. This standard establishes general accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued and requires the Bank to disclose the date
through which it has evaluated subsequent events and whether that was the date the
financial statements were issued or available to be issued. The adoption of this standard did
not have a material impact on the Banks financial statements.
In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective
July 1, 2009, the Codification is the single source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the preparation of financial
statements in conformity with U.S. generally accepted accounting principles (GAAP). The
Codification is intended to reorganize, rather than change, existing GAAP. Accordingly, all
references to currently existing GAAP have been removed and have been replaced with plain
English explanations of the Banks accounting policies. The adoption of the Codification did
not have a material impact on the Banks financial position or results of operations.
NOTE 2 CASH AND DUE FROM BANKS
The Bank is required by Regulation D of the Federal Reserve Act to maintain reserve balances
with the Federal Reserve Bank principally based on deposits. Balances maintained are included
in cash and due from banks. At December 31, 2009 and 2008, the required reserve balance was
$4,395,000 and $4,610,000, respectively.
F-71
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 3 INVESTMENT SECURITIES
At December 31, 2009 and 2008, the amortized cost and fair value of investment securities held
to maturity and available for sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
Investment securities held
to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and
Political Subdivisions |
|
$ |
|
|
|
$ |
|
|
|
$ |
200,004 |
|
|
$ |
200,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities |
|
$ |
1,399,326 |
|
|
$ |
1,403,648 |
|
|
$ |
1,398,675 |
|
|
$ |
1,419,419 |
|
Obligations of U.S.
Government Agencies |
|
|
16,764,615 |
|
|
|
16,913,825 |
|
|
|
17,775,023 |
|
|
|
18,176,407 |
|
Obligations of States and
Political Subdivisions |
|
|
16,577,742 |
|
|
|
16,695,336 |
|
|
|
19,574,471 |
|
|
|
19,432,596 |
|
Mortgage Backed
Securities |
|
|
42,155,017 |
|
|
|
42,537,978 |
|
|
|
23,384,428 |
|
|
|
23,648,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
76,896,700 |
|
|
$ |
77,550,787 |
|
|
$ |
62,132,597 |
|
|
$ |
62,677,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains |
|
$ |
785,791 |
|
|
|
|
|
|
$ |
872,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses |
|
$ |
(131,704 |
) |
|
|
|
|
|
$ |
(327,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
$ |
654,087 |
|
|
|
|
|
|
$ |
544,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2009 and 2008, the Bank recognized gross realized gains on
calls and sales of investment securities of $550,833 and $111,342, respectively.
F-72
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
The amortized cost and fair value of debt securities held to maturity and available for sale at
December 31, 2009 and 2008, by contractual maturity, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
Due in one year or less |
|
$ |
13,262,780 |
|
|
$ |
13,318,889 |
|
|
$ |
9,714,734 |
|
|
$ |
9,763,212 |
|
Due after one year
through five years |
|
|
34,805,314 |
|
|
|
35,332,596 |
|
|
|
35,363,956 |
|
|
|
35,714,672 |
|
Due after five years
through ten years |
|
|
18,096,301 |
|
|
|
18,151,015 |
|
|
|
16,025,450 |
|
|
|
16,162,325 |
|
Due after ten years |
|
|
10,732,305 |
|
|
|
10,748,287 |
|
|
|
1,228,461 |
|
|
|
1,237,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
76,896,700 |
|
|
$ |
77,550,787 |
|
|
$ |
62,332,601 |
|
|
$ |
62,877,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 other investments included Federal Home Loan Bank stock of $555,600,
Federal Reserve Bank stock of $460,000, Atlantic Central Bankers Bank shares of $207,500 and
other association shares of $10,439. At December 31, 2008 other investments included Federal
Home Loan Bank stock of $515,700, Federal Reserve Bank stock of $388,000, Atlantic Central
Bankers Bank shares of $207,500 and other association shares of $10,439.
At December 31, 2009 and 2008, investment securities having an amortized cost of $24,056,586 and
$22,602,092, respectively, were pledged as collateral for borrowings and certain government
deposits as required by law.
F-73
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 4 LOANS
At December 31, 2009 and 2008, loans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Real estate |
|
|
|
|
|
|
|
|
Construction |
|
$ |
18,888,174 |
|
|
$ |
15,566,405 |
|
Mortgages |
|
|
197,487,210 |
|
|
|
168,901,157 |
|
Commercial |
|
|
27,299,567 |
|
|
|
32,006,644 |
|
Consumer installment |
|
|
5,277,883 |
|
|
|
4,970,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,952,834 |
|
|
|
221,445,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
Loan participations sold |
|
|
17,644,214 |
|
|
|
7,365,365 |
|
Deferred loan fees (costs), net |
|
|
(1,086,318 |
) |
|
|
(1,014,817 |
) |
Allowance for loan losses |
|
|
6,191,001 |
|
|
|
2,589,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,748,897 |
|
|
|
8,940,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
226,203,937 |
|
|
$ |
212,504,825 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the years ended December 31, 2009 and 2008 follow:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Balance, beginning of year |
|
$ |
2,589,790 |
|
|
$ |
2,612,122 |
|
Provision for loan losses |
|
|
5,669,565 |
|
|
|
991,262 |
|
Loans charged off |
|
|
(2,583,388 |
) |
|
|
(1,135,266 |
) |
Recoveries of loans charged off |
|
|
515,034 |
|
|
|
121,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
6,191,001 |
|
|
$ |
2,589,790 |
|
|
|
|
|
|
|
|
F-74
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Information about impaired loans as of and for the years ended December 31, 2009 and 2008,
is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Recorded investment in impaired loans not
requiring an allowance for loan losses |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in impaired loans
requiring an allowance for loan losses |
|
|
9,612,000 |
|
|
|
2,545,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in impaired loans |
|
$ |
9,612,000 |
|
|
$ |
2,545,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related allowance for loan losses |
|
$ |
2,011,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
Nonaccrual loans amounted to $9,723,309 and $7,891,734 at December 31, 2009 and 2008,
respectively. Loss of income from nonaccrual loans approximated $683,544 and $309,739 for the
years ended December 31, 2009 and 2008, respectively. Accruing loans, which were 90 days or
more past due, totaled $273,949 and $0 as of December 31, 2009 and 2008, respectively.
F-75
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 5 BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Land and land improvements |
|
$ |
593,606 |
|
|
$ |
593,606 |
|
Buildings and improvements |
|
|
2,975,261 |
|
|
|
2,693,876 |
|
Furnishings and equipment |
|
|
5,513,881 |
|
|
|
5,447,087 |
|
Automobiles |
|
|
37,518 |
|
|
|
66,101 |
|
Leasehold improvements |
|
|
1,228,327 |
|
|
|
1,146,975 |
|
Capitalized lease building |
|
|
278,394 |
|
|
|
279,284 |
|
Construction-in-progress |
|
|
438,030 |
|
|
|
30,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,065,017 |
|
|
|
10,257,625 |
|
Less accumulated depreciation |
|
|
7,054,596 |
|
|
|
6,639,134 |
|
Less accumulated amortization |
|
|
224,089 |
|
|
|
185,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank premises and equipment, net |
|
$ |
3,786,332 |
|
|
$ |
3,432,536 |
|
|
|
|
|
|
|
|
During 2009 and 2008, the Bank incurred amortization on the capitalized lease building of
$38,133 and $33,336, respectively.
F-76
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 6 DEPOSITS
Customer deposits at December 31, 2009 and 2008, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Demand noninterest bearing |
|
$ |
89,578,462 |
|
|
$ |
77,485,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and NOW accounts |
|
|
|
|
|
|
|
|
Interest checking |
|
|
14,616,894 |
|
|
|
13,355,542 |
|
Money market demand deposits |
|
|
13,440,559 |
|
|
|
9,833,821 |
|
Savings |
|
|
44,158,883 |
|
|
|
40,008,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,216,336 |
|
|
|
63,198,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit less than $100,000 |
|
|
61,449,929 |
|
|
|
51,189,488 |
|
Certificates of deposit over $100,000 |
|
|
54,303,656 |
|
|
|
47,694,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,753,585 |
|
|
|
98,883,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other time deposits |
|
|
22,207,851 |
|
|
|
21,597,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
210,177,772 |
|
|
|
183,679,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
299,756,234 |
|
|
$ |
261,165,487 |
|
|
|
|
|
|
|
|
At December 31, 2009, the expected scheduled maturities of certificate of deposits and other
time deposits are as follows:
|
|
|
|
|
2010 |
|
$ |
88,141,000 |
|
2011 |
|
|
33,267,000 |
|
2012 |
|
|
12,843,000 |
|
2013 |
|
|
3,710,000 |
|
|
|
|
|
|
|
$ |
137,961,000 |
|
|
|
|
|
F-77
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 7 OTHER SHORT-TERM BORROWINGS AND FEDERAL FUNDS PURCHASED
Federal funds purchased generally mature within one day from the transaction date. Other
short-term borrowed funds consist of Federal Home Loan Bank borrowings, which generally mature
within one year from the transaction date, and overnight repurchase agreements which are
obligations to the Banks cash management customers. As of December 31, 2009 and 2008, other
short-term borrowings equaled $15,056,327 and $8,598,237, respectively. As of December 31, 2009
and 2008, federal funds were purchased in the amount of $0 and $1,767,000, respectively.
NOTE 8 INCOME TAXES
The components of income tax benefit for 2009 and 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Current provision |
|
|
|
|
|
|
|
|
Federal |
|
$ |
125,070 |
|
|
$ |
(279,004 |
) |
State |
|
|
6,837 |
|
|
|
112,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,907 |
|
|
|
(166,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
|
|
|
|
|
|
Federal |
|
|
(1,060,245 |
) |
|
|
(64,473 |
) |
State |
|
|
(235,898 |
) |
|
|
(14,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,296,143 |
) |
|
|
(78,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1,164,236 |
) |
|
$ |
(245,181 |
) |
|
|
|
|
|
|
|
F-78
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
The principal components of net deferred tax assets (liabilities) at December 31, 2009 and 2008,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Net operating loss carryforward |
|
$ |
482,253 |
|
|
$ |
|
|
Bad debt deduction |
|
|
2,420,318 |
|
|
|
948,773 |
|
Premium amortization |
|
|
(2,531 |
) |
|
|
(14,808 |
) |
Deferred compensation |
|
|
1,284,191 |
|
|
|
945,760 |
|
Deferred gain on sale of bank premises |
|
|
90,443 |
|
|
|
101,537 |
|
Straight line rent |
|
|
183,717 |
|
|
|
190,348 |
|
Nonaccrual interest income |
|
|
133,798 |
|
|
|
56,750 |
|
Depreciation |
|
|
84,126 |
|
|
|
151,812 |
|
Tax effect of unrealized gain on securities
available for sale |
|
|
(222,390 |
) |
|
|
(185,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporary differences |
|
|
4,453,925 |
|
|
|
2,195,006 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(1,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized loss on pension plan |
|
|
397,264 |
|
|
|
773,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
3,851,189 |
|
|
$ |
2,968,291 |
|
|
|
|
|
|
|
|
The Bank has a net operating loss carry-forward available for income tax purposes of
approximately $1,189,110, which will begin to expire in 2029.
NOTE 9 PENSION AND PROFIT-SHARING PLANS
The Bank sponsored a noncontributory, defined benefit pension plan, a defined contribution
profit-sharing plan covering all of its qualified employees and a supplemental retirement
benefit plan. The Banks funding policy was to contribute amounts to the plans when deductible
for Federal income tax purposes.
Pension Plan
The Pension Plan covered substantially all employees of the Bank who had completed one year of
service and reached twenty-one years of age. Employees with five or more years of
F-79
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
vested
service were entitled to annual pension benefits beginning at normal retirement age of
sixty-five equal to the sum of .75% of final average earnings plus .60% of final average
earnings in excess of covered compensation, multiplied by credited service not greater than
thirty years. The Pension Plan permitted early retirement at age 55 or over with the completion
of five years of vesting service. The annual early retirement benefit is the deferred vested
benefit, reduced by one-half of 1% for each month the actual retirement date precedes the normal
retirement date. The normal form of pension benefit was a benefit payable during the lifetime
of the retired participant and surviving spouse beneficiary. As of December 31, 2009 and 2008,
the Pension Plan owns 10,325 shares of the Holding Company valued at $162,619 and $157,456,
respectively.
On June 9, 2003, the Plan was amended so that all benefits accrued as of June 9, 2003 shall be
frozen and no additional benefits shall accrue for any participants in the Plan.
Net periodic pension cost (income) for the Pension Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Net periodic pension cost (income) |
|
$ |
19,545 |
|
|
$ |
(301,242 |
) |
|
|
|
|
|
|
|
The amounts of contributions and benefits paid from the Pension Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Employer contributions |
|
$ |
|
|
|
$ |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid |
|
$ |
149,528 |
|
|
$ |
216,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
3,659,676 |
|
|
$ |
3,975,783 |
|
Plan assets at fair value |
|
|
4,790,535 |
|
|
|
4,186,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status as of December 31 |
|
$ |
1,130,859 |
|
|
$ |
210,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit recognized as other assets
in the consolidated balance sheets |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
F-80
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Items not yet recognized as a component of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Transition obligation |
|
$ |
|
|
|
$ |
|
|
Prior service cost |
|
|
|
|
|
|
|
|
Net loss |
|
|
1,063,537 |
|
|
|
2,003,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,063,537 |
|
|
$ |
2,003,329 |
|
|
|
|
|
|
|
|
Assumptions used in determining net periodic pension costs for 2009 and 2008, are as
follows:
|
|
|
|
|
|
|
2009 |
|
2008 |
Discount rate |
|
6.00% |
|
6.00% |
Earnings rate on invested assets |
|
N/A |
|
N/A |
Rate of salary progression |
|
N/A |
|
N/A |
During 2007, the Bank implemented the accounting standards for defined benefit pension and
other postretirement plans, which requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as
an asset or liability in its statement of financial position and to recognize changes in that
funded status in the year in which the changes occur through comprehensive income of a business
entity. This implementation resulted in an adjustment of $1,227,844 to comprehensive income in
2008 as reflected in the statement of changes in stockholders equity.
Profit-Sharing Plan
The Profit-Sharing Plan covers all full-time employees of the Bank who have completed at least
1,000 hours of service. The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). Upon termination of service, a participant may elect to receive a
lump-sum amount equal to the value of his or her account. No contributions were made to this
Plan for the years ended December 31, 2009 and 2008. As of December 31, 2002, all benefits,
rights and features of the Profit-Sharing Plan were merged into the Employee Stock Ownership
Plan (see note 10). Each participants closing account balance was merged into the Employee
Stock Ownership Plan and the Profit-Sharing
F-81
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Plan ceased to exist. As of December 31, 2009 and
2008, the Plan owns 8,584 shares of the
Holding Companys common stock valued at $135,198 and $130,906, respectively, and as of December
31, 2009 and 2008, the Plan invested $15,401 and $15,478, respectively, in a money market
account with the Bank.
Supplemental Retirement Benefit Plan
The Bank has entered into a noncontributory, nonqualified supplemental retirement benefit plan
with two executives of the Bank and one member of the Board of Directors. In accordance with
the supplemental retirement plans, the two executives and the director are entitled to an annual
benefit upon retirement. The annual benefit is adjusted based upon a comparison of the date of
their retirement and the normal retirement age of sixty-five.
The net periodic pension costs, the amount of contributions and benefits paid as of December 31,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Net periodic benefit cost |
|
$ |
372,692 |
|
|
$ |
290,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participant contributions |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit payments |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
F-82
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
The following table provides the amounts recognized in the consolidated statements of
income and the funded status as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Accrued benefit liability |
|
$ |
(1,830,997 |
) |
|
$ |
(1,492,660 |
) |
Intangible asset |
|
|
N/A |
|
|
|
N/A |
|
Accumulated other
comprehensive income |
|
|
249,035 |
|
|
|
283,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(1,581,962 |
) |
|
$ |
(1,209,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
1,830,997 |
|
|
$ |
1,492,660 |
|
Plan assets at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status as of December 31 |
|
$ |
(1,830,997 |
) |
|
$ |
(1,492,660 |
) |
|
|
|
|
|
|
|
Items not yet recognized as a component of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Prior service cost |
|
$ |
125,968 |
|
|
$ |
160,323 |
|
Net loss |
|
|
123,067 |
|
|
|
123,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
249,035 |
|
|
$ |
283,390 |
|
|
|
|
|
|
|
|
Assumptions used in determining net periodic pension costs for 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
2009 |
|
2008 |
Discount rate |
|
6.00% |
|
6.00% |
Earnings rate on invested assets |
|
N/A |
|
N/A |
Rate of salary progression |
|
N/A |
|
N/A |
F-83
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 10 EMPLOYEE STOCK OWNERSHIP PLAN
On January 1, 1995, the Bank adopted an Employee Stock Ownership Plan (the Plan). The purpose
of the Plan is to enable full-time employees who have completed at least 1,000 hours of service,
are at least 21 years of age and have been employed for at least one year to acquire stock
ownership in the Bank. Vesting in the Plan is based upon years of service under a schedule
outlined in the Plan document, with full vesting reached upon 7 years of service. Effective
January 1, 2003, the Plan was amended in its entirety and is known as Maryland Bankcorp, N.A.
KSOP (the KSOP). The amendment provides the participants of the KSOP the opportunity to make
elective salary deferrals. All employees with a minimum of one year of service and 1,000 hours
are eligible to participate in the KSOP. Employees may contribute up to the maximum amount
allowed by federal tax laws. The Bank contributes 3 percent of the employees compensation (the
Safe Harbor Contribution), regardless of the employees elective deferral. In addition, the
Bank will make matching contributions (the Matching Contribution) equal to $.40 for each dollar
contributed by the employee up to a maximum of 5% of the employees pay. The Safe Harbor
Contribution for eligible employees is vested immediately. The Matching Contribution vests to
employees over a six year period. The Bank may also make an additional discretionary
contribution which will be allocated to eligible employees who complete at least 1,000 hours in
the current plan year and are employed as of December 31, 2009. This contribution is allocated
to the Participants based on a formula in the KSOPs plan documents. The additional
discretionary contribution vests to eligible employees over a seven year period. Forfeitures
of the matching contribution will be used to reduce the Banks contribution the following year.
In addition, the assets of the Plan as of January 1, 2003 were transferred over to the KSOP.
Each eligible Participant has a separate company stock account based upon their balance as of
January 1, 2003. The Participants balance is adjusted for additional purchases of stock,
earnings on the Plans investments, and forfeitures of Bank stock for nonvested employees.
For the years ended December 31, 2009 and 2008, the Bank made contributions of $212,937 and
$243,165, respectively, to the KSOP.
In the event a terminated KSOP participant desires to sell his or her shares of the Holding
Companys stock, the KSOP may be requested to purchase the shares from the participant at their
fair value. As of December 31, 2009 and 2008, the KSOP owns 55,257 and 55,257 shares,
respectively, of the Holding Companys common stock valued at $870,298 and $842,669,
respectively, based upon the appraised fair market value, and the remaining funds
of the KSOP, approximately $48,938 at December 31, 2009 and $43,279 at December 31, 2008, were
invested in a money market account and certificate of deposit with the Bank.
F-84
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 11 PREFERRED STOCK
At a Special Shareholders Meeting held on December 3, 2008 the shareholders approved, by proxy
or in person, an Amended and Restated Articles of Incorporation to authorize 5,000,000 shares of
Preferred Stock, par value $0.01 per share and eliminate preemptive rights for holders of the
Preferred Stock. The primary objective in establishing a class of Preferred Stock and
eliminating preemptive right for holders of Preferred Stock was to provide maximum flexibility
with respect to a future financing transaction, including, but not limited to, the preparation
for the possible participation in the Capital Purchase Program (CPP) established by the U.S.
Treasury Department pursuant to the Emergency Economic Stabilization Act of 2008. Maryland
Bankcorp, Inc. initially filed an application to participate in the CPP but subsequently, the
Board of Directors has elected to withdraw the application due to the emergence of details of
the government investment program. As of December 31, 2009 and 2008, there are no shares of
Preferred Stock issued or outstanding.
NOTE 12 LEASE OBLIGATIONS
As of December 31, 2009, the Bank leases nine locations from which it conducts business. In
1998, the Bank sold three bank branches which were subsequently leased back to the Bank under a
sale-leaseback agreement. The Bank sold the Lexington Park, Solomons Island and Bryans Road
branch locations for $750,000, $450,000 and $450,000, respectively. The Bank incurred a gain of
$574,561 on the sale of the Lexington Park branch, which has been deferred and is being
amortized over the lease term of twenty years. The Bank incurred a loss on the sale of the
Solomons Island and Bryans Road branches of $196,846, and $20,000 of such loss, representing the
difference between the appraised value and sales price of the Bryans Road branch, has been
deferred. The three leases entered into in 1998 were operating leases that call for monthly
lease payments of $10,430, $4,279 and $7,240, respectively, and expire in 2018. In August 2007,
the Bank executed a five-year lease agreement extension for the Fort Washington branch location.
Monthly payments of $5,367, with annual increases, are due through August 2012. In March 2005,
after completion of rebuilding the LaPlata Branch property that was destroyed in the 2002
tornado, the Bank entered into a lease that requires initial monthly payments of $6,062,
adjusted annually for CPI and reimbursement of CAM charges, which expires in 2020. The
California branch is under a written agreement which is considered a capital lease. The capital
lease is payable at $4,036 monthly and expires April 2011. The interest rate implicit in the
capital lease is 13.52%.
On June 1, 2000, the Bank sold the Prince Frederick branch, which was subsequently leased back
to the Bank under a sale-leaseback agreement. The branch location was sold for $950,000 and the
Bank realized a gain of $6,055, which will be deferred over the life of the
F-85
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
lease. The lease
entered into is being accounted for as an operating lease that calls for monthly lease payments
of $9,513 and expires May 31, 2020.
On January 24, 2001, the Bank commenced a lease for a branch with Wal-Mart Corporation in
LaPlata, Maryland. The initial term of the lease is for five years with monthly payments of
$1,000. The lease has two optional five-year renewals. In January 2006, the Bank renewed the
lease for a period of five years. The lease is being accounted for as an operating lease.
On January 1, 2003, the Bank entered into an agreement to lease a branch on Berry Road in
Waldorf, Maryland. The initial term of the lease was for three years with monthly payments of
$1,200. The lease has four optional three-year renewals. In January 2006, the Bank renewed the
lease for a period of five years. The lease is being accounted for as an operating lease. On
December 23, 2009 the Bank officially closed this branch; however it is obligated to fulfill the
terms of the lease through December 2010.
Future minimum payments under capital leases and noncancelable operating leases at December 31,
2009, for the following five years and thereafter, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Operating |
|
|
|
lease |
|
|
leases |
|
2010 |
|
$ |
48,431 |
|
|
$ |
558,141 |
|
2011 |
|
|
11,726 |
|
|
|
526,365 |
|
2012 |
|
|
|
|
|
|
526,365 |
|
2013 |
|
|
|
|
|
|
458,049 |
|
2014 |
|
|
|
|
|
|
458,049 |
|
Thereafter |
|
|
|
|
|
|
2,082,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
60,157 |
|
|
$ |
4,609,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
5,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments |
|
$ |
55,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $566,078 and $554,794 for 2009 and 2008, respectively.
F-86
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 13 LINE OF CREDIT
On December 30, 2009, the Holding Company obtained a line of credit note of $3,500,000 from
Atlantic Central Bankers Bank. This line of credit is secured by capital stock of the Bank and
accrues interest equal to the greater of 4.75% or the prime rate charged by large commercial
banks as reported in the Wall Street Journal. Monthly payments of interest only commence on
February 1, 2010 and the principal balance matures on December 30, 2011, with the option to
extend an additional year. As of December 31, 2009, the amount drawn on the line of credit
totals $3,167,500.
NOTE 14 RELATED PARTY TRANSACTIONS
In the ordinary course of business, loans are made to Directors, Officers, and employees of the
Bank and their affiliates. In managements opinion, these loans are consistent with sound
banking practices, are within regulatory lending limitations and do not involve more than normal
risk of collectability. Loans outstanding, both direct and indirect, to Directors and
policy-making Officers and employees total $5,790,429 and $6,746,673 at December 31, 2009 and
2008, respectively. The Directors, Officers, and employees maintained deposits with the Bank of
approximately $15,323,256 and $9,917,858 at December 31, 2009 and 2008, respectively.
Included in the lease discussed in note 12 are leases in four branch offices from entities in
which Directors have beneficial interests. One lease is classified as a capital lease in the
financial statements and requires annual payments of $48,432 for the years 1993 through 2011.
The other three leases are operating leases and require annual payments as follows: $125,158
through year 2018, $51,351 through year 2018 and $114,152 through year 2020, respectively. In
managements opinion, the annual rental and lease fees are competitive with prevailing costs for
similar office space.
On December 15, 2008, the Holding Company received a $2,000,000 unsecured loan from an
affiliated shareholder. The loan is for five years with a maturity date of December 15, 2013 at
which time a balloon payment of the entire indebtedness then remaining unpaid is required.
The rate of interest is equal to 7% with interest payable semi-annually. Interest expense for
the year ended December 31, 2009 and 2008 was $140,365 and $6,611, respectively.
F-87
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of
business. These financial instruments include mortgage loan commitments, unfunded construction
loans, undisbursed lines of credit, unused lines of credit related to check loans, and standby
letters of credit. These instruments involve, to various degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The Banks exposure
to credit loss in the event of nonperformance by the other party to the financial instrument is
represented by the contract or notational amount of the financial instrument. The Bank uses the
same credit policies in making commitments for off-balance sheet financial instruments as it
does for on-balance sheet financial instruments. Financial instruments with off-balance sheet
risk are as follows at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Mortgage loan commitments |
|
$ |
1,139,424 |
|
|
$ |
1,489,618 |
|
Construction loans to be funded |
|
|
12,862,996 |
|
|
|
12,966,498 |
|
Undisbursed lines of credit |
|
|
9,231,098 |
|
|
|
8,676,833 |
|
Undisbursed lines of credit-check
loans including home equity |
|
|
4,441,323 |
|
|
|
5,799,283 |
|
Standby letters of credit |
|
|
2,686,136 |
|
|
|
1,735,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,360,977 |
|
|
$ |
30,667,655 |
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. The Bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on managements credit evaluation of
the counter-party. Collateral held varies but generally may include cash, marketable
securities, and property.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The framework for measuring fair value requires fair value to be determined based on the
exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants.
F-88
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
The valuation techniques required by the new provisions are based upon observable and
unobservable inputs. Observable or market inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Banks assumptions about market participant
assumptions based on best information available. Observable inputs are the preferred source of
values. These two types of inputs create the following fair value hierarchy:
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. These might include quoted prices for
similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that
are observable for the asset or liability (such as interest rates, volatilities, prepayment
speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by
market data by correlation or other means.
Level 3 Inputs Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities.
Securities Available for Sale U.S. Treasury securities are reported at fair value
utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair
value utilizing Level 2 inputs. For these securities, the Bank obtains fair value measurements
from an independent pricing service. The fair value measurements consider observable data that
may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live
trading levels, trade execution data, market consensus prepayment speeds, credit information and
the bonds terms and conditions, among other things.
The following table summarizes the Banks assets and liabilities measured at fair value on a
recurring basis as of December 31, 2009 and 2008 respectively, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:
F-89
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Fair Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
1,403,648 |
|
|
$ |
76,147,139 |
|
|
$ |
|
|
|
$ |
77,550,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
1,419,419 |
|
|
$ |
61,257,782 |
|
|
$ |
|
|
|
$ |
62,677,201 |
|
Certain financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment). Financial assets and liabilities measured at fair value on a
nonrecurring basis include the following as of December 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Fair Value |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
|
$ |
7,601,000 |
|
|
$ |
|
|
|
$ |
7,601,000 |
|
Other real estate owned, net |
|
$ |
|
|
|
$ |
1,257,000 |
|
|
$ |
681,715 |
|
|
$ |
1,938,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
|
$ |
2,295,000 |
|
|
$ |
|
|
|
$ |
2,295,000 |
|
Other real estate owned, net |
|
$ |
|
|
|
$ |
1,726,317 |
|
|
$ |
|
|
|
$ |
1,726,317 |
|
Impaired Loans Certain impaired loans are reported at the fair value of the
underlying collateral if repayment is expected solely from the collateral. Collateral
values are estimated using Level 2 inputs based on observable market data or Level 3 inputs
based on customized discounting criteria. During 2009 and 2008, certain impaired loans were
remeasured and reported at fair value through a specific valuation allowance allocation of
the allowance for possible loan losses based upon the fair value of the underlying
collateral.
F-90
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
Other Real Estate Owned Foreclosed real estate assets have been valued using a
market approach. The values were determined using market prices of similar real estate
assets and were valued in accordance with standards for accounting for the impairment or
disposal of long-lived assets. Foreclosed real estate assets which have been valued using a
market approach and subsequently adjusted for estimated market changes are valued under
Level 3.
General accounting principles for fair value of financial instruments requires disclosure of the
fair value of financial assets and financial liabilities, including those financial assets and
financial liabilities that are not measured and reported at fair value on a recurring basis or
nonrecurring basis. The methodologies for estimating the fair value of financial assets and
financial liabilities that are measured at fair value on a recurring or nonrecurring basis are
discussed above. The estimated fair value approximates carrying value for cash and cash
equivalents, accrued interest and the cash surrender value of life insurance policies. The
methodologies for other financial assets and financial liabilities are discussed below:
Cash and Cash Equivalents The carrying amounts of cash and short-term instruments
approximate their fair value.
Federal Funds Sold The carrying amounts of federal funds sold approximate their fair
value.
Investment Securities Fair value for investment securities are based on quoted market
prices or dealer quotes.
Loans The estimated fair value approximates carrying value for variable-rate loans that
reprice frequently and with no significant change in credit risk. The fair value of
fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated
by discounting future cash flows using the current interest rates at which similar loans
with similar terms would be made to borrowers of similar credit quality. Nonperforming
loans, if any, would have an assumed interest rate of 0%. An overall valuation adjustment
is made for specific credit risks as well as general portfolio credit risk.
Accrued interest receivable The carrying amount approximates the fair value of accrued
interest, considering the short-term nature of the receivable and its expected collection.
Deposits The estimated fair value approximates carrying value for demand deposits. The
fair value of fixed-rate deposit liabilities with defined maturities is estimated by
F-91
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
discounting future cash flows using the interest rates currently offered for deposits of
similar remaining maturities. While the Banks core deposits provide a relatively stable,
low-cost funding source that has a substantial intangible value separate from the value of
the deposit balances, these estimated fair values do not include the intangible value of
core deposit relationships, which comprise a significant portion of the Banks deposit
base.
Short Term Borrowings The estimated fair value approximates carrying value for short-term
borrowings due to their variable interest rates.
Accrued Interest Payable and Other Liabilities The carrying amount approximates the fair
value of accrued interest payable and other liabilities, considering the short-term nature
of the payable and expected payment.
Off-Balance Sheet Instruments Fair value for off-balance sheet lending commitments are
based on fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties credit standing.
For the off-balance sheet financial instruments described above, there is no difference between
the fair value and the estimated exposure value.
F-92
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
The estimated fair value of the Holding Companys financial instruments as of December 31, 2009
and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Amounts in thousands |
|
|
Amounts in thousands |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,572 |
|
|
$ |
8,572 |
|
|
$ |
9,563 |
|
|
$ |
9,563 |
|
Fed funds sold |
|
|
2,910 |
|
|
|
2,910 |
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
10,010 |
|
|
|
10,010 |
|
|
|
4,298 |
|
|
|
4,298 |
|
Investment securities |
|
|
78,784 |
|
|
|
78,784 |
|
|
|
63,999 |
|
|
|
63,999 |
|
Loans, net |
|
|
226,204 |
|
|
|
234,800 |
|
|
|
212,505 |
|
|
|
221,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
326,480 |
|
|
$ |
335,076 |
|
|
$ |
290,365 |
|
|
$ |
299,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Amounts in thousands |
|
|
Amounts in thousands |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
299,756 |
|
|
$ |
301,284 |
|
|
$ |
261,166 |
|
|
$ |
267,837 |
|
Short-term borrowings |
|
|
15,056 |
|
|
|
15,056 |
|
|
|
8,598 |
|
|
|
8,598 |
|
Fed funds purchased |
|
|
|
|
|
|
|
|
|
|
1,767 |
|
|
|
1,767 |
|
Line of credit |
|
|
3,168 |
|
|
|
3,168 |
|
|
|
|
|
|
|
|
|
Due to affiliate |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
2,000 |
|
Capital lease obligations |
|
|
55 |
|
|
|
60 |
|
|
|
93 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
320,035 |
|
|
$ |
321,568 |
|
|
$ |
273,624 |
|
|
$ |
280,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-93
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 17 PARENT COMPANY FINANCIAL INFORMATION
Financial information pertaining only to Maryland Bankcorp, Inc. is as follows:
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Cash held at bank subsidiary |
|
$ |
749,474 |
|
|
$ |
194,115 |
|
Short-term investments certificate of deposit |
|
|
|
|
|
|
2,315,000 |
|
Investments in subsidiary |
|
|
30,514,534 |
|
|
|
28,748,784 |
|
Other assets |
|
|
6,629 |
|
|
|
10,353 |
|
Due from subsidiary |
|
|
250 |
|
|
|
605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
31,270,887 |
|
|
$ |
31,268,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Dividend payable |
|
$ |
37 |
|
|
$ |
605 |
|
Line of credit |
|
|
3,167,500 |
|
|
|
|
|
Due to affiliate |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Interest payable |
|
|
6,610 |
|
|
|
6,610 |
|
Accrued expenses |
|
|
232 |
|
|
|
3,742 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
26,096,508 |
|
|
|
29,257,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
31,270,887 |
|
|
$ |
31,268,857 |
|
|
|
|
|
|
|
|
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Equity in undistributed income of subsidiary |
|
$ |
(3,724,400 |
) |
|
$ |
345,180 |
|
Other expense |
|
|
(107,377 |
) |
|
|
(9,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,831,777 |
) |
|
$ |
336,015 |
|
|
|
|
|
|
|
|
F-94
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,831,777 |
) |
|
$ |
336,015 |
|
Equity in undistributed income of subsidiary |
|
|
3,724,400 |
|
|
|
(345,180 |
) |
Decrease in due from subsidiary |
|
|
355 |
|
|
|
|
|
Increase in accrued interest |
|
|
|
|
|
|
6,611 |
|
Decrease (increase) in other assets |
|
|
3,725 |
|
|
|
(9,745 |
) |
(Decrease) increase in accrued expenses |
|
|
(3,510 |
) |
|
|
3,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(106,807 |
) |
|
|
(8,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchase of time deposit |
|
|
|
|
|
|
(2,315,000 |
) |
Proceeds from maturities of time deposit |
|
|
2,315,000 |
|
|
|
712,529 |
|
Purchase of Maryland Bank and Trust stock |
|
|
(4,819,766 |
) |
|
|
|
|
Cash dividends paid on common stock |
|
|
(568 |
) |
|
|
(259,260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,505,334 |
) |
|
|
(1,861,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from note payable |
|
|
3,167,500 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
3,167,500 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
555,359 |
|
|
|
129,549 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
194,115 |
|
|
|
64,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
749,474 |
|
|
$ |
194,115 |
|
|
|
|
|
|
|
|
F-95
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
NOTE 18 REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by Federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
and material effect on the Banks financial statements. The regulations require the Bank to
meet specific capital adequacy guidelines that involve quantitative measures of the Banks
assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors. Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios of Tier 1, risk-based capital to total average assets, and minimum
ratios of Tier 1, total risk-based capital to risk-weighted assets. Risk-based capital
standards have been supplemented with requirements for a minimum Tier 1 capital to assets ratio
(leveraged ratio). The Banks required and actual capital ratios at December 31, 2009 and 2008,
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
Minimum |
|
|
|
Actual |
|
|
requirements |
|
|
Actual |
|
|
requirements |
|
Tier 1 risk-based capital |
|
|
13.20 |
% |
|
|
12.00 |
% |
|
|
13.76 |
% |
|
|
12.00 |
% |
Total risk-based capital |
|
|
14.47 |
% |
|
|
14.00 |
% |
|
|
14.97 |
% |
|
|
14.00 |
% |
Tier 1 leverage capital |
|
|
8.93 |
% |
|
|
8.00 |
% |
|
|
9.82 |
% |
|
|
8.00 |
% |
During 2005, the Bank underwent an examination conducted by the Office of the Comptroller
of the Currency (the OCC). The final written report of examination has been received by
management of the Bank and has been reviewed and signed by its Board of Directors.
As a result of that examination, the Bank formally agreed to among other things, improve credit
administration process, commercial loan underwriting and loan asset quality, conforming loan
risk rating classifications to the regulatory commercial credit classification definitions and
evaluating the allowance for loan losses due to changes in classifications, improving compliance
with regulatory and policy requirements (Bank Secrecy Act and Regulation O issues) and improving
Board committee structure and processes and personnel management. Management and the Board will
report to the regulators throughout the year on the progress of each specific recommendation.
The Formal Agreement was signed by the Board of Directors on February 10, 2006.
F-96
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
As a result of the Formal Agreement, the Bank is required to immediately and thereafter maintain
higher than normal risk-based and leverage capital minimums as follows: Tier 1 risk-based
capital of 12.00%; Total risk-based capital of 14.00% and Tier 1 leverage capital of 8.00%. Due
to these minimum requirements, the Bank is no longer designated as well capitalized and is
categorized in the next category, adequately capitalized.
During 2009 and 2008, the Bank underwent examinations conducted by the OCC and all capital
requirements continue to be met.
Management believes that the Bank will continue to be able to meet the required higher
risk-based and leverage capital minimums as set forth in the Formal Agreement. Management also
believes it is in substantial compliance with all aspects of the Formal Agreement.
NOTE 19 COMMITMENTS AND CONTINGENCIES
The Bank has a deferred compensation agreement with two executive officers, which provides
benefits payable through 2021 and 2027, respectively. During the year ended December 31, 2009,
the present value of the deferred compensation payable under this agreement is $755,667, which
has been accrued. During 1998, the Board of Directors approved supplemental pensions for three
additional officers. The present value of the supplemental pensions under these agreements is
$1,081,156, which has been accrued at December 31, 2009.
Financial instruments, which potentially subject the Bank to concentration of credit risk,
consist principally of loans. With respect to the loans, the Bank has loans totaling
approximately $8,524,291 to new single family housing construction, $17,204,607 to general
nonresidential construction, and $9,343,658 to other real estate activities principally
occurring in St. Marys, Charles and Calvert Counties, Maryland.
In the normal course of business, the Holding Company and its subsidiary are 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 Holding Companys consolidated financial
statements.
NOTE 20 RISKS AND UNCERTAINTIES
In the normal course of its business the Bank encounters two significant types of risk: economic
and regulatory. There are three main components of economic risk: interest rate risk, credit
risk and market risk. The Bank is subject to interest rate risk to the degree that its
F-97
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
December 31, 2009 and 2008
interest-bearing liabilities mature or re-price at different speeds, or on different bases, than
its interest-earning assets. Credit risk is the risk of default on the Banks loan portfolio
that results from borrowers inability or unwillingness to make contractually required payments.
Market risk reflects changes in the value of collateral underlying loans and investments.
The Bank is subject to the regulations of various government agencies. These regulations can
and do change significantly from period to period. The Bank will also undergo periodic
examinations by the regulatory agencies, which may subject it to further changes with respect to
asset valuation, amounts of required loss allowances and operating restrictions resulting from
regulators judgments based on information available to them at the time of their examinations.
NOTE 21 SUBSEQUENT EVENTS
Events that occur after the balance sheet date but before the consolidated financial statements
were available to be issued must be evaluated for recognition or disclosure. The effects of
subsequent events that provide evidence about conditions that existed at the balance sheet date
are recognized in the accompanying consolidated financial statements. Subsequent events which
provide evidence about conditions that existed after the balance sheet date require disclosure
in the accompanying notes. Management evaluated the activity of Maryland Bankcorp, Inc. and
Subsidiary through March 25, 2010 and concluded that no subsequent events, other than those
noted below have occurred that would require recognition in the consolidated financial
statements or disclosure in the notes to the consolidated financial statements.
In February 2010, the Bank foreclosed on a participatory commercial real estate loan that had
been classified as impaired as of December 31, 2009. The Banks portion of the loan had a
balance of $4,440,000 as of December 31, 2009 with a specific reserve of $1,465,000. The Bank
charged off $1,491,000 and recorded Other Real Estate Owned in the amount of $4,297,000. The
Bank is pursuing opportunities to market the collateral for sale.
F-98
CONSOLIDATED FINANCIAL STATEMENTS
MARYLAND BANKCORP, INC.
AND SUBSIDIARY
JUNE 30, 2010 AND 2009
F-99
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
UNAUDITED
June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
ASSETS |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
10,505,450 |
|
|
$ |
9,700,856 |
|
Federal funds sold |
|
|
4,111,512 |
|
|
|
17,418,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
14,616,962 |
|
|
|
27,119,222 |
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits with banks |
|
|
17,896,083 |
|
|
|
4,311,072 |
|
Investment securities available for sale |
|
|
65,906,630 |
|
|
|
70,062,871 |
|
Federal Home Loan Bank stock, at cost |
|
|
556,100 |
|
|
|
555,600 |
|
Federal Reserve Bank and other stock, at cost |
|
|
767,639 |
|
|
|
605,939 |
|
Loans, net of allowance for loan losses of $6,554,281 and $2,600,076, respectively |
|
|
220,364,513 |
|
|
|
213,603,798 |
|
Accrued interest receivable |
|
|
1,371,662 |
|
|
|
1,362,663 |
|
Bank premises and equipment, net |
|
|
3,726,945 |
|
|
|
3,677,902 |
|
Other real estate owned |
|
|
6,852,087 |
|
|
|
1,807,483 |
|
Deferred tax asset |
|
|
3,718,489 |
|
|
|
2,984,518 |
|
Other assets |
|
|
12,286,841 |
|
|
|
9,391,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
348,063,951 |
|
|
$ |
335,482,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
296,869,728 |
|
|
$ |
283,960,396 |
|
Other short-term borrowings |
|
|
14,755,722 |
|
|
|
14,231,000 |
|
Line of credit |
|
|
3,244,370 |
|
|
|
|
|
Due to affiliate |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Accrued expenses and other liabilities |
|
|
2,094,602 |
|
|
|
2,720,259 |
|
Deferred compensation and supplemental benefits |
|
|
3,638,142 |
|
|
|
3,214,477 |
|
Capital lease obligations |
|
|
34,014 |
|
|
|
76,452 |
|
Deferred income |
|
|
217,023 |
|
|
|
245,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
322,853,601 |
|
|
|
306,448,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value per share, 5,000,000 shares authorized as of
June 30, 2010 and 2009, and 0 shares outstanding as of
June 30, 2010 and 2009 |
|
|
|
|
|
|
|
|
Common stock, $.01 par value per share, 10,000,000 shares authorized;
authorized; 646,626 shares issued and outstanding as of
June 30, 2010 and 2009 |
|
|
6,466 |
|
|
|
6,466 |
|
Additional paid-in capital |
|
|
20,845,536 |
|
|
|
20,845,536 |
|
Retained earnings |
|
|
4,481,309 |
|
|
|
9,258,005 |
|
Accumulated other comprehensive loss |
|
|
(122,961 |
) |
|
|
(1,076,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
25,210,350 |
|
|
|
29,033,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
348,063,951 |
|
|
$ |
335,482,201 |
|
|
|
|
|
|
|
|
F-100
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
Six months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
INTEREST INCOME |
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
7,068,076 |
|
|
$ |
6,792,103 |
|
Interest on investment securities |
|
|
1,260,993 |
|
|
|
1,164,242 |
|
Interest on interest bearing deposits |
|
|
11,048 |
|
|
|
58,858 |
|
Interest on federal funds sold |
|
|
11,655 |
|
|
|
23,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
8,351,772 |
|
|
|
8,038,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
1,911,744 |
|
|
|
2,502,101 |
|
Interest on demand notes |
|
|
183,912 |
|
|
|
120,482 |
|
Interest on federal funds purchased |
|
|
53 |
|
|
|
620 |
|
Interest on capital leases |
|
|
3,138 |
|
|
|
7,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
2,098,847 |
|
|
|
2,630,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
6,252,925 |
|
|
|
5,408,335 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
2,435,000 |
|
|
|
456,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
3,817,925 |
|
|
|
4,952,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER OPERATING INCOME |
|
|
|
|
|
|
|
|
Service charges |
|
|
712,887 |
|
|
|
732,346 |
|
Fees, commissions and miscellaneous |
|
|
83,201 |
|
|
|
102,834 |
|
Gain on sale or call of investment securities |
|
|
260,878 |
|
|
|
41,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
1,056,966 |
|
|
|
876,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
3,463,862 |
|
|
|
3,398,169 |
|
Occupancy and equipment expenses |
|
|
927,248 |
|
|
|
909,843 |
|
Other expenses |
|
|
2,343,890 |
|
|
|
1,988,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expense |
|
|
6,735,000 |
|
|
|
6,296,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(1,860,109 |
) |
|
|
(467,655 |
) |
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
(722,692 |
) |
|
|
(275,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,137,417 |
) |
|
$ |
(192,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share of common stock |
|
$ |
(1.76 |
) |
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
F-101
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
UNAUDITED
Six months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Comprehen- |
|
|
comprehen- |
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
paid-in |
|
|
Retained |
|
|
sive income |
|
|
sive income |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
earnings |
|
|
(loss) |
|
|
(loss) |
|
|
Total |
|
Balance, December 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
9,450,503 |
|
|
|
|
|
|
$ |
(1,044,605 |
) |
|
$ |
29,257,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192,498 |
) |
|
$ |
(192,498 |
) |
|
|
|
|
|
|
(192,498 |
) |
Other comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain
on securities,
net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,499 |
) |
|
|
(31,499 |
) |
|
|
(31,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(223,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009 |
|
|
|
|
|
$ |
|
|
|
$ |
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
9,258,005 |
|
|
|
|
|
|
$ |
(1,076,104 |
) |
|
$ |
29,033,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
|
|
|
|
|
|
|
$ |
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
5,618,726 |
|
|
|
|
|
|
$ |
(374,220 |
) |
|
$ |
26,096,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,137,417 |
) |
|
$ |
(1,137,417 |
) |
|
|
|
|
|
|
(1,137,417 |
) |
Other comprehensive
income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain
on securities and pension
plan adjustment, net
of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,259 |
|
|
|
251,259 |
|
|
|
251,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(886,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
|
|
|
|
$ |
|
|
|
$ |
646,626 |
|
|
$ |
6,466 |
|
|
$ |
20,845,536 |
|
|
$ |
4,481,309 |
|
|
|
|
|
|
$ |
(122,961 |
) |
|
$ |
25,210,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-102
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
8,441,336 |
|
|
$ |
8,095,267 |
|
Fees and commissions received |
|
|
1,733,310 |
|
|
|
831,227 |
|
Interest paid |
|
|
(2,159,113 |
) |
|
|
(2,640,036 |
) |
Cash paid to suppliers and employees |
|
|
(3,400,409 |
) |
|
|
(6,876,825 |
) |
Income taxes paid |
|
|
(1 |
) |
|
|
900,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
4,615,123 |
|
|
|
309,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities held to maturity |
|
|
|
|
|
|
200,000 |
|
Proceeds from sales, calls and maturities of investment
securities available for sale |
|
|
21,406,283 |
|
|
|
16,113,125 |
|
Purchase of investment securities available for sale |
|
|
(9,949,859 |
) |
|
|
(23,614,346 |
) |
Net change in loans |
|
|
(1,718,126 |
) |
|
|
(1,577,025 |
) |
Net change in interest bearing deposits |
|
|
(7,886,361 |
) |
|
|
(13,538 |
) |
Capital expenditures |
|
|
(201,244 |
) |
|
|
(505,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
1,650,693 |
|
|
|
(9,397,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
|
(2,886,506 |
) |
|
|
22,794,908 |
|
(Decrease) increase in short-term borrowings |
|
|
(300,605 |
) |
|
|
5,632,763 |
|
Proceeds from line of credit and note payable |
|
|
76,870 |
|
|
|
|
|
Federal funds purchased |
|
|
|
|
|
|
(1,767,000 |
) |
Repayment of capital lease obligations |
|
|
(21,077 |
) |
|
|
(16,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(3,131,318 |
) |
|
|
26,643,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
AND CASH EQUIVALENTS |
|
|
3,134,498 |
|
|
|
17,556,427 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
11,482,465 |
|
|
|
9,562,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
14,616,963 |
|
|
$ |
27,119,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary schedule of noncash investing activities
Loans transferred to other real estate owned |
|
$ |
4,913,372 |
|
|
$ |
81,166 |
|
|
|
|
|
|
|
|
F-103
Maryland Bankcorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
UNAUDITED
Six months ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Reconciliation of net (loss) income to net cash provided by
operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,137,417 |
) |
|
$ |
(192,498 |
) |
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
(1 |
) |
Deferred gain on sale of branch locations |
|
|
(14,327 |
) |
|
|
(14,364 |
) |
Amortization/accretion of premiums and discounts
on investment securities |
|
|
220,615 |
|
|
|
69,525 |
|
Loss (gain) on sale or call of investment securities |
|
|
260,878 |
|
|
|
(41,595 |
) |
Increase in cash value of life insurance |
|
|
(118,061 |
) |
|
|
(114,409 |
) |
Provision for loan losses |
|
|
2,435,000 |
|
|
|
456,000 |
|
Depreciation and amortization |
|
|
260,631 |
|
|
|
260,268 |
|
Changes in net assets and liabilities |
|
|
|
|
|
|
|
|
Decrease in accrued interest receivable |
|
|
89,564 |
|
|
|
56,286 |
|
Increase (decrease) in deferred loan fees and costs, net |
|
|
209,178 |
|
|
|
(59,114 |
) |
Decrease (increase) in other assets |
|
|
2,069,793 |
|
|
|
(850,999 |
) |
Increase in accrued expenses and other liabilities |
|
|
339,269 |
|
|
|
740,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
4,615,123 |
|
|
$ |
309,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities |
|
|
|
|
|
|
|
|
Net unrealized gain(loss) on investment securities
available for sale (before income tax effect)
was $1,044,381 and $496,878 at June 30, 2010 and 2009, respectively. |
|
|
|
|
|
|
|
|
F-104
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 1 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
Maryland Bankcorp, Inc. (the Holding Company) was organized on September 28, 2001, at the
direction of the Board of Directors of Maryland Bank & Trust Company, N.A. (the Bank) to acquire
the stock of the Bank and to engage in such other business activities permitted by law for bank
holding companies. On September 28, 2001, after Board of Directors, shareholder and regulatory
approval, each outstanding share of Bank common stock was exchanged for one share of Holding
Company common stock. As a result of the exchange of shares, the shareholders of the Bank
became shareholders of the Holding Company and the Holding Company became the sole shareholder
of the Bank. |
|
|
|
The Bank was originally incorporated in 1959 under the laws of the State of Maryland, and
effective August 1, 1997, became a national bank. The Bank provides a full range of banking
services to individual and corporate customers primarily in Southern Maryland. The Bank is
subject to competition from other financial institutions and is subject to the regulations of
certain Federal and State agencies. |
|
|
|
As of March 31, 2006, the Holding Company operates as a bank holding company under section 4(c)8
of the Bank Holding Company Act and section 225.83 of Regulation Y. |
|
|
|
Basis of Presentation |
|
|
|
The financial statements are presented on a consolidated basis. All material intercompany
transactions and balances have been eliminated in the consolidation. In preparing the financial
statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the
date of the consolidated balance sheet and reported income and expenses for the reporting
period. The Parent only financial statements of the Holding Company accounts for its investment
in the Bank using the equity method of accounting. (See note 17) |
|
|
|
Use of Estimates |
|
|
|
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported |
F-105
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
amounts of revenue and expenses during the reporting period. Actual results could differ from
those estimates. |
|
|
|
Cash and Cash Equivalents |
|
|
|
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and due
from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day
periods. |
|
|
|
Fair Value of Financial Instruments |
|
|
|
The Bank measures certain financial assets and liabilities at fair value based on the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction
between market participants. Under generally accepted accounting principles, the Bank is
required to disclose how fair value is determined for assets and liabilities and use an
established fair value hierarchy for which these assets and liabilities must be grouped, based
on significant levels of inputs. |
|
|
|
Investment securities are classified as held to maturity and available for sale. |
|
|
|
Investment securities classified as held to maturity consist of bonds, notes, and debentures
which the Bank has the intent and ability to hold to maturity and which are carried at cost,
adjusted for amortization of premiums and accretion of discounts computed by the straight-line
method. |
|
|
|
Investment securities classified as available for sale are those debt and equity securities that
the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Any
decision to sell a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix of the Banks
assets and liabilities, liquidity needs, regulatory capital considerations, and other similar
factors. Investment securities available for sale are carried at fair value. Unrealized gains
or losses are reported as increases or decreases in other comprehensive income, net of the
related tax effect, on the consolidated statements of change in stockholders equity. Realized
gains or losses, determined on the basis of the cost of specific securities sold, are included
in earnings. Reclassification adjustments are recorded when the Bank realizes a gain or loss on |
F-106
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
the sale or a call of investment securities that had previously recognized an unrealized gain or
loss as increases or decreases in stockholders equity, net of the related tax effect. |
|
|
|
Loans |
|
|
|
Loans are stated at their outstanding unpaid principal balances, net of participations sold,
deferred fees and costs and the allowance for loan losses. |
|
|
|
Interest income on loans is accrued over the term of the loans based on the principal amounts
outstanding. |
|
|
|
When scheduled principal or interest payments are past due 90 days or more on any loan not fully
secured or in process of collection, the accrual of interest is discontinued and recognized as
income in the period the loan becomes current. |
|
|
|
Loan origination fees and direct loan origination costs are capitalized and recognized as an
adjustment of the yield of the related loans. |
|
|
|
Interest Bearing Deposits |
|
|
|
Interest bearing deposits in banks have no maturity date and are carried at cost. |
|
|
|
Allowance for Loan Losses |
|
|
|
The Banks policy is to charge recognized loan losses to the allowance for loan losses and add
recoveries on previously written off loans to the allowance. The allowance is increased by
provisions which are charged to operations. The adequacy of the allowance for loan losses is
determined by management after reviewing the composition and risk of the loan portfolio, trends
in loan volume by category, delinquencies, economic conditions, the Banks previous loan loss
experience and other related matters. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, portfolio
quality, review of specific problem loans and current economic conditions that may affect the
borrowers ability to pay. The allowance for loan losses is based on estimates, and ultimate
losses, if any, may vary from the current estimates. |
F-107
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
Accounting principles generally accepted in the United States of America require that the
impairment of loans that have been separately identified for evaluation be measured based on the
present value of expected future cash flow or, alternatively, the observable market price of the
loans or the fair value of the collateral. For those loans that are collateral dependent (that
is, if repayment of the loan is expected to be provided solely by the underlying collateral) and
for which management has determined foreclosure is probable, the measure of impairment of those
loans is based on the fair value of the collateral. |
|
|
|
Management believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Banks allowance for loan
losses and may require additions to the allowance based on their judgments about information
available to them at the time of their examination. |
|
|
|
Bank Premises and Equipment |
|
|
|
Bank premises and equipment are stated at cost. Depreciation and amortization are computed
principally by accelerated methods over the estimated useful lives of the properties. The
estimated useful lives for computing depreciation and amortization are as follows: |
|
|
|
|
|
|
|
Years |
|
Land improvements |
|
|
10 |
|
Buildings and improvements |
|
|
15 to 40 |
|
Furnishings and equipment |
|
|
3 to 10 |
|
Automobiles |
|
|
3 |
|
Leasehold improvements |
|
|
5 to 20 |
|
|
|
When properties are sold or otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts with any resulting gain or loss
reflected in income. Expenditures for repairs, maintenance, and minor improvements are expensed
in the year incurred. |
F-108
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
Other Real Estate Owned |
|
|
|
Real estate acquired through, or in lieu of, loan foreclosure is initially recorded at fair
value less estimated costs to dispose at the date of foreclosure. After foreclosure, valuations
are periodically performed by management and the real estate is carried at the lower of (1) cost
or (2) fair value minus estimated costs to dispose. At date of acquisition, losses are charged
to the allowance for loan losses. The Bank recognizes income from income producing properties
held in other real estate owned on a current basis. |
|
|
|
During the six months ended June 30, 2009, the Bank had four foreclosed real estate properties
originating from three borrowers. The outstanding principal balances of the loans totaled
$1,984,553 at the time of their foreclosures. The Bank charged $204,000 to reduce the carrying
value of the other real estate to their approximate fair values less costs to sell. The balance
of other real estate owned at June 30, 2009 was $1,807,483. |
|
|
|
During the six months ended June 30, 2009, the Bank sold none of its foreclosed assets. |
|
|
|
During the six months ended June 30, 2010, the Bank had four foreclosed real estate properties
originating from four borrowers. The outstanding principal balances of the loans totaled
$9,320,323 at the time of their foreclosures. The Bank charged $2,338,918 to reduce the
carrying value of the other real estate to their approximate fair values less costs to sell.
The balance of other real estate owned at June 30, 2010 was $6,852,087. The Bank is pursuing
opportunities to market the remaining foreclosed collateral for sale. |
|
|
|
During the six months ended June 30, 2010, the Bank sold one of its foreclosed assets for
$242,939, net of settlement charges. The Bank incurred a gain of $33,939 on this sale. |
|
|
|
Advertising |
|
|
|
Advertising costs are expensed as incurred. Advertising expense was $33,912 and $36,168 for the
six months ended June 30, 2010 and 2009, respectively. |
|
|
Deferred income resulting from the sale of the Lexington Park Branch is being amortized over the
life of the lease, which is 20 years. |
F-109
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
Deferred Rent |
|
|
|
Minimum rental payments and tenant allowances are recognized on a straight-line basis over the
term of the lease, regardless of when payments are due. |
|
|
|
Comprehensive Income |
|
|
|
General accounting principles for reporting comprehensive income, requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net income. |
|
|
|
Income Taxes |
|
|
|
The Bank accounts for income taxes using the liability method. Income taxes are provided based
on earnings reported for financial statement purposes adjusted for permanent differences between
items of income or expense reported in the financial statements and those reported for tax
purposes. Under the liability method, deferred income taxes are recognized for the estimated
future tax effects of temporary differences in the bases of assets and liabilities measured at
the enacted tax rates. A valuation allowance is recorded if, based upon the evidence available,
it is more likely than not that some portion or all of the net deferred tax assets will not be
realized. |
|
|
|
In June 2006, the FASB issued an accounting interpretation relating to accounting for
uncertainty in income taxes. The effective date of the interpretation was for fiscal years
beginning after December 31, 2006. The effective date was delayed in 2007 and was delayed again
in 2008 for nonpublic companies. The new effective date for nonpublic companies is for fiscal
years beginning after December 15, 2008. The Bank adopted the accounting interpretation on
January 1, 2009. Under this interpretation, a tax position is recognized as a benefit only if it
is more likely than not that the tax position would be sustained in a tax examination, with a
tax examination being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For tax positions not
meeting the more likely than not test, no tax benefit is recorded. The adoption of this
standard did not have a material impact on the Banks financial statements. |
F-110
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
Earnings Per Share |
|
|
|
Basic earnings per share is calculated by dividing net earnings available to common stockholders
by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is calculated on the basis of the weighted average number of shares of common
stock plus the effect of dilutive potential common shares outstanding during the period using
the treasury stock method. Weighted average common shares and diluted common shares outstanding
in 2010 and 2009 were 646,626, respectively. |
|
|
|
New Accounting Pronouncements |
|
|
|
In September 2006, the Financial Accounting Standards Board (FASB) issued a new accounting
standard related to fair value measurements. The new standard defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. The
Bank adopted the provisions of fair value measurements and disclosures for assets and
liabilities recognized at fair value on January 1, 2008. In February 2008, the FASB issued a
new position, which delayed the effective date of fair value measurements and disclosures for
all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). On January 1, 2009
the Bank adopted the provisions of the new position. In August 2009, the FASB issued an update
to existing guidance around fair value measurements and disclosure in relation to the fair value
measurement of liabilities. The Bank adopted the provisions of the update in the fourth quarter
of 2009 and does not expect the adoption to have a material impact on its consolidated financial
statements. |
|
|
|
In May 2009, the FASB issued an accounting standard related to accounting for and disclosure of
subsequent events in its financial statements. This standard establishes general accounting
for and disclosure of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued and requires the Bank to disclose the date
through which it has evaluated subsequent events and whether that was the date the
financial statements were issued or available to be issued. The adoption of this standard did
not have a material impact on the Banks financial statements. |
|
|
|
In June 2009, the FASB issued the Accounting Standards Codification (Codification). Effective
July 1, 2009, the Codification is the single source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the preparation of financial
statements in conformity with U.S. generally accepted accounting |
F-111
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
principles (GAAP). The Codification is intended to reorganize, rather than change, existing
GAAP. Accordingly, all references to currently existing GAAP have been removed and have been
replaced with plain English explanations of the Banks accounting policies. The adoption of the
Codification did not have a material impact on the Banks financial position or results of
operations. |
NOTE 2 |
CASH AND DUE FROM BANKS |
|
|
The Bank is required by Regulation D of the Federal Reserve Act to maintain reserve balances
with the Federal Reserve Bank principally based on deposits. Balances maintained are included
in cash and due from banks. At June 30, 2010 and 2009, the required reserve balance was
$828,000 and $435,000, respectively. |
F-112
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 3 |
INVESTMENT SECURITIES |
|
|
At June 30, 2010 and 2009, the amortized cost and fair value of investment securities held to
maturity and available for sale are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
Investment securities held
to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and
Political Subdivisions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale
|
|
U.S. Treasury Securities |
|
$ |
1,402,331 |
|
|
$ |
1,405,562 |
|
|
$ |
1,398,500 |
|
|
$ |
1,406,289 |
|
Obligations of U.S.
Government Agencies |
|
|
10,253,430 |
|
|
|
10,433,579 |
|
|
|
17,248,357 |
|
|
|
17,498,059 |
|
Obligations of States and
Political Subdivisions |
|
|
15,248,375 |
|
|
|
15,445,134 |
|
|
|
18,088,103 |
|
|
|
18,087,137 |
|
Mortgage Backed
Securities |
|
|
37,958,114 |
|
|
|
38,622,355 |
|
|
|
31,781,971 |
|
|
|
32,021,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Securities |
|
|
|
|
|
|
|
|
|
|
1,049,062 |
|
|
|
1,050,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,862,250 |
|
|
$ |
65,906,630 |
|
|
$ |
69,565,993 |
|
|
$ |
70,062,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains |
|
$ |
1,123,015 |
|
|
|
|
|
|
$ |
673,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses |
|
$ |
(78,634 |
) |
|
|
|
|
|
$ |
(176,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
$ |
1,044,381 |
|
|
|
|
|
|
$ |
496,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010 and 2009, the Bank recognized gross realized gains
on calls and sales of investment securities of $260,878 and $41,595, respectively. |
F-113
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
The amortized cost and fair value of debt securities held to maturity and available for sale at
June 30, 2010 and 2009, by contractual maturity, are shown below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
cost |
|
|
value |
|
|
cost |
|
|
value |
|
Due in one year or less |
|
$ |
13,498,795 |
|
|
$ |
13,618,537 |
|
|
$ |
10,590,056 |
|
|
$ |
10,653,288 |
|
Due after one year
through five years |
|
|
20,613,095 |
|
|
|
21,162,875 |
|
|
|
44,204,493 |
|
|
|
44,640,527 |
|
Due after five years
through ten years |
|
|
13,966,420 |
|
|
|
14,216,045 |
|
|
|
10,832,982 |
|
|
|
10,817,082 |
|
Due after ten years |
|
|
16,783,940 |
|
|
|
16,909,173 |
|
|
|
3,938,462 |
|
|
|
3,951,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,862,250 |
|
|
$ |
65,906,630 |
|
|
$ |
69,565,993 |
|
|
$ |
70,062,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010, other investments included Federal Home Loan Bank stock of $556,100,
Federal Reserve Bank stock of $549,700, Atlantic Central Bankers Bank shares of $207,500 and
other association shares of $10,439. At June 30, 2009, other investments included Federal Home
Loan Bank stock of $555,600, Federal Reserve Bank stock of $388,000, Atlantic Central Bankers
Bank shares of $207,500 and other association shares of $10,439. |
|
|
At June 30, 2010 and 2009, investment securities having an amortized cost of $25,457,005 and
$22,382,325, respectively, were pledged as collateral for borrowings and certain government
deposits as required by law. |
F-114
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
At June 30, 2010 and 2009, loans consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Real estate |
|
|
|
|
|
|
|
|
Construction |
|
$ |
18,946,251 |
|
|
$ |
13,780,727 |
|
Mortgages |
|
|
198,827,945 |
|
|
|
179,546,197 |
|
Commercial |
|
|
26,431,092 |
|
|
|
27,921,652 |
|
Consumer installment |
|
|
5,293,717 |
|
|
|
5,302,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249,499,005 |
|
|
|
226,550,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
Loan participations sold |
|
|
23,457,351 |
|
|
|
11,421,032 |
|
Deferred loan fees (costs), net |
|
|
(877,140 |
) |
|
|
(1,073,931 |
) |
Allowance for loan losses |
|
|
6,554,281 |
|
|
|
2,600,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,134,492 |
|
|
|
12,947,177 |
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
220,364,513 |
|
|
$ |
213,603,798 |
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the years ended June 30, 2010 and 2009 follow: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Balance, beginning of period |
|
$ |
6,191,000 |
|
|
$ |
2,589,790 |
|
Provision for loan losses |
|
|
2,435,000 |
|
|
|
456,000 |
|
Loans charged off |
|
|
(2,133,567 |
) |
|
|
(496,550 |
) |
Recoveries of loans charged off |
|
|
61,848 |
|
|
|
50,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
6,554,281 |
|
|
$ |
2,600,076 |
|
|
|
|
|
|
|
|
F-115
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
Information about impaired loans as of and for the six months ended June 30, 2010 and 2009, is
as follows: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Recorded investment in impaired loans not
requiring an allowance for loan losses |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Recorded investment in impaired loans
requiring an allowance for loan losses |
|
|
9,996,000 |
|
|
|
1,677,000 |
|
|
|
|
|
|
|
|
Recorded investment in impaired loans |
|
$ |
9,996,000 |
|
|
$ |
1,677,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related allowance for loan losses |
|
$ |
1,695,000 |
|
|
$ |
250,000 |
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans amounted to $11,201,599 and $8,260,268 at June 30, 2010 and 2009,
respectively. Loss of income from nonaccrual loans approximated $973,378 and $516,743 for the
six months ended June 30, 2010 and 2009, respectively. Accruing loans, which were 90 days or
more past due, totaled $526,049 and $0 as of June 30, 2010 and 2009, respectively. |
F-116
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 5 BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Land and land improvements |
|
$ |
593,606 |
|
|
$ |
593,606 |
|
Buildings and improvements |
|
|
3,417,327 |
|
|
|
2,693,876 |
|
Furnishings and equipment |
|
|
5,700,975 |
|
|
|
5,473,005 |
|
Automobiles |
|
|
37,518 |
|
|
|
66,101 |
|
Leasehold improvements |
|
|
1,237,555 |
|
|
|
1,172,145 |
|
Capitalized lease building |
|
|
279,282 |
|
|
|
279,284 |
|
Construction-in-progress |
|
|
|
|
|
|
485,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,266,263 |
|
|
|
10,763,261 |
|
Less accumulated depreciation |
|
|
7,294,098 |
|
|
|
6,881,074 |
|
Less accumulated amortization |
|
|
245,220 |
|
|
|
204,285 |
|
|
|
|
|
|
|
|
Bank premises and equipment, net |
|
$ |
3,726,945 |
|
|
$ |
3,677,902 |
|
|
|
|
|
|
|
|
During the six months ended June 30, 2010 and 2009, the Bank incurred amortization on the
capitalized lease building of $21,077 and $18,426, respectively.
F-117
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 6 DEPOSITS
Customer deposits at June 30, 2010 and 2009, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Demand noninterest bearing |
|
$ |
91,289,184 |
|
|
$ |
78,285,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and NOW accounts |
|
|
|
|
|
|
|
|
Interest checking |
|
|
14,955,278 |
|
|
|
14,298,964 |
|
Money market demand deposits |
|
|
16,605,940 |
|
|
|
11,735,652 |
|
Savings |
|
|
48,522,103 |
|
|
|
43,744,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,083,321 |
|
|
|
69,779,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit less
than $100,000 |
|
|
55,273,892 |
|
|
|
61,807,236 |
|
Certificates of deposit over $100,000 |
|
|
48,014,719 |
|
|
|
51,771,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,288,611 |
|
|
|
113,578,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other time deposits |
|
|
22,208,612 |
|
|
|
22,317,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing deposits |
|
|
205,580,544 |
|
|
|
205,675,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
296,869,728 |
|
|
$ |
283,960,396 |
|
|
|
|
|
|
|
|
At June 30, 2010, the expected scheduled maturities of certificate of deposits and other
time deposits are as follows:
|
|
|
|
|
3 months or less |
|
$ |
22,062,000 |
|
3 months to 12 months |
|
|
47,720,000 |
|
12 months to 3 years |
|
|
43,218,000 |
|
3 years and over |
|
|
12,497,223 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
125,497,223 |
|
|
|
|
|
F-118
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 7 OTHER SHORT-TERM BORROWINGS AND FEDERAL FUNDS PURCHASED
Federal funds purchased generally mature within one day from the transaction date. Other
short-term borrowed funds consist of Federal Home Loan Bank borrowings, which generally mature
within one year from the transaction date, and overnight repurchase agreements which are
obligations to the Banks cash management customers. As of June 30, 2010 and 2009, other
short-term borrowings equaled $14,755,722 and $14,231,000, respectively. As of June 30, 2010 and
2009, federal funds were purchased in the amount of $0 and $0, respectively.
NOTE 8 INCOME TAXES
The components of income tax benefit for 2010 and 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Current provision |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(604,084 |
) |
|
$ |
(244,964 |
) |
State |
|
|
(118,608 |
) |
|
|
(30,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(722,692 |
) |
|
|
(275,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(722,692 |
) |
|
$ |
(275,157 |
) |
|
|
|
|
|
|
|
F-119
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
The principal components of net deferred tax assets at June 30, 2010 and 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Net operating loss carryforward |
|
$ |
482,253 |
|
|
$ |
|
|
Bad debt deduction |
|
|
2,420,318 |
|
|
|
948,773 |
|
Premium amortization |
|
|
(2,531 |
) |
|
|
(14,808 |
) |
Deferred compensation |
|
|
1,284,191 |
|
|
|
945,760 |
|
Deferred gain on sale of bank premises |
|
|
90,443 |
|
|
|
101,537 |
|
Straight line rent |
|
|
183,717 |
|
|
|
190,348 |
|
Nonaccrual interest income |
|
|
133,798 |
|
|
|
56,750 |
|
Depreciation |
|
|
84,125 |
|
|
|
151,812 |
|
Tax effect of unrealized gain on securities
available for sale |
|
|
(355,089 |
) |
|
|
(168,939 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporary differences |
|
|
4,321,225 |
|
|
|
2,211,233 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(1,000,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of unrealized loss on pension plan |
|
|
397,264 |
|
|
|
773,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
3,718,489 |
|
|
$ |
2,984,518 |
|
|
|
|
|
|
|
|
The Bank has a net operating loss carry-forward available for income tax purposes of
approximately $1,189,110, which will begin to expire in 2029.
NOTE 9 PENSION AND PROFIT-SHARING PLANS
The Bank sponsored a noncontributory, defined benefit pension plan, a defined contribution
profit-sharing plan covering all of its qualified employees and a supplemental retirement
benefit plan. The Banks funding policy was to contribute amounts to the plans when deductible
for Federal income tax purposes.
F-120
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
Pension Plan
The Pension Plan covered substantially all employees of the Bank who had completed one year of
service and reached twenty-one years of age. Employees with five or more years of vested
service were entitled to annual pension benefits beginning at normal retirement age of
sixty-five equal to the sum of .75% of final average earnings plus .60% of final average
earnings in excess of covered compensation, multiplied by credited service not greater than
thirty years. The Pension Plan permitted early retirement at age 55 or over with the completion
of five years of vesting service. The annual early retirement benefit is the deferred vested
benefit, reduced by one-half of 1% for each month the actual retirement date precedes the normal
retirement date. The normal form of pension benefit was a benefit payable during the lifetime
of the retired participant and surviving spouse beneficiary. As of June 30, 2010 and 2009, the
Pension Plan owns 10,325 shares of the Holding Company valued at $162,619 and $157,456,
respectively.
On June 9, 2003, the Plan was amended so that all benefits accrued as of June 9, 2003 shall be
frozen and no additional benefits shall accrue for any participants in the Plan.
The amounts of contributions and benefits paid from the Pension Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Employer contributions |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid |
|
$ |
79,576 |
|
|
$ |
72,255 |
|
|
|
|
|
|
|
|
The following information, as of December 31, 2009 and 2008, is based on the most recent
actuarial report received.
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
3,659,676 |
|
|
$ |
3,975,783 |
|
Plan assets at fair value |
|
|
4,790,535 |
|
|
|
4,186,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status as of December 31 |
|
$ |
1,130,859 |
|
|
$ |
210,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit recognized as other assets
in the consolidated balance sheets |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
F-121
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
Items not yet recognized as a component of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Transition obligation |
|
$ |
|
|
|
$ |
|
|
Prior service cost |
|
|
|
|
|
|
|
|
Net loss |
|
|
1,063,537 |
|
|
|
2,003,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,063,537 |
|
|
$ |
2,003,329 |
|
|
|
|
|
|
|
|
Assumptions used in determining net periodic pension costs for 2009 and 2008, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Discount rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
Earnings rate on invested assets |
|
|
N/A |
|
|
|
N/A |
|
Rate of salary progression |
|
|
N/A |
|
|
|
N/A |
|
Profit-Sharing Plan
The Profit-Sharing Plan covers all full-time employees of the Bank who have completed at least
1,000 hours of service. The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). Upon termination of service, a participant may elect to receive a
lump-sum amount equal to the value of his or her account. No contributions were made to this
Plan for the years ended June 30, 2010 and 2009. As of December 31, 2002, all benefits, rights
and features of the Profit-Sharing Plan were merged into the Employee Stock Ownership Plan (see
note 10). Each participants closing account
balance was merged into the Employee Stock Ownership Plan and the Profit-Sharing Plan ceased to
exist. As of June 30, 2010 and 2009, the Plan owns 8,584 shares of the Holding Companys common
stock valued at $135,198 and $130,906, respectively, and as of June 30, 2010 and 2009, the Plan
invested $15,489 and $15,310, respectively, in deposit accounts with the Bank.
F-122
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
Supplemental Retirement Benefit Plan
The Bank has entered into a noncontributory, nonqualified supplemental retirement benefit plan
with two executives of the Bank and one member of the Board of Directors. In accordance with
the supplemental retirement plans, the two executives and the director are entitled to an annual
benefit upon retirement. The annual benefit is adjusted based upon a comparison of the date of
their retirement and the normal retirement age of sixty-five.
The net periodic pension costs, the amount of contributions and benefits paid as of December 31,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Net periodic benefit cost |
|
$ |
372,692 |
|
|
$ |
290,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participant contributions |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit payments |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
F-123
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
The following information, as of December 31, 2009 and 2008, is based on the most recent
actuarial report received:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Accrued benefit liability |
|
$ |
(1,830,997 |
) |
|
$ |
(1,492,660 |
) |
Intangible asset |
|
|
N/A |
|
|
|
N/A |
|
Accumulated other
comprehensive income |
|
|
249,035 |
|
|
|
283,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(1,581,962 |
) |
|
$ |
(1,209,270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
1,830,997 |
|
|
$ |
1,492,660 |
|
Plan assets at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status as of December 31 |
|
$ |
(1,830,997 |
) |
|
$ |
(1,492,660 |
) |
|
|
|
|
|
|
|
Items not yet recognized as a component of net periodic pension costs:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Prior service cost |
|
$ |
125,968 |
|
|
$ |
160,323 |
|
Net loss |
|
|
123,067 |
|
|
|
123,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
249,035 |
|
|
$ |
283,390 |
|
|
|
|
|
|
|
|
Assumptions used in determining net periodic pension costs for 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Discount rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
Earnings rate on invested assets |
|
|
N/A |
|
|
|
N/A |
|
Rate of salary progression |
|
|
N/A |
|
|
|
N/A |
|
F-124
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 10 EMPLOYEE STOCK OWNERSHIP PLAN
On January 1, 1995, the Bank adopted an Employee Stock Ownership Plan (the Plan). The purpose
of the Plan is to enable full-time employees who have completed at least 1,000 hours of service,
are at least 21 years of age and have been employed for at least one year to acquire stock
ownership in the Bank. Vesting in the Plan is based upon years of service under a schedule
outlined in the Plan document, with full vesting reached upon 7 years of service. Effective
January 1, 2003, the Plan was amended in its entirety and is known as Maryland Bankcorp, N.A.
KSOP (the KSOP). The amendment provides the participants of the KSOP the opportunity to make
elective salary deferrals. All employees with a minimum of one year of service and 1,000 hours
are eligible to participate in the KSOP. Employees may contribute up to the maximum amount
allowed by federal tax laws. The Bank contributes 3 percent of the employees compensation (the
Safe Harbor Contribution), regardless of the employees elective deferral. In addition, the
Bank will make matching contributions (the Matching Contribution) equal to $.40 for each dollar
contributed by the employee up to a maximum of 5% of the employees pay. The Safe Harbor
Contribution for eligible employees is vested immediately. The Matching Contribution vests to
employees over a six year period. The Bank may also make an additional discretionary
contribution which will be allocated to eligible employees who complete at least 1,000 hours in
the current plan year and are employed as of December 31, 2009. This contribution is allocated
to the Participants based on a formula in the KSOPs plan documents. The additional
discretionary contribution vests to eligible employees over a seven year period. Forfeitures
of the matching contribution will be used to reduce the Banks contribution the following year.
In addition, the assets of the Plan as of January 1, 2003, were transferred over to the KSOP.
Each eligible Participant has a separate company stock account based upon their balance as of
January 1, 2003. The Participants balance is adjusted for additional purchases of stock,
earnings on the Plans investments, and forfeitures of Bank stock for nonvested employees.
For the six months ended June 30, 2010 and 2009, the Bank made contributions of $89,686 and
$101,877, respectively, to the KSOP.
In the event a terminated KSOP participant desires to sell his or her shares of the Holding
Companys stock, the KSOP may be requested to purchase the shares from the participant at their
fair value. As of June 30, 2010 and 2009, the KSOP owns 53,742 and 55,257 shares, respectively,
of the Holding Companys common stock valued at $846,437 and $842,669,
F-125
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
respectively, based upon the appraised fair market value, and the remaining funds of the KSOP,
approximately $51,915 at June 30, 2010 and $30,554 at June 30, 2009, were invested in a money
market account and certificate of deposit with the Bank.
NOTE 11 PREFERRED STOCK
At a Special Shareholders Meeting held on December 3, 2008, the shareholders approved, by proxy
or in person, an Amended and Restated Articles of Incorporation to authorize 5,000,000 shares of
Preferred Stock, par value $0.01 per share and eliminate preemptive rights for holders of the
Preferred Stock. The primary objective in establishing a class of Preferred Stock and
eliminating preemptive right for holders of Preferred Stock was to provide maximum flexibility
with respect to a future financing transaction, including, but not limited to, the preparation
for the possible participation in the Capital Purchase Program (CPP) established by the U.S.
Treasury Department pursuant to the Emergency Economic Stabilization Act of 2008. Maryland
Bankcorp, Inc. initially filed an application to participate in the CPP but subsequently, the
Board of Directors has elected to withdraw the application due to the emergence of details of
the government investment program. As of June 30, 2010 and 2009, there are no shares of
Preferred Stock issued or outstanding.
NOTE 12 LEASE OBLIGATIONS
As of June 30, 2010, the Bank leases nine locations from which it conducts business. In 1998,
the Bank sold three bank branches which were subsequently leased back to the Bank under a
sale-leaseback agreement. The Bank sold the Lexington Park, Solomons Island and Bryans Road
branch locations for $750,000, $450,000 and $450,000, respectively. The Bank incurred a gain of
$574,561 on the sale of the Lexington Park branch, which has been deferred and is being
amortized over the lease term of twenty years. The Bank incurred a loss on the sale of the
Solomons Island and Bryans Road branches of $196,846, and $20,000 of such loss, representing the
difference between the appraised value and sales price of the Bryans Road branch, has been
deferred. The three leases entered into in 1998 were operating leases that call for monthly
lease payments of $10,430, $4,279 and $7,240, respectively, and
expire in 2018. In August 2007, the Bank executed a five-year lease agreement extension for the
Fort Washington branch location. Monthly payments of $5,367, with annual increases, are due
through August 2012. In March 2005, after completion of rebuilding the LaPlata Branch property
that was destroyed in the 2002 tornado, the Bank entered into a lease that requires initial
monthly payments of $6,062, adjusted annually for CPI and reimbursement of CAM charges, which
expires in 2020. The California branch is under a written agreement
F-126
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
which is considered a capital lease. The capital lease is payable at $4,036 monthly and expires
April 2011. The interest rate implicit in the capital lease is 13.52%.
On June 1, 2000, the Bank sold the Prince Frederick branch, which was subsequently leased back
to the Bank under a sale-leaseback agreement. The branch location was sold for $950,000 and the
Bank realized a gain of $6,055, which will be deferred over the life of the lease. The lease
entered into is being accounted for as an operating lease that calls for monthly lease payments
of $9,513 and expires May 31, 2020.
On January 24, 2001, the Bank commenced a lease for a branch with Wal-Mart Corporation in
LaPlata, Maryland. The initial term of the lease is for five years with monthly payments of
$1,000. The lease has two optional five-year renewals. In January 2006, the Bank renewed the
lease for a period of five years. The lease is being accounted for as an operating lease.
On January 1, 2003, the Bank entered into an agreement to lease a branch on Berry Road in
Waldorf, Maryland. The initial term of the lease was for three years with monthly payments of
$1,200. The lease has four optional three-year renewals. In January 2006, the Bank renewed the
lease for a period of five years. The lease is being accounted for as an operating lease. On
December 23, 2009 the Bank officially closed this branch; however it is obligated to fulfill the
terms of the lease through December 2010.
F-127
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
Future minimum payments under capital leases and noncancelable operating leases at June 30,
2010, for the following five years and thereafter, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
Capital lease |
|
|
leases |
|
July 1, 2010 June 30, 2011 |
|
$ |
35,941 |
|
|
$ |
542,253 |
|
July 1, 2011 June 30, 2012 |
|
|
|
|
|
|
526,365 |
|
July 1, 2012 June 30, 2013 |
|
|
|
|
|
|
492,207 |
|
July 1, 2013 June 30, 2014 |
|
|
|
|
|
|
458,049 |
|
July 1, 2014 June 30, 2015 |
|
|
|
|
|
|
458,049 |
|
Thereafter |
|
|
|
|
|
|
1,853,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
35,941 |
|
|
$ |
4,330,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest |
|
|
(1,927 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum
lease payments |
|
$ |
34,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $265,634 and $272,228 for six months ended June 30, 2010 and 2009,
respectively.
NOTE 13 LINE OF CREDIT
On December 30, 2009, the Holding Company obtained a line of credit note of $3,500,000 from
Atlantic Central Bankers Bank. This line of credit is secured by capital stock of the Bank and
accrues interest equal to the greater of 4.75% or the prime rate charged by large commercial
banks as reported in the Wall Street Journal. Monthly payments of interest only
commence on February 1, 2010 and the principal balance matures on December 30, 2011, with the
option to extend an additional year. As of June 30, 2010, the amount drawn on the line of
credit totals $3,244,370. Interest expense for the six months ended June 30, 2010 is $76,870.
F-128
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 14 RELATED PARTY TRANSACTIONS
In the ordinary course of business, loans are made to Directors, Officers, and employees of the
Bank and their affiliates. In managements opinion, these loans are consistent with sound
banking practices, are within regulatory lending limitations and do not involve more than normal
risk of collectability. Loans outstanding, both direct and indirect, to Directors and
policy-making Officers and employees total $2,585,599 and $2,910,783 at June 30, 2010 and 2009,
respectively. The Directors, Officers, and employees maintained deposits with the Bank of
approximately $11,629,778 and $8,666,476 at June 31, 2010 and 2009, respectively.
Included in the lease discussed in note 12 are leases in four branch offices from entities in
which Directors have beneficial interests. One lease is classified as a capital lease in the
financial statements and requires annual payments of $48,432 for the years 1993 through 2011.
The other three leases are operating leases and require annual payments as follows: $125,158
through year 2018, $51,351 through year 2018 and $114,152 through year 2020, respectively. In
managements opinion, the annual rental and lease fees are competitive with prevailing costs for
similar office space.
On December 15, 2008, the Holding Company received a $2,000,000 unsecured loan from an
affiliated shareholder. The loan is for five years with a maturity date of December 15, 2013 at
which time a balloon payment of the entire indebtedness then remaining unpaid is required.
The rate of interest is equal to 7% with interest payable semi-annually. Interest expense for
the six months ended June 30, 2010 and 2009 was $68,970 and $70,183, respectively.
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of
business. These financial instruments include mortgage loan commitments, unfunded construction
loans, undisbursed lines of credit, unused lines of credit related to check loans, and standby
letters of credit. These instruments involve, to various degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance sheet. The
Banks exposure to credit loss in the event of nonperformance by the other party to the
financial instrument is represented by the contract or notational amount of the financial
F-129
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
instrument. The Bank uses the same credit policies in making commitments for off-balance sheet
financial instruments as it does for on-balance sheet financial instruments. Financial
instruments with off-balance sheet risk are as follows at June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Mortgage loan commitments |
|
$ |
1,572,000 |
|
|
$ |
2,027,000 |
|
Construction loans to be funded |
|
|
11,037,000 |
|
|
|
10,101,000 |
|
Undisbursed lines of credit |
|
|
9,549,000 |
|
|
|
7,355,000 |
|
Undisbursed lines of credit-check
loans including home equity |
|
|
6,217,000 |
|
|
|
7,160,000 |
|
Standby letters of credit |
|
|
3,062,000 |
|
|
|
1,581,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,437,000 |
|
|
$ |
28,224,000 |
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses. The Bank evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on managements credit evaluation of
the counter-party. Collateral held varies but generally may include cash, marketable
securities, and property.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
The framework for measuring fair value requires fair value to be determined based on the
exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants.
The valuation techniques required by the new provisions are based upon observable and
unobservable inputs. Observable or market inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Banks assumptions about market
F-130
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
participant assumptions based on best information available. Observable inputs are the
preferred source of values. These two types of inputs create the following fair value
hierarchy:
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. These might include quoted prices for
similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that
are observable for the asset or liability (such as interest rates, volatilities, prepayment
speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by
market data by correlation or other means.
Level 3 Inputs Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities.
Securities Available for Sale U.S. Treasury securities are reported at fair value
utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair
value utilizing Level 2 inputs. For these securities, the Bank obtains fair value measurements
from an independent pricing service. The fair value measurements consider observable data that
may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live
trading levels, trade execution data, market consensus prepayment speeds, credit information and
the bonds terms and conditions, among other things.
F-131
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
The following table summarizes the Banks assets and liabilities measured at fair value on a
recurring basis as of June 30, 2010 and 2009, respectively, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Fair Value |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
1,405,562 |
|
|
$ |
64,501,068 |
|
|
$ |
|
|
|
$ |
65,906,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
$ |
1,406,289 |
|
|
$ |
68,656,582 |
|
|
$ |
|
|
|
$ |
70,062,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment). Financial assets and liabilities measured at fair value on a
nonrecurring basis include the following as of June 30, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Fair Value |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
|
$ |
9,996,000 |
|
|
$ |
|
|
|
$ |
9,996,000 |
|
Other real estate owned, net |
|
|
|
|
|
|
6,852,087 |
|
|
|
|
|
|
|
6,852,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
|
|
|
$ |
1,677,000 |
|
|
$ |
|
|
|
$ |
1,677,000 |
|
Other real estate owned, net |
|
|
|
|
|
|
1,807,483 |
|
|
|
|
|
|
|
1,807,483 |
|
F-132
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
|
Impaired Loans Certain impaired loans are reported at the fair value of the
underlying collateral if repayment is expected solely from the collateral. Collateral
values are estimated using Level 2 inputs based on observable market data or Level 3 inputs
based on customized discounting criteria. During 2009 and 2008, certain impaired loans were
remeasured and reported at fair value through a specific valuation allowance allocation of
the allowance for possible loan losses based upon the fair value of the underlying
collateral. |
|
|
|
|
Other Real Estate Owned Foreclosed real estate assets have been valued using a
market approach. The values were determined using market prices of similar real estate
assets and were valued in accordance with standards for accounting for the impairment or
disposal of long-lived assets. Foreclosed real estate assets which have been valued using a
market approach and subsequently adjusted for estimated market changes are valued under
Level 3. |
|
|
|
General accounting principles for fair value of financial instruments requires disclosure of the
fair value of financial assets and financial liabilities, including those financial assets and
financial liabilities that are not measured and reported at fair value on a recurring basis or
nonrecurring basis. The methodologies for estimating the fair value of financial assets and
financial liabilities that are measured at fair value on a recurring or nonrecurring basis are
discussed above. The estimated fair value approximates carrying value for cash and cash
equivalents, accrued interest and the cash surrender value of life insurance policies. The
methodologies for other financial assets and financial liabilities are discussed below: |
|
|
|
Cash and Cash Equivalents - The carrying amounts of cash and short-term instruments
approximate their fair value. |
|
|
|
|
Federal Funds Sold - The carrying amounts of federal funds sold approximate their fair
value. |
|
|
|
|
Investment Securities - Fair value for investment securities are based on quoted market
prices or dealer quotes. |
|
|
|
|
Loans - The estimated fair value approximates carrying value for variable-rate loans that
reprice frequently and with no significant change in credit risk. The fair value of
fixed-rate loans and variable-rate loans which reprice on an infrequent basis is estimated
by discounting future cash flows using the current interest rates at which similar loans
with |
F-133
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
|
similar terms would be made to borrowers of similar credit quality. Nonperforming
loans, if any, would have an assumed interest rate of 0%. An overall valuation adjustment
is made for specific credit risks as well as general portfolio credit risk. |
|
|
|
|
Accrued interest receivable - The carrying amount approximates the fair value of accrued
interest, considering the short-term nature of the receivable and its expected collection. |
|
|
|
|
Deposits - The estimated fair value approximates carrying value for demand deposits. The
fair value of fixed-rate deposit liabilities with defined maturities is estimated by
discounting future cash flows using the interest rates currently offered for deposits of
similar remaining maturities. While the Banks core deposits provide a relatively stable,
low-cost funding source that has a substantial intangible value separate from the value of
the deposit balances, these estimated fair values do not include the intangible value of
core deposit relationships, which comprise a significant portion of the Banks deposit
base. |
|
|
|
|
Short Term Borrowings - The estimated fair value approximates carrying value for short-term
borrowings due to their variable interest rates. |
|
|
|
|
Accrued Interest Payable and Other Liabilities - The carrying amount approximates the fair
value of accrued interest payable and other liabilities, considering the short-term nature
of the payable and expected payment. |
|
|
|
|
Off-Balance Sheet Instruments - Fair value for off-balance sheet lending commitments are
based on fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties credit standing. |
|
|
|
For the off-balance sheet financial instruments described above, there is no difference between
the fair value and the estimated exposure value. |
F-134
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
|
The estimated fair value of the Holding Companys financial instruments as of June 30, 2010 and
2009 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Amounts in thousands |
|
|
Amounts in thousands |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
10,505 |
|
|
$ |
10,505 |
|
|
$ |
9,701 |
|
|
$ |
9,701 |
|
Fed funds sold |
|
|
4,111 |
|
|
|
4,111 |
|
|
|
17,418 |
|
|
|
17,418 |
|
Interest-bearing deposits |
|
|
17,896 |
|
|
|
17,896 |
|
|
|
4,311 |
|
|
|
4,311 |
|
Investment securities |
|
|
67,231 |
|
|
|
67,231 |
|
|
|
71,224 |
|
|
|
71,224 |
|
Loans, net |
|
|
220,365 |
|
|
|
230,634 |
|
|
|
213,604 |
|
|
|
217,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
320,108 |
|
|
$ |
330,377 |
|
|
$ |
316,258 |
|
|
$ |
320,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
June 30, 2009 |
|
|
|
Amounts in thousands |
|
|
Amounts in thousands |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
amount |
|
|
value |
|
|
amount |
|
|
value |
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
296,959 |
|
|
$ |
298,928 |
|
|
$ |
285,133 |
|
|
$ |
288,306 |
|
Short-term borrowings |
|
|
14,756 |
|
|
|
14,753 |
|
|
|
14,231 |
|
|
|
14,227 |
|
Fed funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
|
3,244 |
|
|
|
3,244 |
|
|
|
|
|
|
|
|
|
Due to affiliate |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
2,000 |
|
Capital lease obligations |
|
|
34 |
|
|
|
34 |
|
|
|
76 |
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
316,993 |
|
|
$ |
318,959 |
|
|
$ |
301,440 |
|
|
$ |
304,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-135
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 17 PARENT COMPANY FINANCIAL INFORMATION
|
|
Financial information pertaining only to Maryland Bankcorp, Inc. is as follows: |
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
ASSETS
|
Cash held at bank subsidiary |
|
$ |
90,059 |
|
|
$ |
137,243 |
|
Short-term investments certificate of deposit |
|
|
|
|
|
|
1,035,547 |
|
Investments in subsidiary |
|
|
30,370,414 |
|
|
|
29,861,113 |
|
Other assets |
|
|
750 |
|
|
|
6,004 |
|
Due from subsidiary |
|
|
37 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
30,461,260 |
|
|
$ |
31,039,944 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Dividend payable |
|
$ |
37 |
|
|
$ |
37 |
|
Line of credit |
|
|
3,244,370 |
|
|
|
|
|
Due to affiliate |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Interest payable |
|
|
5,754 |
|
|
|
5,754 |
|
Accrued expenses |
|
|
750 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
25,210,349 |
|
|
|
29,033,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
30,461,260 |
|
|
$ |
31,039,944 |
|
|
|
|
|
|
|
|
F-136
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Equity in undistributed income of subsidiary |
|
$ |
(971,708 |
) |
|
$ |
(156,173 |
) |
Other expense |
|
|
(165,709 |
) |
|
|
(36,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,137,417 |
) |
|
$ |
(192,498 |
) |
|
|
|
|
|
|
|
F-137
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Months ended |
|
|
Months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,137,417 |
) |
|
$ |
(192,498 |
) |
Equity in undistributed income of subsidiary |
|
|
971,708 |
|
|
|
156,173 |
|
Decrease in due from subsidiary |
|
|
213 |
|
|
|
|
|
Increase in accrued interest |
|
|
(856 |
) |
|
|
(856 |
) |
Decrease in other assets |
|
|
5,879 |
|
|
|
4,349 |
|
Increase (decrease) in accrued expenses |
|
|
518 |
|
|
|
(3,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(159,955 |
) |
|
|
(36,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from maturities of time deposit |
|
|
|
|
|
|
1,279,453 |
|
Purchase of Maryland Bank and Trust stock |
|
|
(576,330 |
) |
|
|
(1,300,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(576,330 |
) |
|
|
(20,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from note payable |
|
|
76,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
76,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
AND CASH EQUIVALENTS |
|
|
(659,415 |
) |
|
|
(56,872 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of
year |
|
|
749,474 |
|
|
|
194,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
90,059 |
|
|
$ |
137,243 |
|
|
|
|
|
|
|
|
F-138
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 18 REGULATORY MATTERS
|
|
|
The Bank is subject to various regulatory capital requirements administered by Federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
and material effect on the Banks financial statements. The regulations require the Bank to
meet specific capital adequacy guidelines that involve quantitative measures of the Banks
assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors. Quantitative
measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios of Tier 1, risk-based capital to total average assets, and minimum
ratios of Tier 1, total risk-based capital to risk-weighted assets. Risk-based capital
standards have been supplemented with requirements for a minimum Tier 1 capital to assets ratio
(leveraged ratio). The Banks required and actual capital ratios at June 30, 2010 and 2009, are
presented in the following table: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
Minimum |
|
|
|
Actual |
|
|
requirements |
|
|
Actual |
|
|
requirements |
|
Tier 1 risk-based capital |
|
|
13.21 |
% |
|
|
12.00 |
% |
|
|
13.60 |
% |
|
|
12.00 |
% |
Total risk-based capital |
|
|
14.48 |
% |
|
|
14.00 |
% |
|
|
14.76 |
% |
|
|
14.00 |
% |
Tier 1 leverage capital |
|
|
8.49 |
% |
|
|
8.00 |
% |
|
|
9.19 |
% |
|
|
8.00 |
% |
|
|
|
During 2005, the Bank underwent an examination conducted by the Office of the Comptroller
of the Currency (the OCC). The final written report of examination has been received by
management of the Bank and has been reviewed and signed by its Board of Directors. |
|
|
|
As a result of that examination, the Bank formally agreed to among other things, improve credit
administration process, commercial loan underwriting and loan asset quality, conforming loan
risk rating classifications to the regulatory commercial credit classification definitions and
evaluating the allowance for loan losses due to changes in classifications,
improving compliance with regulatory and policy requirements (Bank Secrecy Act and Regulation O
issues) and improving Board committee structure and processes and personnel management.
Management and the Board will report to the regulators throughout the year on |
F-139
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
|
the progress of
each specific recommendation. The Formal Agreement was signed by the Board of Directors on
February 10, 2006. |
|
|
|
As a result of the Formal Agreement, the Bank is required to immediately and thereafter maintain
higher than normal risk-based and leverage capital minimums as follows: Tier 1 risk-based
capital of 12.00%; Total risk-based capital of 14.00% and Tier 1 leverage capital of 8.00%. Due
to these minimum requirements, the Bank is no longer designated as well capitalized and is
categorized in the next category, adequately capitalized. |
|
|
|
During 2010 and 2009, the Bank underwent examinations conducted by the OCC and all capital
requirements continue to be met. |
|
|
|
Management believes that the Bank will continue to be able to meet the required higher
risk-based and leverage capital minimums as set forth in the Formal Agreement. Management also
believes it is in substantial compliance with all aspects of the Formal Agreement. |
NOTE 19 COMMITMENTS AND CONTINGENCIES
|
|
|
The Bank has a deferred compensation agreement with two executive officers, which provides
benefits payable through 2021 and 2027, respectively. As of June 30, 2010, the present value of
the deferred compensation payable under this agreement is $739,174, which has been accrued.
During 1998, the Board of Directors approved supplemental pensions for three additional
officers. The present value of the supplemental pensions under these agreements is $1,126,204,
which has been accrued at June 30, 2010. |
|
|
|
Financial instruments, which potentially subject the Bank to concentration of credit risk,
consist principally of loans. With respect to the loans, the Bank has loans totaling
approximately $5,154,506 to new single family housing construction, $14,466,533 to general
nonresidential construction, and $14,809,651 to other real estate activities principally
occurring in St. Marys, Charles and Calvert Counties, Maryland. |
|
|
|
In the normal course of business, the Holding Company and its subsidiary are 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 Holding Companys consolidated financial
statements. |
F-140
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
NOTE 20 RISKS AND UNCERTAINTIES
|
|
|
In the normal course of its business the Bank encounters two significant types of risk: economic
and regulatory. There are three main components of economic risk: interest rate risk, credit
risk and market risk. The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or re-price at different speeds, or on different bases, than
its interest-earning assets. Credit risk is the risk of default on the Banks loan portfolio
that results from borrowers inability or unwillingness to make contractually required payments.
Market risk reflects changes in the value of collateral underlying loans and investments. |
|
|
|
The Bank is subject to the regulations of various government agencies. These regulations can
and do change significantly from period to period. The Bank will also undergo periodic
examinations by the regulatory agencies, which may subject it to further changes with respect to
asset valuation, amounts of required loss allowances and operating restrictions resulting from
regulators judgments based on information available to them at the time of their examinations. |
NOTE 21 SUBSEQUENT EVENTS
|
|
|
Events that occur after the balance sheet date but before the consolidated financial statements
were available to be issued must be evaluated for recognition or disclosure. The effects of
subsequent events that provide evidence about conditions that existed at the balance sheet date
are recognized in the accompanying consolidated financial statements. Subsequent events which
provide evidence about conditions that existed after the balance sheet date require disclosure
in the accompanying notes. Management evaluated the activity of Maryland Bankcorp, Inc. and
Subsidiary through March 25, 2010, and concluded that no subsequent events, other than those
noted below have occurred that would require recognition in the consolidated financial
statements or disclosure in the notes to the consolidated financial statements. |
|
|
|
On September 1, 2010, the Holding Company entered into a definitive merger agreement, as amended
on September 30, 2010 (the Merger Agreement), with Old Line Bancshares, the holding company for
Old Line Bank, pursuant to which the Holding Company will merge with and into Old Line
Bancshares (the Merger), with Old Line Bancshares being the surviving corporation. The Merger
Agreement also provides that upon the consummation of the merger, the Bank will merge with and
into Old Line Bank, with Old Line Bank as the surviving institution (the Bank Merger). At the
effective time of the Merger, the board of |
F-141
Maryland Bankcorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
UNAUDITED
June 30, 2010 and 2009
|
|
|
directors of Old Line Bancshares will be increased by
two (2) directors and two (2) of the current directors of the Holding Company selected by the
board of directors of the Holding
Company, with the approval of Old Line Bancshares board of directors, will be added to the
board of directors of Old Line Bancshares and Old Line Bank. |
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Under the terms of the Merger Agreement, stockholders of the Holding Company will receive stock
of Old Line Bancshares or cash (subject to proration) for each of their shares of the Holding
Company with a value generally equal to the aggregate consideration to be paid in the merger
($20 million, subject to adjustment) divided by the number of outstanding shares of common stock
of the Holding Company. |
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|
Directors and executive officers of the Holding Company have entered into voting agreements with
Old Line Bancshares, pursuant to which they have agreed, among other things, to vote all shares
of common stock of the Holding Company owned by them in favor of the approval of the Merger at
the special meeting of stockholder to vote upon the Merger. |
|
|
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Consummation of the Merger is subject to certain terms and conditions, including, but not
limited to, receipt of various regulatory approvals and approval by both Old Line Bancshares
and the Holding Companys stockholders, and receipt of all necessary regulatory approvals. |
F-142
Annex A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 1, 2010, is made by and between Old
Line Bancshares, Inc., a Maryland corporation (OLB), and Maryland Bankcorp, Inc., a
Maryland corporation (MDBC).
BACKGROUND
1. MDBC owns directly all of the outstanding capital stock of Maryland Bank & Trust Company,
N.A., a national banking association (MDB&T).
2. OLB owns directly all of the outstanding capital stock of Old Line Bank, a Maryland
state-chartered commercial bank (Old Line).
3. OLB and MDBC desire for MDBC to merge with and into OLB, with OLB surviving the Merger, in
accordance with the applicable laws of the State of Maryland and this Agreement.
4. As a condition and inducement to OLB to enter into this Agreement, the Daugherty Group and
Watts Group, each as defined herein, are concurrently executing a Voting Limit and Standstill
Agreement in the form attached hereto as Exhibit A (the Voting Limit and Standstill
Agreement), and each of the directors of MDBC and MDB&T are concurrently executing a Support
Agreement in the form attached hereto as Exhibit B (the Support Agreement).
5. Each of the parties, by signing this Agreement, adopts it as a plan of reorganization as
defined in IRC Section 368(a) and intends the Merger to be a reorganization as defined in IRC
Section 368(a).
6. OLB and MDBC desire to provide for certain undertakings, conditions, representations,
warranties, and covenants in connection with the transactions contemplated hereby and governing the
transactions contemplated herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants, agreements,
representations and warranties herein contained, the parties, intending to be legally bound hereby,
agree as follows:
ARTICLE I.
GENERAL
Section 1.1 Background.
The Background information is a substantive part of this Agreement and is incorporated herein
and made a part hereof by reference.
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Section 1.2 Definitions.
As used in this Agreement, the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural forms of the terms defined):
Acquisition Proposal has the meaning given to the term in Section 5.6 of this Agreement.
Affiliate means, with respect to any Entity, any person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common control with, the Entity
and, without limiting the generality of the foregoing, includes any executive officer, director,
manager or 10% equity owner of the Entity.
AFTAP has the meaning given to the term in Section 3.13(d)(i) of this Agreement.
Aggregate Cash Consideration means the sum of (i) the Cash Consideration multiplied by the
number of Cash Election Shares, and (ii) any amounts paid in lieu of fractional shares of OLB
Common Stock pursuant to Section 2.5 of this Agreement, which sum shall not exceed One Million
Dollars ($1,000,000) in the aggregate; provided, however, that OLB shall have the sole and absolute
discretion to increase the amount of the Aggregate Cash Consideration paid to MDBC Common
Stockholders up to the total amount of items (i) and (ii). Notwithstanding the foregoing or any
other provision of this Agreement, in no event will the Aggregate Cash Consideration exceed an
amount that would result in the transaction failing to qualify as a tax-free reorganization under
IRC Section 368.
Aggregate Common Stock Consideration means the amount equal to the Common Stock Consideration
multiplied by the number of Common Stock Election Shares.
Aggregate Consideration has the meaning given to the term in Section 2.1(a) of this Agreement.
Aggregate MDBC Common Stock is equal to the number of shares of MDBC Common Stock outstanding
as of the Closing Date, which as of the date of this Agreement is 646,626 shares.
Agreement means this Agreement and Plan of Merger, including any amendment or supplement
hereto.
Application means an application for regulatory approval, which is required to consummate the
Contemplated Transactions.
Articles of Merger mean the articles of merger to be executed by OLB and MDBC and to be filed
with the SDAT, in accordance with the provisions of the MGCL.
Asset Quality Deduction has the meaning given to the term in Section 2.1(b)(ii) of this
Agreement.
Average Price means, during the Determination Period, the weighted average of (i) the closing
prices of OLB Common Stock as reported on the NASDAQ Capital Market (as reported
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by the Wall Street
Journal or, if not reported thereby, another authoritative source as chosen by the parties), and
(ii) the price or prices at which shares of OLB Common Stock are sold in a securities offering
conducted by OLB (other than in connection with a merger, exchange offer or other transaction other
than an issuance of new shares for cash) at any time during the Determination Period.
Notwithstanding the foregoing and for the purposes of calculating the Average Price, in no event
will the price or prices at which shares of OLB Common Stock are sold in an offering exceed the
greater of (i) 110% of the closing price of OLB Common Stock as reported on the NASDAQ Capital
Market on the last trading day of the quarter preceding the Determination Period, or (ii) the book
value per share, determined as the end of the quarter preceding the Determination Period in
accordance with GAAP.
Bank Merger has the meaning given to the term in Section 1.4(a) of this Agreement.
Bank Merger Agreement has the meaning given to the term in Section 1.4(a) of this Agreement.
BHC Act means the Bank Holding Company Act of 1956, as amended.
Business Day means any day other than (i) Saturday, (ii) Sunday or (iii) a day on which MDB&T
or Old Line is authorized or obligated by law or executive order to close.
Cash Consideration has the meaning given to the term in Section 2.2(a)(i) of this Agreement.
Cash Election means an Election to receive the Cash Consideration with respect to all or a
portion of a holders shares of MDBC Common Stock.
Cash Election Shares has the meaning given to the term in Section 2.2(b)(ii) of this
Agreement.
CERCLA means the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 U.S.C. §§ 9601, et seq.
Closing has the meaning given to the term in Section 1.3(a) of this Agreement.
Closing Date has the meaning given to the term in Section 1.3(a) of this Agreement.
Closing Estimate has the meaning given to the term in Section 2.1(b)(ii) of this Agreement.
Commissioner means the Maryland Office of the Commissioner of Financial Regulation.
Common Stock Consideration has the meaning given to the term in Section 2.2(a)(ii) of this
Agreement.
Common Stock Election means an Election to receive the Common Stock Consideration with respect
to all or a portion of a holders shares of MDBC Common Stock.
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Common Stock Election Shares has the meaning given to the term in Section 2.2(b)(i) of this
Agreement.
Confidentiality Agreement means the Amended and Restated Confidentiality Agreement between OLB
and MDBC dated August 18, 2010.
Contemplated Transactions means all of the transactions contemplated by this Agreement,
including the (i) Merger, (ii) Bank Merger, and (iii) performance by OLB and MDBC of their
respective covenants and obligations under this Agreement.
CRA has the meaning given to the term in Section 3.22 of this Agreement.
Credit Extension has the meaning given to the term in Section 5.1(s) of this Agreement.
Daugherty Group means G. Thomas Daugherty, his spouse, and any Entity directly or indirectly
controlled, collectively and/or individually, by G. Thomas Daugherty and/or his spouse, including
without limitation, any Entities jointly owned with the Watts Group; provided, however, that the
Daugherty Group does not include any KSOP or 401(k) plans of which a member of the Daugherty Group
is a trustee.
Determination Period means the 90 day period commencing on the 95th day prior to
the anticipated Closing Date.
Director Non-Compete Agreement has the meaning given to the term in Section 5.8(c)(v) of this
Agreement.
Disqualification Event has the meaning given to the term in Section 1.3(d)(i) of this
Agreement.
Effective Date means the date upon which the Articles of Merger are filed with the SDAT, which
shall be as soon practicable after the Closing Date.
Effective Time means the time on the Effective Date at which the Articles of Merger are filed
with the SDAT and are effective in accordance with MGCL.
Election means either a Common Stock Election, a Cash Election or a Mixed Election.
Election Deadline means 5:00 p.m., Eastern Time, on the day that is five Business Days prior
to the Closing Date.
Election Form means a form, in such form as OLB and MDBC shall mutually agree, on which
holders of MDBC Common Stock shall make an Election.
Entity means any corporation, limited liability company, partnership, sole proprietorship,
trust, joint venture, or other form of organization.
Environmental Assessment means an environmental assessment that is consistent with ASTM
1527-05 or 40 C.F.R. Part 312 and that may include an assessment of the (i) presence of a
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hazardous, toxic, radioactive or dangerous materials or other materials regulated under Environment
Laws, or (ii) presence, amount, physical condition and location of asbestos-containing materials
and lead-based paint or an assessment of indoor environmental issues.
Environmental Laws means any federal, state or local statute, law, rule, regulation,
ordinance, code, policy or rule of common law in each case as amended to date and any judicial or
administrative interpretation thereof, including any judicial or administrative order, consent
decree, or judgment, relating to the environment, human health or safety, or Hazardous Materials,
including without limitation: CERCLA; the Hazardous Materials Transportation Act, as amended, 49
U.S.C. §§ 1801, et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C.
§§ 6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. §§ 1201, et seq.;
the Toxic Substances Control Act, 15 U.S.C. §§ 2601, et seq.; the Clean Air Act, 42 U.S.C. §§ 7401,
et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f, et seq.; and the Occupational Safety and
Health Act, 29 U.S.C. §§ 651, et seq.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated thereunder.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
Exchange Agent means the agent designated by OLB (as soon as practicable following execution
of this Agreement) to act as the exchange agent for purposes of conducting the election procedure
described in Section 2.2(b) and the exchange procedure described in Section 2.7.
Exchange Fund has the meaning given to the term in Section 2.7(a) of this Agreement.
Exchange Ratio means the exchange ratio set forth in Section 2.2(a)(ii) of this Agreement.
FDIC means the Federal Deposit Insurance Corporation.
FRB means Board of Governors of the Federal Reserve Board.
GAAP means accounting principles generally accepted in the United States.
Hazardous Materials means: (i) any petroleum or petroleum products, natural gas, or natural
gas products, radioactive materials, asbestos, urea formaldehyde foam insulation, transformers or
other equipment that contains dielectric fluid containing levels of
polychlorinated biphenyls (PCBs), and radon gas; (ii) any chemicals, materials, waste or
substances defined as or included in the definition of hazardous substances, hazardous wastes,
hazardous materials, extremely hazardous wastes, restricted hazardous wastes, toxic
substances, toxic pollutants, contaminants, or pollutants, or words of similar import, under
any Environmental Laws; and (iii) any other chemical, material, waste or substance which is in any
way regulated for the protection of human health or environment by any federal, state or local
government authority, agency or instrumentality, including mixtures
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thereof with other materials,
and including any regulated building materials such as asbestos and lead.
IRC means the Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder.
IRS means the Internal Revenue Service.
IT Assets has the meaning given to the term in Section 3.17 of this Agreement.
Knowledge of MDBC means the actual knowledge of MDBCs executive officers and directors.
Knowledge of OLB means the actual knowledge of OLBs executive officers and directors.
Letter of Transmittal has the meaning given to the term in Section 2.7(b) of this Agreement.
Liens means all liens, pledges, charges, security interests, claims, or other encumbrances of
any kind.
Material Adverse Effect means a material adverse effect on the assets, financial condition, or
results of operations of MDBC or OLB, as applicable, or on the terms and conditions of this
Agreement or the Contemplated Transactions or the ability of MDBC or OLB, as applicable, to
consummate the Contemplated Transactions, other than, in each case, any change, circumstance or
effect relating to (i) any change in the value of the respective investment portfolios of OLB or
MDBC resulting from a change in interest rates generally, (ii) any change occurring after the date
hereof in any federal or state law, rule or regulation or in GAAP or applicable regulatory
accounting principles, which change affects banking institutions generally, including any change
affecting the Bank Insurance Fund, (iii) changes in general economic (except in the context of
determining a Material Adverse Effect for purposes of asset quality), legal, regulatory or
political conditions affecting banking institutions generally, (iv) reasonable expenses incurred in
connection with this Agreement and the Contemplated Transactions, (v) actions or omissions of a
party (or any of its Subsidiaries) taken pursuant to the terms of this Agreement with the prior
written consent of the other party in contemplation of the Contemplated Transactions (including
without limitation any actions taken pursuant to Section 5.8 of this Agreement), and (vi) any
effect with respect to a party hereto caused, in whole or in substantial part, by the other party.
Maximum Expense Amount has such meaning given to that term in Section 8.1 of this Agreement.
MDB&T has such meaning given to the term in the Background section of this Agreement.
MDBC has the meaning given to the term in the preamble of this Agreement.
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MDBC Benefit Plans means any employee pension benefit plans within the meaning of ERISA
Section 3(2), profit sharing plans, stock purchase plans, deferred compensation and supplemental
income plans, supplemental executive retirement plans, annual incentive plans, group insurance
plans, and all other employee welfare benefit plans within the meaning of ERISA Section 3(1)
(including vacation pay, sick leave, short-term disability, long-term disability, and medical
plans) and all other employee benefit plans, policies, agreements and arrangements currently
maintained or contributed to for the benefit of the employees or former employees (including
retired employees) and any beneficiaries thereof or directors or former directors of MDBC or any
other Entity that, together with MDBC, is treated as a single employer under IRC Sections 414(b),
(c), (m) or (o).
MDBC Certificate means a certificate that immediately prior to the Effective Time represents
issued and outstanding shares of MDBC Common Stock.
MDBC Common Stock has the meaning given to the term in Section 3.2(a) of this Agreement.
MDBC Common Stockholder is any holder of record of MDBC Common Stock immediately prior to the
Closing Date.
MDBC Common Stockholders Meeting means the meeting of the holders of MDBC Common Stock to
consider and vote on the Merger.
MDBC Companies means MDBC, MDB&T, and any other MDBC Subsidiary, collectively.
MDBC Disclosure Schedule means, collectively, the disclosure schedules delivered by MDBC to
OLB at or prior to the execution and delivery of this Agreement, as may be updated pursuant to
Section 5.7 of this Agreement.
MDBC ERISA Affiliate means any Entity that, together with MDBC, is treated as a single
employer under IRC Sections 414(b), (c), (m) or (o).
MDBC Executive Non-Compete Agreement has the meaning given to the term in Section 1.3(d)(iii)
of this Agreement.
MDBC Financials means (a) the consolidated balance sheets of MDBC at December 31, 2009 and
2008 and consolidated statements of income, statements of stockholders equity, and consolidated
statements of cash flows for MDBC for the years ended December 31, 2009, 2008 and 2007 as audited
by the Reznick Group, PC, and (b) unaudited quarterly financial reports for MDBC and the quarterly
call reports of MDB&T, along with any material representations attached to such reports for each
calendar quarter commencing with the quarter ended June 30, 2010, to be delivered within 45 days
after the end of the respective quarter, and (c) unaudited
financial statements of MDBC and MDB&T for each month end, commencing with the month ended
July 31, 2010, to be delivered within 20 days after the end of the respective month.
MDBC Nominees has the meaning given to the term in Section 1.3(d)(i) of this Agreement.
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MDBC Preferred Stock has the meaning given to the term in Section 3.2(a) of this Agreement.
MDBC Real Property has the meaning given to the term in Section 3.15(a) of this Agreement.
MDBC Regulatory Agreement has the meaning given to the term in Section 3.11(d)(iv) of this
Agreement.
MDBC Returns has the meaning given to the term in Section 3.7(e) of this Agreement.
MDBC Taxes has the meaning given to the term in Section 3.7(e) of this Agreement.
MDBC Termination Fee has the meaning given to the term in Section 8.1(c) of this Agreement.
Merger means the merger of MDBC with and into OLB, pursuant to the provisions of the MGCL,
whereupon (i) the separate existence of MDBC shall cease and OLB shall be the surviving corporation
and (ii) all of the outstanding shares of MDBC Common Stock will be converted into the right to
receive the Merger Consideration as contemplated by this Agreement.
Merger Consideration means the Common Stock Consideration and/or the Cash Consideration, as
contemplated by this Agreement.
MGCL means the Maryland General Corporation Law, as amended.
Mixed Election has the meaning given the term in Section 2.2(c) of this Agreement.
New Classified Item has the meaning given to the term in Section 2.1(b)(ii) of this Agreement.
No-Election Shares has the meaning given to the term in Section 2.2(b) of this Agreement.
Non-Operational Subsidiaries has the meaning given to the term in Section 3.1(g) of this
Agreement.
Objecting MDBC Shares means any shares of MDBC Stock issued and outstanding immediately prior
to the Closing Date, the holder of which has not voted in favor of the Merger and who has properly
followed the procedures set forth in Section 3-203 of the MGCL.
OCC means the Office of the Comptroller of the Currency.
OLB has the meaning given to the term in the preamble of this Agreement.
OLB Benefit Plan means any employee pension benefit plans within the meaning of ERISA Section
3(2), profit sharing plans, stock purchase plans, deferred compensation and supplemental income
plans, supplemental executive retirement plans, annual incentive plans, group insurance plans, and
all other employee welfare benefit plans within the meaning of
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ERISA Section 3(1) (including
vacation pay, sick leave, short-term disability, long-term disability, and medical plans) and all
other material employee benefit plans, policies, agreements and arrangements currently maintained
or contributed to for the benefit of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former directors of OLB or any other
Entity that, together with OLB, is treated as a single employer under IRC Sections 414(b), (c), (m)
or (o).
OLB Common Stock has the meaning given to the term in Section 4.2(a) of this Agreement.
OLB Common Stockholders Meeting means the meeting of the holders of OLB Common Stock to
consider and vote on the Merger.
OLB Companies means OLB, Old Line, and any other OLB Subsidiary, collectively.
OLB Disclosure Schedule means, collectively, the disclosure schedules delivered by OLB to MDBC
at or prior to the execution and delivery of this Agreement, as may be updated pursuant to Section
5.7 of this Agreement.
OLB ERISA Affiliate means any Entity that, together with OLB, is treated as a single employer
under IRC Sections 414(b), (c), (m) or (o).
OLB Financials means (a) the consolidated balance sheets of OLB at December 31, 2009 and 2008
and consolidated statements of income, statements of stockholders equity, and consolidated
statements of cash flows for OLB for the years ended December 31, 2009, 2008 and 2007 as audited by
Rowles & Company, LLP and as set forth in its annual report on Form 10-K, and (b) the consolidated
financial statements included in OLBs Quarterly Reports on Form 10-Q for each calendar quarter
commencing with the quarter ended June 30, 2010, to be delivered within 45 days after the end of
the respective quarter, and (c) unaudited consolidated financial statements for each month end,
commencing with month ended July 31, 2010 to be delivered within 15 days after the end of the
respective month.
OLB Preferred Stock has the meaning given to the term in Section 4.2(a) of this Agreement.
OLB Real Property has the meaning given to the term in Section 4.15(a) of this Agreement.
OLB Regulatory Agreement has the meaning given to the term in Section 4.11(d)(iv) of this
Agreement.
OLB Returns has the meaning given to the term in Section 4.7(e) of this Agreement.
OLB Taxes has the meaning given to the term in Section 4.7(e) of this Agreement.
OLB Termination Fee has the meaning given to the term in Section 8.1(b) of this Agreement.
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Old Line has the meaning given to the term in the Background section of this Agreement.
PBGC has the meaning given to the term in Section 3.13(a) of this Agreement.
Pre-Closing Period means the period commencing on the date of execution of this Agreement
through the earlier of (i) the Closing Date, or (ii) the date this Agreement is terminated pursuant
to Article VII herein.
Proprietary Rights has the meaning given to the term in Section 3.17 of this Agreement.
Prospectus/Proxy Statement means the prospectus/proxy statement, together with any supplements
thereto, to be sent to holders of MDBC Common Stock and holders of OLB Common Stock in connection
with the Merger, the MDBC Common Stockholders Meeting and the OLB Common Stockholders Meeting.
Reallocated Common Stock Shares has the meaning given to the term in Section 2.2(e)(ii)(C) of
this Agreement.
Registration Statement means the registration statement on Form S-4, including any
pre-effective or post-effective amendments or supplements thereto, as filed with the SEC under the
Securities Act, with respect to the OLB Common Stock to be issued to the MDBC Common Stockholders
in connection with the Merger.
Regulatory Authority means any agency or department of any federal, state or local government
or of any self-regulatory organization, including, without limitation, the SEC, OCC, Commissioner,
FRB, FDIC, and the respective staffs thereof.
Replacement Nominee has the meaning given to the term in Section 1.3(d) of this Agreement.
Rights means warrants, options, rights, convertible securities and other capital stock
equivalents, which obligate an Entity to issue its securities.
SDAT means the Maryland State Department of Assessments and Taxation.
SEC means the U.S. Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
Securities Laws means the Securities Act, the Exchange Act, and any applicable state blue sky
laws, collectively.
Subsidiary means any Entity, 50% or more of the equity interest of which is owned, either
directly or indirectly, by another Entity, except any Entity, the interest in which is held in the
ordinary course of the lending or fiduciary activities of a bank.
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Superior Proposal has the meaning given to the term in Section 5.8(a)(i) of this Agreement.
Support Agreement has the meaning given to the term in the Background section of this
Agreement.
Termination Fee has the meaning given to the term in Section 8.1(c) of this Agreement.
Voting Limit and Standstill Agreement has the meaning given to the term in the Background
section of this Agreement.
Watts Group means Thomas B. Watts, his spouse, and any Entity directly or indirectly
controlled, collectively and/or individually, by Thomas B. Watts and/or his spouse, including
without limitation, any Entities jointly owned with the Daugherty Group; provided, however, that
the Watts Group does not include any KSOP or 401(k) plans of which a member of the Watts Group is a
trustee.
Section 1.3 The Merger and Related Transactions.
(a) Closing. The parties agree to use commercially reasonable efforts to accomplish
the Closing (defined below) by March 31, 2011. The closing of the Contemplated Transactions (the
Closing) will take place at the offices of Ober, Kaler, Grimes and Shriver, P.C. located
at 120 E. Baltimore Street, Baltimore, Maryland, at a time and date to be agreed upon by the
parties hereto subsequent to the time that all conditions to Closing set forth in Article VI of
this Agreement (other than the delivery of certificates, opinions, and other instruments and
documents to be delivered at the Closing) have been satisfied or waived (the Closing
Date).
(b) The Merger. Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the State of Maryland, at the Effective Time:
(i) MDBC shall merge with and into OLB;
(ii) The separate existence of MDBC shall cease;
(iii) OLB shall be the surviving corporation in the Merger;
(iv) Each share of MDBC Common Stock issued and outstanding prior to the
Closing Date shall be converted into the right to receive either Common Stock
Consideration or Cash Consideration as provided in Article II of this Agreement; and
(v) Except as disclosed on MDBC Disclosure Schedule 1.3(b)(v), all of
the property (real, personal and mixed), rights, powers, duties, obligations and
liabilities of MDBC shall be taken and deemed to be transferred to and vested
in OLB, as the surviving corporation in the Merger, without further act or deed.
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(c) OLBs Articles of Incorporation and Bylaws. On and after the Effective Time, the
articles of incorporation and bylaws of OLB, as in effect immediately prior to the Effective Time,
shall automatically be and remain the articles of incorporation and bylaws of OLB, as the surviving
corporation in the Merger, until thereafter altered, amended or repealed.
(d) OLBs Board of Directors and Officers.
(i) Subsequent to the date of this Agreement and in accordance with Section
5.8(c)(ii) of this Agreement, OLB shall take such actions as may be necessary to, as
of the Effective Time (A) cause the number of directors comprising the full OLB
board of directors to be increased by two, and (B) elect Thomas B. Watts and G.
Thomas Daugherty, or, if applicable, one or two Replacement Nominees (each a
MDBC Nominee and collectively the MDBC Nominees) to fill the two
vacancies so created, with G. Thomas Daugherty elected to the class of directors
whose terms expire at the annual meeting of stockholders of OLB to be held in 2011
and Thomas B. Watts elected to the class of directors whose terms expire at the
annual meeting of stockholders of OLB to be held in 2013; provided, however, that if
Thomas B. Watts and/or G. Thomas Daugherty shall be subject to a Disqualification
Event, OLB shall instead take such actions as may be necessary to elect to fill the
vacancy so created with one of the individuals set forth on MDBC Disclosure
Schedule 1.3(d) (each a Replacement Nominee). On and after the
Effective Time, (1) the directors of OLB duly elected and holding office immediately
prior to the Effective Time, and (2) provided they agree to serve as directors of
OLB, each of the MDBC Nominees, shall be the directors of OLB, each to hold office
until his successor is elected and qualified or otherwise in accordance with
applicable law and the articles of incorporation and bylaws of OLB; further
provided, that in no event shall OLBs obligations under this section apply with
respect to any MDBC Nominee subject to a Disqualification Event.
Subject to the fiduciary duties of the OLB board of directors, OLBs articles of
incorporation and bylaws and the eligibility requirements of any Regulatory
Authority relating to OLB, and provided that the applicable MDBC Nominee is not
subject to a Disqualification Event, each of the MDBC Nominees serving as an OLB
director on the date of the annual meeting of stockholders of OLB held in 2011 shall
be nominated for election as a director of OLB at such annual meeting, with G.
Thomas Daugherty (or any applicable Replacement Nominee) nominated for election for
a three-year term expiring at the annual meeting of stockholders of OLB to be held
in 2014 and Thomas B. Watts (or any applicable Replacement Nominee) nominated for
election for a two-year term expiring at the annual meeting of stockholders of OLB
to be held in 2013, provided that such MDBC Nominee agrees to serve as a director if
elected.
As used in this Agreement, the term Disqualification Event means, as to
any
MDBC Nominee, the occurrence of any of the following events: (i) such nominee shall
be prohibited by law, order, injunction, decree or otherwise from serving as a
director of OLB; (ii) such nominee shall have been charged with or convicted of
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any
felony or crime of moral turpitude; (iii) such nominee shall file (or any Entity of
which such nominee shall have been an executive officer or controlling person within
the 90 days prior to filing shall file) a voluntary petition under any federal or
state bankruptcy or insolvency law, or such nominee shall become (or any Entity
indebted to OLB of which such nominee shall have been an executive officer or
controlling person within the 90 days prior to filing shall become) the subject of
an involuntary petition filed under any such law that is not dismissed within 30
days; (iv) such nominee shall be involved in any of the events or circumstances
enumerated in Item 401(f)(3)-(6) of Regulation S-K (or any successor or substitute
provision of similar import) promulgated by the SEC, or similar provisions of state
blue sky laws; (v) the death, disability or other personal reasons beyond the
control of such nominee that prevents them from serving as a nominee; or (vi) such
nominee shall violate any covenant or agreement contained in his Voting Limit and
Standstill Agreement.
(ii) At the Effective Time, the officers of OLB duly elected and holding office
immediately prior to the Effective Time shall be the officers of OLB, as the
surviving corporation in the Merger.
(iii) As of the Closing Date, Old Line shall enter into a three-year
non-compete agreement with Thomas B. Watts and G. Thomas Daugherty, in exchange for
the sum of two hundred thousand dollars ($200,000) payable to each in equal
installments on a quarterly basis during the first two years of the term of such
agreement, substantially in the form attached hereto as Exhibit C (the
MDBC Executive Non-Compete Agreement).
Section 1.4 The Bank Merger.
(a) Plan of Merger. Subject to the terms and conditions of the Agreement of Plan of
Merger attached hereto as Exhibit D (the Bank Merger Agreement) and in accordance
with Title 3, Subtitle 7 of the Financial Institutions Article of the Annotated Code of Maryland
and Section 214a of the National Bank Act, immediately after the Merger, MDB&T shall be merged with
and into Old Line and the separate existence of MDB&T shall cease (the Bank Merger). Old
Line shall be the surviving Entity in the Bank Merger and shall continue its existence as a bank
under the laws of the State of Maryland, and as a wholly-owned operating subsidiary of OLB, subject
to the provisions of this Section 1.4.
(b) Board of Directors. Subsequent to the date of this Agreement, and in accordance
Section 5.8(c)(ii) of this Agreement, OLB shall take such actions as may be necessary to, as of the
Effective Date (i) cause the number of directors comprising the full Old Line board of directors to
be increased by two and (ii) elect or appoint the MDBC Nominees to fill the two vacancies so
created, with G. Thomas Daugherty (or the applicable Replacement Nominee) elected to the class of
directors whose terms expire at the annual meeting of stockholders of Old Line to be held in 2011
and Thomas B. Watts (or the applicable
Replacement Nominee) elected to the class of directors whose terms expire at the annual
meeting of stockholders of Old Line to be held in 2013. At and after the Effective Time (A) the
directors of Old Line duly elected and holding office immediately prior to the Effective Time, and
(B)
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provided they agree to serve as directors, each of the MDBC Nominees, shall be the directors of
Old Line, each to hold office until his successor is elected and qualified or otherwise in
accordance with applicable law, the articles of incorporation and bylaws of Old Line. Old Line
will further, in accordance with Section 5.8(c)(ii)(B), (1) take such actions as are necessary to
cause Old Line to nominate each MDBC Nominee to serve as a director of Old Line during any time,
and for the same term that, such MDBC Nominee serves as a director of OLB, and (2) will, as the
sole stockholder of Old Line, vote to elect any such MDBC Nominee so nominated by Old Line.
ARTICLE II.
CONSIDERATION; ELECTION AND EXCHANGE PROCEDURES
Section 2.1 Aggregate Consideration; Potential Adjustments
(a) Aggregate Consideration. Subject to the provisions of Section 2.1(b) and 2.1(c),
the value of the aggregate consideration in the Merger shall be Twenty Million Dollars
($20,000,000) as the same may be adjusted pursuant to Section 2.1(b) and 2.1(c) below. The
Aggregate Cash Consideration, which shall constitute the only cash consideration to be paid in the
Merger, together with the Aggregate Common Stock Consideration shall comprise the total
consideration to be paid in the Merger (the Aggregate Consideration).
(b) Potential Operating Loss, Asset Quality Adjustments and Maximum Expense Amount.
No later than five Business Days prior to the Closing Date, the Aggregate Consideration shall be
adjusted based on operating losses, asset quality and Maximum Expenses as follows:
(i) Operating Loss Adjustments. Any consolidated operating losses of
MDBC reported for any quarter ending after March 31, 2010, excluding any provisions
for loan losses, shall be deducted from the Aggregate Consideration on a post-tax,
dollar-for-dollar basis.
(ii) Asset Quality Adjustments. Except as disclosed on MDBC
Disclosure Schedule 2.1(b)(ii), which constitutes MDBCs classified assets as of
March 31, 2010, any credit that, after March 31, 2010, becomes classified as special
mention, substandard, non-accrual or OREO, requires a FASB 114 allocation, or is
more than 90 days past due (each being a New Classified Item), will be
examined by OLB and assigned a current estimate of projected loss for each New
Classified Item by OLB within 30 days prior to the Closing Date and no later than
five days prior to the Closing Date (the Closing Estimate). Each New
Classified Item, including OLBs initial estimate of projected loss for each New
Classified Item, shall be disclosed on OLB Disclosure Schedule 2.1(b)(ii),
which shall be attached no later than five Business Days prior to the Closing Date.
The difference between the Closing Estimate and OLBs initial estimate of projected
loss for each New Classified Item (if no projected loss was estimated,
then the difference is equal to the Closing Estimate) shall be deducted from
the Aggregate Consideration on a post-tax, dollar-for-dollar basis (each being an
Asset Quality Deduction). In the event OLBs initial estimate of
projected loss
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for each New Classified Item exceeds the actual loss or Closing
Estimate, such excess will be used to offset any Asset Quality Deductions.
(iii) Maximum Expense Amount. Any costs or expenses incurred in
connection with this Agreement that exceed the Maximum Expense Amount shall be
deducted from the Aggregate Consideration on a post-tax, dollar-for-dollar basis.
(c) Potential Average Price Adjustments.
(i) Proportionate Increase in Aggregate Consideration. If the Average
Price exceeds $11.45, the Aggregate Consideration shall be increased by the amount
calculated by (x) multiplying the difference between $11.45 and the Average Price by
the applicable Common Stock Consideration of 2.7004, and then (y) multiplying the
resulting number by the Aggregate MDBC Common Stock.
(ii) Proportionate Reduction in Aggregate Consideration. If the
Average Price is less than $7.63, the Aggregate Consideration shall be reduced by
the amount calculated by (x) multiplying the difference between $7.63 and the
Average Price by the applicable Common Stock Consideration of 4.0524, and then (y)
multiplying the resulting number by the Aggregate MDBC Common Stock.
Section 2.2 Form of Consideration; Exchange Ratio; Conversion.
(a) Conversion Alternatives. Subject to Sections 2.2(f), 2.5 and 2.6 below with
respect to OLB owned stock, fractional shares and Objecting MDBC Shares, each share of MDBC Common
Stock issued and outstanding immediately prior to the Closing Date shall, at the Effective Time, by
reason of the Merger and without any action on the part of the holder thereof, cease to be
outstanding and shall be converted into the right to receive, at the election of the holder
thereof, the Common Stock Consideration and/or the Cash Consideration as follows:
(i) Cash Consideration. The Cash Consideration is equal to
the Aggregate Consideration divided by the Aggregate MDBC Common Stock, rounded down
to the nearest ten-thousandths, subject to the limitations on Cash Consideration set
forth in this Agreement. Assuming there are no adjustments to the Aggregate
Consideration pursuant to Section 2.1(b) of this Agreement, the Cash Consideration
will be $30.9298 for each share of MDBC Common Stock.
(ii) Common Stock Consideration. The Common Stock
Consideration is the number of shares of OLB Common Stock equal to the quotient
of Cash Consideration divided by the Average Price, rounded down to the nearest
ten-thousandths; provided, however, that if the Average Price exceeds $11.45, then
the Common Stock Consideration shall be equal to 2.7004 shares of
OLB Common Stock, and, if the Average Price is less than $7.63, then the Common
Stock Consideration shall be equal to 4.0524 shares of OLB Common Stock (the
Exchange Ratio).
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(b) Election Procedures. OLB and MDBC will include a copy of an Election Form with
each copy of the Prospectus/Proxy Statement mailed to holders of MDBC Common Stock in connection
with the MDBC Common Stockholders Meeting, pursuant to which MDBC Common Stockholders will:
(i) Elect to receive the Common Stock Consideration with respect to all or a
portion of their shares of MDBC Common Stock (the Common Stock Election
Shares); or
(ii) Elect to receive the Cash Consideration with respect to all or a portion
of their shares of MDBC Common Stock (the Cash Election Shares).
OLB and MDBC shall each use its reasonable efforts to make the Election Form available to
all persons who become holders of MDBC Common Stock during the period between the record
date for the MDBC Common Stockholders Meeting and the Election Deadline. Any holders
Election shall have been properly made only if the Exchange Agent shall have received at its
designated office, by the Election Deadline, a properly completed and signed Election Form
accompanied by the MDBC Certificate(s) to which such Election Form relates, in form
acceptable for transfer (or by an appropriate guarantee of delivery of such MDBC
Certificate(s) as set forth in such Election Form from a firm which is an eligible
guarantor institution (as defined in Rule 17Ad-15 under the Exchange Act) provided that
such MDBC Certificate(s) are in fact delivered to the Exchange Agent by the time set forth
in such guarantee of delivery). If a holder of MDBC Common Stock (i) does not submit a
properly completed Election Form before the Election Deadline, (ii) revokes an Election Form
prior to the Election Deadline and does not resubmit a properly completed Election Form
prior to the Election Deadline, or (iii) fails to perfect his, her or its rights pursuant to
Section 2.6(b) of this Agreement, then the shares of MDBC Common Stock held by such holder
shall be designated No-Election Shares. Nominee record holders who hold MDBC
Common Stock on behalf of multiple beneficial owners shall be required to indicate how many
of the shares held by them are Common Stock Election Shares, Cash Election Shares and
No-Election Shares.
For purposes of this Section 2.2, any Objecting MDBC Shares shall be deemed to be Cash
Election Shares and, with respect to such shares, the holders thereof shall in no event be
classified as holders of Reallocated Common Stock Shares.
(c) Mixed Election. Subject to the immediately following sentence, each record holder
of shares of MDBC Common Stock immediately prior to the Closing Date shall be entitled to elect to
receive the Common Stock Consideration for a portion of such holders shares of MDBC Common Stock
and the Cash Consideration for the remaining portion of such holders shares of MDBC Common Stock
(a Mixed Election). With respect to each holder of MDBC Common Stock who makes a Mixed
Election and subject to the allocation rules set forth in Section 2.2(e) below, the shares of MDBC
Common Stock that such holder elects to be
converted into the right to receive the Common Stock Consideration shall be treated as Common
Stock Election Shares and the shares such holder elects to be converted into the right to receive
the Cash Consideration shall be treated as Cash Election Shares.
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(d) Effective Election. Any Election shall be properly made only if the Exchange
Agent shall have actually received a properly completed Election Form by the Election Deadline.
Any Election Form may be revoked or changed by the person submitting such Election Form to the
Exchange Agent by written notice to the Exchange Agent only if such written notice is actually
received by the Exchange Agent at or prior to the Election Deadline. The Exchange Agent shall have
reasonable discretion to (i) determine whether any Election, modification or revocation is
received, (ii) determine whether any Election, modification or revocation has been properly made,
and (iii) disregard immaterial defects in any Election Form. Good faith determinations made by the
Exchange Agent regarding such matters shall be binding and conclusive. Neither OLB, MDBC, nor the
Exchange Agent shall be under any obligation to notify any person of any defect in an Election
Form.
(e) Allocation. Subject and after giving effect to Section 2.2(b), the Exchange Agent
shall effect the allocation of the Aggregate Consideration among the holders of MDBC Common Stock
in accordance with their respective Election Forms and the following allocation rules:
(i) Aggregate Common Stock Consideration Equal to or more than Ninety-Five
Percent. If the number of Common Stock Election Shares is equal to or more than
ninety-five percent (95%) of the total number of shares of MDBC Common Stock issued
and outstanding on the Closing Date, then:
(1) All Cash Election Shares (subject to Section 2.6 with respect to MDBC
Objecting Shares) shall be converted into the right to receive the Cash
Consideration; and
(2) All Common Stock Election Shares and all No-Election Shares shall be
converted into the right to receive the Common Stock Consideration;
such that the aggregate number of Common Stock Election Shares is at least
ninety-five (95%), and the aggregate number of Cash Election Shares is no more than
five percent (5%), of the total number of shares of MDBC Common Stock issued and
outstanding on the Closing Date.
(ii) Aggregate Common Stock Consideration Undersubscribed. If the
number of Common Stock Election Shares is less than ninety-five percent (95%) of the
total number of shares of MDBC Common Stock issued and outstanding on the Closing
Date, then:
(1) All No-Election Shares shall be converted into Common Stock Election
Shares;
(2) All Common Stock Election Shares shall be converted into the right to
receive the Common Stock Consideration;
(3) If all of the No-Election Shares are converted to Common Stock Election
Shares under Section 2.2(e)(ii)(A) and the number of Common Stock Election Shares
then remains less than ninety-five percent (95%) of the total
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number of shares of
MDBC Common Stock issued and outstanding on the Effective Date, then the Exchange
Agent shall convert, on a pro rata basis as described in Section 2.2(e)(iii) below,
a sufficient number of Cash Election Shares (excluding Objecting MDBC Shares) into
Common Stock Election Shares (Reallocated Common Stock Shares) such that
the number of Common Stock Election Shares (including No-Election Shares and
Reallocated Common Stock Shares) equals ninety-five percent (95%) of the total
number of shares of MDBC Common Stock issued and outstanding on the Closing Date,
and such Reallocated Common Stock Shares shall be converted into the right to
receive the Common Stock Consideration; and
(4) All Cash Election Shares (subject to Section 2.6 with respect to MDBC
Objecting Shares) which are not Reallocated Common Stock Shares shall be converted
into the right to receive the Cash Consideration;
such that the aggregate number of Common Stock Election Shares is at least
ninety-five percent (95%), and the aggregate number of Cash Election Shares is no
more than five percent (5%), of the total number of shares of MDBC Common Stock
issued and outstanding on the Closing Date, unless otherwise authorized and agreed
to by OLB at its sole and absolute discretion.
(iii) Pro Rata Reallocations. If the Exchange Agent is required
pursuant to Section 2.2(e)(ii)(C) to convert some Cash Election Shares into
Reallocated Common Stock Shares, each holder of Cash Election Shares shall be
allocated a pro rata portion of the total Reallocated Common Stock Election Shares.
(f) Cancellation of Certain Common Stock. Notwithstanding any other provision of this
Section 2.2, at the Effective Time, each share of MDBC Common Stock that is owned, directly or
indirectly, by OLB or any of its Subsidiaries (other than shares that are held in trust, managed,
custodial or nominee accounts and the like and which are beneficially owned by third parties or
held for debts previously contracted) shall be cancelled and no cash, stock or other property shall
be delivered in exchange therefor.
Section 2.3 OLB Common Stock.
Each share of OLB Common Stock issued and outstanding immediately prior to the Effective Date
shall, on and after the Effective Date, continue to be issued and outstanding.
Section 2.4 [Intentionally Omitted.]
Section 2.5 Fractional Shares.
No fractional shares of OLB Common Stock and no scrip or certificates therefor shall be issued
in connection with the Merger. Any former holder of MDBC Common Stock who would
otherwise be entitled to receive a fraction of a share of OLB Common Stock shall receive, in
lieu thereof, cash in an amount equal to the product of (i) the amount of the Cash Consideration
and
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(ii) the fraction of a share (rounded down to the nearest ten-thousandths) of OLB Common Stock
to which such holder would otherwise be entitled to receive pursuant to this Article II.
Section 2.6 Objecting MDBC Common Stockholders.
(a) The MDBC Common Stock held by any MDBC Common Stockholder that objects to the Merger and
complies with the procedures set forth under MGCL, will not be converted into or represent a right
to receive the Merger Consideration under this Agreement, and the holder thereof shall be entitled
only to such rights as are granted by Section 3-202 of the MGCL.
(b) If any such holder of MDBC Common Stock shall have failed to comply with Section 3-203 of
the MGCL, or shall have effectively withdrawn or lost the right granted thereunder, and if such
holder delivered a properly completed Election Form to the Exchange Agent by the Election Deadline,
the Objecting MDBC Shares held by such holder shall be converted into a right to receive the Common
Stock Consideration or the Cash Consideration in accordance with the applicable provisions of this
Agreement. If any such holder of MDBC Common Stock shall have failed to perfect or effectively
shall have withdrawn or lost such right, and if such holder shall not have delivered a properly
completed Election Form to the Exchange Agent by the Election Deadline, the Objecting MDBC Shares
held by such holder shall be designated No-Election Shares and shall be converted on a share by
share basis into either the right to receive the Common Stock Consideration or the Cash
Consideration in accordance with the applicable provisions of this Agreement.
(c) All payments in respect of Objecting MDBC Shares, if any, will be made by OLB.
Section 2.7 Surrender and Exchange of MDBC Common Stock Certificates.
(a) Subject to the other provisions of this Article II, on or immediately prior to the
Effective Date, OLB shall deposit in trust with or otherwise make available to the Exchange Agent
for the benefit of the holders of shares of MDBC Common Stock, for exchange in accordance with this
Agreement, through the Exchange Agent, (i) certificates representing the Aggregate Common Stock
Consideration, and (ii) cash sufficient to pay the Cash Consideration (such cash and certificates
for shares of OLB Common Stock being hereinafter referred to as the Exchange Fund).
(b) As soon as practicable after the Effective Time, and in no event later than five Business
Days thereafter, the Exchange Agent shall mail to each person or Entity that was a MDBC Common
Stockholder a letter of transmittal and instructions for use in effecting the surrender the MDBC
Certificates in exchange for the Merger Consideration (the Letter of Transmittal).
(c) Each MDBC Common Stockholder, upon proper surrender of MDBC Certificates to the Exchange
Agent, accompanied by duly executed Letters of Transmittal, shall be entitled to receive in
exchange therefor (i) a certificate representing the number of whole
shares of OLB Common Stock to which such MDBC Common Stockholder shall have become entitled
pursuant to the provisions of Section 2.2, and/or (ii) a check representing the amount of
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Cash
Consideration and any cash in lieu of fractional shares which such holder has the right to receive
hereunder. Each MDBC Certificate so surrendered shall be cancelled. Until so surrendered, each
MDBC Certificate will be deemed for all purposes after the Effective Time to represent and evidence
solely the right to receive the Merger Consideration to be paid therefor pursuant to this
Agreement. Except as required by law, no interest shall be payable with respect to the Cash
Consideration, the cash payable for fractional shares or the cash payable for Objecting Shares. If
any MDBC Common Stockholder is unable to locate any MDBC Certificate(s) to be surrendered for
exchange, the Exchange Agent shall deliver the corresponding share of the Merger Consideration to
the registered stockholder thereof upon receipt of a lost certificate affidavit and an indemnity
agreement in a form acceptable to the Exchange Agent and OLB.
(d) The delivery of the Merger Consideration by the Exchange Agent shall be as soon as
practicable following the receipt by the Exchange Agent of the applicable MDBC Certificate(s) and
duly executed Letters of Transmittal.
(e) No dividends or other distributions declared with respect to OLB Common Stock shall be
paid to the holder of any unsurrendered MDBC Certificate until the holder thereof shall surrender
such MDBC Certificate(s) in accordance with this Section 2.7. Pending such surrender, any dividend
or distribution payable in respect of such shares shall be delivered to the Exchange Agent to be
held as part of the Exchange Fund. After the surrender of a MDBC Certificate in accordance with
this Section 2.7, the record holder thereof shall be entitled to receive any such dividends or
other distributions, without any interest thereon, which theretofore had become payable with
respect to shares of OLB Common Stock represented by such MDBC Certificate.
(f) If any certificate representing shares of OLB Common Stock is to be issued in a name other
than that in which the MDBC Certificate(s) surrendered in exchange therefor is or are registered,
it shall be a condition of the issuance thereof that the MDBC Certificate(s) so surrendered shall
be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance of a certificate
representing shares of OLB Common Stock in any name other than that of the registered holder of the
MDBC Certificate(s) surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not payable.
(g) After the Effective Time, there shall be no transfers on the stock transfer books of MDBC
of the shares of MDBC Common Stock that were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time, MDBC Certificates (or stock options or stock
purchase warrants) are presented for transfer they shall be cancelled and exchanged for cash and
certificates representing shares of OLB Common Stock as provided in this Article II.
(h) Notwithstanding anything to the contrary contained herein, no certificates or scrip
representing fractional shares of OLB Common Stock shall be issued upon the surrender for exchange
of MDBC Certificates, no dividend or distribution with respect to OLB Common
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Stock shall be payable
on or with respect to any fractional share, and such fractional share interests shall not entitle
the owner thereof to vote or to any other rights of a stockholder of OLB. In lieu of the issuance
of any such fractional share, OLB shall pay to each holder of MDBC Common Stock who otherwise would
be entitled to receive such fractional share an amount in cash determined by multiplying (i) the
amount of the Cash Consideration by (ii) the fraction of a share (rounded to the nearest
ten-thousandths when expressed in decimal form) of OLB Common Stock to which such holder would
otherwise be entitled to receive pursuant to this Article II, rounded down to the nearest
ten-thousandths.
(i) Any portion of the Exchange Fund that remains unclaimed by the MDBC Common Stockholders
for 12 months after the Effective Time shall be paid to OLB. Any MDBC Common Stockholders who have
not theretofore complied with this Section 2.7 shall thereafter look only to OLB for payment of the
Merger Consideration deliverable in respect of each share of MDBC Common Stock such stockholder
holds as determined pursuant to this Agreement, without any interest thereon. Notwithstanding the
foregoing, MDBC, OLB, the Exchange Agent or any other person shall not be liable to any former
holder of MDBC Common Stock for any amount delivered in good faith to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.8 Other Matters.
Nothing set forth in this Agreement or any exhibit or schedule to this Agreement shall be
construed to:
(a) Preclude any of the OLB Companies from acquiring or assuming, or to limit in any way the
right of any of the OLB Companies to acquire or assume, prior to or following the Effective Date,
the stock, assets or liabilities of any other financial services institution or other Entity,
whether by issuance or exchange of OLB Common Stock or any securities convertible into shares of
OLB Common Stock, unless such transaction would result in a Material Adverse Effect on OLB;
(b) Preclude OLB from issuing, or to limit in any way the right of OLB to issue, prior to five
Business Days before the Effective Date, OLB Common Stock, or other securities;
(c) Preclude OLB from granting employee, director, or compensatory options at any time with
respect to OLB Common Stock or other securities in the ordinary course of business;
(d) Preclude option holders or plan participants of OLB from exercising options at any time
with respect to OLB Common Stock or other securities; or
(e) Preclude any of the OLB Companies from taking, or to limit in any way the right of any of
them to take, any other action not expressly and specifically prohibited by the terms of this
Agreement.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF MDBC
Except as otherwise disclosed in one or more schedules numbered to correspond to the following
Sections of this Article III and delivered concurrently with this Agreement, MDBC hereby represents
and warrants to OLB as follows:
Section 3.1 Organization.
(a) MDBC is a corporation duly incorporated, validly existing, and in good standing under the
laws of the State of Maryland. MDBC is a bank holding company duly registered under the BHC Act.
MDBC has the full corporate power and lawful authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now owned and being operated
by it. MDBC is duly licensed, registered or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing, registration or qualification necessary, except
where the failure to be so licensed, registered or qualified would not have a Material Adverse
Effect on MDBC, and all such licenses, registrations and qualifications are in full force and
effect in all material respects.
(b) MDB&T is a bank duly organized, validly existing and in good standing under the laws of
the United States of America. MDB&T has the corporate power and authority to carry on its business
and operations as now being conducted and to own and operate the properties and assets now owned
and being operated by it. MDB&T is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing, registration or qualification
necessary, except where the failure to be so licensed, registered or qualified would not have a
Material Adverse Effect on MDBC, and all such licenses, registrations and qualifications are in
full force and effect in all material respects.
(c) The deposits of MDB&T are insured by the FDIC to the extent provided in the Federal
Deposit Insurance Act.
(d) MDBC Disclosure Schedule 3.1(d) contains a complete and accurate list of all
Subsidiaries of MDBC and MDB&T. Each such Subsidiary is duly organized, validly existing and in
good standing under the laws of the state of its organization and has the corporate power and
authority to carry on its business and operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Each such Subsidiary is duly licensed,
registered or qualified to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned or leased by it
makes such licensing, registration or qualification necessary, except where the failure to be so
licensed, registered or qualified would not have a Material Adverse Effect on MDBC, and all such
licenses, registrations and qualifications are in full force and effect in all material respects.
(e) The respective minute books of MDBC and each MDBC Subsidiary accurately record, in all
material respects, all material corporate actions of their respective
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stockholders and boards of directors, including committees, in each case in accordance with
normal business practice of MDBC or any MDBC Subsidiary.
(f) MDBC has delivered to OLB true and correct copies of the articles of incorporation and
bylaws of MDBC, and the articles of incorporation, articles of association, articles of
organization, bylaws and operating agreement for each MDBC Subsidiary, as applicable, and each as
in effect on the date hereof.
(g) MDBC Disclosure Schedule 3.1(g) contains a complete and accurate list of all
Subsidiaries that are no longer operational or provide any business function for or on behalf of
MDBC or MDB&T (the Non-Operational Subsidiaries).
Section 3.2 Capitalization.
(a) The authorized capital stock of MDBC consists of (i) ten million (10,000,000) shares of
common stock, $0.01 par value per share (MDBC Common Stock), of which, as of the date of
this Agreement, 646,626 shares are validly issued and outstanding, fully paid and nonassessable,
free of preemptive rights, except as may be defined in MDBCs articles of incorporation, and were
not issued in violation of the preemptive rights of any person or in violation of any applicable
federal or state securities law, and (ii) five million (5,000,000) shares of preferred stock, $0.01
par value per share (MDBC Preferred Stock), of which none are issued and outstanding.
(b) MDBC owns, directly or indirectly, all of the capital stock of the MDBC Subsidiaries, free
and clear of any Liens, agreements and restrictions of any kind or nature, except for those
Subsidiaries identified in MDBC Disclosure Schedule 3.2(b). Except as set forth in
MDBC Disclosure Schedule 3.2(b), MDBC has not issued nor is MDBC bound by any subscription,
call, commitment, agreement or other Right of any character relating to the purchase, sale, or
issuance of, or right to receive dividends or other distributions on, any shares of MDBC Common
Stock, MDBC Preferred Stock, or any other security of MDBC or any securities representing the right
to vote, purchase or otherwise receive any shares of MDBC Common Stock, MDBC Preferred Stock, or
any other security of MDBC. Accordingly, there will be no more than 646,626 shares of MDBC Common
Stock issued and outstanding on a fully diluted basis, and there will be no shares of MDBC
Preferred Stock issued and outstanding.
(c) Except as set forth on MDBC Disclosure Schedule 3.2(c), no person or group is the
beneficial owner of 5% or more of the outstanding shares of MDBC Common Stock (the terms person,
group and beneficial owner are as defined in Section 13(d) of the Exchange Act, and the rules
and regulations thereunder).
Section 3.3 Authority; No Violation.
(a) MDBC has full corporate power and authority to execute and deliver this Agreement, to
consummate the Contemplated Transactions and to otherwise comply with its obligations under this
Agreement, subject to receipt of all necessary approvals of Regulatory Authorities and approval of
this Agreement by the MDBC Common Stockholders. The execution and delivery of this Agreement by
MDBC and the consummation by MDBC of the Merger have been duly and validly approved by the board of
directors of MDBC and, except for
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approval by the MDBC Common Stockholders as required by the MGCL and MDBCs articles of
incorporation, no other corporate proceedings on the part of MDBC are necessary to consummate the
Merger. This Agreement has been duly and validly executed and delivered by MDBC and, subject to
approval by the stockholders of MDBC and subject to receipt of the required approvals of Regulatory
Authorities, constitutes the valid and binding obligation of MDBC, enforceable against MDBC in
accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject, as to enforceability, to general principles of equity.
(b) The execution and delivery of this Agreement by MDBC and consummation of the Contemplated
Transactions, subject to receipt of approvals from the MDBC Common Stockholders and the Regulatory
Authorities, and MDBCs and OLBs compliance with any conditions contained in the Agreement, and
compliance by MDBC or any MDBC Subsidiary with any of the terms or provisions hereof, do not and
will not:
(i) Conflict with or result in a breach of any provision of the respective
articles of incorporation, articles of association, or bylaws of MDBC or any MDBC
Subsidiary;
(ii) Violate any statute, rule, regulation, judgment, order, writ, decree or
injunction applicable to MDBC or any MDBC Subsidiary or any of their respective
properties or assets; or
(iii) Except as described in MDBC Disclosure Schedule 3.3(b) or
pursuant to which consent notification is required as set forth in MDBC
Disclosure Schedule 3.4, violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of, or
acceleration of, the performance required by, or result in a right of termination or
acceleration or the creation of any Lien upon any of the properties or assets of
MDBC or any MDBC Subsidiary under any of the terms or conditions of any note, bond,
mortgage, indenture, license, lease, agreement, commitment or other instrument or
obligation to which MDBC or any MDBC Subsidiary is a party, or by which they or any
of their respective properties or assets may be bound or affected, except where such
termination, acceleration or creation would not have a Material Adverse Effect on
MDBC.
(c) MDB&T has all requisite corporate power and authority to execute and deliver the Bank
Merger Agreement, and to consummate the transactions contemplated thereby, subject to receipt of
the required approvals of Regulatory Authorities. The execution and delivery of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby have been duly and validly
approved by the board of directors of MDB&T and, other than the approval of the Bank Merger
Agreement by MDBC as the sole stockholder of MDB&T as required by law, no further corporate
proceedings of MDB&T are needed to execute and deliver the Bank Merger Agreement and consummate the
transactions contemplated thereby. The Bank Merger Agreement has been duly authorized and upon
execution and delivery by MDB&T, it will be a legal, valid and binding agreement of MDB&T
enforceable in accordance
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with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors rights generally and general equitable principles. At
the Closing, all other agreements, documents and instruments to be executed and delivered by MDB&T
that are referred to in the Bank Merger Agreement, if any, will have been duly executed and
delivered by MDB&T and, assuming due authorization, execution and delivery by the counterparties
thereto, will constitute the legal, valid and binding obligation of MDB&T, enforceable against
MDB&T in accordance with their respective terms and conditions, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors
rights generally and by general equitable principles.
Section 3.4 Consents.
No consents or approvals of, or filings or registrations with, any public body or authority
are necessary, and except as described in MDBC Disclosure Schedule 3.4, no consents or
approvals of any third parties are necessary, in connection with the execution and delivery of this
Agreement by MDBC or, subject to the consents, approvals, filings and registrations from or with
the Regulatory Authorities, and compliance with any conditions contained therein, and subject to
the approval of this Agreement by the MDBC Common Stockholders as required by MDBCs articles of
incorporation, MDBCs bylaws, and the MGCL, the consummation of the Contemplated Transactions by
MDBC, except where the failure to obtain such consent, approval, filing or registration would not
have a material effect on MDBC.
Section 3.5 Financial Statements.
(a) MDBC has previously delivered the MDBC Financials to OLB, except those pertaining to
quarterly and monthly periods commencing after July 31, 2010, which it will deliver by each
respective delivery date. The delivered MDBC Financials fairly present, in all material respects,
the consolidated financial position, results of operations and cash flows of MDBC as of and for the
periods ended on the dates thereof, and have been prepared in accordance with GAAP consistently
applied, except for (i) omission of the notes from the financial statements, applicable to any
interim period, and (ii) with respect to any interim period, normal year-end adjustments and
footnotes thereto.
(b) MDBC did not, as of the date of the MDBC Financials or any subsequent date, have any
liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise that
are not fully reflected or reserved against in the balance sheets included in the MDBC Financials
at the date of such balance sheets that would have been required to be reflected therein in
accordance with GAAP consistently applied or disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies that are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with past practice, and except for
liabilities and obligations that are within the subject matter of a specific representation and
warranty herein or that have not had a Material Adverse Effect on MDBC and subject, in the case of
any unaudited statements to normal recurring audit adjustments and the absence of footnotes.
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Section 3.6 No Material Adverse Effect.
Except as disclosed on MDBC Disclosure Schedule 3.6, neither MDBC nor any MDBC
Subsidiary has suffered any adverse change in their respective assets (including loan portfolios),
liabilities (whether absolute, accrued, contingent or otherwise), liquidity, net worth, property,
financial condition results of operations or any damage destruction or loss, whether or not covered
by insurance, since June 30, 2010, which change has had a Material Adverse Effect on MDBC.
Section 3.7 Taxes.
(a) Except as disclosed on MDBC Disclosure Schedule 3.7(a), all MDBC Returns required
to be filed by or on behalf of the MDBC Companies have been duly filed on a timely basis and such
MDBC Returns are true, complete and correct in all material respects, or requests for extensions to
file the MDBC Returns have been timely filed, granted and have not expired, except to the extent
that such failures to file, to be complete or correct or to have extensions granted that remain in
effect individually or in the aggregate would not have a Material Adverse Effect on MDBC. All MDBC
Taxes shown to be due and payable on the MDBC Returns or on subsequent assessments with respect
thereto have been paid in full or adequate reserves have been established in the MDBC Financials
for the payment of such MDBC Taxes, except where any such failure to pay or establish adequate
reserves, in the aggregate, has not had, and is not reasonably likely to have, a Material Adverse
Effect on the MDBC Companies. Each of the MDBC Companies has withheld and paid over all MDBC Taxes
required to have been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor, independent contractor or other
third party. There are no Liens on any of the assets of the MDBC Companies with respect to MDBC
Taxes, other than Liens for MDBC Taxes not yet due and payable.
(b) Except as disclosed on MDBC Disclosure Schedule 3.7(b), no deficiencies for MDBC
Taxes have been claimed, proposed or assessed by any taxing or other governmental authority against
the MDBC Companies that have not been settled, closed or reached a final determination, or that
have not been adequately reserved for in the MDBC Financials, except for deficiencies that,
individually or in the aggregate, have not had, and are not reasonably likely to have, a Material
Adverse Effect on MDBC. There are no pending audits relating to any MDBC tax liability of the MDBC
Companies to which any of the MDBC Companies has received written notice. Except as disclosed on
MDBC Disclosure Schedule 3.7(b), none of the MDBC Companies is a party to any action or
proceeding for assessment or collection of MDBC Taxes, nor have such events been asserted or, to
the Knowledge of MDBC, threatened against any of the MDBC Companies or any of their assets. No
waiver or extension of any statute of limitations relating to MDBC Taxes is in effect with respect
to the MDBC Companies. No power of attorney has been executed by any of the MDBC Companies with
respect to any MDBC tax matter that is currently in force.
(c) MDB&T has disclosed on its federal income tax MDBC Returns all positions taken therein
that could give rise to a substantial understatement penalty within the meaning of Section 6662 of
the IRC. None of the MDBC Companies has agreed to make, nor is it required
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to make, any adjustment under IRC Section 481(a) by reason of a change in accounting method or
otherwise. None of the property of the MDBC Companies is subject to a safe-harbor lease (pursuant
to Section 168(f)(8) of the Internal Revenue Code of 1954 as in effect after the Economic Recovery
Tax Act of 1981 and before the Tax Reform Act of 1986) or is tax-exempt use property (within the
meaning of Section 168(h) of IRC) or tax-exempt bond financed property (within the meaning of
Section 168(g)(5) of IRC). Except as disclosed on MDBC Disclosure Schedule 3.7(c), none of
the MDBC Companies is a party to any MDBC tax sharing agreement or has any continuing obligations
under any prior MDBC tax sharing agreement. None of the MDBC Companies is, or has been, a member
of any other affiliated, consolidated, combined, unitary or similar group for MDBC tax purposes.
(d) None of the MDBC Companies has taken or agreed to take any action that would, or failed to
take any action the omission of which would, prevent or impede the Merger from qualifying as a
reorganization under Section 368 of IRC. None of the MDBC Companies has been a party to any
distribution occurring during the last three years in which the parties to such distribution
treated the distribution as one to which Section 355 of the IRC (or any similar provision of state,
local or foreign law) applied.
(e) As used in this Agreement, the term MDBC Taxes shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that may become payable in
respect thereof, imposed by any federal, territorial, state, local or foreign government or any
agency or political subdivision of any such government, which taxes shall include, without limiting
the generality of the foregoing, all income or profits taxes (including, but not limited to,
federal income taxes and state income taxes), real property gains taxes, payroll and employee
withholding taxes, unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, workers compensation, Pension Benefit Guaranty Corporation premiums and other governmental
charges, and other obligations of the same or of a similar nature to any of the foregoing, which
any of the MDBC Companies is required to pay, withhold or collect. As used in this Agreement, the
term MDBC Returns shall mean all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in connection with, any
MDBC Taxes, including information returns or reports with respect to backup withholding and other
payments to third parties.
(f) A true and complete copy of the federal income tax returns of the MDBC Companies as filed
with the IRS for the year ended December 31, 2008 has been furnished to OLB, and a true and
complete copy of the federal income tax returns of the MDBC Companies for the year ended December
31, 2009 will be furnished to OLB, no later than September 15, 2010.
(g) A true and complete copy of the state income tax returns of the MDBC Companies as filed
with the State of Maryland for the year ended December 31, 2008 has been furnished to OLB, and a
true and complete copy of the state income tax returns of the MDBC Companies for the year ended
December 31, 2009 will be furnished to OLB, no later than September 15, 2010.
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Section 3.8 Contracts.
(a) Except as described in MDBC Disclosure Schedule 3.8(a), 3.11,
3.13(a), or 3.15(a), neither MDBC nor any MDBC Subsidiary is a party to or subject
to:
(i) Any employment, consulting, severance, change-in-control, or termination
contract or arrangement with any officer, director, employee, independent
contractor, agent, or other person, except for at will arrangements;
(ii) Any plan, arrangement or contract providing for bonuses, pensions,
options, deferred compensation, retirement payments, profit sharing, or similar
arrangements for or with any officer, director, employee, independent contractor,
agent, or other person;
(iii) Any collective bargaining agreement with any labor union relating to
employees;
(iv) Any agreement which by its terms limits the payment of dividends by MDBC
or any MDBC Subsidiary;
(v) Except in the ordinary course of business, any material instrument
evidencing or related to indebtedness for borrowed money, whether directly or
indirectly, by way of purchase money obligation, conditional sale, lease purchase,
guaranty or otherwise, in respect of which MDBC or any MDBC Subsidiary is an obligor
to any person, other than deposits, repurchase agreements, bankers acceptances and
treasury tax and loan accounts established in the ordinary course of business,
instruments relating to transactions entered into in the customary course of the
banking business of MDB&T, and transactions in federal funds, or that contains
financial covenants or other restrictions, other than those relating to the payment
of principal and interest when due, which would be applicable on or after the
Effective Time;
(vi) Any contract, other than this Agreement, which restricts or prohibits MDBC
or any MDBC Subsidiary from engaging in any type of business permissible under
applicable law;
(vii) Any contract, plan or arrangement that provides for payments or benefits
in certain circumstances that, together with other payments or benefits payable to
any participant therein or party thereto, might render any portion of any such
payments or benefits subject to disallowance of deduction therefor as a result of
the application of Section 280G of the IRC;
(viii) Any contract involving intellectual property (other than contracts
entered into in the ordinary course with customers and shrink wrap software
licenses);
(ix) Except in the ordinary course of business, any lease for real property;
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(x) Any contract or arrangement with any broker-dealer or investment adviser;
(xi) Any investment advisory contract with any investment company registered
under the Investment Company Act of 1940; or
(xii) Any contract or arrangement with, or membership in, any local clearing
house or self-regulatory organization.
(b) All the contracts, plans, arrangements and instruments listed in MDBC Disclosure
Schedule 3.8(a), 3.11, 3.13(a), or 3.15(a) are in full force and effect
on the date hereof, and neither MDBC, any MDBC Subsidiary nor, to the Knowledge of MDBC, any other
party to any such contract, plan, arrangement or instrument, has breached any provision of, or is
in default under any term of, any such contract, plan, arrangement or instrument and no party to
any such contract, plan, arrangement or instrument will have the right to terminate any or all of
the provisions thereof as a result of the transactions contemplated by this Agreement, except where
such breach or default is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on MDBC.
Section 3.9 Ownership of Personal Property; Insurance Coverage.
(a) MDBC and each MDBC Subsidiary has, or will have as to personal property acquired after the
date hereof, good title to all material assets and properties owned by MDBC or such MDBC
Subsidiary, whether personal, tangible or intangible, including securities, assets and properties
reflected in the balance sheets contained in the MDBC Financials or acquired subsequent thereto
(except to the extent that such securities are held in any fiduciary or agency capacity and except
to the extent that such assets and properties have been disposed of for fair value, in the ordinary
course of business, or have been disposed of as obsolete since the date of such balance sheets),
subject to no Liens or mortgages, except:
(i) Those items that secure liabilities for borrowed money and that are
described in MDBC Disclosure Schedule 3.9(a) or permitted under Article V
hereof;
(ii) Statutory Liens for amounts not yet delinquent or which are being
contested in good faith;
(iii) Liens for current taxes not yet due and payable;
(iv) Pledges to secure deposits and other Liens incurred in the ordinary course
of the business of banking;
(v) The imperfections of title, easements and encumbrances, if any, as are not
material in character, amount, or extent;
(vi) Dispositions and encumbrances for adequate consideration in the ordinary
course of business. MDBC and each MDBC Subsidiary have the right under leases of
material properties used by MDBC or such MDBC Subsidiary in
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the conduct of their respective businesses to occupy and use all such
properties in all material respects as presently occupied and used by them;
(vii) Liens or other defects of title which are not reasonably likely to have a
Material Adverse Effect on MDBC;
(viii) As reflected as a liability in the MDBC Financials or the footnotes
thereto; and
(ix) Personal property that is not transferring to OLB as described in MDBC
Disclosure Schedule 1.3(b)(v).
(b) With respect to all agreements pursuant to which MDBC or any MDBC Subsidiary has purchased
securities subject to an agreement to resell, if any, MDBC or such MDBC Subsidiary has a valid,
perfected first lien or security interest in the securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
(c) MDBC and each MDBC Subsidiary maintain insurance in amounts considered by MDBC to be
reasonable for their respective operations, and such insurance is similar in scope and coverage in
all material respects to that maintained by other businesses similarly situated. Neither MDBC nor
any MDBC Subsidiary has received notice from any insurance carrier that:
(i) The insurance will be cancelled or that coverage thereunder will be reduced
or eliminated; or
(ii) Premium costs with respect to such insurance will be substantially
increased.
(d) MDBC and each MDBC Subsidiary maintain such fidelity bonds and errors and omissions
insurance as may be customary or required under applicable laws or regulations.
Section 3.10 Litigation and Other Proceedings.
Except as disclosed on MDBC Disclosure Schedule 3.10, there are no legal,
quasi-judicial or administrative proceedings of any kind or nature now pending or, to the Knowledge
of MDBC, threatened before any court or administrative body in any manner against any of the MDBC
Companies or any of their properties or capital stock. None of the litigation disclosed on
MDBC Disclosure Schedule 3.10 will have a Material Adverse Effect on the MDBC Companies.
MDBC does not know of any basis on which any pending or threatened litigation or proceeding could
reasonably be expected to (i) have a Material Adverse Effect on the MDBC Companies, (ii) question
the validity of any action taken or to be taken in connection with this Agreement or the
Contemplated Transactions, or (iii) materially impair or delay the ability of the MDBC Companies to
perform their obligations under this Agreement. None of the MDBC Companies is in default with
respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court,
arbitrator or governmental agency or instrumentality.
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Section 3.11 Compliance with Applicable Law.
Except as disclosed on MDBC Disclosure Schedule 3.11:
(a) Each of the MDBC Companies holds all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its respective businesses under, and has complied in all
material respects with, applicable laws, statutes, orders, rules or regulations of any Regulatory
Authority relating to it (including, but not limited to, the Equal Credit Opportunity Act, the Fair
Housing Act, the Home Mortgage Disclosure Act, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, the
Bank Secrecy Act, fair lending laws or other laws relating to discrimination, consumer disclosure,
consumer privacy and currency transaction reporting);
(b) Each of the MDBC Companies has filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that it was required to file with any
Regulatory Authority, and has filed all other reports and statements required to be filed by it,
including without limitation any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state or any Regulatory Authority, and has paid all
fees and assessments due and payable in connection therewith;
(c) No Regulatory Authority has initiated any proceeding or, to the Knowledge of MDBC,
investigation into the business or operations of the MDBC Companies;
(d) Neither MDBC nor any MDBC Subsidiary has received any notification or communication from
any Regulatory Authority:
(i) Asserting that MDBC or any MDBC Subsidiary is not in substantial compliance
with any of the statutes, regulations or ordinances which such Regulatory Authority
enforces, unless such assertion has been waived, withdrawn or otherwise resolved;
(ii) Threatening to revoke any license, franchise, permit or governmental
authorization that is material to MDBC or any MDBC Subsidiary;
(iii) Requiring or threatening to require MDBC or any MDBC Subsidiary, or
indicating that MDBC or any MDBC Subsidiary may be required, to enter into a cease
and desist order, agreement or memorandum of understanding, or any other agreement
restricting or limiting, or purporting to restrict or limit, in any manner the
operations of MDBC or any MDBC Subsidiary, including without limitation any
restriction on the payment of dividends; or
(iv) Directing, restricting or limiting, or purporting to direct, restrict or
limit, in any manner the operations of MDBC or any MDBC Subsidiary (any such notice,
communication, memorandum, agreement or order described in this sentence and
addressed specifically to MDBC or MDB&T, herein referred to as a MDBC
Regulatory Agreement);
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(e) Neither MDBC nor any MDBC Subsidiary has received, consented to, or entered into any MDBC
Regulatory Agreement;
(f) There is no unresolved violation, criticism, or exception by any Regulatory Authority with
respect to any MDBC Regulatory Agreement; and
(g) There is no injunction, order, judgment or decree imposed upon MDBC or any MDBC Subsidiary
or the assets of MDBC or any MDBC Subsidiary.
Section 3.12 Labor Matters.
There are no labor or collective bargaining agreements to which MDBC or any MDBC Subsidiary is
a party. There is no union organizing effort pending or to the Knowledge of MDBC, threatened
against MDBC or any MDBC Subsidiary. There is no labor strike, labor dispute (other than routine
employee grievances that are not related to union employees), work slowdown, stoppage or lockout
pending or, to the Knowledge of MDBC, threatened against MDBC or any MDBC Subsidiary. There is no
unfair labor practice or labor arbitration proceeding pending or, to the Knowledge of MDBC,
threatened against MDBC or any MDBC Subsidiary (other than routine employee grievances that are not
related to union employees). MDBC and each MDBC Subsidiary is in compliance in all material
respects with all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair labor practice.
MDBC and each MDBC Subsidiary represents that they have not made any commitments to others
inconsistent with or in derogation of any of the foregoing. Except as disclosed on MDBC
Disclosure Schedule 3.10, there are no pending or, to the Knowledge of MDBC, threatened claims
or suits against MDBC or any MDBC Subsidiary under any labor or employment law or brought or made
by a current or former employee or applicant.
Section 3.13 ERISA.
(a) MDBC has identified in MDBC Disclosure Schedule 3.13(a) the MDBC Benefit Plans and
provided a copy of all available written documents including:
(i) The most recent actuarial reports (if any) and financial reports MDBC has received
relating to those MDBC Benefit Plans that constitute qualified pension plans under IRC
Section 401(a);
(ii) The most recently filed Form 5500, together with schedules and attachments, as
required (if any) relating to such MDBC Benefit Plans that have been filed with the United
States Department of Labor;
(iii) The most recent favorable determination letters issued by the IRS which pertain
to any such MDBC Benefit Plans that are qualified pension plans under IRC Section 401(a);
and
(iv) Summary plan descriptions and any amendments thereto and any insurance, third
party administrator or administrative services only contracts related to the MDBC Benefit
Plans within the meaning of ERISA Section 3(1) or 3(2).
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(b) MDBC and any MDBC ERISA Affiliate have paid in full any insurance premiums due to the
Pension Benefit Guaranty Corporation (PBGC) with respect to any defined benefit pension
plans for all applicable periods through the Effective Date. Except as disclosed in MDBC
Disclosure Schedule 3.13(b), no pension plan (within the meaning of ERISA Section 3(2))
maintained or contributed to by MDBC or any MDBC ERISA Affiliate, has been terminated or is under
notice from the PBGC of any threat of termination under the procedures of the PBGC. To the
Knowledge of MDBC, no circumstance has occurred for which any reportable event under ERISA Section
4043(b) has been or would be required which has not been reported or with respect to which the
notice requirement has not been waived. Except as set forth on MDBC Disclosure Schedule
3.13(b), no MDBC Benefit Plan is subject to IRC Section 412 or Title IV of ERISA, and as of the
Effective Date no condition will exist which will present a material risk to OLB of incurring any
liability to the PBGC or on account of the failure to comply with any such provisions in connection
with any such MDBC Benefit Plan.
(c) Neither MDBC nor any MDBC ERISA Affiliate has ever contributed to or otherwise incurred
any liability with respect to a multi-employer plan (within the meaning of ERISA Section 3(37)).
(d) Each MDBC Benefit Plan substantially complies in all material respects with the applicable
requirements of ERISA, the IRC, the Securities Act, and any other applicable laws governing the
MDBC Benefit Plan, and each MDBC Benefit Plan has at all times been administered substantially in
all material respects in accordance with all requirements of the law and all regulations issued
thereunder. Each MDBC pension plan which is intended to be qualified under Section 401(a) of the
IRC and its trust exempt from federal income tax under IRC Section 501(a) has received a favorable
determination letter from the IRS, and to the Knowledge of MDBC there are no circumstances that
will or could result in revocation of any such favorable determination letter. To the knowledge of
MDBC, and without limiting the foregoing, the following are true:
(i) Each MDBC Benefit Plan that is a defined benefit pension plan subject to IRC
Section 412 or Title IV of ERISA as of the most recent actuarial valuation has an adjusted
funding target attainment percentage (AFTAP) determined under IRC Section 430 and
436 that exceeds the AFTAP level that would impose any funding-based limit on such plan
under IRC Section 436.
(ii) Each MDBC Benefit Plan that is a defined contribution pension plan that is
intended to be qualified under IRC Section 401(a) has had all contributions made to the plan
trust in accordance with the terms of the plan on a timely basis under the IRC and ERISA.
(iii) With respect to each MDBC Benefit Plan, MDBC is not aware of any occurrence or
contract that would constitute any prohibited transaction within the meaning of Section
4975(c) of the IRC or Section 406 of ERISA, which transaction is not exempt under Section
4975(d) of the IRC or Section 408 of ERISA;
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(iv) Except as disclosed in MDBC Disclosure Schedule 3.13(a), no MDBC Benefit
Plan is an Employee Stock Ownership Plan as defined in Section 4975(e)(7) of the IRC;
(v) No MDBC Benefit Plan is a Qualified Foreign Plan as the term is defined in Section
404A of the IRC and no MDBC Benefit Plan is subject to the laws or regulations of any
jurisdiction other than the United States of America or one of its political subdivisions;
(vi) No MDBC welfare plan is a Voluntary Employees Beneficiary Association as defined
in Section 501(c)(9) of the IRC;
(vii) All MDBC welfare plans and their related trusts comply in all material respects
with and have been administered in substantial compliance with (A) Section 4980B of the IRC
and Sections 601 through 609 of ERISA and all Department of Treasury and U.S. Department of
Labor regulations issued thereunder, respectively, (B) the Health Insurance Portability and
Accountability Act of 1996, and (C) the U.S. Department of Labor regulations issued with
respect to such welfare benefit plans; and
(viii) With respect to each MDBC Benefit Plan, MDBC or any MDBC ERISA Affiliate, has
the authority to amend or terminate the MDBC Benefit Plan at any time, subject to the
applicable requirements of ERISA and the IRC and the provisions of the MDBC Benefit Plan.
(e) There is no existing, or, to the Knowledge of MDBC, contemplated, audit of any MDBC
Benefit Plan by the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or
any other governmental authority. In addition, to the Knowledge of MDBC, there are no pending or
threatened claims by, on behalf of or with respect to any MDBC Benefit Plan, or by or on behalf of
any individual participant or beneficiary of any MDBC Benefit Plan, alleging any violation of ERISA
or any other applicable laws, or claiming benefits (other than claims for benefits not in dispute
and expected to be granted promptly in the ordinary course of business), nor to the Knowledge of
MDBC, is there any basis for such claim.
(f) Except as disclosed on MDBC Disclosure Schedule 3.13(f), no payment contemplated
or required by or under any MDBC Benefit Plan and employment-related agreement would in the
aggregate constitute excess parachute payments as defined in Section 280G of the IRC (without
regard to subsection (b)(4) thereof).
(g) Neither MDBC nor any MDBC Subsidiary is a record-keeper, administrator, custodian,
fiduciary, trustee or otherwise for any plan, program, or arrangement subject to ERISA (other than
any MDBC Benefit Plan).
Section 3.14 Brokers and Finders.
Neither MDBC, any MDBC Subsidiary, nor any of their respective officers, directors, employees,
independent contractors or agents, has employed any broker, finder, investment banker or financial
advisor, or incurred any liability for any fees or commissions to any such person, in connection
with the Contemplated Transactions, except for Monocacy Financial
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Advisors, LLC, whose engagement letter with MDBC is included in MDBC Disclosure Schedule
3.14.
Section 3.15 Real Property and Leases.
(a) MDBC Disclosure Schedule 3.15(a) contains a true, correct and complete list of all
real property owned, leased or operated by the MDBC Companies, including but not limited to all
other real estate owned property (the MDBC Real Property). True, correct and complete
copies of all deeds, surveys, title insurance policies and leases for the properties listed on
MDBC Disclosure Schedule 3.15(a) and all mortgages, deeds of trust and security agreements
to which such property is subject have been delivered to OLB.
(b) No lease with respect to any MDBC Real Property and no deed with respect to any MDBC Real
Property contains any restrictive covenant that materially restricts the use, transferability or
value of such MDBC Real Property. Each of such leases is a legal, valid and binding obligation of
the parties thereto enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies), and is in full force and effect;
there are no existing defaults by the MDBC Companies or, to the Knowledge of MDBC, the other party
thereunder, and, there are no allegations or assertions of such by any party under such agreement
or any events that with notice lapse of time or the happening or occurrence of any other event
would constitute a default thereunder, except where the existence of such defaults, individually or
in the aggregate, has not had, and is not reasonably likely to have, a Material Adverse Effect on
the MDBC Companies.
(c) None of the buildings and structures located on any MDBC Real Property, nor any
appurtenances thereto or equipment therein, nor the operation or maintenance thereof, violates in
any material manner any restrictive covenants or encroaches on any property owned by others, nor
does any building or structure of third parties encroach upon any MDBC Real Property, except for
those violations and encroachments which in the aggregate could not reasonably be expected to have
a Material Adverse Effect on the MDBC Companies. No condemnation proceeding is pending or, to the
Knowledge of MDBC, threatened, which would preclude or materially impair the use of any MDBC Real
Property in the manner in which it is currently being used.
(d) The MDBC Companies have good and marketable title to, or a valid and enforceable leasehold
interest in, all MDBC Real Property and all improvements thereon, and all personal and intangible
properties reflected in the MDBC Financials or acquired subsequent thereto, subject to no Liens of
any kind except (i) as noted in the MDBC Financials, (ii) statutory Liens not yet delinquent, (iii)
minor defects and irregularities in title and encumbrances that do not materially impair the use
thereof for the purposes for which they are held, and (iv) those assets and properties disposed of
for fair market value in the ordinary course of business since the date of the MDBC Financials.
All MDBC Real Property used in the business of the MDBC Companies are in adequate condition
(ordinary wear and tear excepted) and, to the Knowledge of MDBC, are free from defects that could
materially interfere with the current or future use of such facilities.
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(e) Except as listed on MDBC Disclosure Schedule 3.15(e), there are no contracts,
agreements or arrangements to sell, lease or otherwise dispose of any of the MDBC Real Property.
Section 3.16 Environmental Laws.
To the Knowledge of MDBC, each of the MDBC Companies is and has been in compliance with all
terms and conditions of all applicable federal and state Environmental Laws and permits thereunder,
except for violations that, individually or in the aggregate, have not, and are not reasonably
likely to have, a Material Adverse Effect on the MDBC Companies. None of the MDBC Companies (i)
has received any written notice of any violation of, or inquiries regarding any violation of, any
Environmental Laws, (ii) has generated, stored, or disposed of any materials designated as
Hazardous Materials under the Environmental Laws, or (iii) is subject to any claim or lien under
any Environmental Laws. To the Knowledge of MDBC, no release (as defined at CERCLA, 42 U.S.C.
9601(22), without regard for the exclusions therein mentioned) of Hazardous Materials has occurred
at or from any real estate during the term of the ownership, lease or operation thereof by any of
the MDBC Companies for which the Environmental Laws required or require notice to any third party,
further investigation, or response action of any kind, and no condition exists at any real estate
currently owned, leased or operated by any of the MDBC Companies for which the Environmental Laws
required or require notice to any third party, further investigation, or response action of any
kind. None of the MDBC Companies has directed, controlled or overseen, or has sought to direct,
control or oversee, the management of environmental matters of any borrower or any real estate in
which any of the MDBC Companies holds or has held a security interest. To the Knowledge of MDBC,
no asbestos or lead is now or has been contained in any MDBC Real Property owned by any of the MDBC
Companies. No MDBC Real Property is, or has been, an industrial site or a landfill during the
tenure of the MDBC Companies or, to the Knowledge of MDBC, prior to such tenure. MDBC has
furnished OLB true and complete copies of all environmental assessments, reports, studies and other
similar documents or information in its possession or control relating to each MDBC Real Property
and any real property in which any of the MDBC Companies holds or held a security interest.
Section 3.17 Intellectual Property.
The MDBC Companies: (a) own or possess, or are licensed or otherwise have the right to use,
all proprietary and intellectual property rights, including all trademarks, trade dress, trade
names, service marks, domain names, patents, technology, inventions, trade secrets, know-how and
copyrights and works of authorship (the Proprietary Rights), that are used in the conduct
of their existing businesses free and clear of all Liens and any claims of ownership by current or
former employees or contractors; (b) are not bound by or a party to any licenses or agreements of
any kind with respect to any Proprietary Rights which they claim to own or possess, license or
otherwise have the right to use; and (c) are not infringing, diluting, misappropriating or
violating, and have not received any communications alleging that any of them has infringed,
diluted, misappropriated or violated, any of the Proprietary Rights of any other person. To the
Knowledge of MDBC, no other person is infringing, diluting, misappropriating or violating, nor have
the MDBC Companies sent any communications alleging that any person has infringed, diluted,
misappropriated or violated, any of the Proprietary Rights of the MDBC Companies. The
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MDBC Companies take all reasonable actions to protect and maintain all (y) material
Proprietary Rights and (z) the security and integrity of their software, databases, networks,
systems, equipment and hardware and protect the same against unauthorized use, modification or
access thereto, or the introduction of any viruses or other unauthorized or damaging or corrupting
elements. The computers, computer software, firmware, middleware, servers, workstations, routers,
hubs, switches, data communication lines and all other information technology equipment, and all
associated documents (the IT Assets) owned or leased by the MDBC Companies operate and
perform in all material respects in accordance with their documentation and functional
specifications and otherwise as required by each of the MDBC Companies in connection with its
business, and have not materially malfunctioned or failed within the past two years. To the
Knowledge of MDBC, no person has gained material unauthorized access to the IT Assets owned or
leased by the MDBC Companies. Each of the MDBC Companies has implemented reasonable backup and
disaster recovery technology consistent with industry practices.
Section 3.18 Information to be Supplied.
(a) The information supplied by MDBC for inclusion in the Registration Statement (including
the Prospectus/Proxy Statement) will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act, and as of the date the Prospectus/Proxy Statement is
mailed to stockholders of MDBC and OLB, and up to and including the date of the MDBC and OLB Common
Stockholders Meetings, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the light of the
circumstances in which they were made, not misleading.
(b) The information supplied by MDBC for inclusion in the Applications will, at the time each
such document is filed with any Regulatory Authority and up to and including the dates of any
required regulatory approvals or consents, as such Applications may be amended by subsequent
filings, be accurate in all material respects.
Section 3.19 Related Party Transactions.
(a) Except as set forth on MDBC Disclosure Schedule 3.19, or as is disclosed in the
footnotes to the MDBC Financials, neither MDBC nor any MDBC Subsidiary is a party to any
transaction (including any loan or other credit accommodation but excluding deposits in the
ordinary course of business) with any Affiliate of MDBC or any MDBC Subsidiary, and all such
transactions were made on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons (as defined in Section
13(d) of the Exchange Act, and the rules and regulations thereunder).
(b) Except as set forth in MDBC Disclosure Schedule 3.19, as of the date hereof, no
loan or credit accommodation to any MDBC Affiliate is presently in default or, during the 3-year
period prior to the date of this Agreement, has been in material default or has been restructured,
modified, or extended in order to avoid or cure a default. As of the date hereof, principal and
interest with respect to any such loan or other credit accommodation will be paid
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when due and the loan grade classification accorded such loan or credit accommodation is
appropriate.
Section 3.20 Loans.
Except as set forth on the MDBC Disclosure Schedule 3.20, all loans reflected as
assets in the MDBC Financials are being transferred with good and marketable title, free and clear
of any and all Liens encumbering such loan and are evidenced by notes, agreements or other
evidences of indebtedness that are true, genuine and correct, and to the extent secured, are
secured by valid Liens that are legal, valid and binding obligations of the maker thereof,
enforceable in accordance with the respective terms thereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws or equitable principles
affecting the enforcement of creditors rights, which have been perfected. MDBC has disclosed to
OLB on MDBC Disclosure Schedule 3.20, the amounts of all overdrafts occurring since July
31, 2010 and MDBC shall disclose promptly to OLB after the end of each month after the date hereof
and on the Business Day before the Closing Date the amount of such overdrafts.
Section 3.21 Allowance for Loan Losses.
The allowance for loan losses reflected in MDBCs and MDB&Ts reports to each Regulatory
Authority has been and will be established in compliance with the requirements of all regulatory
criteria, and the allowance for loan losses shown in the MDBC Financials has been and will be
established and maintained in accordance with GAAP. MDBC has disclosed to OLB on MDBC
Disclosure Schedule 3.21 the amounts of all loans, leases, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of MDBC that MDBC has classified
internally as Other Loans Specially Mentioned, Special Mention, Substandard, Doubtful,
Loss, Classified, Criticized, Credit Risk Assets, Concerned Loans or words of similar
import, and MDBC shall disclose promptly to OLB after the end of each month after the date hereof
and on the Business Day prior to the Closing Date the amount of each such classification on an
updated MDBC Disclosure Schedule 3.21. The OREO and in-substance foreclosures included in
any of MDB&Ts non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals. Furthermore, true,
complete and materially correct copies of reports containing the amounts of all loans, leases,
advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets
of MDB&T that MDB&T has classified internally as Other Loans Specially Mentioned, Special
Mention, Substandard, Doubtful, Loss, Classified, Criticized, Credit Risk Assets,
Concerned Loans or words of similar import occurring since July 31, 2010 shall be disclosed
promptly to OLB on an updated MDBC Disclosure Schedule 3.21.
Section 3.22 Community Reinvestment Act.
MDB&T is in compliance in all material respects with the Community Reinvestment Act (12 U.S.C.
§§ 2901 et seq.) (the CRA) and all regulations promulgated thereunder, and MDBC has
supplied OLB with copies of MDB&Ts current CRA Statement, all letters and written comments
received by MDB&T since March 26, 2007 pertaining thereto and any responses by MDB&T to such
comments. MDB&T has a rating of satisfactory as of its most recent CRA
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compliance examination and none of the MDBC Companies knows of any reason why MDB&T would not
receive a rating of satisfactory or better pursuant to its next CRA compliance examination or why
any Regulatory Authority may seek to restrain, delay or prohibit the Merger or the Bank Merger as a
result of any act or omission of MDB&T under the CRA.
Section 3.23 Securities Activities of Employees.
The MDBC Companies and, to the Knowledge of MDBC, their officers, employees and agents are
now, and at all times in the past have been, in compliance with all applicable federal and state
securities laws and any regulations promulgated thereunder applicable to broker-dealers. The MDBC
Companies and their officers, employees and agents have complied with, and currently hold, all
necessary licenses and permits required under any federal or state securities law or regulation to
conduct any securities activities in which the MDBC Companies or their officers, employees, or
agents are now engaged or have been engaged in the past.
Section 3.24 Regulatory Approvals.
None of the MDBC Companies has any reason to believe that it will not be able to obtain all
requisite approvals or consents from the Regulatory Authorities in order to consummate the
Contemplated Transactions.
Section 3.25 Stockholders List.
Attached hereto as MDBC Disclosure Schedule 3.25 is a list of the holders of shares of
MDBC Common Stock containing their names, addresses and number of shares held of record, which
stockholders list is in all respects complete and accurate.
Section 3.26 Books and Records.
(a) The minute books and stock ledgers of the MDBC Companies that have been made available to
OLB, its representatives or affiliates constitute all of the minute books and stock ledgers of the
MDBC Companies and contain a materially complete and accurate record of all actions of their
respective stockholders and boards of directors (and any committees thereof). All personnel files,
reports, feasibility studies, environmental assessments and reports, strategic planning documents,
financial forecasts, deeds, leases, lease files, land files, accounting and tax records and all
other records that relate to the business and properties of the MDBC Companies that have been
requested by OLB have been made available to OLB, its representatives or affiliates, and are
located at the offices of the MDBC Companies at 3220 Old Washington Rd., Waldorf, Maryland 20602.
(b) Each of the MDBC Companies makes and keeps books, records and accounts which, in
reasonable detail and in all material respects, accurately and fairly reflect its transactions in
and dispositions of its assets and securities and maintains a system of internal accounting
controls sufficient to provide assurance that (i) transactions are executed in accordance with
managements general or specific authorizations, (ii) transactions are recorded as necessary (A) to
permit the preparation of financial statements in conformity with GAAP consistently applied and any
other criteria applicable to such statements, and (B) to maintain accountability for assets, (iii)
access to the assets of the MDBC Companies is permitted only in
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accordance with managements general or specific authorizations, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
Section 3.27 Investment Securities.
None of the investments reflected in the MDBC Financials under the headings Securities
Available for Sale and Securities Held to Maturity and none of the investments made since June
30, 2010, are subject to any restrictions, whether contractual or statutory, that materially
impairs the ability of MDBC to freely dispose of the investments at any time, and all of the
investments comply with applicable laws, rules and regulations.
Section 3.28 Reorganization.
As of the date hereof, MDBC does not have any reason to believe that the Merger will fail to
qualify as a reorganization under Section 368(a) of the IRC. MDBC will not take any action that
would have the effect of causing the Merger not to qualify as a tax-free reorganization within the
meaning of Section 368 of the IRC.
Section 3.29 Fairness Opinion.
MDBCs board of directors has received a written opinion from Monocacy Financial Advisors, LLC
to the effect that, as of the date hereof, the consideration to be received by stockholders of MDBC
pursuant to the terms of this Agreement is fair, from a financial point of view, to the
stockholders of MDBC.
Section 3.30 Materials Provided to Stockholders.
MDBC has delivered to OLB copies of MDBCs proxy materials used, or to be used, in connection
with its meetings of stockholders held in 2008, 2009 and 2010, along with any other form of
correspondence between MDBC and its stockholders during that time period.
Section 3.31 Absence of Certain Changes.
Except as disclosed in MDBC Disclosure Schedule 3.31 and provided for or contemplated
in this Agreement, since June 30, 2010 there has not been:
(a) Any material transaction by MDBC or any MDBC Subsidiary other than in the ordinary course
of business and in conformity with past practices;
(b) Any acquisition or disposition by MDBC or any MDBC Subsidiary of any property or asset,
whether real or personal, having a fair market value, singularly or in the aggregate, in an amount
greater than fifty thousand dollars ($50,000), other than acquisitions or dispositions made in the
ordinary course of business;
(c) Any Lien on any of the respective properties or assets of MDBC or any MDBC Subsidiary,
except to secure extensions of credit in the ordinary course of business and in conformity with
past practice (i.e., Liens on assets to secure Federal Home Loan Bank, Federal
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Reserve Bank or correspondent bank advances being deemed both in the ordinary course of
business and consistent with past practices);
(d) Any increase in, or commitment to increase, the compensation payable or to become payable
to any officer, director, employee, or agent of MDBC or any MDBC Subsidiary, or any bonus payment,
stock option award, restricted stock award or similar arrangement made to or with any of such
officers, directors, employees or agents, other than routine increases made in the ordinary course
of business and consistent with past practices or as permitted in Section 5.1(d);
(e) Any incurring of, assumption of, or taking of, by MDBC or any MDBC Subsidiary, any
property subject to, any liability in excess of fifty thousand dollars ($50,000), except for
liabilities incurred or assumed or property taken subsequent to July 31, 2010 in the ordinary
course of business and in conformity with past practices;
(f) Any material alteration in the manner of keeping the books, accounts, or records of MDBC
or any MDBC Subsidiary, or in the accounting policies or practices therein reflected;
(g) Any elimination of employee benefits;
(h) Any deferred routine maintenance of real property or leased premises;
(i) Any elimination of a reserve where the liability related to such reserve has remained;
(j) Any failure to depreciate capital assets in accordance with past practice or to eliminate
capital assets which are no longer used in its business; or
(k) Any extraordinary reduction or deferral of ordinary or necessary expenses.
Section 3.32 Absence of Undisclosed Liabilities.
Neither MDBC nor any MDBC Subsidiary has any obligation or liability that is material to the
financial condition or operations of any of them, or that, when combined with all similar
obligations or liabilities would be material to their financial condition or operations (i) except
as disclosed in the MDBC Financials delivered to OLB prior to the date of this Agreement, or (ii)
except as contemplated under this Agreement. Except as disclosed in MDBC Disclosure Schedule
3.32, since June 30, 2010, neither MDBC nor any MDBC Subsidiary has incurred or paid any
obligation or liability that would be material to the financial condition or operations of any of
them, except for obligations paid in connection with transactions made by them in the ordinary
course of their business consistent with past practice and applicable law.
Section 3.33 No Option Plans or Convertible Securities.
The MDBC Companies have never issued any Rights, or adopted any form of equity plan, including
without limitation, an equity compensation or other stock option plan, that might entitle any
individual or Entity to receive a Right.
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Section 3.34 Disclosure.
The representations and warranties contained in this Article III do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements and information contained in this Article III, in light of the circumstances under which
they were made, not misleading. The schedules delivered by MDBC pursuant to this Article III and
elsewhere in this Agreement, which have been delivered concurrently with the execution and delivery
of this Agreement, are true and correct and contain no untrue statements of material fact or omit
any material fact necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF OLB
Except as otherwise disclosed in one or more schedules numbered to correspond to the following
Sections of this Article IV and delivered concurrently with this Agreement, OLB hereby represents
and warrants to MDBC as follows:
Section 4.1 Organization.
(a) OLB is a corporation duly incorporated, validly existing, and in good standing under the
laws of the State of Maryland. OLB is a bank holding company duly registered under the BHC Act.
OLB has the full corporate power and lawful authority to carry on its business and operations as
now being conducted and to own and operate the properties and assets now owned and being operated
by it. OLB is duly licensed, registered, or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing, registration or qualification necessary, except
where the failure to be so licensed, registered, or qualified will not have a Material Adverse
Effect on OLB, and all the licenses, registrations and qualifications are in full force and effect
in all material respects.
(b) Old Line is a bank duly organized, validly existing and in good standing under the laws of
the State of Maryland. Old Line has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the properties and assets now owned and
being operated by it. Old Line is duly licensed, registered or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing, registration or qualification
necessary, except where the failure to be so licensed, registered or qualified would not have
Material Adverse Effect on OLB, and all such licenses, registrations and qualifications are in full
force and effect in all material respects.
(c) The deposits of Old Line are insured by the FDIC to the extent provided in the Federal
Deposit Insurance Act.
(d) OLB Disclosure Schedule 4.1(d) contains a complete and accurate list of all
Subsidiaries of OLB and Old Line.
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(e) The respective minute books of OLB and each OLB Subsidiary accurately record, in all
material respects, all material corporate actions of their respective stockholders and boards of
directors, including committees, in each case in accordance with the normal business practice of
OLB and the OLB Subsidiary.
(f) OLB has delivered to MDBC true and correct copies of the articles of incorporation and
bylaws of OLB and the articles of incorporation, articles of association, articles of organization,
bylaws and operating agreement of each OLB Subsidiary, as applicable, each as in effect on the date
hereof.
Section 4.2 Capitalization.
(a) The authorized capital stock of OLB consists of (a) fifteen million (15,000,000) shares of
common stock, $0.01 par value per share (OLB Common Stock), of which, as of July 20,
2010, 3,880,005 shares are validly issued and outstanding, fully paid and nonassessable, free of
preemptive rights, and were not issued in violation of any applicable federal or state securities
law, and (b) one million shares (1,000,000) shares of preferred stock, $0.01 par value per share
(OLB Preferred Stock), with seven thousand (7,000) shares of OLB Preferred Stock being
classified as Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of which none are issued
and outstanding.
(b) OLB owns, directly or indirectly, all of the capital stock of the OLB Subsidiaries, free
and clear of any Liens, agreements and restrictions of any kind or nature, except for those
Subsidiaries identified in OLB Disclosure Schedule 4.2(b). Except as set forth in OLB
Disclosure Schedule 4.2(b), OLB has not issued nor is OLB bound by any subscription, call,
commitment, agreement or other Right of any character relating to the purchase, sale, or issuance
of, or right to receive dividends or other distributions on, any shares of OLB Common Stock or any
other security of OLB or any securities representing the right to vote, purchase or otherwise
receive any shares of OLB Common Stock or any other security of OLB.
Section 4.3 Authority; No Violation.
(a) OLB has full corporate power and authority to execute and deliver this Agreement, to
consummate the Contemplated Transactions and to otherwise comply with its obligations under this
Agreement, subject to receipt of all necessary approvals of Regulatory Authorities and approval of
this Agreement by the OLB Common Stockholders. The execution and delivery of this Agreement by OLB
and the consummation by OLB of the Merger have been duly and validly approved by the board of
directors of OLB and, except for approval by the OLB Common Stockholders as required by the MGCL
and OLBs articles of incorporation, no other corporate proceedings on the part of OLB are
necessary to consummate the Merger. This Agreement has been duly and validly executed and
delivered by OLB and, subject to approval by the stockholders of OLB and subject to receipt of the
required approvals of Regulatory Authorities, constitutes the valid and binding obligation of OLB,
enforceable against OLB in accordance with its terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors rights generally and subject, as to enforceability, to
general principles of equity.
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(b) The execution and delivery of this Agreement by OLB and consummation of the Contemplated
Transactions, subject to receipt of approvals from the OLB Common Stockholders and the Regulatory
Authorities, and OLBs and MDBCs compliance with any conditions contained therein, the
consummation of the Merger, and compliance by OLB or any OLB Subsidiary with any of the terms or
provisions hereof, do not and will not:
(i) Conflict with or result in a breach of any provision of the respective
articles of incorporation, articles of association, or bylaws of OLB or any OLB
Subsidiary;
(ii) Violate any statute, rule, regulation, judgment, order, writ, decree or
injunction applicable to OLB or any OLB Subsidiary or any of their respective
properties or assets; or
(iii) Except as described in OLB Disclosure Schedule 4.3(b), violate,
conflict with, result in a breach of any provisions of, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, or acceleration of, the performance required
by, or result in a right of termination or acceleration or the creation of any Lien
upon any of the properties or assets of OLB or any OLB Subsidiary under any of the
terms or conditions of any note, bond, mortgage, indenture, license, lease,
agreement, commitment or other instrument or obligation to which OLB or any OLB
Subsidiary is a party, or by which they or any of their respective properties or
assets may be bound or affected, except where such termination, acceleration or
creation would not have a Material Adverse Effect on OLB.
(c) Old Line has all requisite corporate power and authority to execute and deliver the Bank
Merger Agreement, and to consummate the transactions contemplated thereby, subject to receipt of
the required approvals of Regulatory Authorities. The execution and delivery of the Bank Merger
Agreement and the consummation of the transactions contemplated thereby have been duly and validly
approved by the board of directors of Old Line and, other than the approval of the Bank Merger
Agreement by OLB as the sole stockholder of Old Line as required by law, no further corporate
proceedings of Old Line are needed to execute and deliver the Bank Merger Agreement and consummate
the transactions contemplated thereby. The Bank Merger Agreement has been duly authorized and upon
execution and delivery by Old Line, it will be a legal, valid and binding agreement of Old Line
enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors rights generally and
general equitable principles. At the Closing, all other agreements, documents and instruments to
be executed and delivered by Old Line that are referred to in the Bank Merger Agreement, if any,
will have been duly executed and delivered by Old Line and, assuming due authorization, execution
and delivery by the counterparties thereto, will constitute the legal, valid and binding obligation
of Old Line, enforceable against Old Line in accordance with their respective terms and conditions,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors rights generally and by general equitable principles.
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Section 4.4 Consents.
No consents or approvals of, or filings or registrations with, any public body or authority
are necessary, and except as described in OLB Disclosure Schedule 4.4, no consents or
approvals of any third parties are necessary, in connection with the execution and delivery of this
Agreement by OLB or, subject to the consents, approvals, filings and registrations from or with the
Regulatory Authorities, and compliance with any conditions contained therein, and subject to the
approval of this Agreement by the OLB Common Stockholders as required by OLBs articles of
incorporation, OLBs bylaws, and the MGCL, the consummation of the Merger by OLB, except where the
failure to obtain such consent, approval, filing or registration would not have a material effect
on OLB.
Section 4.5 Financial Statements.
(a) OLB has previously delivered the OLB Financials to MDBC, except those pertaining to
quarterly and monthly periods commencing after July 31, 2010, which it will deliver by each
respective delivery date. The delivered OLB Financials fairly present, in all material respects,
the consolidated financial position, results of operations and cash flows of OLB as of and for the
periods ended on the dates thereof, and have been prepared in accordance with GAAP consistently
applied, except for (i) omission of the notes from the financial statements, applicable to any
interim period, and (ii) with respect to any interim period, normal year-end adjustments and
footnotes thereto.
(b) OLB did not, as of the date of the OLB Financials or any subsequent date, have any
liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, which
are not fully reflected or reserved against in the balance sheets included in the OLB Financials at
the date of such balance sheets which would have been required to be reflected therein in
accordance with GAAP consistently applied or disclosed in a footnote thereto, except for
liabilities, obligations and loss contingencies that are not material in the aggregate and which
are incurred in the ordinary course of business, consistent with past practice, and except for
liabilities and obligations that are within the subject matter of a specific representation and
warranty herein or that have not had a Material Adverse Effect on OLB and subject, in the case of
any unaudited statements to normal recurring audit adjustments and the absence of footnotes.
Section 4.6 No Material Adverse Effect.
Neither OLB nor any OLB Subsidiary has suffered any adverse change in their respective assets
(including loan portfolios), liabilities (whether absolute, accrued, contingent or otherwise),
liquidity, net worth, property, financial condition results of operations or any damage destruction
or loss, whether or not covered by insurance, since June 30, 2010, which change has had a Material
Adverse Effect on OLB.
Section 4.7 Taxes.
(a) All OLB Returns required to be filed by or on behalf of the OLB Companies have been duly
filed on a timely basis and such OLB Returns are true, complete and correct in all material
respects, or requests for extensions to file the OLB Returns have been timely filed,
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granted and have not expired, except to the extent that such failures to file, to be complete
or correct or to have extensions granted that remain in effect individually or in the aggregate
would not have a Material Adverse Effect on the OLB Companies. All OLB Tax shown to be due and
payable on the OLB Returns or on subsequent assessments with respect thereto have been paid in full
or adequate reserves have been established in the OLB Financials for the payment of such OLB Tax,
except where any such failure to pay or establish adequate reserves, in the aggregate, has not had,
and is not reasonably likely to have, a Material Adverse Effect on the OLB Companies. Each of the
OLB Companies has withheld and paid over all OLB Tax required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts paid or owing to
any employee, creditor, independent contractor or other third party. There are no Liens on any of
the assets of the OLB Companies with respect to OLB Tax, other than Liens for OLB Tax not yet due
and payable.
(b) No deficiencies for OLB Tax have been claimed, proposed or assessed by any taxing or other
governmental authority against the OLB Companies which have not been settled, closed or reached a
final determination, or which have not been adequately reserved for in the OLB Financials, except
for deficiencies that, individually or in the aggregate, have not had, and are not reasonably
likely to have, a Material Adverse Effect on the OLB Companies. There are no pending audits
relating to any OLB Tax liability to which any of the OLB Companies has received written notice.
None of the OLB Companies is a party to any action or proceeding for assessment or collection of
OLB Tax, nor have such events been asserted or, to the Knowledge of OLB, threatened against any of
the OLB Companies or any of their assets. No waiver or extension of any statute of limitations
relating to OLB Tax is in effect with respect to the OLB Companies. No power of attorney has been
executed by any of the OLB Companies with respect to any OLB Tax matter which is currently in
force.
(c) Old Line has disclosed on its federal income tax OLB Returns all positions taken therein
that could give rise to a substantial understatement penalty within the meaning of Section 6662 of
the IRC. None of the OLB Companies has agreed to make, nor is it required to make, any adjustment
under IRC Section 481(a) by reason of a change in accounting method or otherwise. None of the
property of the OLB Companies is subject to a safe-harbor lease (pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954 as in effect after the Economic Recovery Tax Act of 1981 and
before the Tax Reform Act of 1986) or is tax-exempt use property (within the meaning of Section
168(h) of IRC) or tax-exempt bond financed property (within the meaning of Section 168(g)(5) of
IRC). None of the OLB Companies is a party to any OLB Tax sharing agreement or has any continuing
obligations under any prior OLB Tax sharing agreement. None of the OLB Companies is, or has been,
a member of any other affiliated, consolidated, combined, unitary or similar group for OLB Tax
purposes.
(d) None of the OLB Companies has taken or agreed to take any action that would, or failed to
take any action the omission of which would, prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the IRC. None of the OLB Companies has been a party to any
distribution occurring during the last three years in which the parties to such distribution
treated the distribution as one to which Section 355 of the IRC (or any similar provision of state,
local or foreign law) applied.
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(e) As used in this Agreement, the term OLB Taxes shall collectively mean all taxes,
however denominated, including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state income taxes), real property gains taxes, payroll and employee
withholding taxes, unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer
taxes, workers compensation, Pension Benefit Guaranty Corporation premiums and other governmental
charges, and other obligations of the same or of a similar nature to any of the foregoing, which
any of the OLB Companies is required to pay, withhold or collect. As used in this Agreement, the
term OLB Returns shall mean all reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in connection with, any OLB
Tax, including information returns or reports with respect to backup withholding and other payments
to third parties.
(f) True and complete copies of the federal income tax returns of the OLB Companies as filed
with the IRS for the years ended December 31, 2008 and 2009 have been furnished to MDBC. True and
complete copies of all state tax returns of the OLB Companies as filed with the State of Maryland
for the years ended December 31, 2008 and 2009, have been furnished to MDBC.
Section 4.8 Contracts.
(a) Except as described in OLB Disclosure Schedule 4.8(a) or 4.15(a), neither
OLB nor any OLB Subsidiary is a party to or subject to:
(i) Any employment, consulting, severance, change-in-control, or termination
contract or arrangement with any officer, director, employee, independent
contractor, agent, or other person, except for at will arrangements;
(ii) Any plan, arrangement or contract providing for bonuses, pensions,
options, deferred compensation, retirement payments, profit sharing, or similar
arrangements for or with any officer, director, employee, independent contractor,
agent, or other person;
(iii) Any collective bargaining agreement with any labor union relating to
employees;
(iv) Any agreement which by its terms limits the payment of dividends by OLB or
any OLB Subsidiary;
(v) Except in the ordinary course of business, any material instrument
evidencing or related to indebtedness for borrowed money, whether directly or
indirectly, by way of purchase money obligation, conditional sale, lease purchase,
guaranty or otherwise, in respect of which OLB or any OLB Subsidiary is an
obligor to any person, other than deposits, repurchase agreements, bankers
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acceptances and treasury tax and loan accounts established in the ordinary course
of business, instruments relating to transactions entered into in the customary
course of the banking business of Old Line, and transactions in federal funds, or
which contains financial covenants or other restrictions, other than those relating
to the payment of principal and interest when due, which would be applicable on or
after the Effective Time;
(vi) Any contract, other than this Agreement, which restricts or prohibits OLB
or any OLB Subsidiary from engaging in any type of business permissible under
applicable law;
(vii) Any contract, plan or arrangement that provides for payments or benefits
in certain circumstances that, together with other payments or benefits payable to
any participant therein or party thereto, might render any portion of any such
payments or benefits subject to disallowance of deduction therefor as a result of
the application of Section 280G of the IRC;
(viii) Any contract involving intellectual property (other than contracts
entered into in the ordinary course with customers and shrink wrap software
licenses);
(ix) Except in the ordinary course of business, any lease for real property;
(x) Any contract or arrangement with any broker-dealer or investment adviser;
(xi) Any investment advisory contract with any investment company registered
under the Investment Company Act of 1940; or
(xii) Any contract or arrangement with, or membership in, any local clearing
house or self-regulatory organization.
(b) All the contracts, plans, arrangements and instruments listed in OLB Disclosure
Schedule 4.8(a) or 4.15(a) are in full force and effect on the date hereof, and neither
OLB, any OLB Subsidiary nor, to the Knowledge of OLB, any other party to any such contract, plan,
arrangement or instrument, has breached any provision of, or is in default under any term of, any
such contract, plan, arrangement or instrument and no party to any such contract, plan, arrangement
or instrument will have the right to terminate any or all of the provisions thereof as a result of
the transactions contemplated by this Agreement, except where such breach or default is not
reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on OLB.
Section 4.9 Ownership of Personal Property; Insurance Coverage.
(a) OLB and each OLB Subsidiary has, or will have as to personal property acquired after the
date hereof, good title to all material assets and properties owned by OLB or
such OLB Subsidiary, whether personal, tangible or intangible, including securities, assets
and
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properties reflected in the balance sheets contained in the OLB Financials or acquired
subsequent thereto (except to the extent that such securities are held in any fiduciary or agency
capacity and except to the extent that such assets and properties have been disposed of for fair
value, in the ordinary course of business, or have been disposed of as obsolete since the date of
such balance sheets), subject to no encumbrances, Liens, or mortgages, except:
(i) Those items that secure liabilities for borrowed money and that are
described in OLB Disclosure Schedule 4.9(a) or permitted under Article V
hereof;
(ii) Statutory Liens for amounts not yet delinquent or which are being
contested in good faith;
(iii) Liens for current taxes not yet due and payable;
(iv) Pledges to secure deposits and other Liens incurred in the ordinary course
of business of banking;
(v) The imperfections of title, easements and encumbrances, if any, as are not
material in character, amount, or extent;
(vi) Dispositions and encumbrances for adequate consideration in the ordinary
course of business. OLB and each OLB Subsidiary have the right under leases of
material properties used by OLB or such OLB Subsidiary in the conduct of their
respective businesses to occupy and use all such properties in all material respects
as presently occupied and used by them;
(vii) Liens or other defects of title which are not reasonably likely to have a
Material Adverse Effect on OLB; and
(viii) As reflected as a liability in the OLB Financials or the footnotes
thereto.
(b) With respect to all agreements pursuant to which OLB or any OLB Subsidiary has purchased
securities subject to an agreement to resell, if any, OLB or such OLB Subsidiary has a valid,
perfected first lien or security interest in the securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt
secured thereby.
(c) OLB and each OLB Subsidiary maintain insurance in amounts considered by OLB to be
reasonable for their respective operations, and such insurance is similar in scope and coverage in
all material respects to that maintained by other businesses similarly situated. Neither OLB nor
any OLB Subsidiary has received notice from any insurance carrier that:
(i) The insurance will be cancelled or that coverage thereunder will be reduced
or eliminated; or
(ii) Premium costs with respect to such insurance will be substantially
increased.
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(d) OLB and each OLB Subsidiary maintain such fidelity bonds and errors and omissions
insurance as may be customary or required under applicable laws or regulations.
Section 4.10 Litigation and Other Proceedings.
There are no legal, quasi-judicial or administrative proceedings of any kind or nature now
pending or, to the Knowledge of OLB, threatened before any court or administrative body in any
manner against any of the OLB Companies or any of their properties or capital stock. OLB does not
know of any basis on which any pending or threatened litigation or proceeding could reasonably be
expected to (i) have a Material Adverse Effect on the OLB Companies, (ii) question the validity of
any action taken or to be taken in connection with this Agreement or the Contemplated Transactions,
or (iii) materially impair or delay the ability of the OLB Companies to perform their obligations
under this Agreement. None of the OLB Companies is in default with respect to any judgment, order,
writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental agency
or instrumentality.
Section 4.11 Compliance with Applicable Law.
(a) Each of the OLB Companies holds all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its respective businesses under, and has complied in all
material respects with, applicable laws, statutes, orders, rules or regulations of any Regulatory
Authority relating to it (including, but not limited to, the Equal Credit Opportunity Act, the Fair
Housing Act, the Home Mortgage Disclosure Act, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, the
Bank Secrecy Act, fair lending laws or other laws relating to discrimination, consumer disclosure,
consumer privacy and currency transaction reporting);
(b) Each of the OLB Companies has filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that it was required to file with any
Regulatory Authority, and has filed all other reports and statements required to be filed by it,
including without limitation any report or statement required to be filed pursuant to the laws,
rules or regulations of the United States, any state or any Regulatory Authority, and has paid all
fees and assessments due and payable in connection therewith;
(c) No Regulatory Authority has initiated any proceeding or, to the Knowledge of OLB,
investigation into the business or operations of the OLB Companies;
(d) Neither OLB nor any OLB Subsidiary has received any notification or communication from any
Regulatory Authority:
(i) Asserting that OLB or any OLB Subsidiary is not in substantial compliance
with any of the statutes, regulations or ordinances which such Regulatory Authority
enforces, unless such assertion has been waived, withdrawn or otherwise resolved;
(ii) Threatening to revoke any license, franchise, permit or governmental
authorization that is material to OLB or any OLB Subsidiary;
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(iii) Requiring or threatening to require OLB or any OLB Subsidiary, or
indicating that OLB or any OLB Subsidiary may be required, to enter into a cease and
desist order, agreement or memorandum of understanding, or any other agreement
restricting or limiting, or purporting to restrict or limit, in any manner the
operations of OLB or any OLB Subsidiary, including without limitation any
restriction on the payment of dividends; or
(iv) Directing, restricting or limiting, or purporting to direct, restrict or
limit, in any manner the operations of OLB or any OLB Subsidiary (any such notice,
communication, memorandum, agreement or order described in this sentence and
addressed specifically to OLB or Old Line, herein referred to as a OLB
Regulatory Agreement);
(e) Neither OLB nor any OLB Subsidiary has received, consented to, or entered into any OLB
Regulatory Agreement;
(f) There is no unresolved violation, criticism, or exception by any Regulatory Authority with
respect to any OLB Regulatory Agreement; and
(g) There is no injunction, order, judgment or decree imposed upon OLB or any OLB Subsidiary
or the assets of OLB or any OLB Subsidiary.
Section 4.12 Labor Matters.
There are no labor or collective bargaining agreements to which OLB or any OLB Subsidiary is a
party. There is no union organizing effort pending or to the Knowledge of OLB, threatened against
OLB or any OLB Subsidiary. There is no labor strike, labor dispute (other than routine employee
grievances that are not related to union employees), work slowdown, stoppage or lockout pending or,
to the Knowledge of OLB, threatened against OLB or any OLB Subsidiary. There is no unfair labor
practice or labor arbitration proceeding pending or, to the Knowledge of OLB, threatened against
OLB or any OLB Subsidiary (other than routine employee grievances that are not related to union
employees). OLB and each OLB Subsidiary is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and conditions of employment
and wages and hours, and are not engaged in any unfair labor practice. OLB and each OLB Subsidiary
represents that they have not made any commitments to others inconsistent with or in derogation of
any of the foregoing. There are no pending or, to the Knowledge of OLB, threatened claims or suits
against OLB or any OLB Subsidiary under any labor or employment law or brought or made by a current
or former employee or applicant.
Section 4.13 ERISA.
(a) OLB has delivered to MDBC true and complete copies of the OLB Benefit Plans, all of which
are identified in OLB Disclosure Schedule 4.13, together with:
(i) The most recent actuarial reports (if any) and financial reports relating
to those OLB Benefit Plans that constitute qualified plans under IRC Section
401(a);
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(ii) The most recent Form 5500, together with schedules and attachments, as
required (if any) relating to such OLB Benefit Plans filed with the United States
Department of Labor;
(iii) The most recent IRS notices, rulings, or determination letters which
pertain to any such OLB Benefit Plans; and
(iv) Summary plan descriptions and any amendments thereto and any insurance,
third party administrator or administrative services only contracts related to the
OLB Benefit Plans.
(b) Neither OLB nor any OLB ERISA Affiliate, and no OLB pension plan (within the meaning of
ERISA Section 3(2)) maintained or contributed to by OLB or any OLB ERISA Affiliate, has incurred
any liability to the Pension Benefit Guaranty Corporation, the Department of Labor or to the IRS
with respect to any pension plan qualified under IRC Section 401(a) that liability has resulted or
will result in a Material Adverse Effect with respect to OLB, nor has any reportable event under
ERISA Section 4043(b) (with respect to which the 30 day notice requirement has not been waived)
occurred with respect to any such pension plan that could result in a Material Adverse Effect on
OLB.
(c) Neither OLB nor any OLB ERISA Affiliate has ever contributed to or otherwise incurred any
liability with respect to a multi-employer plan (within the meaning of ERISA Section 3(37)).
(d) Each OLB Benefit Plan complies in all material respects with the applicable requirements
of ERISA, the IRC, the Securities Act, and any other applicable laws governing the OLB Benefit
Plan, and each OLB Benefit Plan has at all times been administered in all material respects in
accordance with all requirements of the law and all regulations issued thereunder, and in
accordance with its terms and the terms of any applicable collective bargaining agreement to the
extent consistent with all requirements of law. Each OLB pension plan which is intended to be
qualified under Section 401(a) of the IRC is so qualified, and each trust established by each
pension plan is exempt from federal income tax under Section 501(a) of the IRC. Each OLB pension
plan is, and from its establishment, has been tax-exempt under Section 501(a) of the IRC. No event
has occurred that would jeopardize the qualified status of the plan or the tax-exempt status of any
trust under Sections 401(a) and 501(a) of the IRC, respectively. No lawsuits, claims (other than
routine claims for benefits) or complaints to, or by, any person, governmental authority,
regulatory body or arbiter have been filed, are pending or are threatened with respect to any OLB
Benefit Plan and there is no fact or contemplated event that would give rise to any lawsuit, claim
(other than routine claims for benefits) or complaint with respect to any OLB Benefit Plan.
Without limiting the foregoing, the following are true:
(i) With respect to each OLB Benefit Plan, there has not occurred, and no
person is contractually bound to enter into, any prohibited transaction within
the meaning of Section 4975(c) of the IRC or Section 406 of ERISA, which
transaction is not exempt under Section 4975(d) of the IRC or Section 408 of ERISA.
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(ii) No OLB Benefit Plan is a Defined Benefit Plan as defined in Section 3(35)
of ERISA and no OLB ERISA Affiliate has ever maintained or been obligated to
contribute to any Defined Benefit Plan.
(iii) No OLB Benefit Plan is an Employee Stock Ownership Plan as defined in
Section 4975(e)(7) of the IRC.
(iv) No OLB Benefit Plan is a Qualified Foreign Plan as the term is defined in
Section 404A of the IRC and no OLB Benefit Plan is subject to the laws or
regulations of any jurisdiction other than the United States of America or one of
its political subdivisions.
(v) No OLB welfare plan is a Voluntary Employees Beneficiary Association as
defined in Section 501(c)(9) of the IRC.
(vi) All OLB welfare plans and their related trusts comply in all material
respects with and have been administered in compliance with (A) Section 4980B of the
IRC and Sections 601 through 609 of ERISA and all Department of Treasury and U.S.
Department of Labor regulations issued thereunder, respectively, (B) the Health
Insurance Portability and Accountability Act of 1996, and (C) all U.S. Department of
Labor regulations issued thereunder.
(vii) With respect to each OLB Benefit Plan maintained by OLB or any OLB ERISA
Affiliate, each OLB Benefit Plan provides the plan sponsor the authority to amend or
terminate the OLB Benefit Plan at any time, subject to the applicable requirements
of ERISA and the IRC and the provisions of the OLB Benefit Plan.
(e) There is no existing, or, to the Knowledge of OLB, contemplated, audit of any OLB Benefit
Plan by the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty Corporation or any
other governmental authority. In addition, to the Knowledge of OLB, there are no pending or
threatened claims by, on behalf of or with respect to any OLB Benefit Plan, or by or on behalf of
any individual participant or beneficiary of any OLB Benefit Plan, alleging any violation of ERISA
or any other applicable laws, or claiming benefits (other than claims for benefits not in dispute
and expected to be granted promptly in the ordinary course of business), nor to the Knowledge of
OLB, is there any basis for such claim.
(f) To the Knowledge of OLB, with respect to any services which OLB or any OLB Subsidiary may
provide as a record-keeper, administrator, custodian, fiduciary, trustee or otherwise for any plan,
program, or arrangement subject to ERISA (other than any OLB Benefit Plan), OLB and each OLB
Subsidiary:
(i) Have correctly computed all contributions, payments or other amounts for
which it is responsible;
(ii) Have not engaged in any prohibited transactions (as defined in IRC Section
4975(c) or ERISA Section 406 for which an exemption does not exist);
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(iii) Have not breached any duty imposed by ERISA; and
(iv) Have not otherwise incurred any liability to the IRS, the U.S. Department
of Labor, the Pension Benefit Guaranty Corporation, or to any participant,
beneficiary, fiduciary or sponsor of any ERISA plan in the performance (or
non-performance) of services.
(g) Neither OLB nor any OLB Subsidiary is a record-keeper, administrator, custodian,
fiduciary, trustee or otherwise for any plan, program, or arrangement subject to ERISA (other than
any OLB Benefit Plan).
Section 4.14 Brokers and Finders.
Neither OLB, any OLB Subsidiary, nor any of their respective officers, directors, employees,
independent contractors or agents, has employed any broker, finder, investment banker or financial
advisor, or incurred any liability for any fees or commissions to any such person, in connection
with the Contemplated Transactions, except for Danielson Associates, LLC.
Section 4.15 Real Property and Leases.
(a) OLB Disclosure Schedule 4.15(a) contains a true, correct and complete list of all
real property owned, leased or operated by the OLB Companies, including but not limited to all
other real estate owned property (the OLB Real Property). True, correct and complete
copies of all deeds, surveys, title insurance policies and leases for the properties listed on
OLB Disclosure Schedule 4.15(a) and all mortgages, deeds of trust and security agreements
to which such property is subject have been delivered to MDBC.
(b) No lease with respect to any OLB Real Property and no deed with respect to any OLB Real
Property contains any restrictive covenant that materially restricts the use, transferability or
value of such OLB Real Property. Each of such leases is a legal, valid and binding obligation of
the parties thereto enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of
creditors generally and the availability of equitable remedies), and is in full force and effect;
there are no existing defaults by the OLB Companies or, to the Knowledge of OLB, the other party
thereunder, and, there are no allegations or assertions of such by any party under such agreement
or any events that with notice lapse of time or the happening or occurrence of any other event
would constitute a default thereunder, except where the existence of such defaults, individually or
in the aggregate, has not had, and is not reasonably likely to have, a Material Adverse Effect on
the OLB Companies.
(c) None of the buildings and structures located on any OLB Real Property, nor any
appurtenances thereto or equipment therein, nor the operation or maintenance thereof, violates in
any material manner any restrictive covenants or encroaches on any property owned by others, nor
does any building or structure of third parties encroach upon any OLB Real
Property, except for those violations and encroachments which in the aggregate could not
reasonably be expected to cause a Material Adverse Effect on the OLB Companies. No condemnation
proceeding is pending or, to the Knowledge of OLB, threatened, which would
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preclude or materially
impair the use of any OLB Real Property in the manner in which it is currently being used.
(d) The OLB Companies have good and marketable title to, or a valid and enforceable leasehold
interest in, all OLB Real Property and all improvements thereon, and all personal and intangible
properties reflected in the OLB Financials or acquired subsequent thereto, subject to no Liens of
any kind except (i) as noted in the OLB Financials, (ii) statutory Liens not yet delinquent, (iii)
minor defects and irregularities in title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held, and (iv) those assets and properties disposed of
for fair market value in the ordinary course of business since the date of the OLB Financials. All
OLB Real Property used in the business of the OLB Companies are in adequate condition (ordinary
wear and tear excepted) and, to the Knowledge of OLB, are free from defects which could materially
interfere with the current or future use of such facilities.
Section 4.16 Environmental Laws.
To the Knowledge of OLB, each of the OLB Companies is and has been in compliance with all
terms and conditions of all applicable federal and state Environmental Laws and permits thereunder,
except for violations that, individually or in the aggregate, have not, and are not reasonably
likely to have, a Material Adverse Effect on the OLB Companies. None of the OLB Companies (i) has
received any written notice of any violation of, or inquiries regarding any violation of, any
Environmental Laws, (ii) has generated, stored, or disposed of any materials designated as
Hazardous Materials under the Environmental Laws, or (iii) is subject to any claim or lien under
any Environmental Laws. To the Knowledge of OLB, no release (as defined at CERCLA, 42 U.S.C.
9601(22), without regard for the exclusions therein mentioned) of Hazardous Materials has occurred
at or from any real estate during the term of the ownership, lease or operation thereof by any of
the OLB Companies for which the Environmental Laws required or require notice to any third party,
further investigation, or response action of any kind, and no condition exists at any real estate
currently owned, leased or operated by any of the OLB Companies for which the Environmental Laws
required or require notice to any third party, further investigation, or response action of any
kind. None of the OLB Companies has directed, controlled or overseen, or has sought to direct,
control or oversee, the management of environmental matters of any borrower or any real estate in
which any of the OLB Companies holds or has held a security interest. To the Knowledge of OLB, no
asbestos or lead is now or has been contained in any OLB Real Property owned by any of the OLB
Companies. No OLB Real Property is, or has been, an industrial site or a landfill during the
tenure of the OLB Companies or, to the Knowledge of OLB, prior to such tenure. OLB has furnished
MDBC true and complete copies of all environmental assessments, reports, studies and other similar
documents or information in its possession or control relating to each OLB Real Property and any
real property in which any of the OLB Companies holds or held a security interest.
Section 4.17 Intellectual Property.
The OLB Companies: (a) own or possess, or are licensed or otherwise have the right to use, all
Proprietary Rights that are used in the conduct of their existing businesses free and clear of all
Liens and any claims of ownership by current or former employees or contractors; (b) are
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not bound
by or a party to any licenses or agreements of any kind with respect to any Proprietary Rights
which they claim to own or possess, license or otherwise have the right to use; and (c) are not
infringing, diluting, misappropriating or violating, or received any communications alleging that
any of them has infringed, diluted, misappropriated or violated, any of the Proprietary Rights of
any other person. To the Knowledge of OLB, no other person is infringing, diluting,
misappropriating or violating, nor have the OLB Companies sent any communications alleging that any
person has infringed, diluted, misappropriated or violated, any of the Proprietary Rights of the
OLB Companies. OLB Companies take all reasonable actions to protect and maintain all (y) material
Proprietary Rights and (z) the security and integrity of their software, databases, networks,
systems, equipment and hardware and protect the same against unauthorized use, modification or
access thereto, or the introduction of any viruses or other unauthorized or damaging or corrupting
elements. The IT Assets owned and leased by the OLB Companies operate and perform in all material
respects in accordance with their documentation and functional specifications and otherwise as
required by each of the OLB Companies in connection with its business, and have not materially
malfunctioned or failed within the past two years. To the Knowledge of OLB, no person has gained
material unauthorized access to the IT Assets owned or leased by the OLB Companies. Each of the OLB
Companies has implemented reasonable backup and disaster recovery technology consistent with
industry practices.
Section 4.18 Information to be Supplied.
(a) The information supplied by OLB for inclusion in the Registration Statement (including the
Prospectus/Proxy Statement) will not, at the time the Registration Statement is declared effective
pursuant to the Securities Act, and as of the date the Prospectus/Proxy Statement is mailed to the
OLB Common Stockholders and the MDBC Common Stockholders, and up to and including the date of the
OLB and MDBC Common Stockholders Meetings, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made therein, in the light of
the circumstances in which they were made, not misleading.
(b) The information supplied by OLB for inclusion in the Applications will, at the time each
such document is filed with any Regulatory Authority and up to and including the dates of any
required regulatory approvals or consents, as such Applications may be amended by subsequent
filings, be accurate in all material respects.
Section 4.19 Related Party Transactions.
(a) Except as set forth on OLB Disclosure Schedule 4.19, or as is disclosed in the
footnotes to the OLB Financials, as of the date hereof, neither OLB nor any OLB Subsidiary is a
party to any transaction (including any loan or other credit accommodation but excluding deposits
in the ordinary course of business) with any Affiliate of OLB or any OLB Subsidiary, and all such
transactions were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with other persons (as
defined in Section 13(d) of the Exchange Act, and the rules and regulations thereunder).
(b) As of the date hereof, no loan or credit accommodation to any OLB Affiliate is presently
in default or, during the three-year period prior to the date of this Agreement, has
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been in
material default or has been restructured, modified, or extended in order to avoid or cure a
default. As of the date hereof, principal and interest with respect to any such loan or other
credit accommodation will be paid when due and the loan grade classification accorded such loan or
credit accommodation is appropriate.
Section 4.20 Loans.
Except as set forth on the OLB Disclosure Schedule 4.20 all loans reflected as assets
in the OLB Financials are being transferred with good and marketable title, free and clear of any
and all Liens encumbering such loan and are evidenced by notes, agreements or other evidences of
indebtedness that are true, genuine and correct, and to the extent secured, are secured by valid
Liens that are legal, valid and binding obligations of the maker thereof, enforceable in accordance
with the respective terms thereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other similar laws or equitable principles affecting the enforcement
of creditors rights, which have been perfected. OLB has disclosed to MDBC on OLB Disclosure
Schedule 4.20 the amounts of all overdrafts occurring since July 31, 2010 and OLB shall
disclose promptly to MDBC after the end of each month after the date hereof and on the Business Day
before the Closing Date the amount of such overdrafts.
Section 4.21 Allowance for Loan Losses.
The allowance for loan losses reflected in OLBs and Old Lines reports to each Regulatory
Authority has been and will be established in compliance with the requirements of all regulatory
criteria, and the allowance for loan losses shown in the OLB Financials has been and will be
established and maintained in accordance with GAAP. OLB has disclosed to MDBC on OLB
Disclosure Schedule 4.21 the amounts of all loans, leases, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of OLB that OLB has classified
internally as Other Loans Specially Mentioned, Special Mention, Substandard, Doubtful,
Loss, Classified, Criticized, Credit Risk Assets, Concerned Loans or words of similar
import, and OLB shall disclose promptly to MDBC after the end of each month after the date hereof
and on the Business Day prior to the Closing Date the amount of each such classification on an
updated OLB Disclosure Schedule 4.21. The OREO and in-substance foreclosures included in
any of Old Lines non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals. Furthermore, true,
complete and materially correct copies of reports containing the amounts of all loans, leases,
advances, credit enhancements, other extensions of credit, commitments and interest-bearing assets
of Old Line that Old Line has classified internally as Other Loans Specially Mentioned, Special
Mention, Substandard, Doubtful, Loss, Classified, Criticized, Credit Risk Assets,
Concerned Loans or words of similar import occurring since July 31, 2010 shall be disclosed
promptly to MDBC on an updated OLB Disclosure Schedule 4.21.
Section 4.22 Community Reinvestment Act.
Old Line is in compliance in all material respects with the CRA and all regulations
promulgated thereunder, and OLB has supplied MDBC with copies of Old Lines current CRA Statement,
all letters and written comments received by Old Line since April 25, 2007 pertaining
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thereto and
any responses by Old Line to such comments. Old Line has a rating of satisfactory as of its most
recent CRA compliance examination and none of the OLB Companies knows of any reason why Old Line
would not receive a rating of satisfactory or better pursuant to its next CRA compliance
examination or why any Regulatory Authority may seek to restrain, delay or prohibit the Merger or
the Bank Merger as a result of any act or omission of Old Line under the CRA.
Section 4.23 Securities Activities of Employees.
The OLB Companies and, to the Knowledge of OLB, their officers, employees and agents are now,
and at all times in the past have been, in compliance with all applicable federal and state
securities laws and any regulations promulgated thereunder applicable to broker-dealers. The OLB
Companies and their officers, employees and agents have complied with, and currently hold, all
necessary licenses and permits required under any federal or state securities law or regulation to
conduct any securities activities in which the OLB Companies or their officers, employees, or
agents are now engaged or have been engaged in the past.
Section 4.24 Regulatory Approvals.
None of the OLB Companies has any reason to believe that it will not be able to obtain all
requisite approvals or consents from the Regulatory Authorities in order to consummate the
Contemplated Transactions.
Section 4.25 Books and Records.
(a) The minute books and stock ledgers of the OLB Companies that have been made available to
MDBC, its representatives or affiliates constitute all of the minute books and stock ledgers of the
OLB Companies and contain a materially complete and accurate record of all actions of their
respective stockholders and boards of directors (and any committees thereof). All personnel files,
reports, feasibility studies, environmental assessments and reports, strategic planning documents,
financial forecasts, deeds, leases, lease files, land files, accounting and tax records and all
other records that relate to the business and properties of the OLB Companies that have been
requested by MDBC have been made available to MDBC, its representatives or affiliates, and are
located at the offices of the OLB Companies at 1525 Pointer Ridge Place, Bowie, Maryland.
(b) Each of the OLB Companies makes and keeps books, records and accounts which, in reasonable
detail and in all material respects, accurately and fairly reflect its transactions in and
dispositions of its assets and securities and maintains a system of internal accounting controls
sufficient to provide assurance that (i) transactions are executed in accordance with managements
general or specific authorizations, (ii) transactions are recorded as necessary (A) to permit the
preparation of financial statements in conformity with GAAP consistently applied and any other
criteria applicable to such statements, and (B) to maintain
accountability for assets, (iii) access to the assets of the OLB Companies is permitted only
in accordance with managements general or specific authorizations, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
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Section 4.26 Investment Securities.
None of the investments reflected in the OLB Financials under the headings Securities
Available for Sale and Securities Held to Maturity and none of the investments made since June
30, 2010, are subject to any restrictions, whether contractual or statutory, that materially
impairs the ability of OLB to freely dispose of the investments at any time, and all of the
investments comply with applicable laws, rules and regulations.
Section 4.27 Reorganization.
As of the date hereof, OLB does not have any reason to believe that the Merger will fail to
qualify as a reorganization under Section 368(a) of the IRC. OLB will not take any action which
would have the effect of causing the Merger not to qualify as a tax-free reorganization within the
meaning of Section 368 of the IRC.
Section 4.28 Fairness Opinion.
OLBs board of directors has received a written opinion from Danielson Associates, LLC to the
effect that, as of the date hereof, the terms of this Agreement are fair, from a financial point of
view, to the stockholders of OLB.
Section 4.29 Materials Provided to Stockholders.
OLB has delivered to MDBC copies of OLBs proxy materials used, or to be used, in connection
with its meetings of stockholders held in 2008, 2009 and 2010, along with any other form of
correspondence between OLB and its stockholders during that time period.
Section 4.30 Absence of Undisclosed Liabilities.
Neither OLB nor any OLB Subsidiary has any obligation or liability that is material to the
financial condition or operations of any of them, or that, when combined with all similar
obligations or liabilities would be material to their financial condition or operations (i) except
as disclosed in the OLB Financials delivered to MDBC prior to the date of this Agreement, or (ii)
except as contemplated under this Agreement. Since June 30, 2010, neither OLB nor any OLB
Subsidiary has incurred or paid any obligation or liability which would be material to the
financial condition or operations of any of them, except for obligations paid in connection with
transactions made by them in the ordinary course of their business consistent with past practice
and applicable law.
Section 4.31 Disclosure.
The representations and warranties contained in this Article IV do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements and information contained in this Article IV, in light of the circumstances under
which they were made, not misleading. The schedules delivered by OLB pursuant to this Article IV
and elsewhere in this Agreement, which have been delivered concurrently with the execution and
delivery of this Agreement, are true and correct and contain no untrue statements
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of material fact
or omit any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V.
COVENANTS OF THE PARTIES
Section 5.1 Conduct of MDBCs Business.
Through the Closing Date, MDBC shall, and shall cause each MDBC Subsidiary to, in all material
respects, conduct its businesses and engage in transactions only in the ordinary course and
consistent with past practice, except as otherwise required or contemplated by this Agreement or
with the written consent of OLB, which consent shall not be unreasonably withheld. MDBC shall, and
shall cause each MDBC Subsidiary to, use its reasonable good faith efforts to preserve its business
organization intact, maintain good relationships with employees, and preserve the good will of
customers of MDBC or the MDBC Subsidiaries and others with whom business relationships exist,
provided that job vacancies that occur prior to the Effective Date through attrition shall not be
filled or any new employees hired, in each case without the prior written consent of OLB, which
consent shall not be unreasonably withheld. Through the Closing Date, except as otherwise
consented to in writing by OLB or as permitted by this Agreement, and except as may be required, in
writing, by MDBCs Regulatory Authority (in which case MDBC shall immediately provide OLB with a
copy of such written document), MDBC shall not, and shall not permit any MDBC Subsidiary to:
(a) Change any provision of its articles of incorporation or of its bylaws;
(b) Change the number of authorized or issued shares of its capital stock; repurchase any
shares of capital stock; or issue or grant any call, commitment, subscription, Right or agreement
of any character relating to its authorized or issued capital stock or any securities convertible
into shares of capital stock; declare, set aside or pay any dividends (including any special
dividends) or other distribution in respect of capital stock; or redeem or otherwise acquire any
shares of MDBC capital stock;
(c) Grant any severance or termination pay, other than pursuant to policies or agreements of
MDBC or any MDBC Subsidiary in effect on the date hereof, to, or enter into or amend any
employment, consulting, severance, compensation, change-in-control, or termination contract or
arrangement with, any officer, director, employee, independent contractor, agent, or other person
associated with MDBC or any MDBC Subsidiary;
(d) Grant job promotions or increase the rate of compensation of, or pay any bonus to, any
director, officer, employee, independent contractor, agent or other person associated with MDBC or
any MDBC Subsidiary, except for routine periodic pay increases, selective merit pay increases and
pay-raises in connection with promotions during the period beginning on the date of this Agreement
and ending on the Effective Date; provided, however,
that any increase in compensation for an executive officer of MDBC or any MDBC Subsidiary
shall require the prior written consent of OLB;
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(e) Sell or otherwise dispose of any material asset, other than in the ordinary course of
business, consistent with past practice; subject any asset to a Lien, other than in the ordinary
course of business consistent with past practice; modify in any material manner the manner in which
it has heretofore conducted its business or enter into any new line of business; incur any
indebtedness for borrowed money, except in the ordinary course of business, consistent with past
practice;
(f) Sell or otherwise dispose of any MDBC Real Property;
(g) Take any action that would result in any of the conditions set forth in Article VI
hereof not being satisfied, except as may be required by applicable law and after written consent
or waiver from OLB;
(h) Change any method, practice, or principle of accounting, except as may be required from
time to time by law or changes in GAAP or by any Regulatory Authority except as required by Section
5.8(a)(iii) of this Agreement;
(i) Waive, release, grant, or transfer any rights of material value or modify or change in any
material respect any existing agreement to which it is a party;
(j) Implement any pension, retirement, profit-sharing, bonus, welfare benefit, or similar
plan or arrangement that was not in effect on the date of this Agreement, or amend any existing
plan or arrangement except to the extent required by applicable law;
(k) Amend or otherwise modify its underwriting and other lending guidelines and policies in
effect as of the date hereof or otherwise fail to conduct its lending activities in the ordinary
course of business consistent with past practice;
(l) Enter into, renew, extend, or modify any other transaction with any Affiliate, other than
deposit and loan transactions in the ordinary course of business and which are in compliance with
the requirements of applicable laws and regulations;
(m) Enter into any interest rate swap, floor or cap, or similar commitment, agreement, or
arrangement;
(n) Take any action that would give rise to a right of payment to any individual under any
employment agreement except for contractually required compensation;
(o) Purchase any security for its investment portfolio in any manner other than in conformance
with existing policies;
(p) Except as set forth on MDBC Disclosure Schedule 5.1(p) or pursuant to the terms of
any contracts set forth in MDBC Disclosure Schedule 3.3(b), make any new capital
expenditure of fifty thousand dollars ($50,000) or more; or undertake or enter into any lease,
contract or other commitment for its account;
(q) Take any action that would preclude the Merger from qualifying as a reorganization within
the meaning of Section 368 of the IRC;
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(r) Liquidate, merge with or into, or consolidate with, or be purchased or acquired by, any
other financial institution or Entity (or agree to any merger, consolidation, affiliation,
purchase, or acquisition) or permit (or agree to permit) any other financial institution or Entity
to be merged with it or consolidate or affiliate with any other financial institution or Entity;
acquire control over any other financial institution or Entity; or create any subsidiary; or
acquire, lease, sell, convey, transfer or dispose (or agree to acquire, lease, sell, convey,
transfer, or dispose) in any way any assets or any rights thereof of MDBC to any party other than
OLB or an OLB Affiliate unless the failure to do so shall, in the good faith judgment of the MDBC
board of directors, after receipt of written advice of counsel, constitute a breach of fiduciary
duty by MDBCs directors under the laws of the State of Maryland;
(s) Enter into, grant, approve or extend any loan, credit facility, line of credit, or letter
of credit (collectively, a Credit Extension) in excess of three hundred twenty-five
thousand dollars ($325,000) in the aggregate to a single borrower as that term is defined in 12
C.F.R. Part 32; provided, however, MDBC may make a Credit Extension in excess of $325,000 if it
emails the information and documentation regarding the proposed Credit Extension to James W.
Cornelsen, Christine M. Rush and Joseph P. Burnett at OLB, prior to committing to make such Credit
Extension, and OLB does not object to the Credit Extension within forty-eight hours, counted by
Business Days, of receiving the related information; or
(t) Agree to any of the foregoing.
Section 5.2 Conduct of OLBs Business.
OLB shall, and shall cause each OLB Subsidiary to, use its reasonable good faith efforts to
preserve its business organization intact, maintain good relationships with employees, and preserve
the good will of customers of OLB or the OLB Subsidiaries and others with whom business
relationships exist. Through the Closing Date, except as otherwise consented to in writing by MDBC
or as permitted by this Agreement, OLB shall not, and shall not permit any OLB Subsidiary to:
(a) Change any provision of its articles of incorporation or of its bylaws, except as required
by law, this Agreement or to effectuate the Contemplated Transactions;
(b) Take any action that would result in any of the conditions set forth in Article VI hereof
not being satisfied, except as may be required by applicable law and after written notification to
MDBC;
(c) Repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary
course under employee benefit plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of any of the OLB Companies;
(d) Change any method, practice, or principle of accounting, except as may be required from
time to time by law or changes in GAAP or by any Regulatory Authority;
(e) Take any action that would preclude the Merger from qualifying as a reorganization within
the meaning of Section 368 of the IRC; or
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(f) Agree to any of the foregoing.
Section 5.3 Access; Confidentiality.
(a) Through the Closing Date, each party hereto shall afford to the other, including its
authorized agents and representatives, reasonable access to its and its Subsidiaries businesses,
properties, assets, books and records, and personnel, at reasonable hours and after reasonable
notice; and the officers of each party shall furnish the other party making such investigation,
including its authorized agents and representatives, with such financial and operating data and
other information with respect to such businesses, properties, assets, books and records, and
personnel as the party making such investigation, or its authorized agents and representatives,
shall from time to time reasonably request. Each party hereto agrees that it, and its authorized
agents and representatives, will conduct such investigation and discussions hereunder in a
confidential manner and otherwise in a manner so as not to interfere unreasonably with the other
partys normal operations and customer and employee relationships.
(b) MDBC and OLB each agree that it will not, and will cause its representatives not to, use
any information obtained pursuant to this Section 5.3 (as well as any other information obtained
prior to the date hereof in connection with entering into this Agreement) for any purpose unrelated
to the consummation of the Contemplated Transactions. MDBC and OLB shall hold all information
obtained pursuant to this Section 5.3 (as well as any other information obtained prior to the date
hereof in connection with entering into this Agreement) in confidence to the extent required by,
and in accordance with, the provisions of the Confidentiality Agreement, which is incorporated
herein by reference.
Section 5.4 Regulatory Matters.
Through the Closing Date:
(a) OLB and MDBC shall cooperate with one another in the preparation of the Registration
Statement (including the Prospectus/Proxy Statement) and all Applications, which shall be prepared
by OLB and OLBs counsel, and the making of all filings for, and shall use their reasonable best
efforts to obtain, as promptly as practicable, all necessary permits, consents, approvals, waivers
and authorizations of all Regulatory Authorities necessary or advisable to consummate the
Contemplated Transactions. OLB and MDBC shall each give the other reasonable time to review any
Application to be filed by it prior to the filing of such Application with the relevant Regulatory
Authority, and each shall consult the other with respect to the substance and status of such
filings.
(b) MDBC and OLB shall each promptly furnish the other with copies of written communications
to, or received by them from, any Regulatory Authority with respect to the Contemplated
Transactions.
(c) MDBC and OLB shall cooperate with each other in the foregoing matters and shall furnish
the other with all information concerning itself as may be necessary or advisable in
connection with any Application or filing, including any report filed with the SEC, made by or
on behalf of such party to or with any Regulatory Authority in connection with the Contemplated
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Transactions, and in each such case, the information shall be accurate and complete in all material
respects. In connection therewith, MDBC and OLB shall use their reasonable good faith efforts to
provide each other certificates, comfort letters and other documents reasonably requested by the
other.
Section 5.5 Taking of Necessary Actions.
Through the Closing Date, in addition to the specific agreements contained herein, each party
hereto shall use their reasonable best efforts to take, or cause to be taken by each of its
Subsidiaries, all actions, and to do, or cause to be done by each of its Subsidiaries, all things
necessary, proper or advisable under applicable laws and regulations to consummate and make
effective the Contemplated Transactions including, if necessary, appealing any adverse ruling with
respect to any Application.
Section 5.6 No Solicitation.
MDBC shall not, nor shall it authorize or permit any of its officers, directors, stockholders,
or employees or any investment banker, financial advisor, attorney, accountant, or other
representative retained by it to:
(a) Initiate, solicit, encourage (including by way of furnishing information), or take any
other action to facilitate, any inquiries or the making of any proposal which constitutes any
Acquisition Proposal;
(b) Enter into or maintain or continue discussions or negotiate with any person in furtherance
of an Acquisition Proposal; or
(c) Agree to or endorse any Acquisition Proposal;
unless the failure to do so shall, in the good faith judgment of the MDBC board of directors, after
receipt of written advice of counsel, constitute a breach of fiduciary duty of the directors under
the laws of the State of Maryland. MDBC shall notify OLB as promptly as practicable (but in no
event later than two Business Days), in reasonable detail, as to any inquiries and proposals which
it or any of its representatives or agents may receive.
As used herein, the term Acquisition Proposal means a bona fide written proposal
for: (A) a merger, consolidation or acquisition of all or substantially all the assets or
liabilities of MDBC, any MDBC Subsidiary, or any other business combination involving MDBC or any
MDBC Subsidiary; or (B) a transaction involving the transfer of beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to vote securities representing, ten
percent (10%) or more of the then outstanding shares of MDBC Common Stock or the then outstanding
shares of common stock of any MDBC Subsidiary.
Section 5.7 Update of Disclosure Schedules.
Through the Closing Date, MDBC shall update the MDBC Disclosure Schedules, and OLB shall
update the OLB Disclosure Schedules, as promptly as practicable after the occurrence
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of any event
which, if such event had occurred prior to the date hereof, would have been disclosed on such
schedule.
Section 5.8 Other Undertakings by OLB and MDBC.
(a) Undertakings of MDBC.
(i) Stockholder Approval. As promptly as practicable after the
Registration Statement becomes effective under the Securities Act, in accordance
with the Exchange Act, applicable law, and this Agreement, MDBC shall submit this
Agreement to its stockholders for approval at the MDBC Common Stockholders Meeting
with the recommendation that its stockholders approve this Agreement and the Merger.
Notwithstanding the foregoing, the board of directors of MDBC may withhold its
recommendation or withdraw its recommendation to its stockholders only if (1) the board of
directors shall be in receipt of a Superior Proposal, and (2) the board of directors of MDBC
shall have determined that the failure to do so, after receipt of written advice of counsel,
would constitute a breach of the MDBC directors fiduciary duty under Maryland law. MDBC
agrees that if the MDBC board of directors fails to recommend or withdraws its
recommendation to its stockholders regarding the Merger, and the stockholders subsequently
fail to approve the Merger, the OLB Termination Fee and provisions of Section 8.1(b) hereof
will be applicable.
Superior Proposal means a bona fide written proposal or written offer (other than
OLB or an OLB Affiliate) for an Acquisition Proposal on terms which the board of directors
of MDBC concludes in good faith, based upon the advice of its financial advisors and after
written advice from outside legal counsel, taking into account all the terms and conditions
of the Acquisition Proposal (including the OLB Termination Fee), the legal, financial and
regulatory aspects of the proposal, MDBCs responsibilities under the MGCL and the person
making the proposal, are in the aggregate more favorable to all the stockholders of MDBC
than the Merger.
(ii) Environmental Assessments.
(1) OLB shall have the express right, but not the obligation, to conduct Environmental
Assessments of the MDBC Companies assets, operations and secured interests, including, but
not limited to, the MDBC Real Property owned or leased by any of the MDBC Companies.
(2) If OLB, in its sole discretion, is unable to reasonably determine that the
recognized environmental conditions identified in the Environmental Assessments will not
result in a Material Adverse Effect, OLB shall have the express
right, but not the obligation, to further assess the recognized environmental
conditions as OLB deems appropriate.
(3) OLB agrees to notify MDBC a reasonable time in advance of the Environmental
Assessments scheduled pursuant to this Section 5.8(a)(ii). MDBC agrees
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to permit OLB and
its contractors, consultants, agents and representatives to (i) conduct such Environmental
Assessments, (ii) have access to the properties, facilities, environmental documents and
personnel of the MDBC Companies, and (iii) conduct such consultations with the persons or
firms conducting such examinations, as OLB shall deem necessary; provided, however, that OLB
and its contractors, consultants, agents and representatives shall not unreasonably disturb
or interfere with the business activities or operations of the MDBC Companies.
(iii) Modification of Loan Policies. Immediately prior to the
Effective Date, each of MDBC and its Subsidiaries shall, consistent with GAAP and
applicable banking laws and regulations, modify or change its loan, OREO, accrual,
reserve, tax, litigation and real estate valuation policies and practices, including
loan classifications and levels of reserves, so as to be applied on a basis that is
consistent with that of OLB; provided, however, that no such modifications or
changes need be made prior to the satisfactions of the conditions set forth in
Sections 6.1(c) and 6.1(i); and further provided, that in any event, no accrual or
reserve made by MDBC or any of its Subsidiaries pursuant to this Section 5.8(a)(iii)
shall constitute or be deemed to be a breach, violation of or failure to satisfy any
representation, warranty, covenant, agreement, condition or other provision of this
Agreement or otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred. The recording of any such
adjustments shall not be deemed to imply any misstatement of previously furnished
financial statements or information and shall not be construed as a concurrence of
MDBC or its management with any such adjustments.
(iv) OLB Right to Attend Board Meetings. During the Pre-Closing
Period, MDBC shall permit at least one representative from OLB to attend all board
meetings and committee meetings of MDBC and MDB&T held, provided, that the
representative shall leave such meeting during any period in which the board of
directors of MDBC desires to discuss a bona fide written proposal or written offer
(other than OLB or an OLB Affiliate) for an Acquisition Proposal. Each of MDBC and
MDB&T shall provide written notice of each meeting of its board of directors to OLB
at the address provided in Section 8.6 of this Agreement, no later than 24 hours
prior to each such meeting.
(v) Directors and Officers Liability Insurance. Contemporaneously
with the Closing, OLB shall purchase an extended reporting period, for a minimum of
three years and not to exceed six years, for purposes of covering actions occurring
prior to the Effective Time; provided, that the policy can be obtained for an
aggregate 6-year cost not in excess of $436,452 (200% of the rate for the cost of
director and officer liability insurance policy in effect as of the date
of this Agreement). OLB may not cancel, modify or take any action to limit or
terminate the coverage obtained pursuant to this section, unless it replaces such
coverage with coverage provided by insurers having the same or better rating,
coverage and aggregate limits; provided, however, that OLB may, at its option,
replace at any time such policy with another policy having the same coverage
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rate. In the event OLB is unable to obtain a director and officer liability insurance tail
policy at a cost not in excess of $436,452, OLB may obtain a director and officer
liability insurance tail policy with the maximum coverage reasonably available for a
cost that is equal to $436,452.
(vi) Dissolve Non-Operational Subsidiaries. Prior to Closing, MDBC and
MDB&T shall cause the liquidation and legal dissolution of any and all
Non-Operational Subsidiaries.
(b) Undertakings of OLB and MDBC.
(i) Filings and Approvals. OLB and MDBC shall cooperate and use their
respective reasonable best efforts to prepare as promptly as possible all
documentation, to effect all filings and to obtain all permits, consents, approvals
and authorizations of all third parties and Regulatory Authorities necessary to
consummate the Merger, the Bank Merger and the other transactions contemplated by
this Agreement, and OLB will make all necessary regulatory filings within 30 days of
the date hereof, including without limitation, (A) the Applications, (B) the
Registration Statement (including the Prospectus/Proxy Statement) and related
filings, if any, under state securities laws relating to the Merger, and (C) all
other documents necessary to obtain any other approvals and consents required to
effect consummation of the Contemplated Transactions.
(ii) Public Announcements. OLB and MDBC shall consult upon the form
and substance of any press release related to this Agreement and the Contemplated
Transactions, but nothing contained herein shall prohibit either party, following
notification to the other party, from making any disclosure that its counsel deems
necessary under applicable law.
(iii) Maintenance of Insurance. OLB and each OLB Subsidiary, and MDBC
and each MDBC Subsidiary, shall maintain insurance in such amounts as OLB and MDBC,
respectively, believe are reasonable to cover such risks as are customary in
relation to the character and location of its and their respective Subsidiaries
properties and the nature of its and their respective Subsidiaries businesses.
(iv) Maintenance of Books and Records. OLB and each OLB Subsidiary, and
MDBC and each MDBC Subsidiary, shall maintain books of account and records on a
basis consistent with past practice.
(v) Taxes. OLB and each OLB Subsidiary shall file all OLB Returns, and
MDBC and each MDBC Subsidiary shall file all MDBC Returns, required to
be filed by it, respectively, on or before the date such returns are due,
including any extensions, and pay all taxes shown to be due on such returns on or
before the dates such payments are due, except those being contested in good faith.
(vi) In-House Operations. OLB and MDBC shall cooperate with each other
in the interest of an orderly, cost-effective consolidation of operations, and
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to the extent deemed commercially reasonable, shall terminate any in-house back office,
support, processing or other operational activities or services of MDBC or any MDBC
Subsidiary, including without limitation accounting, loan processing and deposit
services, and substitute a contract or arrangement between OLB or any OLB Subsidiary
(as OLB shall select) and MDBC for the provision of similar services to MDBC or any
MDBC Subsidiary.
(vii) Delivery of Financial Statements. OLB and MDBC shall each
deliver to the other, by each respective delivery date, financial statements that
fairly present, in all material respects, its consolidated financial condition,
results of operations for the periods then ended in accordance with GAAP, subject to
year-end audit adjustments and footnotes.
(viii) Delivery of Regulatory Filings and Documents. OLB and MDBC
shall each deliver to the other copies of all reports filed with Regulatory
Authorities promptly upon the filing thereof.
(c) Undertakings of OLB.
(i) Stockholder Approval. As promptly as practicable after the
Registration Statement becomes effective under the Securities Act, in accordance
with the Exchange Act, applicable law, and this Agreement, OLB shall submit this
Agreement to its stockholders for approval at the OLB Common Stockholders Meeting
with the recommendation that its stockholders approve this Agreement and the Merger.
(ii) MDBC Director Nominees.
(1) Subject to OLBs articles of incorporation, bylaws, eligibility
requirements of any Regulatory Authority relating to OLB and continuing
fiduciary duties of the OLB board of directors, the OLB board of directors
shall elect each of the MDBC Nominees to serve on the OLB board of
directors, with G. Thomas Daugherty (or an applicable Replacement Nominee)
elected to the class of directors whose terms expire at the annual meeting
of stockholders of OLB to be held in 2011 and Thomas B. Watts (or an
applicable Replacement Nominee) elected to the class of directors whose
terms expire at the annual meeting of stockholders of OLB to be held in
2013. The MDBC Nominees shall be nominated to serve as directors of OLB at
the annual meeting of stockholders of OLB held in 2011 in accordance with
Section 1.3(d)(i).
(2) OLB will (i) take such actions as are necessary to cause Old Line,
subject to the fiduciary duties of the Old Line board of directors, Old
Lines articles of incorporation and bylaws and the eligibility requirements
of any Regulatory Authority relating to Old Line, and provided that the
applicable MDBC Nominee is not subject to a Disqualification Event, to
nominate each MDBC Nominee to serve as a
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director of Old Line during any
time, and for the same term that, such MDBC Nominee serves as a director of
OLB, including compliance with Section 1.4(b), and (ii) will, as the sole
stockholder of Old Line, vote to elect any MDBC Nominee so nominated by Old
Line.
(iii) Employees, Severance Policy.
(1) Subject to OLBs usual personnel and qualification policies, OLB will
endeavor to continue the employment of each individual who is an MDBC employee on
the Effective Date in a position that will contribute to the successful performance
of the combined organization; provided, however, that no provision in this Agreement
shall create any obligation of OLB to retain any MDBC employees or create any third
party benefit. If an employee is not retained as contemplated by this Section
5.8(c)(iii)(A), or if OLB elects to eliminate a position or does not offer a MDBC
employee comparable employment (i.e., a position of substantially similar job
descriptions or responsibilities at substantially the same salary level), then OLB
will make severance payments to the displaced employee as set forth in this Section
5.8(c)(iii).
(2) With the exception of Thomas B. Watts and G. Thomas Daugherty, OLB will
grant to any eligible employee (exempt and non-exempt) of MDBC that is not retained
by OLB two weeks of severance pay for each full year of service with MDBC or an MDBC
Subsidiary up to a maximum of 26 weeks of severance pay.
(3) All employees of MDBC or of any MDBC Subsidiary at the Effective Time will
be eligible for severance benefits as set forth in this Section 5.8(c)(iii), except
that no employee of MDBC or of any MDBC Subsidiary who shall receive any severance
benefits as provided hereunder shall also be eligible for any payment or benefit
pursuant to any change in control agreement, employment agreement, salary
continuation agreement or similar plan or right.
(4) Each person eligible for severance benefits as set forth in this Section
5.8(c)(iii) will remain eligible for such benefits if his or her employment is
terminated, other than for cause within 12 months after the Effective Time. Any
person whose employment with OLB or any OLB Subsidiary is terminated without cause
after 12 months from the Effective Time shall receive such severance benefit from
OLB or such OLB Subsidiary as is provided for in OLBs general severance policy for
such terminations (with full credit being given for each full year of service with
MDBC or any MDBC Subsidiary).
(5) For purposes of this Section 5.8(c)(iii), cause means the employers good
faith reasonable belief that the employee: (1) committed fraud, theft or
embezzlement; (2) falsified corporate records; (3) disseminated confidential
information concerning customers, OLB, any OLB Subsidiary or any
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of its or their
employees in violation of any applicable confidentiality agreement or policy; or (4)
failed to adequately perform their duties as an employee.
(iv) Employee Benefits.
(1) As of the Effective Time, each employee of MDBC or of any MDBC Subsidiary
who becomes an employee of OLB or of any OLB Subsidiary shall be entitled to full
credit for each year of service with MDBC or any MDBC Subsidiary for purposes of
determining eligibility for participation and vesting, but not benefit accrual, in
OLBs or, as appropriate, in the OLB Subsidiarys, employee benefit plans, programs
and policies. OLB shall use the original date of hire by MDBC or a MDBC Subsidiary
in making these determinations.
(2) As of the Effective Time, OLB shall assume the obligations of MDBC under
the Executive Supplemental Retirement Plan and Agreement with each of T. Daugherty,
G.T. Watts, and F. Taylor, and the Supplemental Pension Agreements with each of L.
Wright, L. Czwartacki, K.B. Howard, R. Swartz (retired) and J. Taylor (retired), as
required under such agreements.
(3) OLB shall assume all obligations of MDB&T under all supplemental retirement
plans for executives of MDB&T listed on MDBC Disclosure Schedule
3.13(a).
(4) Subject to the other provisions of this Section 5.8(c)(iv) after the
Effective Time, OLB may discontinue or amend any MDBC Benefit Plan, or convert to or
merge any MDBC Benefit Plan with or into an OLB Benefit Plan, subject to the plans
provisions and applicable law.
(v) Non-Compete Agreements for MDBC Directors. All non-employee
directors of MDBC and MDB&T who are not invited to join the board of directors of
OLB or Old Line will be offered a three-year non-compete agreement by OLB in
exchange for of a lump sum payment of fifty thousand dollars ($50,000) payable by
OLB to the director on the Effective Date, substantially in the form attached hereto
as Exhibit E (the Director Non-Compete Agreement).
ARTICLE VI.
CONDITIONS
Section 6.1 Conditions to MDBCs Obligations under this Agreement.
The obligations of MDBC hereunder shall be subject to satisfaction at or prior to the Closing
Date of each of the following conditions, unless waived by MDBC pursuant to Section 8.3 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the part of, OLB
to authorize the execution, delivery and performance of this Agreement, and the
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consummation of the
Contemplated Transactions, shall have been duly and validly taken by OLB, and MDBC shall have
received certified copies of the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of OLB and Old Line required by this
Agreement to be performed by OLB and Old Line at or prior to the Closing Date shall have been duly
performed and complied with in all material respects; and the representations and warranties of OLB
set forth in this Agreement shall be true and correct in all material respects, as of the date of
this Agreement, and as of the Closing Date as though made on and as of the Closing Date, except as
to any representation or warranty that specifically relates to an earlier date and except as to any
representation or warranty to the extent the breach of such representation or warranty does not
have a Material Adverse Effect on OLB.
(c) Approvals of Regulatory Authorities. All requisite approvals and consents of
Regulatory Authorities shall have been procured by MDBC and OLB, as applicable, and the statutory
waiting period or periods relating thereto for the Contemplated Transactions shall have expired.
(d) No Injunction. There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits consummation of the
Contemplated Transactions.
(e) Officers Certificate. OLB shall have delivered to MDBC a certificate, dated the
Closing Date and signed, without personal liability, by its Chief Executive Officer, to the effect
that the conditions set forth in subsections (a) through (d) and (i) of this Section 6.1 have been
satisfied.
(f) Registration Statement. The Registration Statement shall be effective under the
Securities Act, and no proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; and all approvals deemed necessary by OLBs counsel
from state securities or blue sky authorities with respect to the transactions contemplated by
this Agreement shall have been obtained.
(g) Tax Opinion. MDBC shall have received an opinion of the Reznick Group, PC, MDBCs
independent certified public accountants, dated the Closing Date, to the effect that (a) the Merger
constitutes a reorganization under Section 368(a) of the IRC, and (b) any gain realized in the
Merger will be recognized only to the extent of cash or other property (other than
OLB Common Stock) received in the Merger, including cash received in lieu of fractional share
interests; in rendering their opinion, such counsel may require and rely upon representations and
reasonable assumptions, including those contained in certificates of officers of MDBC, OLB, and
others.
(h) Approval by OLBs Stockholders. This Agreement shall have been approved by the
stockholders of OLB by such vote as is required by the MGCL and the articles of incorporation and
bylaws of OLB.
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(i) Approval by MDBCs Stockholders. This Agreement shall have been approved by the
stockholders of MDBC by such vote as is required by the MGCL and the articles of incorporation and
bylaws of MDBC.
(j) Other Documents. MDBC shall have received such other certificates, documents or
instruments from OLB or its officers or others as MDBC shall have reasonably requested in
connection with accounting or income tax treatment of the Contemplated Transactions, or related
securities law compliance.
(k) Illegality. No statute, rule, or regulation shall have been enacted, entered,
promulgated or enforced by any governmental authority that prohibits, restricts or makes illegal
the consummation of the Contemplated Transactions.
(l) Legal Opinion. MDBC shall have been furnished with an opinion of OLBs legal
counsel with respect to certain matters in connection with the Merger, dated the Closing Date,
addressed to MDBC, in substance and form reasonably satisfactory to MDBC and as agreed upon by the
parties. Such opinion may: (i) expressly rely as to matters of fact upon certificates furnished by
appropriate officers of OLB or any OLB Subsidiary or appropriate governmental authorities; and (ii)
in the case of matters of law governed by the laws of the state in which they are not licensed,
reasonably rely upon the opinions of legal counsel duly licensed in such states and may be limited,
in any event, to United States federal law, and the laws of the State of Maryland.
(m) No Material Adverse Effect. No change in the business, property, assets
(including loan portfolios), liabilities (whether absolute, contingent or otherwise), operations,
liquidity, income, or financial condition of OLB or any of the OLB Subsidiaries shall have occurred
since the date of this Agreement, which has had, or would reasonably be likely to have, a Material
Adverse Effect on OLB.
Section 6.2 Conditions to OLBs Obligations under this Agreement.
The obligations of OLB hereunder shall be subject to satisfaction at or prior to the Closing
Date of each of the following conditions, unless waived by OLB pursuant to Section 8.3 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on the part of,
MDBC and MDB&T to authorize the execution, delivery and performance of this Agreement, and the
consummation of the Contemplated Transactions, shall have been duly and validly taken
by MDBC and MDB&T, respectively, and OLB shall have received certified copies of the
resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of MDBC and MDB&T required by this
Agreement to be performed by MDBC and MDB&T at or prior to the Closing Date shall have been duly
performed and complied with in all material respects; and the representations and warranties of
MDBC set forth in this Agreement shall be true and correct in all material respects, as of the date
of this Agreement, and as of the Closing Date as though made on and as of the Closing Date, except
as to any representation or warranty that specifically
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relates to an earlier date and except as to
any representation or warranty to the extent the breach of such representation or warranty does not
have a Material Adverse Effect on MDBC.
(c) Approvals of Regulatory Authorities. All requisite approvals and consents of
Regulatory Authorities shall have been procured by MDBC and OLB, as applicable, and the statutory
waiting period or periods relating thereto for the Contemplated Transactions shall have expired;
and no such approval or consent shall have imposed any condition or requirement that, in the
reasonable opinion of the board of directors of OLB, would so materially and adversely impact the
economic or business benefits to OLB of the Contemplated Transactions as to render consummation of
the Merger inadvisable.
(d) No Injunction. There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits consummation of the
Contemplated Transactions.
(e) Officers Certificate. MDBC shall have delivered to OLB a certificate, dated the
Closing Date and signed, without personal liability, by its Chief Executive Officer, to the effect
that the conditions set forth in subsections (a) through (d) and (h) of this Section 6.2 have been
satisfied.
(f) Registration Statement. The Registration Statement shall be effective under the
Securities Act, and no proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; and all approvals deemed necessary by OLBs counsel
from state securities or blue sky authorities with respect to the transactions contemplated by
this Agreement shall have been obtained.
(g) Tax Opinion or Letter. OLB shall have received an opinion of Ober, Kaler, Grimes
& Shriver, P.C., counsel to OLB, or a letter from Rowles & Company, LLP, OLBs independent
certified public accountants, dated the Closing Date, to the effect that the Merger constitutes a
reorganization under Section 368(a) of the IRC; in rendering their opinion, such counsel or firm
may require and rely upon representations and reasonable assumptions, including those contained in
certificates of officers of MDBC, OLB and others.
(h) Approval by MDBCs Stockholders. This Agreement shall have been approved by the
stockholders of MDBC by such vote as is required by the MGCL and the articles of incorporation and
bylaws of MDBC.
(i) Approval by OLBs Stockholders. This Agreement shall have been approved by the
Stockholders of OLB by such vote as is required by the MGCL and the articles of incorporation and
bylaws of OLB.
(j) Limitation on MDBC Objecting Shares. As of the Effective Date, the holders of no
more than five percent (5%) of the MDBC Common Stock that is issued and outstanding shall have
taken the actions required by Section 3-203 of the MGCL to qualify their MDBC Common Stock as MDBC
Objecting Shares.
(k) Other Documents. OLB shall have received such other certificates, documents or
instruments from MDBC or its officers or others as OLB shall have reasonably
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requested in
connection with accounting or income tax treatment of the Contemplated Transactions, or related
securities law compliance.
(l) Environmental Assessment Results. The results of any Environmental Assessments
conducted pursuant to Section 5.8(a)(ii) hereof shall not result in a Material Adverse Effect on
MDBC. OLB shall be fully satisfied, in its reasonable discretion, with the findings of the
Environmental Assessments and any other environmental reports undertaken pursuant to Section 5.8 of
this Agreement.
(m) No Material Adverse Effect. No change in the business, property, assets
(including loan portfolios), liabilities (whether absolute, contingent or otherwise), operations,
business prospects, liquidity, income, or financial condition of MDBC or any of the MDBC
Subsidiaries shall have occurred since the date of this Agreement, which has had, or would
reasonably be likely to have, a Material Adverse Effect on MDBC.
(n) Voting Limit and Standstill Agreement. In connection with the execution of this
Agreement, the Watts Group and the Daugherty Group shall have delivered to OLB an executed Voting
Limit and Standstill Agreement.
(o) MDBC Executive Non-Compete Agreement. In connection with the execution of this
Agreement, Thomas B. Watts and G. Thomas Daugherty shall have each delivered to OLB an executed
MDBC Executive Non-Compete Agreement.
(p) Support Agreement. In connection with the execution of this Agreement, the
directors of MDBC and MDB&T shall have delivered to OLB an executed Support Agreement.
(q) Third Party Consents. OLB shall have received all consents and authorizations of
landlords and other persons that are necessary to permit the Merger to be consummated without the
violation of any lease or other material agreement to which MDBC is a party or by which any of its
properties are bound, except where failure to obtain such consent or authorization would be
reasonably expected not to have a Material Adverse Effect subsequent to the Merger.
(r) Illegality. No statute, rule or regulation shall have been enacted, entered,
promulgated or enforced by any governmental authority that prohibits, restricts or makes illegal
the consummation of the Contemplated Transactions.
(s) Legal Opinion. OLB shall have been furnished with an opinion of MDBCs legal
counsel with respect to certain matters in connection with the Merger, dated the Closing Date,
addressed to OLB, in substance and form reasonably satisfactory to OLB and as agreed upon by the
parties. Such opinion may: (i) expressly rely as to matters of fact upon certificates furnished by
appropriate officers of MDBC or any MDBC Subsidiary or appropriate governmental authorities; and
(ii) in the case of matters of law governed by the laws of the state in which they are not
licensed, reasonably rely upon the opinions of legal counsel duly licensed in such states and may
be limited, in any event, to United States federal law, and the laws of the State of Maryland.
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ARTICLE VII.
TERMINATION
Section 7.1 Termination.
Notwithstanding any other provision of this Agreement, and notwithstanding the approval of
this Agreement by the stockholders of both MDBC and OLB, this Agreement may be terminated on or at
any time prior to the Closing Date:
(a) By the mutual written agreement of MDBC and OLB;
(b) By either MDBC or OLB in the event of a material breach of any representation, warranty,
covenant, or other agreement of the other party hereto contained in this Agreement and such breach
cannot be, or shall not have been, remedied within 30 days after receipt by such party of written
notice specifying the nature of such breach and requesting that it be remedied and which breach is
reasonably likely, in the opinion of the non-breaching party, to have, individually or in the
aggregate, a Material Adverse Effect on the breaching party; provided, that, if such breach cannot
reasonably be cured within such 30-day period but may reasonably be cured within 60 days, and such
cure is being diligently pursued, no such termination shall occur prior to the expiration of such
60-day period;
(c) By MDBC if the conditions in Section 6.1 of this Agreement have not been satisfied by OLB
(and cannot be, or have not been, cured within 30 days after the giving of written notice of such
failure by MDBC) and have not been waived by MDBC;
(d) By OLB if the conditions in Section 6.2 of this Agreement have not been satisfied by MDBC
(and cannot be, or have not been, cured within 30 days after the giving of written notice of such
failure by OLB) and have not been waived by OLB;
(e) By either MDBC or OLB if the Closing Date shall not have occurred prior to May 31, 2011
(except that if the Closing Date shall not have occurred by such date because of a material breach
of this Agreement by a party hereto, such breaching party shall not be entitled to terminate this
Agreement in accordance with this provision);
(f) By either MDBC or OLB in the event any Regulatory Authority whose approval or consent is
required for consummation of the Contemplated Transactions shall issue a
definitive written denial of such approval or consent and any appeals and requests for
reconsideration have also received a definitive written denial;
(g) By either MDBC or OLB if the OLB stockholders or MDBC stockholders vote, but fail to
approve the Merger at the OLB Common Stockholders Meeting or MDBC Common Stockholders Meeting,
respectively;
(h) By MDBC if the Average Price falls below $6.00 unless OLB, in its sole discretion,
increases the Aggregate Consideration in stock, cash, or a combination thereof, by an amount equal
to (A) $6.00 minus the Average Price, multiplied by (B) Two Million Six Hundred Twenty-One Thousand
Two Hundred Thirty-One (2,621,231);
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(i) By OLB if MDBC or any MDBC Subsidiary enters into any definitive term sheet, letter of
intent, agreement or similar type agreement with a view to being acquired by, or effecting a
business combination with, any other person other than OLB, or enters into any agreement to merge,
consolidate, to combine or to sell a material portion of its assets or to be acquired in any other
manner by any other person or to acquire a material amount of assets or a material equity position
in any other person, whether financial or otherwise;
(j) By MDBC if MDBC or any MDBC Subsidiary enters into any transaction described in (i) above
after receipt of written advice of counsel that failure to do so shall constitute a breach of
fiduciary duty by MDBCs directors under the laws of the State of Maryland;
(k) By MDBC if OLB or any OLB Subsidiary enters into any definitive term sheet, letter of
intent, agreement or similar type of agreement with a view to being acquired by, or effecting a
business combination, as a result of which OLB is not the surviving Entity or OLBs directors, as
of the date of this Agreement, do not comprise the majority of the surviving Entitys board of
directors, with any person other than MDBC and the MDBC board of directors determines that, with
written advice of counsel, such transaction is not in the best interests of the MDBC Common
Stockholders; provided, however, that MDBC must exercise the termination option under this Section
7.1(k) within 30 calendar days after OLB files a Current Report Form 8-K with the SEC regarding
events triggering the termination option;
(l) By OLB if the MDBC board of directors withdraws, changes, or modifies its recommendation
to its stockholders in any manner adverse to OLB regarding this Agreement or the Merger; or
(m) By MDBC if the OLB board of directors withdraws, changes, or modifies its recommendation
to its stockholders in any manner adverse to MDBC regarding this Agreement or the Merger.
Section 7.2 Effect of Termination.
If this Agreement is terminated pursuant to Section 7.1 hereof or otherwise, this Agreement
shall forthwith become void, other than Sections 5.3(b), this Section 7.2, and Section 8.1 hereof,
which shall remain in full force and effect, and there shall be no further liability on the part of
OLB or MDBC to the other, except for any liability of OLB or MDBC under such
applicable sections of this Agreement and except for any liability arising out of a willful
breach of this Agreement giving rise to the termination.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 Expenses and Other Fees.
(a) General Expenses. Whether or not the transactions provided for herein are
consummated, each party to this Agreement will pay its respective expenses incurred in connection
with the preparation and performance of its obligations under this Agreement. Each
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party agrees to
indemnify the other party against any cost, expense or liability (including reasonable attorneys
fees and including those costs of any partys enforcement of the rights afforded under this Section
8.1) in respect of any claim made by any party for a brokers or finders fee in connection with
this transaction other than one based on communications between the party and the claimant seeking
indemnification. OLB shall be responsible for and shall pay all filing fees, trustee or exchange
agent fees and expenses, and blue sky fees and expenses, if any. OLB and MDBC further agree that
all legal, investment banking and other fees and expenses incurred by MDBC in connection with this
Agreement shall not exceed the sum of four hundred fifty thousand dollars ($450,000) plus the
expenses contemplated by Section 5.8(a)(v) of this Agreement (collectively, the Maximum
Expense Amount) and, if such expenses exceed the Maximum Expense Amount, the amount of such
excess will be deducted from the Aggregate Consideration to be paid by OLB under Article II above.
All such legal, investment banking or other fees and expenses will be paid or expensed and fully
accrued on the books of MDBC prior to the Closing Date. The expenses of separate counsel to any
stockholder of MDBC shall be borne by such stockholder and not borne or reimbursed by the MDBC
Companies or OLB.
(b) OLB Termination Fee. As an inducement to OLB to enter into this Agreement, to
incur the costs and expenses related hereto and to consummate the Contemplated Transactions, MDBC
hereby agrees to pay OLB within five Business Days after written demand for payment, and OLB shall
be entitled to payment of the following fees:
(i) One million dollars ($1,000,000) if MDBC terminates this Agreement pursuant to Section
7.1(j); or
(ii) Seven hundred fifty thousand dollars ($750,000) following the occurrence of any of the
events set forth below:
(1) OLB terminates this Agreement pursuant to Section 7.1(b) (provided
that OLB is not then in material breach of any representation, warranty,
covenant, or other agreement contained in this Agreement), Section 7.1(i),
or Section 7.1(l); or
(2) OLB terminates this Agreement based on the failure to satisfy the
conditions in Sections 7.1(e) or 7.1(f), which failure was directly caused
by the knowing, willful and intentional actions or inactions of MDBC
(provided OLB is not then in material breach of any material
representation, warranty, covenant, or other agreement contained in this
Agreement).
Any payment due to OLB pursuant to Sections 8.1(b)(i) and 8.1(b)(ii) are collectively referred
to hereafter as the OLB Termination Fee. If demand for payment of the OLB Termination
Fee is made pursuant to this Section 8.1(b) and payment is timely made, then OLB will have no other
rights or claims against MDBC and its respective officers, directors, attorneys and financial
advisors under this Agreement, it being agreed that the acceptance of the OLB Termination Fee under
this Section 8.1(b) will constitute the sole and exclusive remedy of OLB against MDBC and its
officers, directors, attorneys and financial advisors.
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(c) MDBC Termination Fee. As an inducement to MDBC to enter into this Agreement, to
incur the costs and expenses related hereto and to consummate the Contemplated Transactions, OLB
hereby agrees to pay MDBC, and MDBC shall be entitled to payment of, a fee of seven hundred fifty
thousand dollars ($750,000) (the MDBC Termination Fee and, collectively with the OLB
Termination Fee, the Termination Fee), within five Business Days after written demand for
payment is made by MDBC, if:
(i) MDBC terminates this Agreement pursuant to Section 7.1(b) (provided that
MDBC is not then in material breach of any representation, warranty, covenant, or
other agreement contained in this Agreement), or Section 7.1(m); or
(ii) MDBC terminates this Agreement based on the failure to satisfy the
conditions in Sections 7.1(e) or 7.1(f), which failure was directly caused by the
knowing, willful and intentional actions or inactions of OLB (provided MDBC is not
then in material breach of any material representation, warranty, covenant, or other
agreement contained in this Agreement).
If demand for payment of the MDBC Termination Fee is made pursuant to this Section 8.1(c) and
payment is timely made, then MDBC will have no other rights or claims against OLB and its
respective officers, directors, attorneys and financial advisors under this Agreement, it being
agreed that the acceptance of the MDBC Termination Fee under this Section 8.1(c) will constitute
the sole and exclusive remedy of MDBC against OLB and its officers, directors, attorneys and
financial advisors.
Section 8.2 Non-Survival of Representations and Warranties; Disclosure Schedules.
All representations, warranties and, except to the extent specifically provided otherwise
herein, agreements and covenants shall terminate on the Closing Date. Without limiting the
foregoing, Sections 5.8(c)(ii), (iii), (iv), and (v) shall survive the Closing.
Section 8.3 Amendment, Extension and Waiver.
Subject to applicable law, at any time prior to the Closing Date, the parties may:
(a) Amend this Agreement;
(b) Extend the time for the performance of any of the obligations or other acts of either
party hereto;
(c) Waive any term or condition of this Agreement, any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto; or
(d) To the extent permitted by law, waive compliance with any of the agreements or conditions
contained in Articles V and VI hereof or otherwise.
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This Agreement may not be amended except by an instrument in writing signed, by authorized
officers, on behalf of the parties hereto. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in writing signed by a duly
authorized officer on behalf of such party, but such waiver or failure to insist on strict
compliance with such obligation, covenant, agreement, or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 8.4 Entire Agreement.
This Agreement, the schedules and exhibits hereto, and any other documents to be executed in
connection herewith, including, without limitation, the Voting Limit and Standstill Agreement,
contain the entire, complete, and integrated agreement between the parties with respect to the
subject matter hereof, and supersede any prior or contemporaneous arrangements, agreements or
understandings between the parties, written or oral, express or implied, that may have related to
the subject matter hereof in any way other than the Confidentiality Agreement.
Section 8.5 Binding Agreement.
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their
successors; provided, however, that nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto and their respective successors, any rights,
remedies, obligations or liabilities.
Section 8.6 Notices.
All notices under this Agreement shall be in writing and shall be deemed sufficient and duly
given: (a) when delivered personally to the recipient; (b) upon confirmation of good transmission
if sent by facsimile; or (c) when delivered to the last known address of the recipient (i) one
Business Day after delivery to a reputable express courier service for next-day delivery (charges
prepaid), or (ii) three days after being sent to the recipient by certified mail, return receipt
requested and postage prepaid, addressed as follows:
(a) If to OLB, to:
James W. Cornelsen
President and Chief Executive Officer
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
Fax: (301) 430-2531
with a copy to:
Frank C. Bonaventure, Jr., Esquire
Ober | Kaler
120 East Baltimore Street, Suite 800
Baltimore, Maryland 21202
Fax: (410) 547-0699
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(b) If to MDBC, to:
Thomas B. Watts
Chairman and Chief Executive Officer
Maryland Bankcorp, Inc.
46930 South Shangri La Drive
Lexington Park, Maryland 20653
Fax: (301) 866-9204
with a copy to:
Leonard J. Rubin, Esquire
Nelson Mullins Riley & Scarborough LLP
101 Constitution Avenue, N.W., Suite 900
Washington, DC 20001
Fax: (202) 712-2844
Section 8.7 Disclosure Schedules.
Information contained on either the MDBC Disclosure Schedule or the OLB Disclosure Schedule
shall be deemed to cover the express disclosure requirement contained in a representation or
warranty of this Agreement and any other representation or warranty of this Agreement of such party
where it is readily apparent it applies to such provision. The mere inclusion of an item in a
Disclosure Schedule as an exception to a representation or warranty shall not be deemed an
admission by a party that such item represents a material exception or fact, event or circumstance
or that such item is or could result in a Material Adverse Effect.
Section 8.8 Tax Disclosure.
Notwithstanding anything else in this Agreement to the contrary, each party hereto (and each
employee, representative or other agent of any party) may disclose to any and all persons, without
limitation of any kind, the federal income tax treatment and federal income tax structure of any
and all Contemplated Transactions and all materials of any kind (including opinions or other tax
analyses) that are or have been provided to any party (or to any employee, representative, or other
agent of any party) relating to such tax treatment or tax structure; provided, however, that this
authorization of disclosure shall not apply to restrictions reasonably necessary to comply with
Securities Laws. This authorization of disclosure is not effective until the earlier of (a) the
date of the public announcement of discussions relating to the Contemplated Transactions, (b) the
date of the public announcement of the Contemplated Transactions, or (c) the date of execution of
an agreement (with or without conditions) to enter into the Contemplated Transactions.
Section 8.9 No Assignment.
Neither party hereto may assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party hereto.
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Section 8.10 Captions.
The captions contained in this Agreement are for reference purposes only and are not part of
this Agreement.
Section 8.11 Counterparts; Facsimile.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed
to be an original copy of this Agreement and all of which together will be deemed to constitute one
and the same agreement. The exchange of copies of this Agreement and of signature pages by
facsimile transmission shall constitute effective execution and delivery of this Agreement as to
the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.
Section 8.12 Severability.
If any provision of this Agreement or the application thereof to any person or circumstance
shall be invalid or unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
Section 8.13 Governing Law.
This Agreement shall in all respects be interpreted, enforced, and governed under the laws of
the State of Maryland, without regard to Marylands conflict-of-laws provisions.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly
authorized officers as of the day and year first above written.
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OLD LINE BANCSHARES, INC. |
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By: |
/s/ Christine M. Rush |
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By: |
/s/ James W. Cornelsen |
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Name: |
Christine M. Rush |
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Name: |
James W. Cornelsen |
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Secretary |
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President and Chief Executive Officer |
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MARYLAND BANKCORP, INC. |
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By: |
/s/ Lawrence H. Wright |
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By: |
/s/ Thomas B. Watts |
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Lawrence H. Wright |
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Thomas B. Watts |
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Secretary |
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Chairman and Chief Executive Officer |
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EXHIBIT INDEX
Exhibit A Form of Voting Limit and Standstill Agreement
Exhibit B Form of Support Agreement
Exhibit C Form of MDBC Executive Non-Compete Agreement
Exhibit D Form of Bank Merger Agreement
Exhibit E Form of Director Non-Compete Agreement
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EXHIBIT A
[Form of Voting Limit and Standstill Agreement]
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STOCKHOLDER VOTING LIMIT AND
STANDSTILL AGREEMENT
This Stockholder Voting Limit and Standstill Agreement (the Agreement) is made
as of September 1, 2010 by and among Old Line Bancshares, Inc., a Maryland corporation
(OLB), and the undersigned stockholders of Maryland Bankcorp, Inc. (MDBC) (each
a Stockholder and collectively, the Stockholders).
WHEREAS, OLB and MDBC propose to enter into an Agreement and Plan of Merger (the Merger
Agreement), which provides for the merger of MDBC with and into OLB, with OLB surviving the
merger (the Merger).
WHEREAS, as of the date hereof, each Stockholder is the record and legal owner of or
beneficial owner (the terms beneficial owner or beneficial ownership as used
throughout this Agreement have the same meaning ascribed thereto in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the Exchange Act)) of such number of shares of MDBC
common stock, $0.01 par value per share (MDBC Common Stock) specified on Schedule
A of this Agreement.
WHEREAS, as part of the Merger, the Stockholders will receive shares of OLB common stock,
$0.01 par value per share (OLB Common Stock), in exchange for such Stockholders shares
of MDBC Common Stock.
WHEREAS, in consideration of and as a condition to the execution of the Merger Agreement by
OLB, OLB has required that the Stockholders agree to certain matters, and in order to induce OLB to
enter into the Merger Agreement, the Stockholders are willing to agree to such matters, all upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants, agreements,
representations and warranties contained herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the
indicated meanings (such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
Affiliate of a specified Person means a Person that, directly or indirectly through one or
more intermediaries, Controls or is Controlled by, or is under common Control with, such specified
Person.
Associate has the meaning set forth in Section 12b-2 of the Exchange Act.
Board means the Board of Directors of OLB.
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Control, as used within the definition of Affiliate, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
Person means an individual, corporation, limited liability company, partnership, joint
venture, association, trust, unincorporated organization or other entity.
Solicitation has the meaning set forth in Rule 14a-1 promulgated under the Exchange Act and
shall include any action that causes a person to become a participant in such a Solicitation within
the meaning of Instruction 3 of Item 4 of Schedule 14A promulgated under the Exchange Act.
Voting Securities means the (i) shares of OLB Common Stock that Stockholder receives as
consideration for the Merger and Controls following the Merger, and (ii) any shares of OLB Common
Stock purchased by Stockholder following the date of this Agreement; provided, however, that the
term Voting Securities shall not include any shares of OLB Common Stock held by a Stockholder on
the date hereof, as set forth on Schedule B attached hereto and incorporated herein by
reference, and (ii) any shares of OLB Common Stock received by a Stockholder in connection with
compensation for service on the Board.
2. Limitations on Stockholders Actions. Commencing on the date of this Agreement,
except as provided in Section 3 and except for (i) any action taken in a Stockholders capacity as
a member of the Board in the ordinary course, and (ii) where any action has been previously
approved by a majority of the members of the Board (the determination of which shall exclude any
Stockholder), each Stockholder shall not, and shall cause each of its Affiliates not to, directly
or indirectly:
(a) Acquire, offer, propose to acquire, agree to acquire, purchase, or make a tender or
exchange offer for any shares of OLB Common Stock, except for (i) shares of OLB Common Stock
received in exchange for his, her or its MDBC Common Stock as part of the Merger, and (ii) shares
of OLB Common Stock received by a Stockholder in connection with compensation for service on the
Board;
(b) Engage or participate in any Solicitation of proxies or consents regarding the OLB Common
Stock, make any stockholder proposals at a meeting of OLBs stockholders, induce or attempt to
induce any other Person to initiate any stockholder proposals at any meeting of OLBs stockholders,
or otherwise communicate with OLBs stockholders pursuant to Rule 14a-1(l)(2)(iv) under the
Exchange Act;
(c) Advise, seek to advise, encourage, seek to encourage, influence or seek to influence any
person or entity with respect to the voting of any shares of OLB Common Stock held by other
stockholders of OLB;
(d) Take action to nominate or present any person for election to the Board at any annual
meeting of OLBs stockholders or any other meeting of OLBs stockholders called for the purpose of
electing directors;
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(e) Seek, propose or make any public statements with respect to any OLB action requiring
approval of OLBs stockholders;
(f) Form, join or in any way participate in any group (within the meaning of Section 13d(3)
of the Exchange Act) with respect to any Voting Securities;
(g) Deposit any Voting Securities in any voting trust or subject any Voting Securities to any
arrangement or agreement with respect to the voting of any Voting Securities;
(h) Other than in a Stockholders capacity as a member of the Board pursuant to the Merger
Agreement, otherwise act, alone or in concert with others, to control or seek to control or
influence or seek to influence the management, Board or policies of OLB;
(i) Propose, or make any filing with respect to, any form of business combination,
restructuring, recapitalization, dissolution or similar transaction involving OLB, including,
without limitation, a merger, tender or exchange offer, share repurchase or liquidation of the
OLBs assets, in each case, except with the consent of OLB and except in connection with the
Merger;
(j) Seek, alone or in concert with others, (i) to call a meeting of stockholders of OLB, (ii)
representation on the Board, except as provided in the Merger Agreement; (iii) the removal of any
OLB officer and/or director, or (iv) to support financially, or through the giving of services or
information (except in response to a request by a governmental agency with jurisdiction or
authority over the Stockholder, a validly issued subpoena or otherwise as required by law), any
Person who is suing or contemplating suing OLB or any of its Affiliates, or is conducting or
contemplating a Solicitation in opposition to a proposal by the Board or OLB management.
3. Acquisition of OLB. If there is a proposed acquisition of OLB (acquisition is
defined as: (a) a merger of OLB or its subsidiary, Old Line Bank, wherein OLB or Old Line Bank is
not the surviving entity; (b) an acquisition of substantially all of the voting securities of OLB;
or (c) the sale of all or substantially all of the assets of OLB), as long as the acquiror acted
independently of and without any information, assistance or involvement from the Stockholder
regarding any such acquisition, the provisions of Section 2 shall not be applicable to the
Stockholders regarding such acquiror or such acquirors securities. Notwithstanding the foregoing,
if any Stockholder or any of its Affiliates provides information or assistance to any Person in
response to a request by a governmental agency with jurisdiction or authority over the Stockholder,
a validly issued subpoena or otherwise as required by law, the Stockholder shall not have breached
the provisions of Section 2.
4. Limitations on Stockholders Voting.
(a) Commencing on the date of this Agreement, the Stockholders (collectively and not
individually) shall not vote any shares of Voting Securities held by them in any OLB stockholder
vote in an amount that exceeds four percent (4%) of the total outstanding OLB voting stock as of
the record date for such vote or, in a vote of the holders of the OLB Common
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Stock as a class, four percent (4%) of the shares of OLB Common Stock outstanding as of the
record date for such vote.
(b) The Stockholders understand and agree that if they vote their Voting Securities in
violation of Section 4(a) of this Agreement, then the Stockholders hereby unconditionally and
irrevocably instruct OLB not to record the amount of Voting Securities so voted that exceeds four
percent (4%) of the total outstanding OLB Common Stock or the class of OLB securities, as
applicable. If all of the Stockholders Voting Securities are not voted in the same manner, then
the number of shares not recorded shall be pro rata based on that proportion of the Stockholders
Voting Securities voted (i) with the Boards recommendation, (ii) against the Boards
recommendation, and (iii) abstaining, with respect to each matter.
(c) If and to the extent that it is determined that Sections 4(a) and/or 4(b) hereof are
unenforceable, then the Stockholders will cause all of their Voting Securities that exceed the four
percent (4%) threshold of Section 4(a) to be voted at any meeting of OLBs stockholders or at any
adjournments or postponements thereof (i) in favor of each director nominated and recommended by
the Board for election at any such meeting and any proposal recommended by the Board for approval
at any such meeting, and (ii) against any stockholder nominations for director that are not
approved and recommended by the Board for election or approval and any other proposal not
recommended by the Board for approval at any such meeting.
5. Equitable Remedies; Remedies for Certain Breaches.
(a) The parties acknowledge and agree that money damages would not be a sufficient remedy for
any breach or threatened breach of the provisions of Sections 2 or 4 of this Agreement, and that
the non-breaching party shall be entitled to specific performance and injunctive (preliminary or
permanent) or other equitable relief as remedies for any breach of any such section. Such remedies
shall not be deemed to be the exclusive remedies but shall be in addition to all other remedies
available at law or in equity. Each party waives any requirement for the securing or posting of
any bond in connection with any such remedy.
(b) The rights and remedies of the parties under this Agreement shall be cumulative and
concurrent and may be pursued and exercised singularly, successively or concurrently at the sole
discretion of the exercising party and may be exercised as often as such party shall deem necessary
or desirable, and the nonexercise by a party of any such rights and remedies in any particular
instance shall not in any way constitute a waiver or release thereof in that or any subsequent
instance.
6. Representations and Warranties.
(a) The Stockholders hereby represent and warrant that, as of the date hereof, they and their
Affiliates and Associates own, of record or beneficially, and have the sole power to vote or direct
the voting of such number of shares of MDBC Common Stock as are accurately and completely set forth
(including, without limitation, as to form of ownership) on Schedule A
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hereto, and none of the Stockholders or any of their Affiliates own, of record or
beneficially, any other securities of securities of MDBC.
(b) Each Stockholder hereby represents and warrants that such Stockholder has no other
Affiliates or Associates that own, either of record or beneficially, shares of MDBC Common Stock
other than those Persons executing a signature page to this Agreement.
(c) The representations and warranties of the Stockholders set forth in this Agreement shall
be true and correct as of the Closing, as defined in the Merger Agreement, as though made on and as
of the Closing, unless such Stockholder has provided OLB written notice to the contrary prior to
the Closing.
7. No Reliance. Except as expressly set forth in any representation, warranty or
covenant made by a party in this Agreement, each party expressly disclaims and shall not be deemed
to have made any representation, warranty or covenant, express or implied, to the other party, in
connection with or related to the transactions contemplated by this Agreement.
8. Authority to Enter Agreement. Each party represents and warrants to the others
that:
(a) The party has all necessary power and authority to execute and deliver this Agreement and
to perform its obligations hereunder, and, if an entity, the execution, delivery and performance of
this Agreement by it has been duly and validly approved by its board of directors and stockholders,
if required;
(b) Neither the execution and delivery of this Agreement by the party nor the partys
compliance with the terms or provisions hereof will, with or without notice or the lapse of time or
both, result in (i) a conflict with or breach of any provision of any applicable charter or bylaws,
(ii) except as disclosed in writing to the other parties, a breach of, or a default under, the
terms or provisions of any contract, agreement, note, bond, mortgage, indenture, lease, license,
permit or other instrument to which it is a party, or (iii) to its knowledge, a violation by it of
any statute, rule, regulation, ordinance, code, judgment, order, writ, decree, injunction or award;
(c) Any consents, approvals or authorizations of, or declarations, filings or registrations
with, any governmental or regulatory authority required to be made or obtained by it in connection
with the execution, delivery and performance of this Agreement and the performance of its
obligations hereunder have been made or obtained; and
(d) There is no claim, action, suit or proceeding pending or, to such Persons knowledge,
threatened against the party or any of its properties that seeks to prohibit, restrict or delay or
would have the effect of prohibiting, restricting or delaying the performance of the terms,
conditions and obligations contemplated by this Agreement.
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9. Termination. This Agreement shall terminate upon the occurrence of any of the
following:
(a) The written mutual agreement of OLB and the Stockholders to terminate this Agreement;
(b) The Voting Securities constitute less than four percent (4%) of the outstanding OLB Common
Stock for a period of at least six months;
(c) A Stockholder shall cease to own the Voting Securities;
(d) The death of a Stockholder; or
(e) Termination of the Merger Agreement pursuant to the terms thereof.
10. Miscellaneous.
(a) Expenses and Taxes, Etc. Any expenses that may be incurred in connection with
this Agreement and the transactions contemplated hereby shall be borne by the party incurring such
expenses, including, but not limited to, all professional expenses, except that nothing contained
herein shall serve as a bar to a party seeking reimbursement of costs and expenses from a breaching
party.
(b) Non-Assignability. This Agreement may not be assigned by any Stockholder without
the prior written consent of OLB.
(c) Binding on Successors and Assigns. This Agreement shall inure to the benefit of
and bind the respective successors and permitted assigns of the parties hereto; provided that this
Agreement is not intended to restrict or limit any Person that is not an Affiliate or Associate of
the Stockholders, and purchases shares of OLB Common Stock from a Stockholder in an arms-length
transaction. Except as otherwise expressly provided herein, nothing expressed or referred to in
this Agreement is intended or shall be construed to give any person other than the parties to this
Agreement or their respective successors or permitted assigns any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained herein, it being the
intention of the parties to this Agreement that this Agreement shall be for the sole and exclusive
benefit of such parties or such successors and assigns and not for the benefit of any other person.
(d) Entire Agreement; Amendment. This Agreement, along with any agreements referenced
herein, contains the entire, complete, and integrated agreement among the parties with respect to
the subject matter hereof, and supersede any prior or contemporaneous arrangements, agreements or
understandings among the parties, written or oral, express or implied, that may have related to the
subject matter hereof. This Agreement may be amended only by a written instrument duly executed by
the parties.
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(e) Governing Law. This Agreement shall in all respects be interpreted, enforced, and
governed under the laws of the State of Maryland, without regard to Marylands conflict-of-laws
provisions. The parties hereby submit to the jurisdiction and venue of the courts of Maryland, and
any legal or equitable action to enforce this or any related agreements may only be brought in the
circuit courts therein.
(f) Survival of Covenants, Representations and Warranties. The covenants,
representations and warranties given by the parties hereto and contained herein shall survive the
termination of this Agreement.
(g) Captions. The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
(h) Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed sufficient and duly given: (i)
when delivered personally to the recipient; (ii) upon confirmation of good transmission if sent by
facsimile; or (iii) when delivered to the last known address of the recipient (A) one business day
after delivery to a reputable express courier service for next-day delivery (charges prepaid), or
(B) three days after being sent to the recipient by certified mail, return receipt requested and
postage prepaid, addressed as follows:
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James W. Cornelsen |
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President and Chief Executive Officer |
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Old Line Bancshares, Inc. |
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1525 Pointer Ridge Place |
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Bowie, Maryland 20716 |
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Fax: (301) 430-2531 |
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with copy to: |
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Ober, Kaler, Grimes & Shiver |
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A Professional Corporation |
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120 East Baltimore Street |
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Baltimore, Maryland 21202-1643 |
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Attn: Frank C. Bonaventure, Jr., Esq. |
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Addresses may be changed by notice in writing signed by the addressee.
(i) Severability. Wherever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule, then such invalidity,
illegality or unenforceability will not affect any other provision or portion of any provision of
this Agreement as if such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein.
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(j) Counterparts; Facsimile. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed to be an original copy of this Agreement and all of
which together will be deemed to constitute one and the same agreement. The exchange of copies of
this Agreement and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in lieu of the original
Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to
be their original signatures for all purposes.
(k) Construction. This Agreement has been prepared by all parties hereto, and the
language used herein shall not be construed in favor of or against any particular party.
(l) No Waiver. The delay or failure on the part of any party to (i) insist upon the
strict compliance with any of the terms of this Agreement or (ii) exercise any rights or remedies
hereunder shall not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure, nor shall any single or partial exercise of any right or remedy hereunder preclude any
subsequent exercise thereof or the exercise of any other right or remedy at any later time or
times.
(m) WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH IT MAY BE A PARTY, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT.
IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES HERETO. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH PARTY, AND EACH
HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY
FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO BE REPRESENTED IN THE EXECUTION OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(n) The Parties Understanding. The parties to this Agreement have carefully read the
foregoing, know and understand the content and meaning of all provisions herein, and have executed
the same as their own free act after consultation with their attorneys. The parties intend to be
legally bound by this Agreement.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed
under seal as of the day and year first above written.
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OLD LINE BANCSHARES, INC. |
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James W. Cornelson |
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IN WITNESS WHEREOF, the undersigned Stockholder has executed this Agreement as of the day and
year first above written.
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SCHEDULE A
TO
STOCKHOLDER VOTING LIMIT AND STANDSTILL AGREEMENT
The Stockholders beneficially own, in the aggregate, shares of MDBC Common Stock. Each
Stockholder owns the number of shares, including the number of shares owned directly and
beneficially owned, as set for the below.
MDBC COMMON STOCK
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SCHEDULE B
TO
STOCKHOLDER VOTING LIMIT AND STANDSTILL AGREEMENT
The
Stockholders beneficially own, in the aggregate, shares of OLB Common Stock. Each
Stockholder owns the number of shares, including the number of shares owned directly and
beneficially owned, as set for the below.
OLB COMMON STOCK
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EXHIBIT B
[Form of Support Agreement]
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SUPPORT AGREEMENT
This Support Agreement, dated as of September 1, 2010 (this Agreement), is made and
entered into by and between Old Line Bancshares, Inc., a Maryland corporation (OLB), and
(the Stockholder), as a stockholder of Maryland Bankcorp, Inc., a
Maryland corporation (MDBC).
RECITALS
WHEREAS, concurrently herewith, OLB and MDBC are entering into an Agreement and Plan of Merger
(as such agreement may hereafter be amended and supplemented from time to time, the Merger
Agreement), pursuant to which, among other things, MDBC will be merged with and into OLB, with
OLB continuing as the surviving company (the Merger); and
WHEREAS, the Stockholder is a member of the board of directors of MDBC and/or its wholly-owned
subsidiary, Maryland Bank & Trust Company, N.A., a national association (MDB&T); and
WHEREAS, as an inducement and a condition to entering into the Merger Agreement, and as part
of the transactions contemplated by the Merger Agreement, the Stockholder has agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants, agreements,
representations and warranties contained herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree
as follows:
1. Definitions. Capitalized terms used but not defined herein and defined in the
Merger Agreement have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
(a) Affiliate of a specified Person means a Person that directly or indirectly, through one
or more intermediaries, Controls, is Controlled by or is under common Control with, such specified
Person.
(b) Beneficially Own or Beneficial Ownership with respect to any securities shall mean
having beneficial ownership of such securities (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the Exchange Act)), including pursuant to
any agreement, arrangement or understanding, whether or not in writing. Without duplicative
counting of the same securities by the same holder, securities Beneficially Owned by a Person shall
include securities Beneficially Owned by all other Persons who together with such Person would
constitute a group within the meaning of Section 13(d)(3) of the Exchange Act and, in any event
with respect to the Stockholder, shall include Shares held of record by the Stockholders spouse
and children.
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(c) MDBC Acquisition Transaction shall mean (i) any merger, consolidation, acquisition,
statutory share exchange or similar transaction involving any of the MDBC Companies, other than the
Merger, (ii) the disposition, by sale, lease, exchange or otherwise, of assets or deposits of the
MDBC Companies representing ten percent or more of the consolidated assets of the MDBC Companies,
or (iii) the issuance, sale or other disposition (including by way of merger, consolidation,
statutory share exchange or otherwise) of securities representing ten percent or more of the voting
power of any of the MDBC Companies.
(d) MDBC Companies shall mean collectively MDBC, MDB&T and any subsidiaries thereof.
(e) Control and Controlled, as used within the definition of Affiliate, shall mean the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by contract, or
otherwise.
(f) Effective Time, means the time when the Merger becomes effective in accordance with the
Merger Agreement.
(g) knowledge or known means, with respect to the Stockholder, the actual knowledge of
such Stockholder as to the fact or other matter, however obtained; provided, that no
Stockholder who serves as a director or officer of MDBC or MDB&T may deny having actual knowledge
of a fact or other matter if a prudent individual possessing the knowledge and experience of the
Stockholder and serving in such capacity could be expected to discover or otherwise become aware of
such fact or other matter in the ordinary course of performing his, her or its duties as a director
or officer. No Stockholder who serves as a director or officer of MDBC or MDB&T may deny having
actual knowledge of a fact or other matter by reason of such Stockholder having failed to review
information available to such Stockholder in the ordinary course of business in his, her or its
capacity as a director or officer of MDBC or MDB&T.
(h) Person shall mean an individual, corporation, limited liability company, partnership,
joint venture, association, trust, unincorporated organization or other entity.
(i) Shares shall mean shares of the common stock, $0.01 par value per share, of MDBC.
(j) Stockholders Shares shall mean all Shares held of record or Beneficially Owned by the
Stockholder, whether currently issued and outstanding or hereafter acquired by purchase, or by
exercise of any options, warrants or other securities convertible into or exchangeable or
exercisable for Shares, which are held of record or Beneficially Owned by the Stockholder.
(k) Termination Date shall mean the date that the Merger Agreement has been terminated in
accordance with its terms.
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2. Voting of Shares.
(a) From and after the date of this Agreement and ending as of the first to occur of the
Effective Time or the Termination Date, at any meeting of the holders of Shares, however called, or
in any other circumstance upon which the vote, consent or other approval of holders of Shares is
sought, the Stockholder shall vote or cause to be voted (including by written consent, if
applicable) all of the Stockholders Shares entitled to vote thereon, (i) in favor of approval of
the Merger, the execution and delivery by MDBC of the Merger Agreement and the approval of the
terms thereof and each of the other actions contemplated by the Merger Agreement and this Agreement
and any actions required in furtherance thereof and hereof, (ii) against any action or agreement
that would result in a breach of any covenant, representation or warranty or any other obligation
or agreement of MDBC under the Merger Agreement or this Agreement and (iii) against the following
actions: (A) any MDBC Acquisition Transaction; and (B) to the extent that such are intended to, or
could reasonably be expected to, impede, interfere with, delay, postpone or materially adversely
affect the Merger or the transactions contemplated by the Merger Agreement or this Agreement, or
implement or lead to any MDBC Acquisition Transaction, (1) any change in a majority of the persons
who constitute the board of directors of MDBC, (2) any change in the present capitalization of MDBC
or any amendment of MDBCs Articles of Incorporation or Bylaws, or (3) any other material change in
MDBCs corporate structure or business. In addition to the other covenants and agreements of the
Stockholder provided for elsewhere in this Agreement, during the above-described period, the
Stockholder shall not enter into any agreement or understanding with any Person or entity the
effect of which would be inconsistent with or violate the provisions and agreements contained in
this Section 2.
(b) It is understood and hereby agreed that this Agreement relates solely to the capacity of
the Stockholder as a holder of the Shares and is not in any way intended to affect the exercise of
the Stockholders responsibilities and fiduciary duties as a director or officer of MDBC.
(c) The Stockholder hereby authorizes disclosure of his, her or its identity and ownership of
the Stockholders Shares and the nature of his, her or its commitments, arrangements and
understandings under this Agreement in any proxy statement and regulatory filing of MDBC, and in
any regulatory filing by OLB related to the Merger.
3. Representations and Warranties of the Stockholder. The Stockholder hereby makes
the following representations and warranties to OLB, which are true and correct as of the date
hereof and shall be true and correct as of the Effective Date:
(a) Ownership. As of the date of this Agreement, the Shares set forth on Exhibit
A hereto constitute all of the issued and outstanding Shares owned of record or Beneficially
Owned by the Stockholder. The Stockholder has sole power of disposition, sole power to demand
appraisal rights and sole power to vote upon and agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares set forth on Exhibit A hereto,
with no material limitations, qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement.
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(b) Power; Binding Agreement. The Stockholder has the legal capacity, power and
authority to enter into and perform all of the Stockholders obligations under this Agreement and
all other agreements, documents or instruments referred to in the Merger Agreement or contemplated
thereby to which the Stockholder is to be a party and to perform his, her or its obligations
hereunder and thereunder and consummate the transactions contemplated hereby and thereby. Each of
this Agreement and all other agreements, documents or instruments referred to in the Merger
Agreement or contemplated thereby to which the Stockholder may be a party has been or will be duly
and validly executed and delivered by the Stockholder and constitutes or will constitute the legal,
valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors rights generally and general equitable principles. There
is no beneficiary or holder of a voting trust certificate or other interest of any trust of which
the Stockholder is trustee whose consent is required for the execution and delivery of this
Agreement, any other Ancillary Agreement or any other agreements, documents or instruments referred
to in the Merger Agreement or contemplated thereby to which the Stockholder is a party or the
consummation by the Stockholder of the transactions contemplated hereby or thereby. If the
Stockholder is married and the Stockholders Shares constitute community property, this Agreement
has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement
of, the Stockholders spouse, enforceable against such person in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to
creditors rights generally and general equitable principles.
(c) No Conflicts. No filing with, and no permit, authorization, consent or approval
of, any state or federal public body or authority or any Person is necessary for the execution of
this Agreement by the Stockholder and the consummation by the Stockholder of the transactions
contemplated hereby, and none of the execution and delivery of this Agreement by the Stockholder,
the consummation by the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall (i) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or obligation of any kind to
which the Stockholder is a party or by which the Stockholder or any of his, her or its properties
or assets may be bound, or (ii) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to the Stockholder or any of his, her or its properties or
assets, in each such case except to the extent that any conflict, breach, default or violation
would not interfere in any material respect with the ability of the Stockholder to perform his, her
or its obligations hereunder.
(d) No Interests Held in Trust for Benefit of MDBC Companies. To the knowledge of the
Stockholder, there is no arrangement pursuant to which the stock or other membership or equity
interests of any corporation, joint venture, general partnership, limited partnership, limited
liability company, trust or other non-corporate entity is or has been held in trust (whether
express, constructive, resulting or otherwise) for the benefit of either of the MDBC Companies.
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(e) Voting Agreements or Arrangements. To the knowledge of the Stockholder, except as
disclosed in Schedule 3.2 to the Merger Agreement, there are no voting trusts, voting agreements,
buy-sell agreements or other agreements or arrangements affecting (i) the MDBC Stock, other than
this Agreement and the other voting agreements provided for in Section 6.2(p) of the Merger
Agreement, or (ii) MDB&T Common Stock.
4. Covenants of the Stockholder. The Stockholder hereby covenants and agrees with OLB
as follows:
(a) No Encumbrances. At all times hereafter during the term hereof, all of the
Stockholders Shares will be held by the Stockholder, or by a nominee or custodian for the benefit
of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting
trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except
for any liens, claims, understandings or arrangements that do not limit or impair in any material
respect Stockholders ability to perform his, her or its obligations under this Agreement, and
subject to applicable securities laws and the terms of this Agreement.
(b) Actions; Information for Applications.
(i) The Stockholder will take all reasonable actions to and assist in the consummation of the
Merger and the transactions contemplated by the Merger Agreement, and will use his, her or its best
efforts to cause the MDBC Companies to take the actions that are described in Section 5.4(a) of the
Merger Agreement.
(ii) The Stockholder will furnish OLB with all information concerning the MDBC Companies and
the Stockholder required for inclusion in any of the OLB Applications. All information concerning
the Stockholder and, to the knowledge of the Stockholder, all information concerning the MDBC
Companies contained in the OLB Applications, at the time such information is furnished, shall be
true and correct in all material respects and will not omit any material fact necessary in order to
make the statements therein, in light of the circumstances under which they were made, not
misleading.
(c) Confidentiality. The Stockholder shall not disclose or use for his, her or its
own purpose or the benefit of others any information that the MDBC Companies are prohibited from
disclosing or using for their own purposes or for the benefit of others under Section 5.3 of the
Merger Agreement. The Stockholder shall either destroy or return to OLB all documents and
materials that are described in Section 5.3 of the Merger Agreement as being required to be
destroyed by the MDBC Companies or returned to OLB by the MDBC Companies. The Stockholder shall
use his, her or its best efforts to keep confidential all such information, and shall not directly
or indirectly use such information for any competitive or other commercial purposes. The
obligation to keep such information confidential shall continue for one year from the date of this
Agreement or the Termination Date, whichever is earlier.
(d) No Solicitation. The Stockholder shall not take any action that is described in
Section 5.6 of the Merger Agreement as an action of which the MDBC Companies are prohibited from
authorizing or permitting their respective officers, directors or employees to take.
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(e) Press Releases. The Stockholder will not, directly or indirectly, without the
prior approval of OLB, issue any press release or written statement for general circulation
relating to the Merger Agreement or the Merger except as otherwise required by applicable law or
regulation, and then only after making reasonable efforts to notify OLB in advance.
(f) Reorganization. The Stockholder shall not take any action that would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(g) Restriction on Transfer and Proxies; Non-Interference. From and after the date of
this Agreement and ending as of the first to occur of the Effective Time or the Termination Date,
the Stockholder shall not, and shall cause each of his, her or its Affiliates who Beneficially Own
any of the Stockholders Shares not to, directly or indirectly, without the consent of OLB: (i)
offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter
into any contract, option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Stockholders Shares, or any interest therein; (ii) grant any proxies or powers
of attorney, deposit any of Stockholders Shares into a voting trust or enter into a voting
agreement with respect to any of Stockholders Shares; (iii) enter into any agreement or
arrangement providing for any of the actions described in clause (i) or (ii) above; or (iv) take
any action that could reasonably be expected to have the effect of preventing or disabling the
Stockholder from performing the Stockholders obligations under this Agreement.
(h) Waiver of and Agreement Not to Assert Appraisal Rights. The Stockholder hereby
confirms his, her or its knowledge of the availability of the rights of objecting Stockholders
under the Maryland General Corporation Law with respect to the Merger. The Stockholder hereby
waives and agrees not to assert, and shall cause any of his, her or its Affiliates who hold of
record any of the Stockholders Shares to waive and not to assert, any appraisal rights with
respect to the Merger that the Stockholder or such Affiliate may now or hereafter have with respect
to any Shares (or any other shares of capital stock of MDBC that the Stockholder shall hold of
record at the time that the Stockholder may be entitled to assert appraisal rights with respect to
the Merger) whether pursuant to the Maryland General Corporation Law, or otherwise.
(i) Further Assurances. From time to time, at OLBs request and without further
consideration, the Stockholder shall execute and deliver such additional documents reasonably
requested by OLB as may be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement and the Merger
Agreement.
5. Representations and Warranties of OLB. OLB hereby represents and warrants to the
Stockholder that:
(a) Organization, Standing and Corporate Power. OLB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland, with full corporate
power and authority to carry on its business as proposed and currently conducted. Except as
described in the Merger Agreement, OLB has the corporate power and authority to
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enter into and perform all of its obligations under this Agreement and to consummate the
transactions contemplated hereby.
(b) Execution, Delivery and Performance by OLB. The execution, delivery and
performance of this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of OLB. Except as described in the Merger
Agreement, OLB has taken all actions required by law, its Articles of Incorporation, as amended,
and its Amended and Restated By-Laws to consummate the transactions contemplated by this Agreement.
This Agreement constitutes the valid and binding obligation of OLB and is enforceable against OLB
in accordance with its terms, except as enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting creditors rights
generally and general equitable principles.
6. Stop Transfer. From and after the date of this Agreement and ending as of the
first to occur of the Effective Time or the Termination Date, the Stockholder will not request that
MDBC register the transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Stockholders Shares.
7. Recapitalization. In the event of a stock dividend or distribution, or any change
in the Shares (or any class thereof) by reason of any split-up, recapitalization, combination,
exchange of shares or the like, the term Shares shall include, without limitation, all such stock
dividends and distributions and any shares into which or for which any or all of the Shares (or any
class thereof) may be changed or exchanged as may be appropriate to reflect such event.
8. Binding on Successors and Assigns; Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by operation of law or otherwise,
except that OLB may, without the approval of the Stockholder, assign any or all of its rights,
interests and obligations hereunder to any wholly-owned subsidiary of OLB. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. The Stockholder agrees that this
Agreement, and the obligations of the Stockholder hereunder, shall attach to the Stockholders
Shares and shall be binding upon any Person to which legal or beneficial ownership of such Shares
shall pass, whether by operation of law or otherwise, including, without limitation, the
Stockholders heirs, guardians, administrators or successors.
9. Termination. This Agreement shall terminate without any further action on the part
of any party hereto upon (a) the termination of the Merger Agreement pursuant to the terms thereof
or (b) the Effective Time. Upon such termination, this Agreement shall forthwith become void and
of no further force or effect. The representations and warranties of the parties contained herein
shall not survive the termination of this Agreement.
10. Miscellaneous.
(a) Entire Agreement; Amendment. This Agreement, along with any agreements referenced
herein, contains the entire, complete, and integrated agreement among the parties with respect to
the subject matter hereof, and supersedes any prior or contemporaneous arrangements, agreements or
understandings among the parties, written or oral, express or
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implied, that may have related to the subject matter hereof. This Agreement may be amended
only by a written instrument duly executed by the parties.
(b) Survival. The representations, warranties and covenants of the parties contained
herein shall expire at the Closing.
(c) Governing Law. This Agreement shall in all respects be interpreted, enforced, and
governed under the laws of the State of Maryland, without regard to Marylands conflict-of-laws
provisions. The parties hereby submit to the jurisdiction and venue of the courts of Maryland, and
any legal or equitable action to enforce this or any related agreements may only be brought in the
circuit courts therein.
(d) Captions. The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
(e) Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed sufficient and duly given: (i)
when delivered personally to the recipient; (ii) upon confirmation of good transmission if sent by
facsimile; or (iii) when delivered to the last known address of the recipient (A) one business day
after delivery to a reputable express courier service for next-day delivery (charges prepaid), or
(B) three days after being sent to the recipient by certified mail, return receipt requested and
postage prepaid, addressed as follows:
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If to OLB:
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James W. Cornelsen |
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President and Chief Executive Officer |
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Old Line Bancshares, Inc. |
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1525 Pointer Ridge Place |
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Bowie, Maryland 20716 |
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Fax: (301) 430-2531 |
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with copy to:
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Ober, Kaler, Grimes & Shiver |
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A Professional Corporation |
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120 East Baltimore Street |
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Baltimore, Maryland 21202-1643 |
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Attn: Frank C. Bonaventure, Jr., Esq. |
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Addresses may be changed by notice in writing signed by the addressee.
(f) Severability. Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, then
such invalidity, illegality or unenforceability will not affect any other provision
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or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed
and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion
of any provision had never been contained herein.
(g) Remedies Cumulative. All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not
alternative, and the exercise of any such right, power or remedy by any party shall not preclude
the simultaneous or later exercise of any other such right, power or remedy by such party.
(h) No Third Party Beneficiaries. This Agreement is not intended to be for the
benefit of, and shall not be enforceable by, any person or entity who or which is not a party
hereto; provided, that in the event of the Stockholders death, the obligations of the
Stockholder hereunder shall attach to the Stockholders Shares and shall be binding upon any Person
to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including without limitation the Stockholders heirs, guardians, administrators or
successors.
(i) Counterparts; Facsimile. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed to be an original copy of this Agreement and all of
which together will be deemed to constitute one and the same agreement. The exchange of copies of
this Agreement and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in lieu of the original
Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to
be their original signatures for all purposes.
(j) Construction. This Agreement has been prepared by all parties hereto, and the
language used herein shall not be construed in favor of or against any particular party.
(k) No Waiver. The delay or failure on the part of any party to (i) insist upon the
strict compliance with any of the terms of this Agreement or (ii) exercise any rights or remedies
hereunder shall not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure, nor shall any single or partial exercise of any right or remedy hereunder preclude any
subsequent exercise thereof or the exercise of any other right or remedy at any later time or
times.
(l) WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH IT MAY BE A PARTY, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT.
IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES HERETO. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH PARTY, AND EACH
HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY
FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO BE
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REPRESENTED IN THE EXECUTION OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS
WAIVER WITH COUNSEL.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
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OLD LINE BANCSHARES, INC.
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James W. Cornelsen |
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President and Chief Executive Officer |
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STOCKHOLDER:
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EXHIBIT A
TO
SUPPORT AGREEMENT
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CLASS OF |
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NUMBER OF |
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BENEFICIAL |
SHARES |
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SHARES |
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OWNER |
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OWNER |
Common Stock |
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Common Stock |
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EXHIBIT C
[Form of MDBC Executive Non-Compete Agreement]
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EXECUTIVE NONCOMPETITION AGREEMENT
THIS EXECUTIVE NONCOMPETITION AGREEMENT dated as of , 20 (the Agreement)
is made and entered into by and between Old Line Bancshares, Inc., a Maryland corporation
(OLB), and , an executive officer (the Executive) of Maryland
Bankcorp, Inc., a Maryland corporation (the MDBC).
RECITALS
WHEREAS, concurrently herewith, OLB and MDBC are entering into an Agreement and Plan of Merger
(as such agreement may hereafter be amended and supplemented from time to time, the Merger
Agreement), pursuant to which, among other things, MDBC will be merged with and into OLB, with
OLB continuing as the surviving company (the Merger); and
WHEREAS, as an inducement and a condition to entering into the Merger Agreement, and as part
of the transactions contemplated by the Merger Agreement, Executive has agreed, in exchange for
adequate consideration hereunder, to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
1. Noncompetition. In exchange for the sum of Two Hundred Thousand Dollars ($200,000)
from OLB to Executive, of which $25,000 shall be paid at the Effective Time (as that term is
defined below) and the remaining amount shall be payable in equal installments on a quarterly basis
during the first two years of the Non-Compete Period (as that term is defined below), Executive
agrees, for a period commencing at such time when the Merger is consummated (the Effective
Time) and continuing for the following three years (the Non-Compete Period), that
Executive will not either individually or together with any other person or entity:
(a) transact any commercial banking or other banking-related business with any person or
entity who is a customer, depositor or client of Old Line Bank (the Bank), or its
affiliates or successors (including OLB), as of the Effective Time, other than on behalf of, and at
the request of, OLB or any of its affiliates or successors;
(b) directly or indirectly induce any employee or contractor of the Bank or its affiliates or
successors (including OLB) as of the Effective Time to terminate his or her employment or
engagement with MDBC and the Bank or its affiliates or successors (including OLB) or to hire any
such employee or former employee of the Bank or its affiliates or successors (including OLB);
(c) cause, induce or encourage, directly or indirectly, any person or entity who is a
customer, depositor or client of the Bank, its affiliates or successors (including OLB) as of the
Effective Time to terminate or adversely change any relationship with the Bank, its affiliates or
successors (including OLB) or cause, induce or encourage any person or entity that is a potential
supplier, customer, depositor or client of the Bank, its affiliates or successors (including OLB)
after the Effective Time not to enter into any business relationship with the Bank, its affiliates
or successors (including OLB); or
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(d) directly or indirectly in any capacity, including but not by way of limitation, as an
owner, employee, employer, operator, investor, independent contractor, agent, stockholder, partner
(general or limited), joint venturer, member, manager, officer, director, consultant, franchisee,
franchiser, adviser or co-worker, whether or not for compensation enter into, conduct, participate
or engage in the business of banking or in any banking-related business which is being conducted by
the Bank or OLB, including without limitation the operation of a bank, savings and loan
association, savings bank, credit union or other financial institution, or a holding company for
such an institution; provided, that it shall not be a violation of this provision for
Executive to own up to a 4.9% ownership interest in any such institution or holding company as a
passive investor.
2. Ancillary Agreement; Remedies. Executive agrees and acknowledges that (i) this
Agreement is ancillary to the Merger Agreement, and the primary purpose of the Merger Agreement is
not to obligate Executive to render personal services, (ii) the provisions hereof are reasonable
and necessary for the protection of OLB from and after the Effective Time, including protection
from the prevention of the use or misuse of the trade secrets, client and customers lists and
established customer relationships of the Bank, its affiliates or successors (including OLB), (iii)
the breach of Section 1 of this Agreement by Executive will result in irreparable harm to OLB, (iv)
no adequate remedy at law is available to OLB for the breach by him of the provisions of Section 1
of this Agreement, and (v) OLB shall be entitled to specific enforcement, and injunctive relief for
any breach or threatened breach, of Section 1 of this Agreement, without the necessity of proving
actual monetary loss and without bond or other security being required.
3. Covenant to Cooperate. During the first two years of the Non-Compete Period,
Executive agrees to (a) assist OLB and the Bank with any questions and concerns, and provide any
advice upon request, regarding the Merger, or the business, operations, target market, personnel
matters, vendors, service, or customers of MDBC or Maryland Bank & Trust Company, N.A. prior to the
Merger, and (b) fully cooperate with OLB and the Bank to provide for a smooth transition period
following the Merger.
4. Miscellaneous.
(a) Non-Assignability. This Agreement may not be assigned by Executive.
(b) Binding on Successors and Assigns. This Agreement shall inure to the benefit of
and bind the respective successors and permitted assigns of the parties hereto. Except as
otherwise expressly provided herein, nothing expressed or referred to in this Agreement is intended
or shall be construed to give any person other than the parties to this Agreement or their
respective successors or permitted assigns any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein, it being the intention of the
parties to this Agreement that this Agreement shall be for the sole and exclusive benefit of such
parties or such successors and assigns and not for the benefit of any other person.
(c) Entire Agreement; Amendment. This Agreement, along with any agreements referenced
herein, contains the entire, complete, and integrated agreement among the parties with respect to
the subject matter hereof, and supersede any prior or contemporaneous arrangements, agreements or
understandings among the parties, written or oral, express or
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implied, that may have related to the subject matter hereof. This Agreement may be amended
only by a written instrument duly executed by the parties.
(d) Governing Law. This Agreement shall in all respects be interpreted, enforced, and
governed under the laws of the State of Maryland, without regard to Marylands conflict-of-laws
provisions. The parties hereby submit to the jurisdiction and venue of the courts of Maryland, and
any legal or equitable action to enforce this or any related agreements may only be brought in the
circuit courts therein.
(e) Captions. The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
(f) Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed sufficient and duly given: (i)
when delivered personally to the recipient; (ii) upon confirmation of good transmission if sent by
facsimile; or (iii) when delivered to the last known address of the recipient (A) one business day
after delivery to a reputable express courier service for next-day delivery (charges prepaid), or
(B) three days after being sent to the recipient by certified mail, return receipt requested and
postage prepaid, addressed as follows:
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If to OLB:
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Old Line Bancshares, Inc. |
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1525 Pointer Ridge Place
Bowie, Maryland 20716
Attn: James W. Cornelsen, President and CEO
Fax: (301) 430-2531 |
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with copy to:
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Ober, Kaler, Grimes & Shiver, P.C.
120 East Baltimore Street
Baltimore, Maryland 21202-1643 |
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Attn: Frank C. Bonaventure, Jr., Esq. |
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At the address(es) indicated on the applicable
signature page hereto. |
Addresses may be changed by notice in writing signed by the addressee.
(g) Severability. Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, then
such invalidity, illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
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(h) Counterparts; Facsimile. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed to be an original copy of this Agreement and all of
which together will be deemed to constitute one and the same agreement. The exchange of copies of
this Agreement and of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in lieu of the original
Agreement for all purposes. Signatures of the parties transmitted by facsimile shall be deemed to
be their original signatures for all purposes.
(i) Construction. This Agreement has been prepared by all parties hereto, and the
language used herein shall not be construed in favor of or against any particular party.
(j) No Waiver. The delay or failure on the part of any party to (i) insist upon the
strict compliance with any of the terms of this Agreement or (ii) exercise any rights or remedies
hereunder shall not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure, nor shall any single or partial exercise of any right or remedy hereunder preclude any
subsequent exercise thereof or the exercise of any other right or remedy at any later time or
times.
(k) WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH IT MAY BE A PARTY, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT.
IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES HERETO. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH PARTY, AND EACH
HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY
FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO BE REPRESENTED IN THE EXECUTION OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
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OLB:
OLD LINE BANCSHARES, INC.
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James W. Cornelsen |
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President and Chief Executive Officer |
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EXECUTIVE:
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Print Name: |
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EXHIBIT D
[Form
of Bank Merger Agreement]
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PLAN OF MERGER
OF
MARYLAND BANK & TRUST COMPANY, N.A.
with and into
OLD LINE BANK
THIS PLAN OF MERGER by and between Maryland Bank & Trust Company, N.A. (MDB&T) and
Old Line Bank (Old Line) is dated as of , 20
RECITALS
WHEREAS, MDB&T is a national banking association organized and existing under the National
Bank Act, as amended (the NBA), with its principal office at 46930 South Shangri La
Drive, Lexington Park, Maryland 20653, with an authorized capitalization of 1,400,000 shares of
common stock, $10.00 par value per share (MDB&T Common Stock), of which 646,626 shares of
MDB&T Common Stock are issued and outstanding; and
WHEREAS, MDB&T is a wholly-owned subsidiary of Maryland Bankcorp, Inc., a Maryland corporation
with its principal office at 46930 South Shangri La Drive, Lexington Park, Maryland 20653
(MDBC); and
WHEREAS, Old Line is trust company with commercial banking powers chartered under the laws of
the State of Maryland with its principal office at 1575 Pointer Ridge Place, Bowie, Maryland 20716,
with an authorized capitalization of 6,000,000 shares, consisting of (i) 5,000,000
shares of common stock, par value $10.00 per share (Old Line Common Stock), of which
585,631.5 shares are issued and outstanding, and (ii) 1,000,000 shares of preferred stock, par
value $0.01 per share, none of which are issued and outstanding; and
WHEREAS, OLB is a wholly-owned subsidiary of Old Line Bancshares, Inc., a Maryland corporation
with its principal office at 1575 Pointer Ridge Place, Bowie, Maryland 20716 (OLB); and
WHEREAS, concurrently herewith, OLB and MDBC are entering into an Agreement and Plan of Merger
dated as of the date hereof (as such agreement may hereafter be amended or supplemented from time
to time, the Merger Agreement), pursuant to which MDBC will merge with and into OLB with
OLB being the surviving corporation (the Merger); and
WHEREAS, it is contemplated that, pursuant to the Merger Agreement, MDB&T will be merged with
and into Old Line, with Old Line being the surviving institution, immediately after the Merger is
consummated (the Bank Merger); and
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WHEREAS, each of the Boards of Directors of MDBC and OLB has determined that the Bank Merger
would be in the best interests of its respective bank, have approved the Bank Merger and have
authorized its respective bank to enter into this Plan of Merger; and
WHEREAS, the parties hereto intend that the Bank Merger shall qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
Code).
NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
Subject to the terms and conditions of this Plan of Merger, MDB&T shall be merged with and
into Old Line (which shall be the surviving institution) pursuant to, and shall have the effect
provided in and by, 12 U.S.C. 215, et seq., and Title 3, Subtitle 7 of the Financial Institutions
Article of the Annotated Code of Maryland.
ARTICLE II
The name of the surviving institution in the Bank Merger (hereinafter referred to as the
Merged Bank) shall be Old Line Bank.
ARTICLE III
The business of the Merged Bank shall be that of a trust company with commercial banking
powers chartered under the laws of the State of Maryland. This business shall be conducted by the
Merged Bank at its principal office at 1575 Pointer Ridge Place, Bowie, Maryland 20716, at all duly
authorized and operating branches of Old Line and MDB&T as of the Effective Time (as hereinafter
defined), and at all other offices and facilities of Old Line and MDB&T established as of the
Effective Time (defined below). All of such branches, offices and facilities are listed on
Schedule 1, which is attached hereto and made a part hereof.
ARTICLE IV
Section 4.1. At the Effective Time, the separate existence of MDB&T shall cease and
the corporate existence of Old Line, as the Merged Bank, shall continue unaffected and unimpaired
by the Bank Merger, and the Merged Bank shall be deemed to be the same business and corporate
entity as each of MDB&T and Old Line. At the Effective Time, by virtue of the Bank Merger and
without any further act, deed, conveyance or other transfer, all of the property, rights, powers
and franchises of MDB&T and Old Line shall vest in Old Line as the Merged Bank, and the Merged Bank
shall be subject to and be deemed to have assumed all of the debts, liabilities, obligations and
duties of MDB&T and Old Line, and to have succeeded to all of the relationships, fiduciary or
otherwise, of MDB&T and Old Line as fully and to the same extent as if such property, rights,
powers, franchises, debts, liabilities, obligations, duties and relationships
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had been originally acquired, incurred or entered into by the Merged Bank; provided,
however, that the Merged Bank shall not, through the Bank Merger, acquire power to engage
in any business or to exercise any right, privilege or franchise which is not conferred on the
Merged Bank by the laws of the State of Maryland or the laws of the United States.
Section 4.2. The Merged Bank, upon the consummation of the Bank Merger and without any
order or other action on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises and interests, including appointments, designations and nominations, and all
other rights and interests as agent, trustee, executor, administrator, registrar of stocks and
bonds, guardian of estates, conservator, assignee, receiver and committee of estates of
incompetents, bailee or depository of personal property, and in every other fiduciary and/or
custodial capacity, in the same manner and to the same extent as such rights, franchises and
interests were held or enjoyed by MDB&T and Old Line immediately prior to the Effective Time.
ARTICLE V
Section 5.1. At the Effective Time, (i) all of the shares of MDB&T Common Stock
validly issued and outstanding immediately prior to the Effective Time shall, by virtue of the Bank
Merger and without any action on the part of the holder thereof, be canceled and retired, and no
cash, new shares of common stock, or other property shall be delivered in exchange therefor, and
(ii) the shares of Old Line Common Stock issued and outstanding immediately prior to the Effective
Time shall, at the Effective Time, continue to be issued and outstanding.
Section 5.2. At and after the Effective Time, certificates evidencing shares of MDB&T
Common Stock shall thereafter not evidence any interest in MDB&T or the Merged Bank.
Section 5.3. The stock transfer book of MDB&T shall be closed as of the Effective Time
and, thereafter, no transfer of any shares of MDB&T Common Stock shall be recorded therein.
ARTICLE VI
Section 6.1. Upon the Effective Time, the Board of Directors of the Merged Bank shall
be comprised of those persons serving as directors of Old Line immediately prior to the Effective
Time, along with Thomas B. Watts and G. Thomas Daugherty. Messrs. Watts and Daugherty shall each
serve until the annual meeting of stockholders of Old Line to be held in 2012. Each such director
shall hold office until the expiration of his term, unless sooner removed, disqualified or
deceased, or unless such director resigns, and until his successor has been elected and qualified.
Section 6.2. Upon the Effective Time, the executive officers of the Merged Bank shall
be comprised of those persons serving as executive officers of Old Line immediately prior to the
Effective Time.
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ARTICLE VII
From and after the Effective Time, (i) the charter of the Merged Bank shall be the charter of
Old Line in effect immediately prior to the Effective Time and shall thereafter continue in full
force and effect until further altered, amended or repealed in accordance with law, and (ii) the
bylaws of the Merged Bank shall be the Amended and Restated Bylaws of Old Line in effect
immediately prior to the Effective Time and shall thereafter continue in full force and effect
until further altered, amended or repealed in accordance with law.
ARTICLE VIII
This Plan of Merger may be amended or terminated by mutual consent of MDB&T and Old Line at
any time prior to the Effective Time, except that no provision in Article IX may be amended or
waived at any time pursuant to its terms. In addition, this Plan of Merger will terminate upon the
termination of the Merger Agreement.
ARTICLE IX
Section 9.1. This Plan of Merger and the Bank Merger shall be adopted and approved by
the written consent of (i) the board of directors of MDB&T, (ii) MDBC, as the sole holder of all of
the outstanding shares of MDB&T Common Stock, and (iii) the board of directors of Old Line.
Section 9.2. The Bank Merger shall be effective the later of (i) the time and date
designated by Old Line to the Maryland Office of the Commissioner of Financial Regulation (the
Commissioner) as the time and date on which the Bank Merger shall be effective, and (ii)
the time and date on which the Commissioner orders the Bank Merger to be effective (the
Effective Time); provided, however, that in no event shall the Effective
Time be earlier than, or at the same time as, the effective time of the Merger.
Section 9.3. This Plan of Merger is subject to approval by the Commissioner and OLB
and MDBC, as sole shareholders of Old Line and MDB&T, respectively.
Section 9.4. Notwithstanding any provision of this Plan of Merger to the contrary, it
shall be a condition to the consummation of the Bank Merger and the parties obligations to
consummate the Bank Merger that, immediately prior to the Effective Time, OLB shall be the sole
holder of all of the issued and outstanding MDB&T Common Stock.
ARTICLE X
All notices under this Plan of Merger shall be in writing and shall be deemed sufficient and
duly given: (a) when delivered personally to the recipient; (b) upon confirmation of good
transmission if sent by facsimile; or (c) when delivered to the last known address of the recipient
(i) one business day after delivery to a reputable express courier service for next-day delivery
(charges prepaid), or (ii) three days after being sent to the recipient by certified mail, return
receipt requested and postage prepaid, addressed as follows:
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if to MDB&T:
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Maryland Bank & Trust Company, N.A.
46930 South Shangri La Drive
Lexington Park, Maryland 20653
Attn: Thomas B. Watts, Chairman and CEO
Fax: (301) 866-9204 |
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if to Old Line:
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Old Line Bank
1525 Pointer Ridge Place
Bowie, Maryland 20716
Attn: James W. Cornelsen, President and CEO
Fax: (301) 430-2531 |
or to such other address as such party may designate by notice to the others and shall be deemed to
have been given upon receipt.
ARTICLE XI
From time to time as and when reasonably requested by the Merged Bank and to the extent
permitted by law and at the expense of the Merged Bank, the officers and directors of MDB&T and Old
Line last in office shall execute and deliver such assignments, deeds and other instruments and
shall take or cause to be taken such further or other action as shall be necessary in order to vest
or perfect in or to confirm of record or otherwise to the Merged Bank title to, and possession of,
all of the property, rights, power and franchises of MDB&T and Old Line, including, without
limitation, all rights and interests of MDB&T and Old Line in any fiduciary and/or custodial
capacity, and otherwise to carry out the purposes of this Plan of Merger, and the proper officers
and directors of the Merged Bank, as the receiving and surviving entity, are fully authorized to
take any and all such action in the name of MDB&T and Old Line or otherwise.
ARTICLE XII
This Plan of Merger is binding upon and is for the benefit of MDB&T and Old Line and their
respective successors and permitted assigns; provided, however, that neither this
Plan of Merger nor any rights or obligations hereunder may be assigned by any party hereto to any
other person without the prior consent in writing of each other party hereto. This Plan of Merger
is not made for the benefit of any person, firm, corporation or association not a party hereto and
no other person, firm, corporation or association shall acquire or have any right under or by
virtue of this Plan of Merger.
ARTICLE XIII
Notwithstanding any other provision of this Plan of Merger, this Plan of Merger may be
terminated at any time prior to the Effective Time by either of the parties.
ARTICLE XIV
This Plan of Merger shall in all respects be interpreted, enforced, and governed under the
laws of the State of Maryland, without regard to Marylands conflict-of-laws provisions, except
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to the extent federal law may be applicable. The parties hereby submit to the jurisdiction
and venue of the courts of Maryland, and any legal or equitable action to enforce this or any
related agreements may only be brought in the circuit courts therein.
ARTICLE XV
This Plan of Merger shall constitute a plan of reorganization for the Bank Merger within the
meaning of Section 368 of the Code.
ARTICLE XVI
Any term or provision of this Plan of Merger which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms and provisions of
this Plan of Merger or affecting the validity or enforceability of any of the terms or provisions
of this Plan of Merger in any other jurisdiction. If any provision of this Plan of Merger is so
broad as to be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
ARTICLE XVII
This Plan of Merger may be executed in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, MDB&T and Old Line have each caused this Plan of Merger to be executed as
of the date first above written.
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Attest: |
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Old Line Bank |
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Maryland Bank & Trust Company, N.A. |
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SCHEDULE 1
Branches, Facilities and Offices of
Old Line Bank and
Maryland Bank & Trust Company, N.A.
Main Office (and Branch Office) of Old Line Bank
(1) 1525 Pointer Ridge Place, Bowie, Maryland 20716
Branch Offices of Old Line Bank
(1) 2995 Crain Highway, Waldorf, MD 20601
(2) 12080 Old Line Centre, Waldorf, MD 20602
(3) 15808 Livingston Road, Accokeek, MD 20607
(4) 7801 Old Branch Ave, Clinton, MD 20735
(5) 6421 Ivy Lane, Greenbelt, MD 20770
(6) 9658 Baltimore Ave. Suite 101, College Park, MD 20740
(7) 167 Jennifer Road, Suite U, Annapolis, MD 21401
(8) 1641 MD Route 3 North, #109, Crofton, MD 21114
(9) 12100 Annapolis Road, Suite 1, Glenn Dale MD 20769
Main Office (and Branch Office) of Maryland Bank & Trust Company, N.A.
(1) 46930 South Shangri La Drive, Lexington Park, Maryland 20653
Branch Offices of Maryland Bank & Trust Company, N.A.
(1) 3135 Leonardtown Road, Waldorf, MD 20601
(2) Hickory Hills Shopping Center, 22741 Three Notch Road, California, MD 20619
(3) Chapline Shopping Center, 691 Prince Frederick Blvd. North Prince Frederick, MD 20678
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(4) 7175 Indian Head Highway, Bryans Road, MD 20616
(5) Potomac Village Shopping Center, 12740 Old Fort Road, Ft. Washington, MD 20744
(6) 101 Charles Street Suite 102, La Plata, MD 20646
(7) 80 Holiday Drive, Solomons, MD 20688
(8) 20990 Point Lookout Road, Callaway, MD 20620
(9) La Plata Wal-Mart®, 40 Drury Drive, La Plata, MD 20646
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EXHIBIT
E
[Form
of Director Non-Compete Agreement]
A-126
DIRECTOR NONCOMPETITION AGREEMENT
THIS
DIRECTOR NONCOMPETITION AGREEMENT dated as of , 20 (the Agreement) is
made and entered into by and between Old Line Bancshares, Inc., a Maryland corporation
(OLB), and , a director (the Director) of Maryland Bankcorp,
Inc., a Maryland corporation (the MDBC) and/or Maryland Bank & Trust Company, N.A., a
national association (MDB&T).
RECITALS
WHEREAS, concurrently herewith, OLB and MDBC are entering into an Agreement and Plan of Merger
(as such agreement may hereafter be amended and supplemented from time to time, the Merger
Agreement), pursuant to which, among other things, MDBC will be merged with and into OLB, with
OLB continuing as the surviving company (the Merger); and
WHEREAS, MDB&T is a wholly-owned subsidiary of MDBC; and
WHEREAS, Director is a stockholder of MDBC; and
WHEREAS, as an inducement and a condition to entering into the Merger Agreement, and as part
of the transactions contemplated by the Merger Agreement, Director has agreed, in exchange for
adequate consideration hereunder, to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained
herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:
1. Noncompetition. In exchange for the lump sum payment of Fifty Thousand Dollars
($50,000) from OLB to Director on or immediately following the Effective Time, Director agrees, for
a period commencing at such time when the Merger is consummated (the Effective Time) and
continuing for the following three years (the Non-Compete Period), that Director will not
either individually or together with any other person or entity:
(a) transact any commercial banking or other banking-related business with any person or
entity who is a customer, depositor or client of Old Line Bank (the Bank), or its
affiliates or successors (including OLB), as of the Effective Time, other than on behalf of, and at
the request of, OLB or any of its affiliates or successors, except for such customer, depositors or
clients of the Bank for whom, prior to the Effective Time, the Director advised as an attorney,
accountant or investment advisor, and for whom the Director continues to provide such services
after the Effective Time;
(b) directly or indirectly induce any employee or contractor of the Bank or its affiliates or
successors (including OLB) as of the Effective Time to terminate his or her employment or
engagement with MDBC and the Bank or its affiliates or successors (including OLB) or to hire any
such employee or former employee of the Bank or its affiliates or successors (including OLB);
(c) cause, induce or encourage, directly or indirectly, any person or entity who is a
customer, depositor or client of the Bank, its affiliates or successors (including OLB) as of the
Effective Time to terminate or adversely change any relationship with the Bank, its affiliates
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or successors (including OLB) or cause, induce or encourage any person or entity that is a
potential supplier, customer, depositor or client of the Bank, its affiliates or successors
(including OLB) after the Effective Time not to enter into any business relationship with the Bank,
its affiliates or successors (including OLB); or
(d) in the Counties of Anne Arundel, Calvert, Charles, Prince Georges and St. Marys in the
State of Maryland, directly or indirectly in any capacity, including but not by way of limitation,
as an owner, employee, employer, operator, investor, independent contractor, agent, stockholder,
partner (general or limited), joint venturer, member, manager, officer, director, consultant,
franchisee, franchiser, adviser or co-worker, whether or not for compensation enter into, conduct,
participate or engage in the business of banking or in any banking-related business which is being
conducted by the Bank or OLB, including without limitation the operation of a bank, savings and
loan association, savings bank, credit union or other financial institution, or a holding company
for such an institution; provided, that it shall not be a violation of this provision for
Director to own up to a 4.9% ownership interest in any such institution or holding company as a
passive investor.
2. Ancillary Agreement; Remedies. The Director agrees and acknowledges that (a) this
Agreement is ancillary to the Merger Agreement, and the primary purpose of the Merger Agreement is
not to obligate Director to render personal services, (b) the provisions hereof are reasonable and
necessary for the protection of OLB from and after the Effective Time, including protection from
the prevention of the use or misuse of the trade secrets, client and customers lists and
established customer relationships of the Bank, its affiliates or successors (including OLB), (c)
the breach of Section 1 of this Agreement by Director will result in irreparable harm to OLB, (d)
no adequate remedy at law is available to OLB for the breach by him of the provisions of Section 1
of this Agreement, and (e) OLB shall be entitled to specific enforcement, and injunctive relief for
any breach or threatened breach, of Section 1 of this Agreement, without the necessity of proving
actual monetary loss and without bond or other security being required.
3. Miscellaneous.
(a) Non-Assignability. This Agreement may not be assigned by Director.
(b) Binding on Successors and Assigns. This Agreement shall inure to the benefit of
and bind the respective successors and permitted assigns of the parties hereto. Except as
otherwise expressly provided herein, nothing expressed or referred to in this Agreement is intended
or shall be construed to give any person other than the parties to this Agreement or their
respective successors or permitted assigns any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein, it being the intention of the
parties to this Agreement that this Agreement shall be for the sole and exclusive benefit of such
parties or such successors and assigns and not for the benefit of any other person.
(c) Entire Agreement; Amendment. This Agreement, along with any agreements referenced
herein, contains the entire, complete, and integrated agreement among the parties with respect to
the subject matter hereof, and supersede any prior or contemporaneous arrangements, agreements or
understandings among the parties, written or oral, express or
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implied, that may have related to the subject matter hereof. This Agreement may be amended
only by a written instrument duly executed by the parties.
(d) Governing Law. This Agreement shall in all respects be interpreted, enforced, and
governed under the laws of the State of Maryland, without regard to Marylands conflict-of-laws
provisions. The parties hereby submit to the jurisdiction and venue of the courts of Maryland, and
any legal or equitable action to enforce this or any related agreements may only be brought in the
circuit courts therein.
(e) Captions. The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
(f) Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed sufficient and duly given: (i)
when delivered personally to the recipient; (ii) upon confirmation of good transmission if sent by
facsimile; or (iii) when delivered to the last known address of the recipient (A) one business day
after delivery to a reputable express courier service for next-day delivery (charges prepaid), or
(B) three days after being sent to the recipient by certified mail, return receipt requested and
postage prepaid, addressed as follows:
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(1)
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If to OLB:
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Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
Attn: James W. Cornelsen, President and CEO
Fax: (301) 430-2531 |
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with copy to:
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Ober, Kaler, Grimes & Shiver, P.C.
120 East Baltimore Street
Baltimore, Maryland 21202-1643 |
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Attn: Frank C. Bonaventure, Jr., Esq. |
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(2)
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If to Director:
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At the address(es) indicated on the applicable
signature page hereto. |
Addresses may be changed by notice in writing signed by the addressee.
(g) Severability. Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision or portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, then
such invalidity, illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any
provision had never been contained herein.
(h) Counterparts; Facsimile. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed to be an original copy of this Agreement
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and all of which together will be deemed to constitute one and the same agreement. The
exchange of copies of this Agreement and of signature pages by facsimile transmission shall
constitute effective execution and delivery of this Agreement as to the parties and may be used in
lieu of the original Agreement for all purposes. Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.
(i) Construction. This Agreement has been prepared by all parties hereto, and the
language used herein shall not be construed in favor of or against any particular party.
(j) No Waiver. The delay or failure on the part of any party to (i) insist upon the
strict compliance with any of the terms of this Agreement or (ii) exercise any rights or remedies
hereunder shall not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure, nor shall any single or partial exercise of any right or remedy hereunder preclude any
subsequent exercise thereof or the exercise of any other right or remedy at any later time or
times.
(k) WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH IT MAY BE A PARTY, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT.
IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES HERETO. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH PARTY, AND EACH
HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH PARTY
FURTHER REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO BE REPRESENTED IN THE EXECUTION OF THIS
AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
[Signatures appear on the following page.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date
first written above.
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OLB:
OLD LINE BANCSHARES, INC.
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By: |
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Name: |
James W. Cornelsen |
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Title: |
President and Chief Executive Officer |
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DIRECTOR:
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Print Name: |
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Address for Notice:
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FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
OLD LINE BANCSHARES, INC.
AND
MARYLAND BANKCORP, INC.
WHEREAS, Old Line Bancshares, Inc. (OLB) and Maryland Bankcorp, Inc. (MDBC) have entered
into an Agreement and Plan of Merger dated September 1, 2010 (the Agreement);
WHEREAS, OLB and MDBC intend that unless specifically defined herein, all capitalized terms in
this amendment shall have the same meaning as the defined terms in the Agreement.
WHEREAS, OLB and MDBC mutually desire to amend and modify the Agreement to reflect the
agreement and understanding of the parties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements and conditions
contained herein and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, OLB and MDBC, intending to be legally bound hereby, agree as
follows:
1. Effective as of the date of this amendment, Section 2.5 of the Agreement is amended and
restated as follows:
Section 2.5 Fractional Shares.
No fractional shares of OLB Common Stock and no scrip or certificates therefor
shall be issued in connection with the Merger. Any former holder of MDBC Common
Stock who would otherwise be entitled to receive a fraction of a share of OLB Common
Stock shall receive, in lieu thereof, cash in an amount equal to the product of (i)
the Average Price and (ii) the fraction of a share (rounded down to the nearest
ten-thousandths) of OLB Common Stock to which such holder would otherwise be
entitled to receive pursuant to this Article II.
2. Effective as of the date of this amendment, Section 2.7(h) of the Agreement is
amended and restated as follows:
(h) Notwithstanding anything to the contrary contained herein, no certificates or
scrip representing fractional shares of OLB Common Stock shall be issued upon the
surrender for exchange of MDBC Certificates, no dividend or distribution with
respect to OLB Common Stock shall be payable on or with respect to any fractional
share, and such fractional share interests shall not entitle the owner thereof to
vote or to any other rights of a stockholder of OLB. In lieu of the issuance of any
such fractional share, OLB shall pay to each holder of MDBC Common Stock who
otherwise would be entitled to receive such
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fractional share an amount in cash determined by multiplying (i) the amount of the
Average Price by (ii) the fraction of a share (rounded to the nearest
ten-thousandths when expressed in decimal form) of OLB Common Stock to which such
holder would otherwise be entitled to receive pursuant to this Article II, rounded
down to the nearest ten-thousandths.
3. Effective as of the date of this amendment, Section 2.1(c) of the Agreement is amended and
restated as follows:
(c) Potential Average Price Adjustments.
(i) Proportionate Increase in Aggregate Consideration. If the
Average Price exceeds $11.45, the Aggregate Consideration shall be increased
by the amount calculated by (x) multiplying the difference between $11.45
and the Average Price by the applicable Exchange Ratio of 2.7012, and then
(y) multiplying the resulting number by the Aggregate MDBC Common Stock.
(ii) Proportionate Reduction in Aggregate Consideration. If the
Average Price is less than $7.63, the Aggregate Consideration shall be
reduced by the amount calculated by (x) multiplying the difference between
$7.63 and the Average Price by the applicable Exchange Ratio of 4.0537, and
then (y) multiplying the resulting number by the Aggregate MDBC Common
Stock.
4. Effective as of the date of this amendment, Section 2.2(a)(ii) of the Agreement is amended
and restated as follows:
(ii) Common Stock Consideration. The Common Stock Consideration is
the number of shares of OLB Common Stock equal to the quotient of Cash Consideration
divided by the Average Price, rounded down to the nearest ten-thousandths; provided,
however, that if the Average Price exceeds $11.45, then the Common Stock
Consideration shall be equal to 2.7012 shares of OLB Common Stock, and, if the
Average Price is less than $7.63, then the Common Stock Consideration shall be equal
to 4.0537 shares of OLB Common Stock (the Exchange Ratio).
5. Effective as of the date of this amendment, the definition of Election Deadline in
Section 1.1, shall be amended and restated as follows:
Election Deadline means 5:00 p.m., Eastern Time, February 15, 2011, unless an
earlier date is mutually agreed to in writing by OLB and MDBC, and written notice of
the change of Election Deadline is mailed to all holders of MDBC Common Stock no
less than 20 days prior to the new Election Deadline.
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6. The first two sentences in the first full paragraph following subsection 2.2(b)(ii) of the
Agreement shall be amended and restated as follows:
OLB and MDBC shall each use its reasonable efforts to make the Election Form
available to all persons who become holders of MDBC Common Stock during the period
between the record date for the MDBC Common Stockholders Meeting and the Election
Deadline. Any holders Election shall have been properly made only if the Exchange
Agent shall have received at its designated office, by the Election Deadline, a
properly completed and signed Election Form.
7. Effective as the date of this amendment, the first sentence of Section 2.7(c) is amended
and restated as follows:
Each MDBC Common Stockholder, upon proper delivery of duly executed Letters of
Transmittal accompanied by the related MDBC Certificate(s), in form acceptable for
transfer (or by an appropriate guarantee of delivery of such MDBC Certificate(s)
from a firm which is an eligible guarantor institution as defined in Rule 17Ad-15
under the Exchange Act), provided that such MDBC Certificate(s) are in fact
delivered to the Exchange Agent by the time set forth in such guarantee of delivery,
shall be entitled to receive in exchange therefor (i) a certificate representing the
number of whole shares of OLB Common Stock to which such MDBC Common Stockholder
shall have become entitled pursuant to the provisions of Section 2.2, and/or (ii) a
check representing the amount of Cash Consideration and any cash in lieu of
fractional shares which such holder has the right to receive hereunder.
8. Effective as of the date of this amendment, the following sentence shall be added to the
end of Section 2.2(d):
Any transfer of MDBC Common Stock occurring after the Election Deadline shall be made
subject to any properly made Election as designed in the Election Form related to those
shares of MDBC Common Stock.
9. The parties further agree that this amendment is an amendment within the meaning of Section
8.3 of the Agreement, and that this amendment complies with the terms and provisions thereof.
10. Except as provided in this amendment, all terms and conditions of the Agreement remain in
full force and effect.
[Signatures appear on the following page.]
A-134
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed in
counterparts by their duly authorized officers and their corporate seals to be affixed thereon this
30th day of September, 2010.
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ATTEST: |
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OLD LINE BANCSHARES, INC. |
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By:
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/s/ Christine M. Rush
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By:
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/s/James W. Cornelsen |
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Christine M. Rush
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James W. Cornelsen |
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Secretary
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President and Chief Executive Officer |
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ATTEST: |
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MARYLAND BANKCORP, INC. |
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By:
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/s/ Lawrence H. Wright
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By:
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/s/ Thomas B. Watts |
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Lawrence H. Wright
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Thomas B. Watts |
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Secretary
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Chairman and Chief Executive Officer |
A-135
Annex B
September 1, 2010
Board of Directors
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
Dear Members of the Board,
This letter sets forth Danielson Associates, LLCs (Danielson) Opinion as to the fairness
from a financial point of view to the shareholders of Old Line Bancshares, Inc. (OLB) of Bowie,
Maryland, of OLBs acquisition of all of the outstanding common stock of Maryland Bankcorp, Inc.
(MDBC) of Lexington Park, Maryland, for consideration of $20 million, subject to certain price
adjustments, in OLB common stock and cash. Downward price adjustments may occur based on operating
losses at MDBC, changes in asset quality at MDBC and transaction expenses at MDBC in excess of a
predetermined amount. Additionally, if the Average Price of OLB common stock, as defined in the
Agreement and Plan of Merger, moves outside a price collar from $7.63 per share to $11.45 per
share, the exchange ratio becomes fixed at 4.0537 or 2.7012, respectively, and total consideration
exchanged will be more, or less, respectively, than $20 million.
In opining, Danielson determined a fair value range for MDBCs common stock and that OLBs
common stock to be issued as consideration was fairly valued. Fair value is defined as the price
at which the shares of OLB or MDBC common stock would change hands between a willing seller and a
willing buyer with each having reasonable knowledge of the relevant facts.
In determining a fair value of OLB common stock, the primary emphasis was on the pricing
multiples of comparable banks supported by various other analyses, including, but not limited to
discounted dividends. In determining the fair value of MDBC, the primary emphasis was on
transaction prices paid relative to capital for comparable banks that had financial and market
characteristics similar to that of MDBC. Adjustments were then considered relative to the
differences between MDBC and the comparable transactions. Other analyses, including the results of
OLBs due diligence on MDBCs loan portfolio and real estate owned, were utilized as appropriate.
Additionally, in rendering our Opinion, we:
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Reviewed and analyzed the Agreement and Plan of Merger. |
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Reviewed OLBs and MDBCs audited consolidated balance sheets as of December 31, 2009, 2008
and 2007 and their related audited consolidated statements of income, statements of changes in
stockholders equity and statements of cash flows for the fiscal years ending December 31,
2009, 2008 and 2007. |
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Reviewed OLBs Annual Reports on form 10-K for the years ended December 31, 2009, 2008 and
2007 and Quarterly Reports on Form 10-Q for the fiscal quarters ending June 30, 2010, March
31, 2010, and September 30, 2009. |
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Reviewed and analyzed other publicly available information regarding OLB and MDBC. |
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Reviewed certain non-public information including business plans, financial projections and
third party loan reviews regarding MDBC. |
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Reviewed certain non-public information including business plans and financial projections
regarding the OLB. |
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Reviewed recent reported stock prices and trading activity of OLBs and MDBCs common
stock. |
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Discussed past and current operations, financial condition and future prospects of each
company with senior executives of OLB and MDBC. |
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Reviewed and analyzed certain publicly available financial, transaction and stock market
data of banking companies that we selected as relevant to our analysis. |
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Conducted other analyses and reviewed other information we considered necessary or
appropriate. |
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Incorporated our assessment of the overall economic environment and market conditions, as
well as our experience in mergers and acquisitions, bank stock valuations and other
transactions. |
We also relied upon and assumed, without independent verification, the accuracy,
reasonableness and completeness of the information, projections and forecasts provided by OLB and
MDBC as well as some publicly available information. In particular, we relied upon the results of
OLBs review of the MDBCs loan portfolio and real estate owned, and discussions of the results and
projections with executive management of OLB. Danielson does not assume any responsibility for the
accuracy, reasonableness and completeness of the materials received.
This opinion is based on conditions as they existed, and the information we received, as of
the date of this opinion. Danielson does not have any obligation to update, revise or reaffirm
this opinion.
Danielson acted as OLBs financial advisor in this transaction; has received a portion of its
fee for its engagement; will receive a portion of its fee upon the presentation of this opinion;
and the remainder of its fee upon the closing of the transaction. In the past, Danielson has
performed other services for OLB. At the time of issuance of this opinion, there were no
additional services contemplated between Danielson and OLB.
Based on the foregoing, our experience, and other factors we deemed relevant, it is our
opinion that as of the date hereof that OLBs acquisition of all of the outstanding common stock of
MDBC, in exchange for OLB common stock, which is fairly valued, and cash, is fair to the
shareholders of OLB from a financial point of view.
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Respectfully submitted, |
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David G. Danielson |
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President |
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Danielson Associates, LLC |
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Annex C
September 1, 2010
Board of Directors
Maryland Bankcorp, Inc.
46930 South Shangri La Drive
Lexington Park, MD 20653
Members of the Board of Directors:
You have informed us that Maryland Bankcorp, Inc. (MBKP) has entered into an Agreement and Plan
of Merger (the Agreement), dated as of September 1, 2010, with Old Line Bancshares, Inc. (OLBK)
pursuant to which MBKP will be merged with and into OLBK in a transaction (the Merger) in which
each share of MBKP common stock issued and outstanding immediately prior to the effective time of
the Merger will be converted into the right to receive OLBK common stock and cash equal to $30.93,
subject to certain adjustments as contemplated in the Agreement (the Proposed Consideration).
You have asked us whether, in our opinion, the Proposed Consideration is fair to the shareholders
of MBKP from a financial point of view.
Monocacy Financial Advisors, LLC (MFA, We, we, Our, or our) is an investment banking and
consulting firm providing services of this nature to financial institutions directly, or through
affiliated companies and/or syndicates. As part of our services, we are continually engaged in the
valuation of businesses in connection with mergers and acquisitions, private placements and
valuations for ESOPs, capital formation, going private transactions, corporate and other purposes.
We are acting as financial advisor to MBKP in connection with the Merger and will receive a fee
from MBKP for our services pursuant to the terms of our engagement letter with MBKP, dated as of
December 4, 2009 (the Engagement Letter). MFA has not acted as an advisor to MBKP or OLBK within
the last two years.
In arriving at our opinion, we engaged in discussions with members of the management teams of each
of MBKP and OLBK concerning the historical and current business operations, financial conditions,
and prospects of both MBKP and OLBK and we reviewed, among other things:
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certain publicly-available information for MBKP, including each of its Annual Reports to
Shareholders for the years ended December 31, 2009, 2008 and 2007, and the quarterly call
reports for Maryland Bank and Trust Company, NA, for the each of the quarterly periods ended
on March 31 and June 30, 2010, and the MBKP internal consolidated and consolidating financial
results for the quarter ended June 30, 2010 furnished by MBKP management; |
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certain publicly-available information for OLBK, including each of its Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended December 31, 2009, 2008 and
2007 and the quarterly reports on Form 10-Q for the each of the quarterly periods ended on
March 31 and June 30, 2010, and the OLBK internal consolidated and consolidating financial
results for the quarter ended June 30, 2010 furnished by OLBK management; |
Maryland Office 6 Boulder Lane Baltimore, Maryland 21210 Phone: 410.467.1188 Fax: 410.467.6263
Virginia Office 1549 Goswick Ridge Road Midlothian, VA 23114 Phone: 804.240.7050 Fax: 804.482.2680
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Fairness Opinion Letter
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certain information, including historical and forecasted financial information, relating to
earnings, dividends, assets, liabilities, and prospects of MBKP furnished by senior
management of MBKP; |
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certain information, including historical and forecasted financial information, relating to
earnings, dividends, assets, liabilities, and prospects of OLBK furnished by senior management
of OLBK; |
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MBKP senior management projected earnings estimates or budget(s) for fiscal years 2010
through 2013, if available; |
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OLBK senior management projected earnings estimates or budget(s) for fiscal years 2010
through 2013, if available; |
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the estimated amount and timing of the deal costs, cost savings and potential mark to
market impacts expected to result from the Merger which were furnished by senior management
teams of MBKP and OLBK; |
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the financial condition and operating results of certain other financial institutions that
we deemed comparable; |
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a contribution analysis of MBKP and OLB to the combined entity with regard to certain
financial metrics as of December 31, 2009 and June 30, 2010; |
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the recent stock prices and trading activity for the common stock of both OLBK and MBKP
during the last year and up until the day prior to the announcement of the Merger; |
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various valuation analyses of MBKP that we performed including a cash dividend analysis,
analysis of comparable companies and analysis of comparable transactions, a dividend discount
analysis, and an accretion/dilution analysis; |
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various valuation analyses of OLBK that we performed including a cash dividend analysis,
analysis of comparable companies and analysis of comparable transactions, a dividend discount
analysis, and an accretion/dilution analysis; and, |
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such other information, financial studies, analyses and investigations and such other
factors that MFA deemed relevant for the purposes of its opinion. |
In conducting our review and arriving at this opinion, we, with your consent, have relied, without
independent investigation, upon the accuracy and completeness of all financial and other
information provided to us by MBKP and OLBK or upon publicly available information. We do not
undertake any responsibility for the accuracy, completeness or reasonableness of, or any obligation
independently to verify, such information. We have further relied upon the assurance of management
of MBKP and OLBK that they were unaware of any facts that would make the information provided or
available to us incomplete or misleading in any respect. We did not make any independent
evaluations, valuations or appraisals of the assets or liabilities of MBKP and OLBK. We did not
review any individual credit files on your behalf and we assumed that the aggregate allowances for
credit losses relating to the loans of MBKP and OLBK were and will continue to be adequate to cover
such losses as provided and stated in OLBK and MBKP publicly released data communications and
within OLBK and MBKP disclosures. Our
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Fairness Opinion Letter
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opinion is necessarily based upon economic and market
conditions and other circumstances as they existed and evaluated by us on the date of this letter.
We do not have any obligation to update this opinion, unless requested by you in writing to do so,
and we expressly disclaim any responsibility to do so in the absence of such a written request.
No limitations were imposed by MBKP on us or on the scope of our investigation or the procedures
that were followed by us in rendering this opinion. The form and amount of the Proposed
Consideration was determined through arms length negotiations between MBKP and
OLBK. Further, this letter does not constitute a recommendation to the shareholders of MBKP with
respect to any approval of the Agreement or the Merger. Additionally, we were not requested to
opine as to, and this opinion does not address, the fairness of the amount or nature of the
compensation to any of MBKPs officers, directors or employees pre or post closing, if any.
In the MFA analyses, we have made numerous assumptions with respect to industry performance,
business and economic conditions, and other matters, many of which are beyond the control of MBKP
and OLBK. Any estimates contained in our analyses are not necessarily indicative of future results
or value, which may be significantly more or less favorable than such estimates. Estimates of
values of companies do not purport to be appraisals or to necessarily reflect the prices at which
companies or their securities actually may be sold. No company or merger utilized in our analyses
was identical to MBKP, OLBK, or the Merger. Accordingly, such analyses are not based solely on
arithmetic calculations; rather, they involve complex considerations and judgments concerning
differences in financial and operating characteristics of the relevant companies, the timing of the
relevant mergers and prospective buyer interests, as well as other factors that could affect the
public trading markets of MBKP, OLBK, or companies to which each is being compared. None of the
analyses performed by us was assigned a greater significance than any other.
We hereby consent to the reference to our opinion in the prospectus and proxy statement to be
issued pursuant to the Agreement and to the inclusion of the foregoing opinion in the prospectus
and proxy statement relating to the meeting of stockholders of MBKP to be convened for the purpose
of voting on the Merger. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder. Further, we express no
view as to the price or trading range for shares of the common stock of OLBK following the
consummation of the Merger.
Based upon and subject to the foregoing, we are of the opinion that, as of September 1, 2010, the
Proposed Consideration to be received by MBKP shareholders under the Agreement is fair from a
financial point of view, to the shareholders of MBKP.
Very truly yours,
Monocacy Financial Advisors, LLC
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Annex D
MARYLAND CORPORATIONS AND ASSOCIATIONS Code Ann (2009)
§ 3-201. Definitions.
(a) In general.- In this subtitle the following words have the meanings indicated.
(b) Affiliate.- Affiliate has the meaning stated in § 3-601 of this title.
(c) Associate.- Associate has the meaning stated in § 3-601 of this title.
(d) Beneficial owner.- Beneficial owner, when used with respect to any voting stock, means
a person that:
(1) Individually or with any of its affiliates or associates, beneficially owns voting
stock, directly or indirectly;
(2) Individually or with any of its affiliates or associates, has:
(i) The right to acquire voting stock (whether the right is exercisable
immediately or within 60 days after the date on which beneficial ownership is
determined), in accordance with any agreement, arrangement, or understanding, on
the exercise of conversion rights, exchange rights, warrants, or options, or
otherwise; or
(ii) Except solely by virtue of a revocable proxy, the right to vote voting
stock in accordance with any agreement, arrangement, or understanding; or
(3) Except solely by virtue of a revocable proxy, has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting, or disposing of voting stock
with any other person that beneficially owns, or the affiliates or associates of which
beneficially own, directly or indirectly, the voting stock.
(e) Executive officer.- Executive officer means a corporations president, any vice
president in charge of a principal business unit, division, or function, such as sales,
administration, or finance, any other person who performs a policy making function for the
corporation, or any executive officer of a subsidiary of the corporation who performs a policy
making function for the corporation.
(f) Successor.-
(1) Successor, except when used with respect to a share exchange, includes a
corporation which amends its charter in a way which alters the contract rights, as
expressly set forth in the charter, of any outstanding stock, unless the right to do so is
reserved by the charter of the corporation.
(2) Successor, when used with respect to a share exchange, means the corporation the
stock of which was acquired in the share exchange.
(g) Voting stock.- Voting stock has the meaning stated in § 3-601 of this title.
§ 3-202. Right to fair value of stock.
(a) General rule.- Except as provided in subsection (c) of this section, a stockholder of a
Maryland corporation has the right to demand and receive payment of the fair value of the
stockholders stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholders stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action under § 3-105(e)
of this title;
D-1
(4) The corporation amends its charter in a way which alters the contract rights, as
expressly set forth in the charter, of any outstanding stock and substantially adversely
affects the stockholders rights, unless the right to do so is reserved by the charter of
the corporation; or
(5) The transaction is governed by § 3-602 of this title or exempted by § 3-603(b) of
this title.
(b) Basis of fair value.-
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under § 3-106 of this title of a 90 percent or more
owned subsidiary with or into its parent corporation, on the day notice is given or
waived under § 3-106 of this title; or
(ii) With respect to any other transaction, on the day the stockholders voted on
the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value may not include any
appreciation or depreciation which directly or indirectly results from the transaction
objected to or from its proposal.
(3) In any transaction governed by § 3-602 of this title or exempted by § 3-603(b) of this
title, fair value shall be value determined in accordance with the requirements of §
3-603(b) of this title.
(c) When right to fair value does not apply.- Unless the transaction is governed by § 3-602 of
this title or is exempted by § 3-603(b) of this title, a stockholder may not demand the fair value
of the stockholders stock and is bound by the terms of the transaction if:
(1) Except as provided in subsection (d) of this section, any shares of the class or series
of the stock are listed on a national securities exchange:
(i) With respect to a merger under § 3-106 of this title of a 90 percent or more
owned subsidiary with or into its parent corporation, on the date notice is given
or waived under § 3-106 of this title; or
(ii) With respect to any other transaction, on the record date for determining
stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly set forth in
the charter, and the charter does not reserve the right to do so; or
(ii) The stock is to be changed or converted in whole or in part in the merger into
something other than either stock in the successor or cash, scrip, or other rights
or interests arising out of provisions for the treatment of fractional shares of
stock in the successor;
(3) The stock is not entitled, other than solely because of § 3-106 of this title, to be
voted on the transaction or the stockholder did not own the shares of stock on the record
date for determining stockholders entitled to vote on the transaction;
(4) The charter provides that the holders of the stock are not entitled to exercise the
rights of an objecting stockholder under this subtitle; or
(5) The stock is that of an open-end investment company registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 and the value placed on the
stock in the transaction is its net asset value.
D-2
(d) Merger, consolidation, or share exchange.- With respect to a merger, consolidation, or share
exchange, a stockholder of a Maryland corporation who otherwise would be bound by the terms of the
transaction under subsection (c)(1) of this section may demand the fair value of the stockholders
stock if:
(1) In the transaction, stock of the corporation is required to be converted into or
exchanged for anything of value except:
(i) Stock of the corporation surviving or resulting from the merger, consolidation,
or share exchange, stock of any other corporation, or depositary receipts for any
stock described in this item;
(ii) Cash in lieu of fractional shares of stock or fractional depositary receipts
described in item (i) of this item; or
(iii) Any combination of the stock, depositary receipts, and cash in lieu of
fractional shares or fractional depositary receipts described in items (i) and (ii)
of this item;
(2) The directors and executive officers of the corporation were the beneficial owners, in
the aggregate, of 5 percent or more of the outstanding voting stock of the corporation at
any time within the 1-year period ending on:
(i) The day the stockholders voted on the transaction objected to; or
(ii) With respect to a merger under § 3-106 of this title, the effective date of
the merger; and
(3) Unless the stock is held in accordance with a compensatory plan or arrangement approved
by the board of directors of the corporation and the treatment of the stock in the
transaction is approved by the board of directors of the corporation, any stock held by
persons described in item (2) of this subsection, as part of or in connection with the
transaction and within the 1-year period described in item (2) of this subsection, will be
or was converted into or exchanged for stock of a person, or an affiliate of a person, who
is a party to the transaction on terms that are not available to all holders of stock of
the same class or series.
(e) Beneficial owners.- If directors or executive officers of the corporation are beneficial
owners of stock in accordance with § 3-201(d)(2)(i) of this subtitle, the stock is considered
outstanding for purposes of determining beneficial ownership by a person under subsection (d)(2) of
this section.
§ 3-203. Procedure by stockholder.
(a) Specific duties.- A stockholder of a corporation who desires to receive payment of the
fair value of the stockholders stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed transaction:
(i) With respect to a merger under § 3-106 of this title of a 90 percent or more
owned subsidiary with or into its parent corporation, within 30 days after notice
is given or waived under § 3-106 of this title; or
(ii) With respect to any other transaction, at or before the stockholders
meeting at which the transaction will be considered or, in the case of action taken
under § 2-505(b) of this article, within 10 days after the corporation gives the
notice required by § 2-505(b) of this article;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record, shall make a
written demand on the successor for payment for the stockholders stock, stating the number
and class of shares for which the stockholder demands payment.
D-3
(b) Failure to comply with section.- A stockholder who fails to comply with this section is
bound by the terms of the consolidation, merger, share exchange, transfer of assets, or charter
amendment.
§ 3-204. Effect of demand on dividend and other rights.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as at which
fair value is to be determined under § 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that stock, except the
right to receive payment of its fair value.
§ 3-205. Withdrawal of demand.
A demand for payment may be withdrawn only with the consent of the successor.
§ 3-206. Restoration of dividend and other rights.
(a) When rights restored.- The rights of a stockholder who demands payment are restored in
full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by this
subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration.- The restoration of a stockholders rights entitles him to receive
the dividends, distributions, and other rights he would have received if he had not demanded
payment for his stock. However, the restoration does not prejudice any corporate proceedings taken
before the restoration.
§ 3-207. Notice and offer to stockholders.
(a) Duty of successor.-
(1) The successor promptly shall notify each objecting stockholder in writing of the
date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting stockholder what
it considers to be the fair value of his stock. Each offer shall be accompanied by the
following information relating to the corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the date of
the offer;
(ii) A profit and loss statement for the 12 months ending on the date of the
balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) Manner of sending notice.- The successor shall deliver the notice and offer to each
objecting stockholder personally or mail them to him by certified mail, return receipt requested,
bearing a postmark from the United States Postal Service, at the address he gives the successor in
writing, or, if none, at his address as it appears on the records of the corporation which issued
the stock.
D-4
§ 3-208. Petition for appraisal; consolidation of proceedings; joinder of objectors.
(a) Petition for appraisal.- Within 50 days after the Department accepts the articles for
record, the successor or an objecting stockholder who has not received payment for his stock may
petition a court of equity in the county where the principal office of the successor is located or,
if it does not have a principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors.-
(1) If more than one appraisal proceeding is instituted, the court shall direct the
consolidation of all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an appraisal
proceeding.
§ 3-209. Notation on stock certificate.
(a) Submission of certificate.- At any time after a petition for appraisal is filed, the
court may require the objecting stockholders parties to the proceeding to submit their stock
certificates to the clerk of the court for notation on them that the appraisal proceeding is
pending. If a stockholder fails to comply with the order, the court may dismiss the proceeding as
to him or grant other appropriate relief.
(b) Transfer of stock bearing notation.- If any stock represented by a certificate which
bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of the original
objecting stockholder. The transferee of this stock does not acquire rights of any character with
respect to the stock other than the rights of the original objecting stockholder.
§ 3-210. Appraisal of fair value.
(a) Court to appoint appraisers.- If the court finds that the objecting stockholder is
entitled to an appraisal of his stock, it shall appoint three disinterested appraisers to determine
the fair value of the stock on terms and conditions the court considers proper. Each appraiser
shall take an oath to discharge his duties honestly and faithfully.
(b) Report of appraisers Filing.- Within 60 days after their appointment, unless the court
sets a longer time, the appraisers shall determine the fair value of the stock as of the
appropriate date and file a report stating the conclusion of the majority as to the fair value of
the stock.
(c) Report of appraisers Contents.- The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits offered.
(d) Report of appraisers Service; objection.-
(1) On the same day that the report is filed, the appraisers shall mail a copy of it
to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it and request a
hearing.
§ 3-211. Action by court on appraisers report.
(a) Order of court.- The court shall consider the report and, on motion of any party to the
proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
D-5
(b) Procedure after order.-
(1) If the appraisers report is confirmed or modified by the order, judgment shall be
entered against the successor and in favor of each objecting stockholder party to the
proceeding for the appraised fair value of his stock.
(2) If the appraisers report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms and
conditions it considers proper.
(c) Judgment includes interest.-
(1) Except as provided in paragraph (2) of this subsection, a judgment for the
stockholder shall award the value of the stock and interest from the date as at which fair
value is to be determined under § 3-202 of this subtitle.
(2) The court may not allow interest if it finds that the failure of the stockholder
to accept an offer for the stock made under § 3-207 of this subtitle was arbitrary and
vexatious or not in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings.-
(1) The costs of the proceedings, including reasonable compensation and expenses of
the appraisers, shall be set by the court and assessed against the successor. However, the
court may direct the costs to be apportioned and assessed against any objecting stockholder
if the court finds that the failure of the stockholder to accept an offer for the
stock made under § 3-207 of this subtitle was arbitrary and vexatious or not in good faith.
In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorneys fees or expenses. The reasonable fees and
expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under § 3-207 of this
subtitle; or
(ii) The value of the stock determined in the proceeding materially exceeds
the amount offered by the successor.
(e) Effect of judgment.- The judgment is final and conclusive on all parties and has the same
force and effect as other decrees in equity. The judgment constitutes a lien on the assets of the
successor with priority over any mortgage or other lien attaching on or after the effective date of
the consolidation, merger, transfer, or charter amendment.
D-6
§ 3-212. Surrender of stock.
The successor is not required to pay for the stock of an objecting stockholder or to pay a
judgment rendered against it in a proceeding for an appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it, indorsed in blank,
and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates and
sufficient indemnity bond are furnished.
§ 3-213. Rights of successor with respect to stock.
(a) General rule.- A successor which acquires the stock of an objecting stockholder is
entitled to any dividends or distributions payable to holders of record of that stock on a record
date after the close of business on the day as at which fair value is to be determined under §
3-202 of this subtitle.
(b) Successor in transfer of assets.- After acquiring the stock of an objecting stockholder,
a successor in a transfer of assets may exercise all the rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange.- Unless the articles provide
otherwise, stock in the successor of a consolidation, merger, or share exchange otherwise
deliverable in exchange for the stock of an objecting stockholder has the status of authorized but
unissued stock of the successor. However, a proceeding for reduction of the capital of the
successor is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
D-7
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 2-418 of the Maryland General Corporation Law establishes provisions that a
corporation may (and, unless otherwise provided in the corporations charter, if the party to be
indemnified is successful on the merits or otherwise, must) indemnify any director or officer made
party to any threatened, pending or completed civil, criminal, administrative or investigative
action, suit or proceeding by reason of service in the capacity of a director or officer, against
judgments, penalties, fines, settlements and reasonable expenses incurred in connection with such
proceeding, unless it is proved that (a) the act or omission for which the director or officer
seeks indemnification was material to the matter giving rise to the action, suit or proceeding and
either was committed in bad faith or was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money, property or services
or (c) in the case of a criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. If the proceeding is a derivative suit in favor of
the corporation, indemnification may not be made in any proceeding in which the director or officer
is adjudged to be liable to the corporation. The statute also provides for indemnification of
directors and officers by court order.
The Registrants Articles of Amendment and Restatement (the Charter) provide for
indemnification and the advancement of expenses for any person who is serving or has served as a
director or officer of the Registrant to the fullest extent permitted under the Maryland General
Corporation Law.
The rights of indemnification provided in the Registrants 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.
The Registrant maintains officers and directors liability insurance in the amount of $6
million.
Item 21. Exhibits
(a) The following exhibits are filed herewith or incorporated by reference:
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2.1
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Agreement and Plan of Merger by and between Old Line Bancshares, Inc. and Maryland Bankcorp,
Inc., dated as of September 1, 2010, and Amendment No. 1 thereto (attached as Annex A to the
joint proxy statement/prospectus that is part of this Registration Statement) |
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3.1(A)
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Articles of Amendment and Restatement of Old Line Bancshares, Inc. |
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3.1.1(L)
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Articles of Amendment of Old Line Bancshares, Inc. |
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3.1.2(L)
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Articles of Amendment of Old Line Bancshares, Inc. |
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3.1.3(T)
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Old Line Bancshares, Inc. Articles Supplementary Fixed Rate Cumulative Preferred Stock,
Series A. |
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3.2(A)
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Amended and Restated Bylaws of Old Line Bancshares, Inc. |
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4(A)
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Specimen Stock Certificate for Old Line Bancshares, Inc. |
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5.1*
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Opinion of Ober, Kaler, Grimes & Shriver, a Professional Corporation, as to the legality of
the Common Stock |
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8.1*
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Opinion of Nelson Mullins Riley & Scarborough LLP regarding certain U.S. tax consequences of
the merger |
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10.1(A)
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Executive Employment Agreement dated March 31, 2003 between Old Line Bank and James W.
Cornelsen |
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10.2(G)
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First Amendment to Executive Employment Agreement dated December 31, 2004 between Old Line
Bank and James W. Cornelsen |
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10.3(Q)
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Sixth Amendment to Executive Employment Agreement dated January 1, 2010 between Old Line
Bank and James W. Cornelsen |
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10.4(K)
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Salary Continuation Agreement dated January 3, 2006 between Old Line Bank and James W.
Cornelsen |
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10.4.1(O)
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First Amendment dated December 31, 2007 to the Salary Continuation Agreement between Old
Line Bank and James W. Cornelsen |
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10.5(K)
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Supplemental Life Insurance Agreement dated January 3, 2006 between Old Line Bank and James
W. Cornelsen |
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10.5.1(O)
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First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement
between Old Line Bank and James W. Cornelsen |
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10.6(A)
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Executive Employment Agreement dated March 31, 2003 between Old Line Bank and Joseph E.
Burnett |
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10.7(G)
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First Amendment to Executive Employment Agreement dated December 31, 2004 between Old Line
Bank and Joseph W. Burnett |
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10.8(Q)
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Sixth Amendment to Executive Employment Agreement dated January 1, 2010 between Old Line
Bank and Joseph Burnett |
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10.9(K)
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Salary Continuation Agreement dated January 3, 2006 between Old Line Bank and Joseph E.
Burnett |
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10.9.1(O)
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First Amendment dated December 31, 2007 to the Salary Continuation Agreement between Old
Line Bank and Joseph Burnett |
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10.10(K)
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Supplemental Life Insurance Agreement dated January 3, 2006 between Old Line Bank and
Joseph E. Burnett |
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10.10.1(O)
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First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement
between Old Line Bank and Joseph Burnett |
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10.11(A)
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Employment Agreement March 31, 2003 between Old Line Bank and Christine M. Rush |
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10.12(G)
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First Amendment to Executive Employment Agreement dated December 31, 2004 between Old Line
Bank and Christine M. Rush |
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10.13(Q)
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Sixth Amendment to Executive Employment Agreement dated January 1, 2010 between Old Line
Bank and Christine M. Rush |
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10.14(K)
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Salary Continuation Agreement dated January 3, 2006 between Old Line Bank and Christine M.
Rush |
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10.14.1(O)
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First Amendment dated December 31, 2007 to the Salary Continuation Agreement between Old
Line Bank and Christine Rush |
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10.15(K)
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Supplemental Life Insurance Agreement dated January 3, 2006 between Old Line Bank and
Christine M. Rush |
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10.15.1(O)
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First Amendment dated December 31, 2007 to the Supplemental Life Insurance Agreement
between Old Line Bank and Christine Rush |
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10.16(B)
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2001 Stock Option Plan, as amended |
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10.17(B)
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Form of Incentive Stock Option Agreement for 2001 Stock Option Plan |
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10.18(B)
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Form of Non-Qualified Stock Option Agreement for 2001 Stock Option Plan |
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10.22(E)
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2004 Equity Incentive Plan |
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10.23(G)
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Form of Incentive Stock Option Agreement for 2004 Equity Incentive Plan |
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10.23.1(T)
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Form of Nonqualified Stock Option Agreement for 2004 Equity Incentive Plan |
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10.23.2(U)
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Form of Restricted Stock Agreement for the 2004 Equity Incentive Plan |
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10.24(G)
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Old Line Bancshares, Inc. and Old Line Bank Director Compensation Policy |
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10.25(D)
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Lease Agreement dated April 29, 1999 between Live Oak Limited Partnership and Old Line
National Bank |
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10.26(D)
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Commercial Lease Agreement dated February 14, 2002 between Adams and Company Commercial
Brokers, Inc. and Old Line National Bank |
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10.27(F)
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Commercial Lease Agreement dated July 7, 2004 by and between Ridgely I, LLC and Old Line
Bank |
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10.28(F)
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Operating Agreement for Pointer Ridge Office Investment, LLC among J. Webb Group, Inc.,
Michael M. Webb, Lucente Enterprises, Inc., Chesapeake Custom Homes, L.L.C. and Old Line
Bancshares, Inc., all as Members and Chesapeake Pointer Ridge Manager, LLC |
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10.29(H)
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AIA Construction Agreement dated April 14, 2005 between Pointer Ridge Office Investment,
LLC and Waverly Construction & Management Company Inc. |
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10.30(H)
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Incentive Plan Model and Stock Option Model |
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10.31(I)
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Deed of Lease dated as of July 28, 2005 between Baltimore Boulevard Associates Limited
Partnership and Old Line Bank |
II-2
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10.32(M)
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First Amendment to Deed of Lease dated as of February 7, 2008 by and between Baltimore
Boulevard Associated Limited Partnership and Old Line Bank |
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10.33(N)
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Deed of Trust note dated November 3, 2005 between Pointer Ridge Office Investment, LLC and
Manufacturers and Traders Trust Company. |
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10.34(N)
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Completion Guaranty Agreement dated November 3, 2005 between Pointer Ridge Office
Investment, LLC and Manufacturers and Traders Trust Company. |
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10.35(J)
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Amendment of Lease Agreement dated June 5, 2006 between Ridgley I, LLC and Old Line Bank
to the lease entered into July 7, 2004 |
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10.36(L)
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Lease Agreement dated June 6, 2006 by and between Pointer Ridge Office Investment, LLC and
Old Line Bank (1st Floor 1525 Pointer Ridge Place, Bowie, Md.) |
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10.37(L)
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Lease Agreement dated June 6, 2006 by and between Pointer Ridge Office Investment, LLC and
Old Line Bank (3rd Floor 1525 Pointer Ridge Place, Bowie, Md.) |
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10.38(L)
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Lease Agreement dated June 6, 2006 by and between Pointer Ridge Office Investment, LLC and
Old Line Bank (4th Floor 1525 Pointer Ridge Place, Bowie, Md.) |
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10.39(L)
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Indemnity Agreement between Old Line Bancshares, Inc. and Prudential Mortgage Capital
Company, LLC dated August 25, 2006 |
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10.40(P)
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Lease Agreement dated December 29, 2006 between Old Line Bank and Eleventh Springhill Lake
Associates, LLC |
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10.41(R)
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Lease Agreement by and between Old Line Bank and AF Limited Partnership dated May 31, 2008 |
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10.42(S)
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Agreement Of Purchase And Sale Of Membership Interests by and between Chesapeake Custom
Homes, L.L.C. and Old Line Bancshares, Inc. dated as of November 1, 2008 |
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10.43(S)
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Third Amendment To Operating Agreement For Pointer Ridge Office Investment, LLC by and
between Old Line Bancshares, Inc. J. Webb, Inc., Michael M. Webb Revocable Trust, and Lucente
Enterprises, Inc. dated as of November 1, 2008 |
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10.44(S)
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Assignment of Membership Interest by and between Chesapeake Custom Homes, L.L.C. and Old
Line Bancshares, Inc. dated as of November 1, 2008 |
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21(A)
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Subsidiaries of Registrant |
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23.1*
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Consent of Ober, Kaler, Grimes & Shriver, a Professional Corporation (contained in the
opinion included as Exhibit 5.1) |
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23.2
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Consent of Rowles & Company, LLP |
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23.3
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Consent of Reznick Group, P.C. |
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23.4*
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Consent of Nelson Mullins Riley & Scarborough LLP (contained in the opinion included in
Exhibit 8.1) |
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24.1
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Power of Attorney (including on signature page). |
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99.1
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Consent of Danielson Associates, LLC |
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99.2
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Consent of Monocacy Financial Advisors, LLC |
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99.3*
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Form of Old Line Bancshares, Inc. Proxy Card |
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99.4*
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Form of Maryland Bankcorp, Inc. Proxy Card |
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99.5 *
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Form of Maryland Bankcorp, Inc. Election Form |
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To be filed by amendment |
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(A) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Registration Statement on Form 10-SB, as amended, under the Securities
Exchange Act of 1934, as amended (File Number 000-50345). |
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(B) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Registration Statement on Form S-8, under the Securities Act of 1933,
as amended (Registration Number 333-111587). |
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(D) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Annual Report on Form 10-KSB/A filed on April 8, 2004. |
II-3
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(E) Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Registration Statement on Form S-8, under the Securities Act of 1933,
as amended (Registration Number 333-116845). |
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(F)
Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Quarterly Report on Form 10-QSB filed on November 8, 2004. |
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(G)
Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on January 5, 2005. |
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(H)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Quarterly Report on Form 10-QSB filed on August 10, 2005. |
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(I)
Previously filed by Old Line Bancshares, Inc. as part of and incorporated by reference from Old
Line Bancshares, Inc.s Registration Statement on Form SB2, under the Securities Act of 1933, as
amended (Registration Number 333-127792) filed on August 23, 2005. |
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(J)
Previously filed by Old Line Bancshares, Inc. as part of and incorporated by reference from Old
Line Bancshares, Inc.s Quarterly Report on Form 10-QSB filed on August 10, 2006. |
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(K)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on January 6, 2006. |
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(L)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Quarterly Report on Form 10-QSB filed on November 9, 2006. |
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(M)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on February 12, 2008. |
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(N)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Annual Report on Form 10-KSB filed on March 28, 2006. |
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(O)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on January 7, 2008. |
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(P)
Previously filed by Old Line Bancshares, Inc. as part of and incorporated by reference from Old
Line Bancshares, Inc.s Quarterly Report on Form 10-Q filed on May 10, 2007. |
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(Q)
Previously filed by Old Line Bancshares, Inc. as a part of, and incorporated by reference from,
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on February 2, 2010. |
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(R)
Previously filed by Old Line Bancshares, Inc. as part of and incorporated by reference from Old
Line Bancshares, Inc.s Quarterly Report on Form 10-Q filed on August 12, 2008. |
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(S)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on November 19, 2008. |
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(T)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Annual Report on Form 10-K for the year ended December 31, 2008, filed
on March 27, 2009. |
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(U)
Previously filed by Old Line Bancshares, Inc. as part of, and incorporated by reference from
Old Line Bancshares, Inc.s Current Report on Form 8-K filed on January 28, 2010. |
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Note: Exhibits 10.1 through 10.24 and 10.30 relate to management contracts or compensatory plans or
arrangements. |
II-4
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
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1. |
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To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: |
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To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933. |
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To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the effective registration
statement. |
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To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement. |
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2. |
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That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof. |
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3. |
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To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering. |
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4. |
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That, for the purpose of determining liability of the Registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned Registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following communications,
the undersigned registrant will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser: |
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Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424; |
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Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant; |
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The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and |
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Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser. |
II-5
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5. |
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The undersigned registrant undertakes as follows: That prior to any public
reoffering of the securities registered hereunder through use of a prospectus which is
a part of this registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of the
applicable form. |
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6. |
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The registrant undertakes that every prospectus (i) that is filed pursuant to
the paragraph immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof. |
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7. |
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The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the request. |
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8. |
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The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective. |
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9. |
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue. |
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in
the city of Bowie, State of Maryland, on November 8, 2010.
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OLD LINE BANCSHARES, INC.
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By: |
/s/ James W. Cornelsen
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James W. Cornelsen, |
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President and Chief Executive Officer |
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints James W. Cornelsen as his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-effective amendments) to
this Registration Statement, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue thereof. This power of attorney may be
executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the date indicated:
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Name |
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Title |
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Date |
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Director, President and |
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James W. Cornelsen
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Chief Executive Officer
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November 8, 2010 |
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(Principal Executive Officer) |
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Senior Vice President, |
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Chief Financial Officer
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November 8, 2010 |
Christine M. Rush
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and Secretary (Principal Accounting |
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and Financial Officer) |
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II-7
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Name |
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Title |
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Date |
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/s/ Charles A. Bongar, Jr.
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Director
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November 8, 2010 |
Charles A. Bongar, Jr. |
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Director and |
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Craig E. Clark
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Chairman of the Board
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November 8, 2010 |
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Director
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November 8, 2010 |
John P. Davey |
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Director
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November 8, 2010 |
Daniel W. Deming |
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Director
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November 8, 2010 |
James F. Dent |
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Director
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November 8, 2010 |
Nancy L. Gasparovic |
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Director
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November 8, 2010 |
Andre J. Gingles |
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Director
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November 8, 2010 |
Frank Lucente, Jr. |
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Director
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November 8, 2010 |
Gail D. Manuel |
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Director
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November 8, 2010 |
John D. Mitchell |
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/s/ Gregory S. Proctor, Sr.
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Director
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November 8, 2010 |
Gregory S. Proctor, Sr. |
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Director
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November 8, 2010 |
Suhas R. Shah |
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Director
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November 8, 2010 |
John M. Suit, II |
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II-8